Filed Pursuant to Rule 485(b)
As filed with the Securities and Exchange Commission on December 24, 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 )
-----
Pre-Effective Amendment No. ( )
----- -----
Post-Effective Amendment No. 42 ( X )
------ -----
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 (X)
Amendment No. 44 ( X )
(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: (253) 627-7001
Name and Address of Copies to:
- ------------------- ---------
Agent for Service:
- -----------------
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:
( X ) immediately upon filing pursuant to paragraph (b)
( ) on (date) pursuant to paragraph (b)
( ) 60 days after filing pursuant to paragraph (a)
( ) on (date) pursuant to paragraph (a)(1)
( ) 75 days after filing pursuant to paragraph (a)(2)
( ) on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following:
( X ) 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, 1997 on October 24, 1997.
<PAGE>
SSgA FUNDS
Form N-1A Cross Reference Sheet
<TABLE>
<CAPTION>
PART A ITEM NUMBER AND CAPTION PROSPECTUS CAPTION
<S> <C> <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
(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
<PAGE>
(e), (f) General management--Distribution Services and
Shareholder Servicing Arrangements
8. Redemption or Purchase
(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
PART B ITEM NUMBER AND CAPTION STATEMENT OF ADDITIONAL 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--Advisor; General
Management--Advisory Agreement (Prospectus)
(c) Not Applicable
(d) Operation of Investment Company--Administrator
(e) Not Applicable
(f) Operation of Investment Company--Distribution Plan
(g) Not Applicable
(h), (i) Operation of Investment Company--Custodian and
Transfer Agent; Additional Information--Custodian,
Transfer Agent and Accountants (Prospectus)
<PAGE>
17. Brokerage Allocation and Other Policies
(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 Fund 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 Page
Exhibits
<PAGE>
Filed pursuant to Rule 485(b)
File Nos. 33229; 811-5430
SSgA FUNDS
One International Place
Boston, Massachusetts 02110
(800) 647-7327
SSgA Funds is a registered, open-end management investment company with
multiple portfolios, each of which is commonly referred to as a mutual fund. The
Funds' shares are offered without sales commissions. However, the Funds pay
certain distribution expenses under the Rule 12b-1 plan. This Prospectus
describes and offers shares of beneficial interest in the Funds listed below:
<TABLE>
<S> <C> <C>
Money Market Yield Plus Growth and Income
US Government Money Market Matrix Equity Intermediate
Tax Free Money Market S&P 500 Index Emerging Markets
Bond Market Small Cap Active International
Life Solutions Balanced Life Solutions Growth Life Solutions Income and Growth
</TABLE>
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.
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 FUNDS ARE NEITHER INSURED NOR GUARANTEED BY THE US
GOVERNMENT. THERE IS NO ASSURANCE THAT THE MONEY MARKET, U.S. GOVERNMENT MONEY
MARKET OR TAX FREE MONEY MARKET FUNDS WILL MAINTAIN A STABLE NET ASSET VALUE OF
$1.00 PER SHARE.
SHARES IN THE 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 sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Please read and retain this
document for future reference. Additional information about the SSgA Funds has
been filed with the Securities and Exchange Commission ("SEC") in Statements of
Additional Information ("SAI") dated December 24, 1997. The SAI is incorporated
herein by reference and is available without charge from Distributor at its
address noted below or by calling (800) 647-7327. The SEC also maintains a
website (www.sec.gov) that contains the SAI, material incorporated by reference
and other information regarding the SSgA Funds. You may also access the SSgA
Funds' website at www.ssgafunds.com
<TABLE>
<S> <C> <C>
Investment Advisor, Custodian
and Transfer Agent: Distributor: Administrator:
State Street Bank and Trust Russell Fund Distributors, Inc. Frank Russell Investment
Company One International Place Management Company
225 Franklin Street Boston, Massachusetts 02110 909 A Street
Boston, Massachusetts 02110 Tacoma, Washington 98402
</TABLE>
PROSPECTUS DATED December 24, 1997
-1-
<PAGE>
TABLE OF CONTENTS
Page
----
Highlights............................................................ 4
Fund Operating Expenses............................................... 5
Financial Highlights.................................................. 19
SSgA Funds............................................................ 36
Manner of Offering.................................................... 36
Investment Objective, Policies and Restrictions....................... 36
Risk Factors.......................................................... 53
Portfolio Maturity and Turnover....................................... 55
Dividends and Distributions........................................... 57
Taxes................................................................. 58
Valuation of Fund Shares.............................................. 60
Purchase of Fund Shares............................................... 61
Redemption of Fund Shares............................................. 63
General Management.................................................... 65
Fund Expenses......................................................... 70
Performance Calculations.............................................. 71
Additional Information................................................ 72
Information Regarding Standard & Poor's Corporation................... 74
-2-
<PAGE>
INVESTMENT OBJECTIVES
Each Fund seeks to achieve a specific investment objective by using distinct
investment strategies:
The Money Market Fund seeks 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 US Government Money Market Fund seeks 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 its instrumentalities with
remaining maturities of one year or less.
The Tax Free Money Market Fund seeks to maximize current income, exempt from
federal income taxes, to the extent consistent with the preservation of capital
and liquidity and the maintenance of a stable $1.00 per share net asset value.
The Yield Plus Fund seeks 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 Intermediate Fund seeks 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 Bond Market Fund seeks 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 Growth and Income Fund seeks long-term capital growth, current income and
growth of income primarily through investments in equity securities.
The S&P 500 Index Fund seeks to replicate the total return of the Standard
& Poor's 500 Composite Stock Price Index.
The Matrix Equity Fund seeks to provide total returns that exceed over time the
S&P 500 Index through investment in equity securities.
The Small Cap Fund seeks to maximize total return through investment in equity
securities; at least 65% of total assets will be invested in securities issued
by smaller capitalized issuers.
The Active International Fund seeks to provide long-term capital growth by
investing primarily in securities of foreign issuers.
The Emerging Markets Fund seeks to provide maximum total return, primarily
through capital appreciation, by investing primarily in securities of foreign
issuers.
The Life Solutions Income and Growth Fund seeks income and, secondarily,
long-term growth of capital.
The Life Solutions Balanced Fund seeks a balance of growth of capital and
income.
The Life Solutions Growth Fund seeks long-term growth of capital.
-3-
<PAGE>
HIGHLIGHTS
Fund Operating Expenses summarize the fees paid by shareholders in each Fund and
the effect of these fees on a $1,000 investment. Pages through .
Per Share Income and Capital Changes summarize significant financial information
of each Fund from the commencement of operations through the period shown. Pages
through .
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 minimum initial investment is $1,000 (except IRA accounts, which
is $250 and the S&P 500 Index Fund, which is $10,000), minimum subsequent
investments are $100, and the minimum account size is $1,000 for all Funds
except the S&P 500 Index Fund, which is $10,000. Page .
Investment Objectives, Restrictions and Policies designated as "fundamental" may
not be changed without the approval of a majority of each respective Fund's
shareholders. Page .
Risk Factors apply to each Fund. There are investment risks in using futures
contracts and options as a hedging technique. Investments in foreign securities,
foreign currency and emerging markets countries also pose special risk that
investors should be aware of. Page .
Dividends and Distributions will be reinvested in additional shares unless a
shareholder elects to receive them in cash. Dividends from net investment income
and net short-term capital gains are declared and paid according to a schedule
set forth in this section. Distributions from net realized short- and long-term
capital gains (if any) are declared at least annually. Page .
Taxes on the Funds should be none. Taxable US shareholders of the 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 Fund Shares occurs twice daily each business day for the Government
and Tax Free Funds. The Money Market Fund values shares once a day as of the
close of the New York Stock Exchange on the basis of fair market value on days
that the Exchange and Boston Federal Reserve are open for business. The Money
Market, Government and Tax Free Funds use the amortized cost pricing method to
attempt to maintain a stable $1.00 per share net asset value. All other Funds
value shares on each business day at the close of business of the New York Stock
Exchange on the basis of fair market value. Page .
Purchase of 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 may be
reimbursed to Russell Fund Distributors, Inc., the Funds' distributor, under an
existing 12b-1 plan. Page .
Redemption of Fund Shares may be requested on any business day. There is no
redemption charge. The redemption price is the next computed net asset value.
The Funds reserve the right to redeem in kind any redemption request of more
than $250,000 for each Fund. Page .
General Management is provided by Frank Russell Investment Management Company,
as the administrator, which is responsible for supervising the Funds'
operations; State Street Bank and Trust Company provides investment advisory
services. Page .
Fund Expenses are borne by each Fund, with the primary expense being an
investment advisory fee paid to the Advisor. 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>
FUND OPERATING EXPENSES
SSgA MONEY MARKET FUND
The purpose of the following table is to assist the investor in understanding
the various costs and expenses that an investor in the Money Market Fund will
incur directly or indirectly. The examples should not be considered a
representation of past or future expenses. Actual expenses may be greater or
less than those shown. For additional information, see "General Management."
Shareholder Transaction Expenses:
- ---------------------------------
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
Annual Fund Operating Expenses:
- -------------------------------
(as a percentage of average daily net assets)
Advisory Fees .25%
12b-1 Distribution Fees .04
12b-1 Shareholder Servicing Fees .04
Other Expenses .06
---
Total Operating Expenses(1) .39%
===
Examples: 1 year 3 years 5 years 10 years
- -------- ------ ------- ------- --------
You would pay the following
expenses on a $1,000
investment, assuming:
(i) 5.0% annual return;
and (ii) redemption at
the end of each time period:
$ 4 $13 $22 $49
=== === === ===
- ---------------
(1) Investors purchasing 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.
-5-
<PAGE>
FUND OPERATING EXPENSES
SSgA US GOVERNMENT MONEY MARKET FUND
The purpose of the following table is to assist the investor in understanding
the various costs and expenses that an investor in the US Government Money
Market Fund will incur directly or indirectly. The examples should not be
considered a representation of past or future expenses. Actual expenses may be
greater or less than those shown. For additional information, see "General
Management."
Shareholder Transaction Expenses:
- --------------------------------
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
Annual Fund Operating Expenses:
- ------------------------------
(as a percentage of average daily net assets)
Advisory Fees .25%
12b-1 Distribution Fees .03
12b-1 Shareholder Servicing Fees .09
Other Expenses .07
---
Total Operating Expenses(1) .44%
===
Examples: 1 year 3 years 5 years 10 years
- -------- ------ ------- ------- --------
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:
$5 $14 $25 $55
== === === ===
- -------------
(1) Investors purchasing 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.
-6-
<PAGE>
FUND OPERATING EXPENSES
SSgA TAX FREE MONEY MARKET FUND
The following table is intended to assist the investor in understanding the
various costs and expenses that an investor in shares of the Tax Free Fund will
incur directly or indirectly. The examples should not be considered a
representation of past or future expenses. Actual expenses may be greater or
less than those shown. For additional information, see "General Management."
Shareholder Transaction Expenses:
- --------------------------------
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
Annual Fund Operating Expenses:
- ------------------------------
(as a percentage of average daily net assets)
Advisory Fees .25%
12b-1 Distribution Fees .14
12b-1 Shareholder Servicing Fees .04
Other Expenses .15
---
Total Operating Expenses(1) .58%
Examples: 1 year 3 years 5 years 10 years
- -------- ------ ------- ------- --------
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:
$6 $19 $32 $73
== === === ===
- ---------------
(1) Investors purchasing 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.
-7-
<PAGE>
FUND OPERATING EXPENSES
SSgA YIELD PLUS FUND
The purpose of the following table is to assist the investor in understanding
the various costs and expenses that an investor in the Yield Plus Fund will
incur directly or indirectly. The examples should not be considered a
representation of past or future expenses. Actual expenses may be greater or
less than those shown. For additional information, see "General Management."
Shareholder Transaction Expenses:
- --------------------------------
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
Annual Fund Operating Expenses:
- ------------------------------
(as a percentage of average daily net assets)
Advisory Fees .25%
12b-1 Distribution Fees .03
12b-1 Shareholder Servicing Fees .03
Other Expenses .07
---
Total Operating Expenses(1) .38%
Examples: 1 year 3 years 5 years 10 years
- -------- ------ ------- ------- --------
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:
$4 $12 $21 $48
== === === ===
- ---------------
(1) Investors purchasing 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.
Long-term shareholders of the Fund may pay more in Rule 12b-1 fees than the
economic equivalent of the maximum front-end sales charge permitted by the
National Association of Securities Dealers, Inc.
-8-
<PAGE>
FUND OPERATING EXPENSES AFTER REIMBURSEMENT
SSgA INTERMEDIATE FUND
The following table is intended to assist the investor in understanding the
costs and expenses that an investor in the Intermediate Fund will incur directly
or indirectly. The examples should not be considered a representation of past or
future expenses. Actual expenses may be greater or less than those shown. For
additional information, see "General Management."
Shareholder Transaction Expenses:
- --------------------------------
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
Annual Fund Operating Expenses:
- ------------------------------
(as a percentage of average daily net assets)
Advisory Fees (After Fee Reimbursement)(1) .10%
12b-1 Distribution Fees1 .04
12b-1 Shareholder Servicing Fees(1) .04
Other Expenses(1) .42
---
Total Operating Expenses (After Fee Reimbursement)(1), (2) .60%
===
Examples: 1 year 3 years 5 years 10 years
- -------- ------ ------- ------- --------
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:
$ 6 $19 $33 $75
=== === === ===
- ---------------
(1) The Advisor has agreed to reimburse the Fund for all expenses in excess of
.60% of average daily net assets on an annual basis. The gross annual
Advisory fee expense before reimbursement would be .80% of average daily net
assets. The total operating expense of the Fund absent reimbursement would
be 1.30% of average daily net assets on an annual basis. The reimbursement
will continue until such time as the Board of Trustees of the Fund agrees to
its modification or elimination but will remain in effect for the current
fiscal year.
(2) The expense information in the table has been restated to reflect current
fees. Investors purchasing 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.
Long-term shareholders of the Fund may pay more in Rule 12b-1 fees than the
economic equivalent of the maximum front-end sales charges permitted by the
National Association of Securities Dealers, Inc.
-9-
<PAGE>
FUND OPERATING EXPENSES AFTER FEE REIMBURSEMENTS
SSgA BOND MARKET FUND
The following table is intended to assist the investor in understanding the
costs and expenses that an investor in the Bond Market Fund will incur directly
or indirectly. The examples provided in the table should not be considered a
representation of past or future expenses. Actual expenses may be greater or
less than those shown. For additional information, see -- "General Management."
Shareholder Transaction Expenses:
- --------------------------------
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
Annual Fund Operating Expenses:
- ------------------------------
(as a percentage of average daily net assets)
Advisory Fees (After Fee Reimbursement)(1) .27%
12b-1 Distribution Fees(1) .04
12b-1 Shareholder Servicing Fees(1) .02
Other Expenses (1),(2) .17
---
Total Operating Expenses (After Fee Reimbursements)(1), (2) .50%
====
Examples: 1 year 3 years 5 years 10 years
- -------- ------ ------- ------- --------
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:
$5 $16 $28 $63
== === === ===
- ---------------
(1) The Advisor has agreed to reimburse the Fund for all expenses in excess of
.50% of average daily net assets on an annual basis. The gross annual
Advisory fee expense before reimbursement would be .30% of average daily
net assets. The total operating expense of the Fund absent reimbursement
would be .53% of average daily net assets on an annual basis. The
reimbursement agreement will remain in effect for the current fiscal year.
(2) Investors purchasing 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. These fees would be in addition to any amounts
received by the financial intermediary under its Shareholder Servicing
Agreement with the Investment Company or Distributor. The Agreement
requires each financial intermediary to disclose to its clients any
compensation payable to it by the Investment Company or Distributor and
any other compensation payable by the client for various services provided
in connection with their accounts.
Long-term shareholders of the Fund may pay more in Rule 12b-1 fees than the
economic equivalent of the maximum front-end sales charges permitted by the
National Association of Securities Dealers, Inc.
-10-
<PAGE>
FUND OPERATING EXPENSES AFTER REIMBURSEMENT
SSgA GROWTH AND INCOME FUND
The following table is intended to assist the investor in understanding the
various costs and expenses that an investor in the Growth and Income Fund will
incur directly or indirectly. The examples should not be considered a
representation of past or future expenses. Actual expenses may be greater or
less than those shown. For additional information, see "General Management."
Shareholder Transaction Expenses:
- --------------------------------
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
Annual Fund Operating Expenses:
- ------------------------------
(as a percentage of average daily net assets)
Advisory Fees (After Fee Reimbursement)(1) .59%
12b-1 Distribution Fees(1) .04
12b-1 Shareholder Servicing Fees(1) .04
Other Expenses(1) .28
---
Total Operating Expenses (After Fee Reimbursement)(1), (2) .95%
===
Examples: 1 year 3 years 5 years 10 years
- -------- ------ ------- ------- --------
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:
$10 $30 $53 $117
=== === === ====
- ---------------
(1) The Advisor has agreed to reimburse the Fund for all expenses in excess of
.95% of average daily net assets on an annual basis. The total operating
expenses of the Fund absent reimbursement would be 1.21% of average daily
net assets on an annual basis. This reimbursement will continue until such
time as the Board of Trustees agrees to its modification or elimination but
will remain in effect for the current fiscal year. The gross annual Advisory
fee expense before reimbursement would be .85% of average daily net assets.
(2) The expense information in the table has been restated to reflect current
fees. Investors purchasing 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.
Long-term shareholders of the Fund may pay more in Rule 12b-1 fees than the
economic equivalent of the maximum front-end sales charges permitted by the
National Association of Securities Dealers, Inc.
-11-
<PAGE>
FUND OPERATING EXPENSES AFTER FEE WAIVER
SSgA S&P 500 INDEX FUND
The following table is intended to assist the investor in understanding the
various costs and expenses that an investor in the Index Fund will incur
directly or indirectly. The examples should not be considered a representation
of past or future expenses. Actual expenses may be greater or less than those
shown. For additional information, see "General Management."
Shareholder Transaction Expenses:
- --------------------------------
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
Annual Fund Operating Expenses:
- ------------------------------
(as a percentage of average daily net assets)
Advisory Fees (After Fee Waiver)(1) .00%
12b-1 Distribution Fees(1) .03
12b-1 Shareholder Servicing Fees(1) .03
Other Expenses(1) .10
---
Total Operating Expenses (After Fee Waiver)(1), (2) .16%
====
Examples: 1 year 3 years 5 years 10 years
- -------- ------ ------- ------- --------
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:
$2 $ 6 $10 $23
== === === ===
- ---------------
(1) The Advisor voluntarily agrees to waive up to the full amount of its
Advisory fee of .10% of average daily net assets to the extent that total
expenses exceed .15% of average daily net assets on an annual basis. The
total operating expenses of the Fund absent the fee waiver would be .26%
of average daily net assets on an annual basis. The gross annual Advisory
expense before the fee waiver would be .10% of average daily net assets.
The Advisory fee waiver agreement will remain in effect for the current
fiscal year.
(2) The expense information in the table has been restated to reflect current
fees. Investors purchasing 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.
Long-term shareholders of the Fund may pay more in Rule 12b-1 fees than the
economic equivalent of the maximum front-end sales charges permitted by the
National Association of Securities Dealers, Inc.
-12-
<PAGE>
FUND OPERATING EXPENSES AFTER FEE WAIVER
SSgA MATRIX EQUITY FUND
The following table is intended to assist the investor in understanding the
various costs and expenses that an investor in the Matrix Fund will incur
directly or indirectly. The examples should not be considered a representation
of past or future expenses. Actual expenses may be greater or less than those
shown. For additional information, see "General Management."
Shareholder Transaction Expenses:
- --------------------------------
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
Annual Fund Operating Expenses:
- ------------------------------
(as a percentage of average daily net assets)
Advisory Fees (After Fee Waiver)(1) .50%
12b-1 Distribution Fees(1) .03
12b-1 Shareholder Servicing Fees(1) .06
Other Expenses(1) .11
---
Total Operating Expenses (After Fee Waiver)(1), (2) .70%
====
Examples: 1 year 3 years 5 years 10 years
- -------- ------ ------- ------- --------
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:
$7 $22 $39 $87
== === === ===
- ---------------
(1) The Advisor has voluntarily agreed to waive .25% of its advisory fee. The
gross annual Advisory expense before the waiver would be .75% of average
daily net assets. The total operating expense of the Fund absent the fee
waiver would be .95% of average daily net assets on an annual basis. The
Advisory fee waiver agreement will remain in effect for the current fiscal
year.
(2) The expense information in the table has been restated to reflect current
fees. Investors purchasing 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.
Long-term shareholders of the Fund may pay more in Rule 12b-1 fees than the
economic equivalent of the maximum front-end sales charges permitted by National
Association of Securities Dealers, Inc.
-13-
<PAGE>
FUND OPERATING EXPENSES AFTER FEE REIMBURSEMENT
SSgA SMALL CAP FUND
The following table is intended to assist the investor in understanding the
various costs and expenses that an investor in the Small Cap Fund will incur
directly or indirectly. The examples should not be considered a representation
of past or future expenses. Actual expenses may be greater or less than those
shown. For additional information, see "General Management."
Shareholder Transaction Expenses:
- --------------------------------
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
Annual Fund Operating Expenses:
- ------------------------------
(as a percentage of average daily net assets)
Advisory Fees .75%
12b-1 Distribution Fees .05
12b-1 Shareholder Servicing Fees .03
Other Expenses .22
---
Total Operating Expenses (After Fee Reimbursement)(1),(2) 1.05%
====
Examples: 1 year 3 years 5 years 10 years
- -------- ------ ------- ------- --------
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:
$11 $33 $58 $128
=== === === ====
- ---------------
(1) Investors purchasing 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.
(2) The expense information in the table has been restated to reflect current
fees.
Long-term shareholders of the Fund may pay more in Rule 12b-1 fees that the
economic equivalent of the maximum front-end sales charges permitted by the
National Association of Securities Dealers, Inc.
-14-
<PAGE>
FUND OPERATING EXPENSES AFTER FEE WAIVER
SSgA ACTIVE INTERNATIONAL FUND
The following table is intended to assist the investor in understanding the
various costs and expenses that an investor in the Active International Fund
will incur directly or indirectly. The examples should not be considered a
representation of past or future expenses. Actual expenses may be greater or
less than those shown. For additional information, see "General Management."
Shareholder Transaction Expenses:
- --------------------------------
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
Annual Fund Operating Expenses:
- ------------------------------
(as a percentage of average daily net assets)
Advisory Fees (After Fee Waiver)(1) .35%
12b-1 Distribution Fees(1) .04
12b-1 Shareholder Servicing Fees(1) .03
Other Expenses(1) .58
---
Total Operating Expenses (After Fee Waiver)(1),(2) 1.00%
====
Examples: 1 year 3 years 5 years 10 years
- -------- ------ ------- ------- --------
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:
$10 $32 $55 $122
=== === === ====
- -----------------
(1) The Advisor voluntarily agrees to waive up to the full amount of its
Advisory fee of .75% of average daily net assets to the extent that total
expenses exceed 1.00% on an annual basis. The total operating expenses of
the Fund absent the fee waiver would be 1.40% of average daily net assets
on an annual basis. This agreement will remain in effect for the current
fiscal year.
(2) Investors purchasing 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.
Long-term shareholders of the Fund may pay more in Rule 12b-1 fees than the
economic equivalent of the maximum front-end sales charges permitted by the
National Association of Securities Dealers, Inc.
-15-
<PAGE>
FUND OPERATING EXPENSES AFTER REIMBURSEMENT
SSgA EMERGING MARKETS FUND
The following table is intended to assist the investor in understanding the
various costs and expenses that an investor in the Emerging Markets Fund will
incur directly or indirectly. The examples should not be considered a
representation of past or future expenses. Actual expenses may be greater or
less than those shown. For additional information, see "General Management."
Shareholder Transaction Expenses:
- --------------------------------
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
Annual Fund Operating Expenses:
- ------------------------------
(as a percentage of average daily net assets)
Advisory Fees (After Fee Reimbursement)(1) .49%
12b-1 Distribution Fees(1) .18
12b-1 Shareholder Servicing Fees(1) .03
Other Expenses(1) .55
---
Total Operating Expenses (After Fee Reimbursement)(1), (2) 1.25%
=====
Examples: 1 year 3 years 5 years 10 years
- -------- ------ ------- ------- --------
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:
$13 $40 $69 $151
=== === === ====
- ---------------
(1) The Advisor has voluntarily agreed to reimburse the Fund for all expenses
in excess of 1.25% of average daily net assets on an annual basis. The
gross annual Advisory fee expense before reimbursement would be .75% of
average daily net assets. The total operating expenses of the Fund absent
reimbursement would be 1.51% of average daily net assets on an annual
basis. This agreement will remain in effect for the current fiscal year.
(2) Investors purchasing 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.
Long-term shareholders of the Fund may pay more in Rule 12b-1 fees than the
economic equivalent of the maximum front-end sales charges permitted by the
National Association of Securities Dealers, Inc.
-16-
<PAGE>
ANNUAL LIFE SOLUTIONS FUND OPERATING EXPENSES
(AFTER FEE REIMBURSEMENT)
LIFE SOLUTIONS BALANCED
LIFE SOLUTIONS GROWTH
LIFE SOLUTIONS INCOME AND GROWTH
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 Distribution Fees(1) .02% .02% .02%
12b-1 Shareholder Servicing Fees(1) .13 .13 .13
Other Expenses (After Fee Reimbursement)(1) .30 .30 .30
--- --- ---
Total Operating Expenses (After
Reimbursement)(1), (2), (3) .45% .45% .45%
---- ==== ====
- -------------------------
(1) 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 1.09%, .44%, and .49%; and 1.24%, .59%
and .64%, respectively, of average daily net assets on an annual basis. The
fee reimbursement agreement will remain in effect for the current fiscal
year.
(2) 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 expense information has been restated to reflect current fees.
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.
-17-
<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 August 31, 1997). 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.
======================================================================
Underlying Fund Expense Ratio Before Fee Expense Ratio After Fee
Waivers and/or Expense Waivers and/or Expense
Reimbursements (%) Reimbursements (%)
----------------------------------------------------------------------
S&P 500 Index 0.26 0.16
----------------------------------------------------------------------
Matrix Equity 0.95 0.70
----------------------------------------------------------------------
Small Cap 1.05 1.05
----------------------------------------------------------------------
Growth and Income 1.21 0.95
----------------------------------------------------------------------
Active International 1.40 1.00
----------------------------------------------------------------------
Emerging Markets 1.51 1.25
----------------------------------------------------------------------
Bond Market 0.53 0.50
----------------------------------------------------------------------
Intermediate 1.30 0.60
----------------------------------------------------------------------
Yield Plus 0.38 0.38
----------------------------------------------------------------------
Money Market 0.39 0.39
----------------------------------------------------------------------
US Gov't Money Market 0.44 0.44
======================================================================
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 indirect expense ratio (before and
after fee waivers and or expense reimbursements) of each Life Solutions Fund:
===================================================================
Life Solutions Fund Average Indirect Expense Ratios
Before and After Fee Waiver
and/or Expense Reimbursement (%)
--------------------------------------------------------------------
Before After
--------------------------------------------------------------------
Income and Growth Fund 0.81 0.60
--------------------------------------------------------------------
Balanced Fund 0.86 0.65
--------------------------------------------------------------------
Growth Fund 0.91 0.70
====================================================================
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 5 years 10 years
------ ------- ------- --------
Life Solutions Income and Growth Fund $11 $33 $58 $138
Life Solutions Balanced Fund 11 35 61 134
Life Solutions Growth Fund 12 37 63 140
The examples should not be considered a statement of actual past or future
expenses. Actual expenses may be greater or less than those shown.
-18-
<PAGE>
FINANCIAL HIGHLIGHTS
SSgA MONEY MARKET FUND
The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Fund's independent
accountants. The table includes selected data for a share outstanding throughout
each fiscal year or period ended August 31, and other performance information
derived from the financial statements. The table appears in the Fund's Annual
Report and should be read in conjunction with the Fund's financial statements
and related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand L.L.P., in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Distributor at (800) 647-7327.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .0516 .0524 .0538 .0330 .0320
LESS DISTRIBUTIONS:
Net investment income (.0516) (.0524) (.0538) (.0330) (.0320)
------- ------ ------ ------ ------
NET ASSET VALUE,
END OF YEAR $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= =======
TOTAL RETURN (%)(a) 5.28 5.36 5.52 3.35 3.24
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
($000 omitted) 4,278,165 3,475,409 2,752,895 3,020,796 2,502,483
Ratios to average net assets (%) (b):
Operating expenses, net .39 .39 .39 .36 .33
Operating expenses, gross .39 .39 .39 .36 .38
Net investment income 5.17 5.20 5.37 3.33 3.20
Per share amount of expense
Reductions ($ omitted) -- -- -- -- .0005
</TABLE>
- ---------------
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended August 31, 1988 are annualized.
FINANCIAL HIGHLIGHTS OF THE MONEY MARKET FUND
ARE CONTINUED ON THE FOLLOWING PAGE
-19-
<PAGE>
FINANCIAL HIGHLIGHTS, CONTINUED:
<TABLE>
<CAPTION>
1992 1991 1990 1989 1988++
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .0458 .0686 .0817 .0883 .0239
LESS DISTRIBUTIONS:
Net investment income (.0458) (.0686) (.0817) (.0883) (.0239)
------- ------- ------- ------- -------
NET ASSET VALUE,
END OF YEAR $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= =======
TOTAL RETURN (%)(a) 4.68 7.08 8.48 9.19 2.41
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
($000 omitted) 4,263,057 1,645,428 650,598 442,614 193,777
Ratios to average net assets (%) (b):
Operating expenses, net .35 .37 .37 .43 .44
Operating expenses, gross .35 .38 .43 .51 .63
Net investment income 4.40 6.59 8.13 8.97 7.30
Per share amount of expense
reductions ($ omitted) .0000 .0000 .0005 .0004 .0010
</TABLE>
- --------------------
++ For the period May 2, 1988 (commencement of operations) to
August 31, 1988.
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended August 31, 1988 are annualized.
-20-
<PAGE>
FINANCIAL HIGHLIGHTS
SSgA US GOVERNMENT MONEY MARKET FUND
The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Fund's independent
accountants. The table includes selected data for a share outstanding throughout
each fiscal year or period ended August 31, and other performance information
derived from the financial statements. The table appears in the Fund's Annual
Report and should be read in conjunction with the Fund's financial statements
and related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand L.L.P., in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Distributor at (800) 647-7327.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991++
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- ------- ------- -------
INCOME FROM INVEST-
MENT OPERATIONS:
Net investment income .0500 .0515 .0528 .0324 .0304 .0441 .0302
LESS DISTRIBUTIONS:
Net investment income (.0500) (.0515) (.0528) (.0324) (.0304) (.0441) (.0302)
NET ASSET VALUE,
END OF YEAR $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= ======= ======= =======
TOTAL RETURN (%)(a) 5.19 5.27 5.38 3.30 3.08 4.49 3.06
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of year
($000 omitted) 904,483 683,210 490,138 251,165 137,136 156,707 94,646
Ratios to average net assets (%) (b):
Operating expenses, net .44 .40 .42 .38 .39 .41 .23
Operating expenses, gross .44 .40 .42 .39 .46 .42 .43
Net investment income 5.08 5.12 5.37 3.27 3.04 4.26 5.94
Per share amount of expense
reductions ($ omitted) -- -- -- .0001 .0007 .0001 .0011
</TABLE>
- --------------------
++ For the period March 1, 1991 (commencement of operations) to August 31,
1991.
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended August 31, 1991 are annualized.
<PAGE>
FINANCIAL HIGHLIGHTS
SSgA TAX FREE MONEY MARKET FUND
The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Fund's independent
accountants. The table includes selected data for a share outstanding throughout
each fiscal year or period ended August 31, and other performance information
derived from the financial statements. The table appears in the Fund's Annual
Report and should be read in conjunction with the Fund's financial statements
and related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand L.L.P., in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Distributor at (800) 647-7327.
1997 1996 1995++
---- ---- ----
NET ASSET VALUE,
BEGINNING OF YEAR $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .0295 .0302 .0251
LESS DISTRIBUTIONS:
Net investment income (.0295) (.0302) (.0251)
------ ------ ------
NET ASSET VALUE, END OF YEAR $ 1.0000 $ 1.0000 $ 1.0000
======== ======== ========
TOTAL RETURN (%)(a) 2.99 3.07 2.54
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
($000 omitted) 163,502 45,061 42,607
Ratios to average net assets (%)(b):
Operating expenses, net .58 .57 .59
Operating expenses, gross .58 .57 .60
Net investment income 2.98 3.01 3.40
Per share amount of expense reductions
($ omitted) -- -- .0001
- ----------------------
++ For the period December 1, 1994 (commencement of operations) to August 31,
1995.
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended August 31, 1995 are annualized.
-22-
<PAGE>
FINANCIAL HIGHLIGHTS
SSgA YIELD PLUS FUND
The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Fund's independent
accountants. The table includes selected data for a share outstanding throughout
each fiscal year or period ended August 31, and other performance information
derived from the financial statements. The table appears in the Fund's Annual
Report and should be read in conjunction with the Fund's financial statements
and related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand L.L.P., in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Distributor at (800) 647-7327.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993++
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $ 10.00 $ 10.00 $ 9.99 $ 10.01 $ 10.00
-------- --------- --------- --------- ---------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .54 .56 .56
.38 .27
Net realized and unrealized
gain (loss) on investments .01 -- .02 (.02) .01
-------- --------- --------- --------- ---------
Total From Investment Operations .55 .56 .58 .36 .28
-------- --------- --------- --------- ---------
LESS DISTRIBUTIONS:
Net investment income (.54) (.56) (.56)
(.38) (.27)
In excess of net realized gain
on investments -- -- (.01) -- --
-------- --------- -------- --------- ---------
Total Distributions (.54) (.56) (.57) (.38) (.27)
-------- --------- -------- --------- ---------
NET ASSET VALUE, END OF YEAR $ 10.01 $ 10.00 $ 10.00 $ 9.99 $ 10.01
======== ========= ========= ========= =========
TOTAL RETURN (%)(a) 5.67 5.73 6.01 3.65 2.85
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
($000 omitted) 840,055 933,485 1,447,097 1,358,464 589,594
Ratios to average net assets (%) (b)
Operating expenses .38 .36 .38 .35 .38
Net investment income 5.42 5.59 5.64 3.82 3.54
Portfolio turnover (%) (b) 92.38 97.05 199.69 142.68 137.86
Per share amount of expense
reductions ($ omitted) -- -- -- -- .00042
</TABLE>
- -----------------------
++ For the period November 9, 1992 (commencement of operations) to August 31,
1993.
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended August 31, 1993 are annualized.
-23-
<PAGE>
FINANCIAL HIGHLIGHTS
SSgA INTERMEDIATE FUND
The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Fund's independent
accountants. The table includes selected data for a share outstanding throughout
each fiscal year or period ended August 31, and other performance information
derived from the financial statements. The table appears in the Fund's Annual
Report and should be read in conjunction with the Fund's financial statements
and related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand L.L.P., in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Distributor at (800) 647-7327.
1997 1996 1995 1994++
---- ---- ---- ----
NET ASSET VALUE,
BEGINNING OF YEAR $ 9.57 $ 9.72 $ 9.37 $10.00
------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .54 .53 .56 .42
Net realized and unrealized
gain (loss) on investments .20 (.14) .34 (.76)
Total From Investment Operations .74 .39 .90 (.34)
------ ------ ------ ------
LESS DISTRIBUTIONS:
Net investment income (.55) (.54) (.55) (.29)
------ ------ ------ ------
NET ASSET VALUE, END OF YEAR $ 9.76 $ 9.57 $ 9.72 $ 9.37
====== ====== ====== ======
TOTAL RETURN (%)(a) 8.00 4.12 10.05 (3.42)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
($000 omitted) 53,834 41,518 33,893 19,963
Ratios to average net assets (%) (b):
Operating expenses, net .60 .60 .60 .60
Operating expenses, gross 1.30 1.38 1.67 1.51
Net investment income 5.78 5.57 6.29 5.11
Portfolio turnover (%)(b) 242.76 221.73 26.31 15.70
Per share amount of expense
reductions ($ omitted) .0665 .0743 .0946 .0755
- --------------------
++ For the period September 1, 1993 (commencement of operations) to August 31,
1994.
(a) Periods less than one year are not annualized.
(b) Annualized.
-24-
<PAGE>
FINANCIAL HIGHLIGHTS
SSgA BOND MARKET FUND
The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Fund's independent
accountants. The table includes selected data for a share outstanding throughout
each fiscal year or period ended August 31, and other performance information
derived from the financial statements. The table appears in the Fund's Annual
Report and should be read in conjunction with the Fund's financial statements
and related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand L.L.P., in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Distributor at (800) 647-7327.
1997 1996++
---- ----
NET ASSET VALUE,
BEGINNING OF YEAR $ 9.63 $ 10.00
------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .53 .27
Net realized and unrealized gain (loss)
on investments .35 (.49)
------- -------
Total From Investment Operations .88 (.22)
------- -------
LESS DISTRIBUTIONS:
Net investment income (.54) (.15)
------- -------
NET ASSET VALUE, END OF YEAR $ 9.97 $ 9.63
======= =======
TOTAL RETURN (%)(a) 9.47 (2.19)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
($000 omitted) 87,670 29,015
Ratios to average net assets (%) (b):
Operating expenses, net .50 .63
Operating expenses, gross .74 .93
Net investment income 6.05 5.66
Portfolio turnover (%) (b) 453.14 313.85
Per share amount of expense reduction
($ omitted) .0212 .0148
- -------------------------
++ For the period February 7, 1996 (commencement of operations) to August 31,
1996.
(a) Periods less than one year are not annualized.
(b) Annualized.
-25-
<PAGE>
FINANCIAL HIGHLIGHTS
SSgA GROWTH AND INCOME FUND
The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Fund's independent
accountants. The table includes selected data for a share outstanding throughout
each fiscal year or period ended August 31, and other performance information
derived from the financial statements. The table appears in the Fund's Annual
Report and should be read in conjunction with the Fund's financial statements
and related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand L.L.P., in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Distributor at (800) 647-7327.
<TABLE>
<CAPTION>
1997 1996 1995 1994++
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $ 13.36 $ 11.95 $ 10.51 $ 10.00
---------- ---------- --------- ---------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .12 .15 .18 .15
Net realized and unrealized
gain (loss) on investments 5.18 1.46 1.44 .47
---------- ---------- --------- ---------
Total From Investment Operations 5.30 1.61 1.62 .62
---------- ---------- --------- ---------
LESS DISTRIBUTIONS:
Net investment income (.14) (.16) (.18) (.11)
Net realized gain on investments (.44) (.04) -- --
---------- ---------- --------- ---------
Total Distributions (.58) (.20) (.18) (.11)
---------- ---------- --------- ---------
NET ASSET VALUE, END OF YEAR $ 18.08 $ 13.36 $ 11.95 $ 10.51
========== ========== ========= =========
TOTAL RETURN (%)(a) 40.95 13.57 15.66 6.23
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
($000 omitted) 71,736 55,823 43,884 26,747
Ratios to average net assets (%) (b):
Operating expenses, net .95 .95 .95 .95
Operating expenses, gross 1.21 1.40 1.61 1.44
Net investment income .82 1.15 1.72 1.75
Portfolio turnover (%) (b) 29.88 38.34 39.32 36.48
Per share amount of expense
Reductions ($ omitted) .0396 .0574 .0685 .0420
Average commission rate paid per
share of security ($ omitted) .0421 .0436 N/A N/A
</TABLE>
- -----------------
++ For the period September 1, 1993 (commencement of operations) to
August 31, 1994.
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended August 31, 1994 are annualized.
-26-
<PAGE>
FINANCIAL HIGHLIGHTS
SSgA S&P 500 INDEX FUND
The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Fund's independent
accountants. The table includes selected data for a share outstanding throughout
each fiscal year or period ended August 31, and other performance information
derived from the financial statements. The table appears in the Fund's Annual
Report and should be read in conjunction with the Fund's financial statements
and related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand L.L.P., in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Distributor at (800) 647-7327.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993++
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $ 14.41 $ 12.81 $ 10.89 $ 10.72 $ 10.00
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .32 .32 .29 .26 .15
Net realized and unrealized
gain on investments 5.22 1.98 1.95 .29 .65
-------- -------- -------- -------- --------
Total From Investment Operations 5.54 2.30 2.24 .55 .80
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income (.32) (.31) (.29) (.26) (.08)
Net realized gain on investments (.67) (.39) (.03) (.07) --
In excess of net realized gain
on investments -- -- -- (.05) --
-------- -------- -------- -------- --------
Total Distributions (.99) (.70) (.32) (.38) (.08)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR $ 18.96 $ 14.41 $ 12.81 $ 10.89 $ 10.72
======== ======== ========= ======== ========
TOTAL RETURN (%)(a) 40.30 18.46 21.11 5.29 8.06
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year ($000 1,299,571 704,683 545,200 361,712 238,666
omitted)
Ratios to average net assets (%) (b):
Operating expenses, net .16 .18 .19 .15 .15
Operating expenses, gross .26 .28 .29 .25 .35
Net investment income 2.00 2.32 2.76 2.69 3.02
Portfolio turnover (b) 7.54 28.72 38.56 7.97 48.10
Per share amount of expense reductions .0162 .0135 .0107 .0097 .0098
($ omitted)
Average commission rate paid per
share of security ($ omitted) .0188 .0115 N/A N/A N/A
</TABLE>
- ------------------
++ For the period December 30, 1992 (commencement of operations) to
August 31, 1993.
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended August 31, 1993 are annualized.
-27-
<PAGE>
FINANCIAL HIGHLIGHTS
SSgA MATRIX EQUITY FUND
The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Fund's independent
accountants. The table includes selected data for a share outstanding throughout
each fiscal year or period ended August 31, and other performance information
derived from the financial statements. The table appears in the Fund's Annual
Report and should be read in conjunction with the Fund's financial statements
and related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand L.L.P., in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Distributor at (800) 997-7327.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992++
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $ 14.13 $ 13.93 $ 12.06 $ 11.95 $ 9.78 $ 10.00
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .21 .24 .28 .24 .18 .05
Net realized and unrealized gain
(loss) on investments 5.43 1.64 1.93 .28 2.17 (.27)
-------- -------- -------- -------- -------- --------
Total From Investment Operations 5.64 1.88 2.21 .52 2.35 (.22)
-------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income (.22) (.24) (.28) (.23) (.18) --
Net realized gain on investments (1.14) (1.44) (.06) (.09) -- --
In excess of net realized
gain on investments -- -- -- (.09) -- --
-------- -------- -------- -------- -------- --------
Total Distributions (1.36) (1.68) (.34) (.41) (.18) --
-------- -------- -------- -------- -------- --------
NET ASSET VALUE,
END OF YEAR $ 18.41 $ 14.13 $ 13.93 $ 12.06 $ 11.95 $ 9.78
======== ======== ======== ======== ======== ========
TOTAL RETURN (%)(a) 42.75 14.67 18.81 4.41 24.24 (2.20)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
($000 omitted) 429,397 261,888 198,341 130,764 62,549 12,408
Ratios to average net assets (%)(b):
Operating expenses, net .58 .66 .68 .58 .60 .18
Operating expenses, gross .96 1.04 1.06 .96 1.25 1.90
Net investment income 1.33 1.76 2.25 2.16 2.13 2.69
Portfolio turnover rate (%)(b) 117.27 150.68 129.98 127.20 57.65 None
Per share amount of expense
reductions ($ omitted) .0590 .0510 .0466 .0410 .0539 .0314
Average commission rate paid
per share of security ($ omitted) .0376 .0404 N/A N/A N/A N/A
</TABLE>
- ------------------
++ For the period May 4, 1992 (commencement of operations) to
August 31, 1992.
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended August 31, 1992 are annualized.
-28-
<PAGE>
FINANCIAL HIGHLIGHTS
SSgA SMALL CAP FUND
The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Fund's independent
accountants. The table includes selected data for a share outstanding throughout
each fiscal year or period ended August 31, and other performance information
derived from the financial statements. The table appears in the Fund's Annual
Report and should be read in conjunction with the Fund's financial statements
and related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand L.L.P., in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Distributor at (800) 647-7327.
<TABLE>
<CAPTION>
1997 1996 1995+ 1994 1993 1992++
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $ 17.44 $ 14.42 $ 11.88 $ 12.24 $ 10.09 $ 10.00
--------- --------- -------- -------- --------- ---------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .03 .04 .13 .21 .22 .04
Net realized and unrealized
gain on investments 5.87 3.25 3.19 .24 2.14 .05
--------- --------- -------- -------- --------- ---------
Total From Investment Operations 5.90 3.29 3.32 .45 2.36 .09
--------- --------- -------- -------- --------- ---------
LESS DISTRIBUTIONS:
Net investment income (.01) (.07) (.15) (.21) (.21) --
Net realized gain on investments -- (.20) (.58) (.60) -- --
In excess of net realized gain on
investments (1.22) -- (.05) -- -- --
--------- --------- -------- -------- --------- ---------
Total Distributions (1.23) (.27) (.78) (.81) (.21) --
--------- --------- -------- -------- --------- ---------
NET ASSET VALUE, END OF YEAR $ 22.11 $ 17.44 $ 14.42 $ 11.88 $ 12.24 $ 10.09
========= ========= ======== ======== ========= =========
TOTAL RETURN (%)(a) 33.85 23.14 30.04 3.90 23.66 .90
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year ($000 149,808 55,208 23,301 25,716 34,815 9,392
omitted)
Ratios to average net assets (%)(b)
Operating expenses, net 1.00 1.00 .97 .30 .25 .25
Operating expenses, gross 1.09 1.18 1.58 .81 1.18 1.71
Net investment income .18 .26 .81 1.73 1.85 2.55
Portfolio turnover rate (%)(b) 143.79 76.85 192.88 44.86 81.14 4.59
Per share amount of expense
Reductions ($ omitted) .0141 .0277 .0991 .0628 .1123 .0247
Average commission rate paid per
Share of security ($ omitted) .0365 .0368 N/A N/A N/A N/A
</TABLE>
- ------------------
+ Prior to November 22, 1994, the Fund was passively managed as the S&P
Midcap Index Fund.
++ For the period July 1, 1992 (commencement of operations) to
August 31, 1992.
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended August 31, 1992 are annualized.
-29-
<PAGE>
FINANCIAL HIGHLIGHTS
SSgA ACTIVE INTERNATIONAL FUND
The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Fund's independent
accountants. The table includes selected data for a share outstanding throughout
each fiscal year or period ended August 31, and other performance information
derived from the financial statements. The table appears in the Fund's Annual
Report and should be read in conjunction with the Fund's financial statements
and related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand L.L.P., in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Distributor at (800) 647-7327.
<TABLE>
<CAPTION>
1997 1996 1995++
---- ---- ----
<S> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $ 10.96 $ 10.89 $ 10.00
-------- --------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .10 .36 .03
Net realized and unrealized gain
(loss) on investments .03 .28 .86
-------- --------- --------
Total From Investment Operations .13 .64 .89
-------- --------- --------
LESS DISTRIBUTIONS:
Net investment income (.18) (.57) --
Net realized gain on investments (.06) -- --
-------- --------- --------
Total Distributions (.24) (.57) --
-------- --------- --------
NET ASSET VALUE, END OF YEAR $ 10.85 $ 10.96 $ 10.89
======== ========= ========
TOTAL RETURN (%) (a) 1.17 6.22 8.90
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
($000 omitted) 83,930 54,595 25,186
Ratios to average net assets (%)(b)
Operating expenses, net 1.00 1.00 1.79
Operating expenses, gross 1.40 1.47 2.56
Net investment income 1.12 1.16 1.11
Portfolio turnover (%) (b) 48.29 22.02 7.17
Per share amount of expense
reductions ($ omitted) .0366 .1459 .0207
Average commission rate paid per
share of security ($ omitted) (c) .0030 .0021 N/A
</TABLE>
- ------------------
++ For the period March 7, 1995 (commencement of operations) to
August 31, 1995.
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended August 31, 1995 are annualized.
(c) In certain foreign markets, the relationship between the translated US
dollar price per share of security and commission paid per share of
security may vary from that of domestic markets.
-30-
<PAGE>
FINANCIAL HIGHLIGHTS
SSgA EMERGING MARKETS FUND
The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Fund's independent
accountants. The table includes selected data for a share outstanding throughout
each fiscal year or period ended August 31, and other performance information
derived from the financial statements. The table appears in the Fund's Annual
Report and should be read in conjunction with the Fund's financial statements
and related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand L.L.P., in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Distributor at (800) 647-7327.
<TABLE>
<CAPTION>
1997 1996 1995 1994++
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $ 10.87 $ 10.30 $ 11.45 $ 10.00
--------- --------- --------- ----------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .12 .11 .14 .05
Net realized and unrealized gain
(loss) on investments 1.51 .68 (1.19) 1.40
--------- --------- --------- ----------
Total From Investment Operations 1.63 .79 (1.05) 1.45
--------- --------- --------- ----------
LESS DISTRIBUTIONS:
Net investment income (.11) (.12) (.10) --
Net realized gain on investments (.06) (.10) -- --
--------- -------- --------- ----------
Total Distributions (.17) (.22) (.10) --
--------- -------- --------- ----------
--
NET ASSET VALUE, END OF YEAR $12.33 $ 10.87 $ 10.30 $ 11.45
========= ========= ========= ==========
TOTAL RETURN (%) (a) 15.12 7.83 (9.28) 14.50
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
($000 omitted) 252,708 120,216 68,385 27,479
Ratios to average net assets (%) (b):
Operating expenses, net 1.25 1.28 1.50 1.50
Operating expenses, gross 1.51 1.67 1.90 2.45
Net investment income 1.07 1.10 1.74 1.31
Portfolio turnover (%) 15.00 4.36 19.77 --
Per share amount of expense reductions .0286 .0376 .0320 .0334
($ omitted)
Average commission rate paid per
share of security ($ omitted) (c) .0017 .0006 N/A N/A
</TABLE>
- ------------------
++ For the period March 1, 1994 (commencement of operations) to
August 31, 1994.
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended August 31, 1994 are annualized.
(c) In certain foreign markets, the relationship between the translated US
dollar price per share of security and commission paid per share of
security may vary from that of domestic markets.
-31-
<PAGE>
FINANCIAL HIGHLIGHTS
SSgA LIFE SOLUTIONS BALANCED
The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Fund's independent
accountants. The table includes selected data for a share outstanding throughout
each fiscal year or period ended August 31, and other performance information
derived from the financial statements. The table appears in the Fund's Annual
Report and should be read in conjunction with the Fund's financial statements
and related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand L.L.P., in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Distributor at (800) 647-7327.
1997++
----
NET ASSET VALUE,
BEGINNING OF PERIOD $ 13.69
---------
INCOME FROM INVESTMENT
OPERATIONS:
Net realized and unrealized gain
(loss) on investments .29
---------
NET ASSET VALUE, END OF PERIOD $13.98
=========
TOTAL RETURN (%)(a) 2.12
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
($000 omitted) 47,003
Ratios to average net assets (%) (b):
Operating expenses, net .35
Operating expenses, gross .49
Net investment income .07
Portfolio turnover (%) (b) 51.61
Per share amount of expense reductions
($ omitted) .0035
++ For the period July 1, 1997 (commencement of operations) to
August 31, 1997.
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended August 31, 1997 are annualized.
-32-
<PAGE>
FINANCIAL HIGHLIGHTS
SSgA LIFE SOLUTIONS GROWTH
The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Fund's independent
accountants. The table includes selected data for a share outstanding throughout
each fiscal year or period ended August 31, and other performance information
derived from the financial statements. The table appears in the Fund's Annual
Report and should be read in conjunction with the Fund's financial statements
and related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand L.L.P., in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Distributor at (800) 647-7327.
1997++
----
NET ASSET VALUE,
BEGINNING OF PERIOD $ 14.44
---------
INCOME FROM INVESTMENT
OPERATIONS:
Net realized and unrealized gain
(loss) on investments .35
---------
NET ASSET VALUE, END OF PERIOD $14.79
=========
TOTAL RETURN (%)(a) 2.42
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
($000 omitted) 43,603
Ratios to average net assets (%) (b):
Operating expenses, net .35
Operating expenses, gross .54
Net investment income .09
Portfolio turnover (%) (b) 39.49
Per share amount of expense reductions
($ omitted) .0048
++ For the period July 1, 1997 (commencement of operations) to
August 31, 1997.
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended August 31, 1997 are annualized.
-33-
<PAGE>
FINANCIAL HIGHLIGHTS
SSgA LIFE SOLUTIONS INCOME AND GROWTH
The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Fund's independent
accountants. The table includes selected data for a share outstanding throughout
each fiscal year or period ended August 31, and other performance information
derived from the financial statements. The table appears in the Fund's Annual
Report and should be read in conjunction with the Fund's financial statements
and related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand L.L.P., in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Distributor at (800) 647-7327.
1997++
----
NET ASSET VALUE,
BEGINNING OF PERIOD $ 12.68
---------
INCOME FROM INVESTMENT
OPERATIONS:
Net realized and unrealized gain
(loss) on investments .25
---------
NET ASSET VALUE, END OF PERIOD $12.93
=========
TOTAL RETURN (%)(a) 1.97
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
($000 omitted) 13,979
Ratios to average net assets (%) (b):
Operating expenses, net .35
Operating expenses, gross 1.14
Net investment income .16
Portfolio turnover (%) (b) 106.68
Per share amount of expense reductions
($ omitted) .0161
++ For the period July 1, 1997 (commencement of operations) to
August 31, 1997.
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended August 31, 1997 are annualized.
-34-
<PAGE>
SSgA FUNDS
SSgA Funds (the "Investment Company") is an open-end management
investment company that is organized as a Massachusetts business trust. In
addition, each series of the Investment Company is diversified as defined in the
Investment Company Act of 1940, as amended ("1940 Act"). As a "series" company,
Investment Company is authorized to issue an unlimited number of shares
evidencing beneficial interests in different investment portfolios. 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, Investment Company offers shares in 15 separate, diversified funds
(collectively, the "Funds"):
[bullet] SSgA Money Market Fund ("Money Market Fund") SSgA US Government Money
[bullet] Market Fund ("Government Fund") SSgA Tax Free Money Market Fund ("Tax
Free Fund")
[bullet] SSgA Bond Market Fund ("Bond Fund") SSgA Yield Plus Fund ("Yield Plus
Fund")
[bullet] SSgA Matrix Equity Fund ("Matrix Fund")
[bullet] SSgA S&P 500 Index Fund ("Index Fund")
[bullet] SSgA Small Cap Fund ("Small Cap Fund")
[bullet] SSgA Growth and Income Fund ("Growth and Income Fund")
[bullet] SSgA Intermediate Fund ("Intermediate Fund") SSgA Emerging Markets Fund
("Emerging Markets Fund")
[bullet] SSgA Active International Fund ("Active International Fund")
The Life Solutions Funds 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 Funds (except the
Tax Free Money Market Fund) described in this Prospectus.
[bullet] SSgA Life Solutions Income and Growth Fund ("Income and Growth Fund")
[bullet] SSgA Life Solutions Balanced Fund ("Balanced Fund")
[bullet] SSgA Life Solutions Growth Fund ("Growth Fund")
MANNER OF OFFERING
Distribution and Eligible Investors. Shares of the Funds are offered
without a sales commission by Russell Fund Distributors, Inc. (the
"Distributor"), Investment Company's distributor, to US and foreign
institutional and retail investors which invest for their own account or in a
fiduciary or agency capacity. The Funds will incur distribution expenses under
their Rule 12b-1 plan. See "General Management -- Distribution Services and
Shareholder Servicing Arrangements."
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
As indicated below, some Funds have a fundamental investment objective
which may be changed only with the approval of a majority of the Fund's
shareholders as defined by the 1940 Act. Other Funds have a nonfundamental
investment objective which may be changed by the Board of Trustees without
shareholder approval, although shareholders will receive prior notice of any
change to a nonfundamental objective. There are also fundamental and
nonfundamental investment policies and restrictions, as described in this
section. There can be no assurance that any Fund will meet its stated investment
objective.
-35-
<PAGE>
Investment Objectives and Policies (All Funds except Life Solutions Funds)
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 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 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.
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 Statement of Additional Information ("SAI") for a
description of the securities ratings of debt instruments and commercial paper
by NRSROs.
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 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. (See "Other Investment Policies -- US Government
Securities.") Under normal market conditions, the Government Fund will be 100%
invested in such securities.
Tax Free Fund. The fundamental investment objective is to seek to
maximize current income, exempt from federal income taxes, to the extent
consistent with the preservation of capital and liquidity, and the maintenance
of a stable $1.00 per share net asset value.
The Fund has a fundamental policy of investing at least 80% of its net
assets in federal tax exempt, high quality and short-term municipal securities
of all types under normal market conditions. These securities are issued by
states, municipalities and their political subdivisions and agencies and certain
territories and possessions of the United States. Investments may include
general obligation bonds and notes, revenue bonds and notes, commercial paper,
private placements, tender option bonds, private activity bonds, industrial
development bonds and municipal lease contracts. Securities purchased may bear
fixed, variable or floating rates of interest or may be zero coupon securities.
The Fund may buy or sell securities on a when-issued or forward commitment
basis.
The Fund may invest not more than 20% of its assets in federally
taxable money market instruments including securities issued by or guaranteed as
to principal and interest by the US government or its agencies or
instrumentalities, certificates of deposit, commercial paper and repurchase
agreements.
The Fund will invest in securities with remaining maturities of 397
days or less (as computed according to Rule 2a-7 of the 1940 Act) and will
maintain a dollar-weighted average maturity of 90 days or less. The Fund will
limit its portfolio investments to investment grade securities which at the time
of acquisition the Advisor determines
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<PAGE>
present minimal credit risk and which: (1) are rated in the highest category by
least two NRSROs; (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.
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 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 securities; and
(7) interest rate swaps.
The Fund limits its investments to bank instruments, mortgage-related
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 income, zero coupon or variable- or floating-rate securities
and may be denominated in US dollars or selected foreign currencies.
The 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.
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"). 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 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.
The 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, 1997 was 3.33
years. The LBIGC Index is described in more detail in "Other Investment
Policies."
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<PAGE>
Bond Market 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 "Other
Investment Policies."
Under normal market conditions, the Fund attempts to meet its objective
by investing at least 65% of its total assets in debt securities. The 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 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 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 Fund may invest in
derivative securities, including futures and options, interest rate exchange
agreements and other swap agreements and collateralized mortgage obligations.
The Fund may invest in fixed-income securities to achieve its
investment objective. In periods of declining interest rates, the 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 Fund may tend to be lower. Also when interest rates are
falling, the inflow of new money to the Fund from the continuous sales of its
shares will likely be invested in portfolio instruments producing lower yield
than the balance of the Fund's portfolio, thereby reducing the yield of the
Fund. In periods of rising interest rates, the opposite can be true. The net
asset value of the 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 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 ("S&P") (and
securities of comparable quality), which securities have speculative
characteristics. If a security is downgraded and is no longer investment grade,
the Fund may continue to hold the security if the Advisor determines that such
action is in the best interest of the Fund and if the Fund would not, as a
result thereby, have more than 5% of its assets invested in noninvestment-grade
securities.
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.
Under normal market conditions, the Fund will invest at least 65% of
its assets in equity securities. However, the Fund may invest temporarily for
defensive purposes, without limitation, in certain short-term fixed-income
securities. Such securities may be used to invest uncommitted cash balances or
to maintain liquidity to meet shareholder redemptions. (See "Investment Policies
- -- Cash Reserves.")
In addition to the policies noted above, the Fund may invest in
convertible securities obligations of foreign issuers which are dollar
denominated, American Depository Receipts (ADRs), corporate bonds, debentures,
notes and warrants. Investments in each of these instruments will not exceed 5%
of the Fund's total assets.
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<PAGE>
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 Standard & Poor's 500 Composite Stock
Price Index (the "S&P 500 Index").
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.
Index Fund. The fundamental investment objective is to seek to
replicate the total return of the S&P 500 Index.
The 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 Fund utilizes a "passive" investment approach, attempting to duplicate the
investment performance of its benchmark index through automated statistical
analytic procedures.
The Fund intends to invest in all 500 stocks in the S&P 500 Index in
proportion to their weighting in the Index. No subscription for the Fund will be
accepted until Advisor has a reasonable basis to believe that the Fund will be
able to acquire substantially all 500 stocks in the Index. To the extent that
all 500 stocks cannot be purchased, the Fund will purchase a representative
sample of the stocks listed in the Index in proportion to their weightings. The
S&P 500 Index is described in more detail in "Other Investment Policies."
To the extent that the Fund seeks to replicate the S&P 500 Index using
such sampling techniques, a close correlation between the Fund's performance and
the performance of the Index is anticipated in both rising and falling markets.
The 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 Fund
expenses. A correlation of 1.00 would represent perfect correlation between
portfolio and index performance. It is anticipated that the correlation of the
Fund's performance to that of the Index will increase as the size of the Fund
increases. The Fund's ability to achieve significant correlation between Fund
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
Fund shares. Advisor will monitor correlation. Should the Fund fail to achieve
an appropriate level of correlation, Advisor will report to the Board of
Trustees, which will consider alternative arrangements.
The Fund will be substantially invested in the securities included in
the S&P 500 Index. However, the Fund may invest temporarily, without limitation,
in certain short-term fixed income securities. Such securities may be used to
invest uncommitted cash balances or to maintain liquidity to meet shareholder
redemptions. (See "Other Investment Policies -- Cash Reserves.") The 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. 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 Fund on the basis of a
proprietary analytical model of 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
-39-
<PAGE>
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.
The S&P 500 Index is described in more detail in "Other Investment Policies."
Under normal market conditions, the Fund will invest at least 65% of
its total assets in equity securities. However, the Fund may invest temporarily
for defensive purposes, without limitation, in certain short-term fixed income
securities. Such securities may be used to invest uncommitted cash balances or
to maintain liquidity to meet shareholder redemptions. (See "Other Investment
Policies -- Cash Reserves)."
In addition to the policies noted above, the 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. 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.
Equity securities will be selected by the Fund on the basis of
proprietary analytical models of Advisor.
The 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.
Under normal market conditions, the Fund will invest at least 65% of
its total assets in securities of smaller companies. However, the Fund may
invest in other equity securities and may temporarily for defensive purposes,
without limitation, in certain short-term investment grade debt securities. Such
securities may be used to invest uncommitted cash balances or to maintain
liquidity to meet shareholder redemptions. (See "Other Investment Policies --
Cash Reserves.") The 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 total assets.
Active International Fund. The nonfundamental investment objective is
to provide long-term capital growth by investing primarily in securities of
foreign issuers.
The 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 "Other
Investment Policies."
The Fund will invest at least 65% of its total assets in equity
securities of foreign issuers. In addition to investment in equities, the 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 options on futures.
For investment restrictions on the use of these derivatives, please refer to the
"Other Investment Policies" section. However, the Fund may invest in other
equity securities and may temporarily for defensive purposes, without
limitation, invest in certain short-term fixed income securities. Such
securities may be used to invest uncommitted cash balances or to maintain
liquidity to meet shareholder redemptions. (See "Other Investment Policies --
Cash Reserves.")
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<PAGE>
The Fund may invest in common and preferred equity securities publicly
traded in the United States or in foreign countries. The 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 "Risk Factors -- Foreign
Securities."
Of the fixed-income instruments used by the 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 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 Fund's 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, and equity-like, securities of emerging market countries (i.e.,
typically over 85%). Currently, the definition of an emerging market is that
gross domestic product per capita is less than $10,000 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 also 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.
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 under "Risk
Factors -- Emerging Markets." The risks associated with investment in securities
issued by foreign governments and companies are described below in "Other
Investment Policies -- Foreign Government Securities."
Investment Objectives and Asset Allocation of the SSgA Life Solutions Funds
The Life Solutions Funds are designed primarily for tax-advantaged
retirement accounts and other long-term investors. 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.
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<PAGE>
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:
==============================================================================
Life Solutions Fund Capital 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.
<TABLE>
<CAPTION>
============================================================================================================
Asset Class/Underlying Fund Income and Growth Balanced Growth
--------------------------- ----------------- -------- ------
<S> <C> <C> <C>
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
============================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
* International equities are included in the total equity exposure indicated
above and should not exceed the listed percentages.
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<PAGE>
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.
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.
Investment Restrictions
All Funds have fundamental investment restrictions, which may be
changed only with the approval of a majority of the Fund's shareholders as
defined in the 1940 Act. A more detailed discussion of the Fund's 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 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 non-depository instruments issued by
European banks). Concentration may occur as a result of
changes in the market value of portfolio securities, but may
not result from investment. With respect to the Money Market
and Government Funds, US banks and certain domestic branches
of foreign banks are not considered a single industry for
purposes of this restriction. With respect to the Life
Solutions Funds, shares of the Underlying Funds and other
investment companies are not considered a single industry for
purposes of this restriction.
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 Fund's assets
taken at market value, less liabilities other than borrowings.
If at any time the 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. The 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, the Fund
may pledge securities having a market value at the time of the
pledge not exceeding 33-1/3% of the value of the Fund's total
assets to secure permitted borrowings.
Other Investment Policies
The investment policies described below reflect the 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 be used by at least 5% of the Fund's 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 a Fund's
net
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<PAGE>
assets, see the relevant SAI. To the extent consistent with each Fund's
investment objective and restrictions, the Funds (as indicated) may invest in
the following instruments and may use the following investment techniques:
US Government Securities (all Funds except Emerging Markets and Active
International). 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 Funds). Each 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 Fund receives
securities as collateral. Under a repurchase agreement, a Fund purchases
securities from a financial institution that agrees to repurchase the securities
at the Fund's original purchase price plus interest within a specified time
(normally one business day). The Funds will limit repurchase transactions to
those member banks of the Federal Reserve System and broker-dealers whose
creditworthiness Advisor considers satisfactory. Should the counterparty to a
transaction fail financially, a 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 a Fund.
Reverse Repurchase Agreements (all Funds). The Funds may enter into
reverse repurchase agreements under the circumstances described in "Investment
Restrictions." In substance, a reverse repurchase agreement is a borrowing for
which the Fund provides securities as collateral. Under a reverse repurchase
agreement, a Fund sells portfolio securities to a financial institution 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 at a
prescribed repurchase price equal to the amount of cash originally received plus
interest on such amount. A Fund retains the right to receive interest and
principal payments with respect to the securities while they are in the
possession of the financial institutions. Reverse repurchase agreements involve
the risk of default by the counterparty, which may adversely affect a Fund's
ability to reacquire the underlying securities.
Forward Commitments (all Funds except Emerging Markets). The 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 Fund of a dollar amount sufficient to make payment for the
portfolio securities to be purchased will be segregated on a Fund'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 a 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.
Section 4(2) Commercial Paper (Money Market, Yield Plus, Intermediate,
Tax Free and Bond only). The Fund may also 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 institutional investors such as the Prime Money Market Fund
that agree that they are purchasing the paper for investment and not with a view
to public distribution. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) paper normally is resold to other institutional
investors like the Fund through or with the assistance of the issuer or
investment dealers that make a market in Section 4(2) paper. Section 4(2) paper
will not be subject to the Investment Company's percentage limitations on
illiquid securities where the Board of Trustees of the Investment Company
(pursuant to guidelines adopted by the Board) determines that a liquid trading
market exists.
Asset-Backed Securities (Money Market, Yield Plus, Intermediate and
Bond only). Asset-backed securities represent undivided fractional interests in
pools of instruments, such as consumer loans, and are similar in structure to
mortgage-related securities described below. Payments of principal and interest
are passed through to
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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 Fund has been exhausted, and if any
required payments of principal and interest are not made with respect to the
underlying loans, the Fund may experience loss or delay in receiving payment and
a decrease in the value of the security. Further details are set forth in the
Statement of Additional Information under "Investment Restrictions and Policies
- -- Investment Policies."
When-Issued Transactions (all Funds except Emerging Markets and Active
International). The Funds may purchase securities on a when-issued basis. In
these transactions, a Fund purchases securities with payment and delivery
scheduled for a future time. Until settlement, a Fund segregates cash and
marketable securities equal in value to its when-issued commitments. Between the
trade and settlement dates, a 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 a Fund to miss a
price or yield considered advantageous. A Fund will engage in when-issued
transactions only for the purpose of acquiring portfolio securities consistent
with its investment objective and policies and not for investment leverage. A
Fund will invest no more than 25% of its net assets in when-issued securities.
Illiquid Securities (all Funds). The Money Market, Government and Tax
Free Funds will invest no more than 10% of each of their net assets, and the
Bond, Yield Plus, Matrix, Index, Small Cap, Growth and Income, Intermediate,
Emerging Markets and Active International Funds will invest no more than 15% of
each of their net assets, in illiquid securities or securities that are not
readily marketable, including repurchase agreements and time deposits of more
than seven days' duration. The absence of a regular trading market for illiquid
securities imposes additional risks on investments in these securities. Illiquid
securities may be difficult to value and may often be disposed of only after
considerable expense and delay.
Variable Amount Master Demand Notes (all Funds except Tax Free,
Emerging Markets and Active International). 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.
Mortgage-Related Securities (Money Market, Government, Bond, Yield Plus
and Intermediate only). The Funds 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 Certificates ("Fannie Maes"). Mortgage
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, Tax Free, 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, Tax
Free, Bond, Yield Plus and Intermediate only). A floating rate security provides
for the automatic adjustment of its interest rate whenever a
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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, 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 Funds except Emerging Markets). The Funds may
lend portfolio securities with a value of up to 33-1/3% of each of their total
assets. For these purposes, total assets shall include the value of all assets
received as collateral for the loan. Such loans may be terminated at any time. A
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, a 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, a 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. A 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, a 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 Advisor to be of good financial standing. In a
loan transaction, a Fund will also bear the risk of any decline in value of
securities acquired with cash collateral. A 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 Funds except Money
Market, Government and Tax Free). For hedging purposes, including protecting the
price or interest rate of a security that a Fund intends to buy, a 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. Upon entering into a
futures contract, a 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 a 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.
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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, a 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 Funds except Money
Market, Government and Tax Free). The Funds may write and purchase covered put
and call options on securities in which it may directly invest. Option
transactions of a 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 Fund's total assets. Further, a 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 Fund's total assets.
The Funds may purchase or sell options on securities indices that are
comprised of securities in which the 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.
Cash Reserves (all Funds except Money Market, Government and Tax Free).
For defensive purposes, the Funds may temporarily invest, without limitation, in
high quality short-term fixed income securities. 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 a Fund will decline, and thereby
possibly cause its yield to decline as well.
American Depository Receipts (ADRs) (Index, Matrix, Small Cap Growth
and Income, Emerging Markets and Active International only) and European
Depository Receipts (EDRs) (Emerging Markets and Active International only). The
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 many foreign issuers are subject. For purposes of a Fund's investment
policies, a 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.
Warrants (Small Cap, Growth and Income, Emerging Markets and Active
International only). The 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. A Fund
will invest no 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
Exchanges.
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Convertible Securities (Growth and Income, Small Cap, Emerging Markets
and Active International only). The 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.
Interest Rate Swaps (Bond, Yield Plus and Intermediate only). The Funds
may enter into interest rate swap transactions with respect to any security it
is entitled to hold. Interest rate swaps involve the exchange by a Fund with
another party of their respective rights to receive interest, e.g., an exchange
of floating rate payments for fixed rate payments. The Funds expect to enter
into these transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio or to protect against any increase in the
price of securities it anticipates purchasing at a later date. The Funds intend
to use these transactions as a hedge and not as a speculative investment.
Mortgage-Backed Security Rolls (Bond and Intermediate only). The Funds
may enter into "forward roll" transactions with respect to mortgage-backed
securities issued by GNMA, FNMA or FHLMC. In a forward roll transaction, a Fund
will sell a mortgage security to a dealer 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. There are two primary risks associated with the roll
market for mortgage-backed securities. First, the value and safety of the roll
depends entirely upon the counterparty's ability to redeliver the security at
the termination of the roll. Therefore, the counterparty to a roll must meet the
same credit criteria as any existing repurchase counterparty. Second, the
security which is redelivered at the end of the roll period must be
substantially the same as the initial security, i.e., it must have the same
coupon, be issued by the same agency and be of the same type, have the same
original stated term to maturity, be priced to result in similar market yields
and must be "good delivery." Within these parameters, however, the actual pools
that are redelivered could be less desirable than those originally rolled,
especially with respect to prepayment characteristics.
Preferred Stocks (All Funds except Money Market, Government, Tax Free
and Yield Plus). 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 fund provisions, as well as provisions that allow the
issuer to call or redeem the stock. The rights to payment of preferred stocks
are generally subordinate to rights associated with a corporation's debt
securities.
Municipal Securities (Tax Free only). The Fund may purchase municipal
securities issued by or on behalf of public authorities to obtain funds to be
used for various public purposes, including general purpose financing for state
and local governments, refunding outstanding obligations, and financings for
specific projects or public facilities. General obligations are backed by the
full faith and credit of the issuer. These securities include tax anticipation
notes, bond anticipation notes and general obligation bonds. Revenue obligations
are backed by the revenues generated from a specific project or facility and
include project revenue bonds, such as private activity and industrial
development bonds. Private activity and industrial development bonds are
dependent on the ability of the facility's user to meet its financial
obligations and the value of any real or personal property pledged as security
for such payment. Private activity and industrial development bonds, although
issued by industrial development authorities, may be backed only by the assets
of the non-governmental users. Municipal notes are short-term instruments which
are issued and sold in anticipation of a bond sale, collection of taxes or
receipt of other revenues.
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Some municipal securities are insured by private insurance companies,
while others may be supported by letters of credit furnished by domestic or
foreign banks. In determining the credit quality of insured or letter of credit
backed securities, the Advisor reviews the financial condition and
creditworthiness of such parties including insurance companies, banks and
corporations.
Municipal obligations involve possible risks, including being affected
by economic, business and political developments and being subject to provisions
of litigation, bankruptcy and other laws affecting the rights and remedies of
creditors. Future laws may be effected extending the time for payment of
principal and/or interest, or limiting the rights of municipalities to levy
taxes. For instance, legislative proposals are introduced from time to time to
restrict or eliminate the federal income tax exemption for municipal obligations
interest. If such legislation is adopted, the Board of Trustees will reevaluate
the fund's investment objective and may submit possible changes in the structure
of the Fund to its shareholders.
Municipal Leases (Tax Free only). The Fund may purchase participation
interests in municipal obligations, including municipal lease/purchase
agreements. Municipal leases are an undivided interest in a portion of an
obligation in the form of a lease or installment purchase issued by a state or
local government to acquire equipment or facilities. These instruments may have
fixed, floating or variable rates of interest, with remaining maturities of 13
months or less. Municipal leases may be backed by an irrevocable letter of
credit or guarantee of a bank, or the payment obligation otherwise may be
collateralized by US Government securities. Certain participation interests may
permit the Fund to demand payment on not more than seven days' notice, for all
or any part of the Fund's interest, plus accrued interest.
Municipal leases frequently have special risks not normally associated
with general obligation or revenue bonds. Some leases or contracts include
"non-appropriation" clauses, which provide that the governmental issuer has no
obligation to make future payments under the lease or contract unless money is
appropriated for such purpose by the appropriate legislative body on a yearly or
other periodic basis. To reduce these risks, the Fund will only purchase
municipal leases subject to a non-appropriation clause when the payment of
principal and accrued interest is backed by a letter of credit or guarantee of a
bank.
Whether a municipal lease agreement will be considered illiquid for the
purpose of the Fund's restriction on investments in illiquid securities will be
determined by officers of the Investment Company in accordance with procedures
established by the Board of Trustees.
Tender Option Bonds (Tax Free only). A tender option is a municipal
obligation (generally held pursuant to a custodial arrangement) having a
relatively long maturity and bearing interest at a fixed rate substantially
higher than prevailing short-term tax exempt rates, that has been coupled with
the agreement of a third party, such as a bank, broker-dealer or other financial
institution, pursuant to which such institution grants the security holders the
option, at periodic intervals, to tender their securities to the institution and
receive the face value thereof. As consideration for providing the option, the
financial institution receives periodic fees equal to the difference between the
municipal obligation's fixed coupon rate and the rate, as determined by a
remarketing or similar agent at or near the commencement of such period, that
would cause the securities, coupled with the tender option, to trade at par on
the date of such determination. Thus, after payment of this fee, the security
holder effectively holds a demand obligation that bears interest at the
prevailing short-term tax exempt rate. Subject to applicable regulatory
requirements, the Fund may buy tender option bonds if the agreement gives the
Fund the right to tender the bond to its sponsor no less frequently than once
every 397 days. The Advisor will consider on an ongoing basis the
creditworthiness of the issuer of the underlying obligation, any custodian and
the third party provider of the tender option. In certain instances and for
certain tender option bonds, the option may be terminable in the event of a
default in payment of principal or interest on the underlying municipal
obligation and for other reasons.
Standby Commitments (Tax Free only). The Fund's investments may include
standby commitments, which are rights to resell municipal securities at
specified periods prior to their maturity dates to the seller or to some third
party at an agreed upon price or yield. Standby commitments may involve certain
expenses and risks, including the inability of the issuer of the commitment to
pay for the securities at the time the commitment is exercised,
non-
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marketability of the commitment, and difference between the duration of the
commitment and the maturity of the underlying security. The Fund will limit
standby commitment transactions to institutions which the Advisor believes
present minimal credit risk.
Tax Exempt Commercial Paper (Tax Free only). Tax exempt commercial
paper is a short-term obligation with a stated maturity of 365 days or less. It
is typically issued to finance seasonal working capital needs or as short-term
financing in anticipation of longer term financing. Each instrument may be
backed only by the credit of the issuer or may be backed by some form of credit
enhancement, typically in the form of a guarantee by a commercial bank.
Commercial paper backed by guarantees of foreign banks may involve additional
risk due to the difficulty of obtaining and enforcing judgments against such
banks and the generally less restrictive regulations to which such banks are
subject. The Fund will only invest in commercial paper rated at the time of
purchase not less than Prime-1 by Moody's, A-1 by S&P or F-1 by Fitch's Investor
Service ("Fitch").
Foreign Government Securities (Emerging Markets and Active
International only). Foreign government securities which the Funds 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.
Neither Fund will invest a material percentage of its assets in sovereign debt.
Equity Swaps (Emerging Markets and Active International only). Equity
swap agreements are contracts between parties in which one party agrees to make
payments to the other party based on the change in market value of a specified
index or asset. In return, the other party agrees to make payments to the first
party based on the return of a different specified index or asset. Although swap
agreements entail the risk that a party will default on its payment obligations,
the portfolios will minimize this risk by entering into agreements only with
counterparties that the Advisor deems creditworthy. Swap agreements also bear
the risk that the portfolios will not be able to meet their obligation to the
counterparty. This risk will be mitigated by investing the portfolios in the
specific asset for which it is obligated to pay a return.
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 a Fund may be affected favorably or unfavorably
by changes in foreign currency exchange rates and exchange control regulations,
and a Fund may incur costs in connection with conversions between various
currencies. The 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 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 Funds may purchase and write these
options for the purpose of protecting against declines in the dollar value of
foreign securities it holds and
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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 (Emerging Markets and Active International only). The
Funds have 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. A 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 portfolio positions generally. A Fund is not obligated to hedge its
portfolio positions and will enter into such transactions only to the extent, if
any, deemed appropriate by Advisor. 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 Emerging Markets and
Active International Funds 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 a 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 Funds
will not speculate in foreign security or currency options or futures or related
options.
The Funds may not hedge their 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. Neither Fund will
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. Neither
Fund will enter into a forward contract with a term of more than one year.
Special Situations (Emerging Markets only). The Fund 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 Fund's capital
appreciation potential. These investments are generally illiquid. The Fund will
invest no more than 15% of its net assets in all types of illiquid securities or
securities that are not readily marketable, including special situations. The
Fund is not likely to hold illiquid securities initially. However, due to
foreign ownership restrictions, the Fund 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.
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Purchase of Other Funds (all Funds). To the extent permitted under the
1940 Act and exemptive rules and orders thereunder, each Fund may seek to
achieve its investment objective by investing solely in the shares of other
investment companies that have substantially similar investment objectives and
policies.
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
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
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 foreign securities.
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, 1997 was 4.63 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 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 Russell 2000(R) Index. The Russell 2000 Index consists of the
smallest 2,000 companies in the Russell 3000(R) Index, representing
approximately 11% 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 $874 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.
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, Portugal, 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.
RISK FACTORS
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
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<PAGE>
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, 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. ADRs are subject to all of the above risks,
except the imposition of exchange controls, and currency fluctuations during the
settlement period.
Foreign Securities. Investors should consider carefully the substantial
risks involved in securities of companies and governments of foreign nations.
There may be less publicly available information about foreign companies
comparable to the reports and ratings published regarding US companies. Foreign
companies are not generally subject to uniform accounting, auditing and
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to US companies. Many foreign markets have
substantially less volume than either the established domestic securities
exchanges or the OTC markets. Securities of some foreign companies are less
liquid and more volatile than securities of comparable US companies. 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 and related
administrative uncertainties.
Emerging Markets. Investments in companies domiciled in emerging market
countries may be subject to additional risks. These risks include: (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 can have political systems which
can be expected to have less stability 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 such
securities and the currently low or nonexistent volume of trading can 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 Fund's securities will generally
be denominated in foreign currencies, the value of such securities to the Fund
will be affected by changes in currency exchange rates and in 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 Fund's
securities. In addition, some emerging market countries may have fixed or
managed currencies which are not free-floating against the US dollar. Further,
certain emerging market currencies may not be internationally traded. Certain of
these 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 Fund's
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.
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
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<PAGE>
and political developments. The Fund endeavors 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.
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 MATURITY AND TURNOVER
Money Market, Government and Tax Free Funds. These Funds must limit
investments to securities with remaining maturities of 397 days or less (as
calculated in accordance with Rule 2a-7 of the 1940 Act) and must maintain a
dollar-weighted average maturity of 90 days or less. These Funds will normally
hold portfolio instruments to maturity, but may dispose of them prior to
maturity if the Advisor finds it advantageous.
Index Fund. Ordinarily, securities will be sold from the Fund only to
reflect certain changes in its benchmark index (including mergers or changes in
the composition of the index) or to accommodate cash flows into and out of the
Fund while maintaining the similarity of the Fund to the benchmark index.
Accordingly, the turnover rate for the Fund is not expected to exceed 50%, a
generally lower turnover rate than for most actively managed investment
companies.
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<PAGE>
Bond, Yield Plus and Intermediate Funds. Because these Funds will
actively trade to benefit from short-term yield disparities among different
issues of fixed-income securities, or otherwise to increase income, the Funds
may be subject to a greater degree of portfolio turnover than might be expected
from investment companies which invest substantially all of their assets on a
long-term basis. Portfolio turnover rates cannot be predicted, but it is
anticipated that the Funds will generally not exceed the following rates
(excluding securities having a maturity of one year or less):
[bullet] Bond --350% (This higher than average turnover rate is not expected to
materially affect the Fund's performance.)
[bullet] Yield Plus--100-300%
[bullet] Intermediate--250%
Matrix, Small Cap, Growth and Income, Emerging Markets and Active
International Funds. Portfolio turnover rates cannot be predicted, but it is
anticipated that these Funds will generally not exceed the following rates:
[bullet] Matrix--150%
[bullet] Small Cap--200%
[bullet] Growth and Income--80%
[bullet] Emerging Markets--60%
[bullet] Active International--80%
Life Solutions Funds. Each Life Solutions Fund's turnover rate
should not exceed 100% 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.
A high turnover rate (over 100%) will: (1) increase transaction
expenses which could adversely affect a 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.
The Advisor's sell discipline for the Emerging Markets and Active
International Funds' investment in emerging market companies is based on the
premise of a long-term investment horizon, however, sudden changes in valuation
levels arising from, for example, new macroeconomic policies, political
developments, and industry conditions could change the assumed time horizon.
Some countries impose restrictions on repatriation of capital and/or dividends
which would lengthen the Advisor's assumed time horizon in those countries.
Liquidity, volatility, and overall risk of a position are other factors
considered by the Advisor in determining the appropriate investment horizon.
Therefore, the Emerging Markets and Active International Funds may dispose of
securities without regard to the time they have been held when such action, for
defensive or other purposes, appears advisable.
The Funds may effect portfolio transactions with or through State
Street Brokerage Services, Inc., a affiliate of the Advisor, when the Advisor
determines that the Funds will receive competitive execution, price and
commissions.
Life Solutions Performance: The Underlying Funds
The following chart shows the average annual total returns for each of
the Underlying Funds in which the Life Solutions 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 August 31, 1997.
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<TABLE>
<CAPTION>
===============================================================================================================================
7-day Yield for 30-day Yield
Since period for period
Underlying Assets as of Inception 1 Yr. 3 Yr. 5 Yr. Inception ended 8/31/97 ended 8/31/97
Fund 8/31/97 Date (%) (%) (%) (%) (%) (%)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
S&P 500 Index $1,299,570,686 12/30/92 40.30 26.26 -- 19.43 -- --
- -------------------------------------------------------------------------------------------------------------------------------
Matrix Equity 429,397,404 05/04/92 42.75 24.82 20.33 18.49 -- --
- -------------------------------------------------------------------------------------------------------------------------------
Small Cap 149,809,160 11/23/94 35.85 29.57 22.82 22.22 -- --
- -------------------------------------------------------------------------------------------------------------------------------
Growth and
Income 71,735,853 09/01/93 40.95 22.79 -- 18.42 -- --
- -------------------------------------------------------------------------------------------------------------------------------
Active
International 83,929,646 03/07/95 1.17 -- -- 6.54 -- --
- -------------------------------------------------------------------------------------------------------------------------------
Emerging
Markets 252,708,031 03/01/94 15.12 4.04 -- 7.53 -- --
- -------------------------------------------------------------------------------------------------------------------------------
Bond Market 87,664,391 02/07/96 9.47 -- -- 4.47 -- 6.18
- -------------------------------------------------------------------------------------------------------------------------------
Intermediate 53,833,626 09/01/93 8.00 7.36 -- 4.56 -- 5.87
- -------------------------------------------------------------------------------------------------------------------------------
Yield Plus 840,055,491 11/09/92 5.67 5.80 -- 4.97 -- 5.51
- -------------------------------------------------------------------------------------------------------------------------------
Money Market 4,278,190,700 05/02/88 5.28 5.39 4.55 5.84 5.25 5.27
- -------------------------------------------------------------------------------------------------------------------------------
Government
Money Market 904,600,986 03/01/91 5.19 5.28 4.44 4.58 5.19 5.18
===============================================================================================================================
</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.
DIVIDENDS AND DISTRIBUTIONS
The Board of Trustees intends to declare and pay dividends as noted in
the table below. Dividends will be paid from net investment income.
================================================================================
Fund Dividends Dividends Paid
Declared
- --------------------------------------------------------------------------------
Money Market Daily Last business day of each month
- --------------------------------------------------------------------------------
Government Daily Last business day of each month
- --------------------------------------------------------------------------------
Tax Free Daily Last business day of each month
- --------------------------------------------------------------------------------
Yield Plus Daily Last business day of each month
- --------------------------------------------------------------------------------
Bond Quarterly Quarterly
- --------------------------------------------------------------------------------
Matrix Quarterly Quarterly
- --------------------------------------------------------------------------------
Index Quarterly Quarterly
- --------------------------------------------------------------------------------
Growth and Income Quarterly Quarterly
- --------------------------------------------------------------------------------
Intermediate Quarterly Quarterly
- --------------------------------------------------------------------------------
Small Cap Annually Annually
- --------------------------------------------------------------------------------
Emerging Markets Annually Annually
- --------------------------------------------------------------------------------
Active International Annually Annually
- --------------------------------------------------------------------------------
Income and Growth Annually Annually
- --------------------------------------------------------------------------------
Balanced Annually Annually
- --------------------------------------------------------------------------------
Growth Annually Annually
================================================================================
The Board of Trustees intends to declare distributions annually,
generally in mid-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 Funds to avoid the
imposition of a 4% federal excise tax on undistributed capital gains. The Money
Market, Government and Tax Free Funds do not expect any material long-term
capital gains or losses.
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<PAGE>
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 Fund 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 Life Solutions 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 Fund mailings to an investor, the
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 Fund until
the investor notifies the SSgA Funds in writing of the correct address and
request in writing that the election to receive dividends and other
distributions in cash be reinstated.
Except for the Money Market, Government and Tax Free Funds, any
dividend or capital gain distribution paid by the Fund shortly after a purchase
of shares will reduce the per share net asset value of the Fund 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:
[bullet] Reinvestment Option--Income dividend and capital gain distributions
will be automatically reinvested in additional shares of a Fund. If the
investor does not indicate a choice on the Application, this option
will be automatically assigned.
[bullet] Income-Earned Option--Capital gain distributions will be automatically
reinvested, but a check or wire will be sent for each income dividend
distribution.
[bullet] Cash Option--A check or wire will be sent for each income dividend and
capital gain distribution.
[bullet] Direct Dividends Option--Income dividend and capital gain distributions
will be automatically invested in another identically registered SSgA
Fund.
Dividends which are declared daily and paid monthly will wire (if that
option is elected) the proceeds to a pre-designated bank on the first business
day of the following month in which the dividend is payable. All other
distributions will be sent to a pre-designated bank by the Automatic Clearing
House ("ACH") on the payable date.
TAXES
The following discussion is only a summary of certain federal income
tax issues generally affecting the Funds and their shareholders. Circumstances
among investors may vary and each investor is encouraged to discuss investment
in a Fund with the investor's tax advisor.
Each Fund intends to qualify as a regulated investment company ("RIC")
under Subchapter M of the Internal Revenue Code, as amended (the "Code"). As a
RIC, no Fund will be subject to federal income taxes to the extent it
distributes its net investment income and net capital gain (long-term capital
gains in excess of short-term capital losses) to shareholders. The Board intends
to distribute each year substantially all of the Funds' net investment income
and capital gain net income. In addition, the Tax Free Fund intends to continue
to qualify to pay "exempt-interest" dividends, which requires, among other
things, that at the close of each quarter of its taxable year at least 50% of
the value of its total assets must consist of municipal securities.
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<PAGE>
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 20% gains and 28% gains are taxable as 20% gains or 28%
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. Depending on the state tax rules pertaining to a shareholder, a portion
of the dividends paid by a Fund attributable to direct obligations of the US
Treasury and certain agencies may be exempt from state and local taxes.
The sale of 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 portfolios of a mutual fund). Any loss incurred on the sale or
exchange of Fund shares held for one year or more will be treated as a 20% loss
or a 28% loss to the extent of capital gain dividends received with respect to
such shares. With respect to the Money Market, Government and Tax Free Funds, no
capital gain or loss is anticipated because these Funds seek to maintain a
stable $1.00 per share net asset value.
Shareholders will be notified after each calendar year of the amounts
of income dividend and net capital gain distributions and the percentage of a
Fund's income attributable to US Treasury and agency obligations. Each 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.
Tax Free Fund. Distributions that are designated by it as
"exempt-interest dividends" generally may be excluded from the shareholder's
gross income.
The Tax Free Fund may purchase certain private activity securities
whose interest is subject to the federal alternative minimum tax for
individuals. If the Tax Free Fund purchases such securities, investors who are
subject to the alternative minimum tax will be required to report a legally
determined portion of the Fund's dividends as a tax preference item in
determining their federal tax.
Foreign Income Taxes (Emerging Markets and Active International only).
Investment income received by the 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.
If a Fund invests 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 a Fund. A Fund can elect to mark-to-market
its PFIC holdings in lieu of paying taxes on gains or distributions therefrom.
It is anticipated that any taxes on a Fund with respect to investments in PFICs
would be insignificant.
Foreign shareholders should consult with their tax advisors as to if
and how the federal income tax and its withholding requirements applies to them.
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If more than 50% in value of a Fund's total assets at the close of any
taxable year consists of securities of foreign corporations, a Fund may file an
election with the Internal Revenue Service (the "Foreign Election") that would
permit shareholders to take a credit (or a deduction) for foreign income taxes
paid by a Fund. The Fund may be subject to certain holding period requirements
relative to securities held in order to take advantage of this credit. If the
Foreign Election is made, shareholders would include in their gross income both
dividends received from a Fund and foreign income taxes paid by a Fund.
Shareholders of a Fund would be entitled to treat the foreign income taxes
withheld as a credit against their United States federal income taxes, subject
to the limitations set forth in the Internal Revenue Code with respect to the
foreign tax credit generally. Alternatively, shareholders could treat the
foreign income taxes withheld as a deduction from gross income in computing
taxable income rather than as a tax credit. It is anticipated that a Fund will
qualify to make the Foreign Election; however, a Fund cannot be certain that it
will be eligible to make such an election or that any particular shareholder
will be eligible for the foreign tax credit.
VALUATION OF FUND SHARES
Net Asset Value Per Share. Net asset value per share is computed by
dividing the current value of the Fund's assets, less its liabilities, by the
number of shares of the Fund outstanding and rounding to the nearest cent. The
Funds (except the Government and Tax Free--see below) 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). Except for the Money
Market Fund, a business day is one on which the New York Stock Exchange is open
for business.
The Government and Tax Free Funds determine 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 is one on which the New York Stock Exchange and Federal Reserve
are open for business.
The Money Market Fund determines 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 and Federal Reserve are open for business.
Valuation of Money Market Fund Securities. The Money Market, Government
and Tax Free Funds seek to maintain a $1.00 per share net asset value and,
accordingly, uses the amortized cost valuation procedure to value its 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.
Valuation of Non-Money Market Fund Securities. With the exceptions
noted below, the 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
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<PAGE>
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.
PURCHASE OF FUND SHARES
Minimum Initial and Subsequent Investments and Account Balance. Each
Fund requires a minimum initial investment of $1,000, with the exception of IRA
accounts, for which the minimum initial investment is $250 and the S&P 500 Index
Fund for which the minimum investment is $10,000. Subsequent investments must be
at least $100. An investment in a Fund (other than IRA accounts) may be subject
to redemption at the Fund's discretion if the account balance is less than
$1,000 (or less than $10,000 in the S&P 500 Index Fund) 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 required minimum. Failure to bring the account
balance to the required minimum 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. Shareholders with accounts established prior to
December 24, 1997 are not subject to the $10,000 minimum requirements. The Fund
reserves the right to reject any purchase order. Investors purchasing Fund
assets through a pension or other participation plan should contact their plan
administrator for further information on purchases.
Offering Dates and Times. Fund shares may be purchased on any business
day without a sales commission. All purchases must be made in US dollars. With
the exceptions noted below, 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 to be
effective on the date received. With respect to the Government and Tax Free
Funds, purchase orders which are accepted: (1) prior to 12:00 noon Eastern time
will earn the dividend declared on the date of purchase; and (2) at or after
12:00 noon Eastern time will earn the dividend determined on the next day.
The 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.
Order and Payment Procedures. There are several ways to invest in the
Funds. The 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 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
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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 each Fund's minimum investment
requirement, investors may exchange a minimum of $100 of their 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 on the business day on which the
call is placed or upon written receipt of instructions in good form by the
Transfer Agent. Exchanges may be made over the phone if the registrations of the
two accounts are identical. If the shares of the 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 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 make initial or subsequent investments
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 Fund in which the
investment is to be made and the account number; and (c) the amount
being wired.
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 (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 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 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 Fund has been satisfied.
Third Party Transactions. Investors purchasing 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
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intermediary to pay additional fees. Investors should contact the intermediary
for information concerning what additional fees, if any, may be charged.
In-Kind Exchange of Securities. The Transfer Agent may, at its
discretion, permit investors to purchase shares through the exchange of
securities they hold. Any securities exchanged must meet the investment
objective, policies and limitations of the Fund, must have a readily
ascertainable market value, must be liquid and must not be subject to
restrictions on resale. The market value of any securities exchanged, plus any
cash, must be at least $10 million. Shares purchased in exchange for securities
generally may not be redeemed or exchanged until the transfer has
settled--usually within 15 days following the purchase exchange.
The basis of the exchange will depend upon the relative net asset value
of the shares purchased and securities exchanged. Securities accepted by a Fund
will be valued in the same manner as the Fund values its assets. Any interest
earned on the securities following their delivery to the Transfer Agent and
prior to the exchange will be considered in valuing the securities. All
interest, dividends subscription or other rights attached to the securities
become the property of the Fund, along with the securities.
REDEMPTION OF FUND SHARES
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. Typically, 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. With respect to the Government, Tax Free Funds and Yield Plus
Funds, a dividend will be paid on shares redeemed if the redemption request is
received by State Street after 12:00 noon Eastern time. Redemption requests
received before 12:00 noon Eastern time will not be entitled to that day's
dividend. With respect to the Money Market Fund, no dividends will be paid on
shares on the date of redemption.
Unless otherwise noted, redemption requests must be received prior to
4:00 p.m. Eastern time in order be effective on the date received. Shareholder
servicing agents with underlying shareholders in omnibus accounts who receive
redemption requests by 4:00 p.m. Eastern time may transmit the request to the
Transfer Agent by 9:00 a.m. Eastern time the next succeeding business day and
receive the dividend as of the day the redemption request was originally made by
the underlying shareholder.
Checkwriting Service (Money Market, Government and Tax Free only). If
investors have authorized the check writing feature on the Application and have
completed the signature card, they may redeem shares in their account, provided
that the appropriate signatures are on the check. The minimum check amount is
$500. There is a one-time service charge of $5 per Fund to establish this
feature, and investors may write an unlimited number of checks provided that the
account minimum of $1,000 per Fund is maintained.
Cash Sweep Program (Money Market, Government and Yield Plus only).
Money managers of master trust clients may participate in a cash sweep program
to automatically invest excess cash in the Money Market, Government or Yield
Plus Funds. A money manager must select the Fund, give authorization to complete
the Fund's Application and authorize the investment of excess cash into or the
withdrawal of required cash from the Fund on a daily basis. Where the Advisor
acts as the money manager, the Advisor will receive an advisory fee from the
client.
Telephone Redemption. Shareholders may normally redeem 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 Fund and the Transfer Agent will employ reasonable procedures
to confirm that instructions communicated by telephone are properly authorized.
The 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
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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.
By Wire. Proceeds exceeding $1,000 may be sent via wire transfer to the
investor's pre-designated bank. Proceeds may be sent, depending on the Fund, on
the same or the next day. Although the 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. The wire
schedule for the Funds is as follows:
o Money Market--Requests received via telephone prior to 4:00 p.m.
Eastern time will be sent the same day according to pre-designated
instructions.
o Government and Tax Free--Requests received prior to 12:00 noon Eastern
time will have proceeds wired the same day. Requests received after
12:00 noon Eastern time will have the shares redeemed that day and the
proceeds will be wired the following business day.
o Yield Plus--Requests received prior to 12:00 noon Eastern time will
have the shares redeemed using that day's closing price with the
proceeds wired the same day, unless the request is for 100% of the
account. Because Yield Plus has a fluctuating NAV, redemption requests
for 100% of the account (if received prior to 12:00 noon Eastern time)
will have 100% of the shares redeemed using that day's closing price,
with 95% of the proceeds being wired the same day and the remaining 5%
automatically wired the following business day. All requests received
after 12:00 noon Eastern time will have the shares redeemed using that
day's closing price and the proceeds wired the following business day.
Redemption requests received prior to 12:00 noon Eastern time for the
Government, Tax Free and Yield Plus Funds will not be eligible for that day's
interest.
o All Other Funds--Requests must be received prior to 4:00 p.m. The
shares will be redeemed using that day's closing price, and the
proceeds will be wired the following business day.
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 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;
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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.
<TABLE>
<CAPTION>
Seller Requirements for Written Requests
<S> <C>
Owner of individual, o 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 o Signature guarantee, if applicable (see above).
accounts
Owners of corporate or o Letter of instruction signed by authorized person(s),
association accounts stating capacity as indicated by the corporate resolution;
o Corporate resolution, certified within the past 90
days; and
o Signature guarantee, if applicable (see above).
Owners or trustees of trust o Letter of instruction, signed by all trustees;
accounts o If the trustees are not named in the registration,
please provide a copy of the trust document certified
within the past 60 days; and
o Signature guarantee, if applicable (see above).
Joint tenancy shareholders o Letter of instruction signed by surviving tenant(s);
whose co-tenants are deceased o Certified copy of the death certificate; and
o Signature guarantee, if applicable (see above).
</TABLE>
Please contact the Customer Service Department at (800) 647-7327 for
questions and further instructions.
A Fund may pay any portion of the redemption amount in excess of
$250,000 by a distribution in kind of readily marketable securities from the
portfolio of the Fund in lieu of cash. Investors will incur brokerage charges on
the sale of these portfolio securities. The 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 Funds and has approved contracts with various financial organizations to
provide, among other services, day-to-day management required by the Funds.
Advisory Agreement. Investment Company employs State Street to furnish
investment services to each Fund. State Street is one of the largest providers
of securities processing and recordkeeping services for US mutual
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funds and pension funds. State Street is a wholly owned subsidiary of State
Street Corporation, a publicly held bank holding company. State Street, with
over $370 billion (US) under management as of September 30, 1997, provides
complete global investment management services from offices in Atlanta, Boston,
Brussels, Copenhagen, Dubai, Hong Kong, London, Minneapolis, Montpellier,
Montreal, Munich, Paris, San Francisco, Sydney, Tokyo and Toronto.
The Advisor, subject to Board supervision, directs the investments of
each Fund in accordance with their investment objectives, policies and
restrictions. The Fund pays the Advisor a fee, calculated daily and paid
monthly, that on an annual basis is equal to a certain percentage of each Fund's
average daily net assets.
o Index--0.10%
o Money Market, Government, Tax Free and Yield Plus--0.25%
o Bond--0.30%
o Matrix, Small Cap, Emerging Markets and Active International--0.75%
o Intermediate--0.80%
o Growth and Income--0.85%
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 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, 1997:
<TABLE>
<CAPTION>
==================================================================================================
Advisory Fees (% of Average Daily Net Assets) for the Fiscal
Year Ended August 31, 1997:
--------------------------------------------------------------------------------------------------
Underlying Fund Advisory Fee Net of Waivers or Advisory Fee Absent the
Reimbursements Waivers or Reimbursements
(%) (%)
--------------------------------------------------------------------------------------------------
<S> <C> <C>
S&P 500 Index 0.00 0.10
--------------------------------------------------------------------------------------------------
Matrix Equity 0.50 0.75
--------------------------------------------------------------------------------------------------
Small Cap 0.75 0.75
--------------------------------------------------------------------------------------------------
Growth and Income 0.59 0.85
--------------------------------------------------------------------------------------------------
Active International 0.35 0.75
--------------------------------------------------------------------------------------------------
Emerging Markets 0.49 0.75
--------------------------------------------------------------------------------------------------
Bond Market 0.27 0.30
--------------------------------------------------------------------------------------------------
Intermediate 0.10 0.80
--------------------------------------------------------------------------------------------------
Yield Plus 0.25 0.25
--------------------------------------------------------------------------------------------------
Money Market 0.25 0.25
--------------------------------------------------------------------------------------------------
US Gov't Money Market 0.25 0.25
--------------------------------------------------------------------------------------------------
Life Solutions Balanced (.14) --
--------------------------------------------------------------------------------------------------
Life Solutions Growth (.19) --
--------------------------------------------------------------------------------------------------
Life Solutions
Income and Growth (.79) --
==================================================================================================
</TABLE>
The Glass-Steagall Act prohibits a depository state chartered bank such
as Advisor from engaging in the business of issuing, underwriting, selling or
distributing certain securities. The activities of Advisor in informing its
customers of the Fund, performing investment and redemption services and
providing custodian, transfer,
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<PAGE>
shareholder servicing, dividend disbursing and investment advisory services may
raise issues under these provisions. Advisor has been advised by its counsel
that its activities in connection with the Fund 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 Advisor from continuing to perform all or a part of
the above services for its customers and/or the Fund. If Advisor were prohibited
from serving the Fund 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 Fund may occur. It is not expected by 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 Investment Company portfolios 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 November 30, 1997,
State Street held of record less than 25% of the issued and outstanding shares
of Investment Company in connection with its discretionary accounts.
Consequently, State Street is not 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 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.
Portfolio Management
Bond and Intermediate Funds. Mr. John P. Kirby, Assistant Vice
President. Mr. Kirby has been with State Street working with the Bond Fund since
1995. He has been the lead portfolio manager for the Intermediate Fund since
July 1996. Prior to joining State Street, Mr. Kirby was an account manager with
Lowell, Blake & Associates. Prior to that, Mr. Kirby was a portfolio manager at
One Federal Asset Management a Shawmut Bank subsidiary, and at Cambridge Port
Savings as an asset/liability risk specialist. In managing the Bond Fund and
Intermediate Fund, Mr. Kirby is assisted by eight other portfolio managers.
Yield Plus Fund. Mr. John Reohr, Vice President. Mr. Reohr joined State
Street in April 1993 with responsibilities in cash and enhanced cash portfolio
management. Prior to joining SSgA, Mr. Reohr managed the Federal Home Loan Bank
of Boston's investments, including government, mortgage, and money market
portfolios. He has also managed short- and intermediate-term portfolios for
Continental Bank's Trust Department. Prior to working in investment management,
Mr. Reohr was an institutional bond salesman for Lehman Brothers and Hamilton
Investments. He earned is BA degree in Political Science at Dickinson College,
and his MBA degree, with a concentration in Financial Management, from the
University of Chicago. There are 10 other portfolio managers who work with Mr.
Reohr in managing the Fund.
Matrix Fund. Mr. Peter M. Stonberg, CFA. Mr. Stonberg is a Principal of
State Street Global Advisors ("SSgA"). Mr. Stonberg joined State Street in 1981.
Prior to joining SSgA, he was a securities analyst with the Fidelity group of
mutual funds, Director of Research at the Mercantile National Bank in Dallas, a
performance measurement consultant to major pension and endowment funds in the
Master Trust Division of State Street Bank and Trust Company. Mr. Stonberg has
taught courses in investment and computer disciplines. He is a graduate of
Carleton College and holds an MBA from Columbia University. There are seven
other portfolio managers working
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with Mr. Stonberg in managing the Fund.
S&P 500 Index Fund. Mr. James B. May, Assistant Vice President. Mr. May
and has been the lead portfolio manager for this Fund since May 1995, an
investment officer since January 1994 and a portfolio manager in the US
Structured Products Group of State Street since that time. From 1991 to 1993, he
served as an Investment Support Analyst in the US Passive Services Group of
State Street Global Advisors. There are four other portfolio managers who work
with Mr. May in managing the Fund.
Small Cap Fund. Mr. Jeffrey Adams, Vice President. Mr. Adams joined
State Street in 1990 and has been the lead portfolio manager for this Fund since
December 1994. From 1992 to 1994, he was a portfolio manager and from 1990 to
1992 he was an account administrator. There are seven other portfolio managers
who work with Mr. Adams in managing the Fund.
Growth and Income Fund. Mr. L. Emerson Tuttle, Vice President, is the
portfolio manager primarily responsible for investment decisions regarding the
Fund and provides investment management services for employee benefit plans and
endowments. Mr. Tuttle joined State Street in 1981. From 1987 to 1989, Mr.
Tuttle was portfolio manager for Private Client Services at State Street Bank in
Zurich, Switzerland. Mr. Tuttle is a 1973 magna cum laude graduate of Yale
College, and earned a JD degree magna cum laude from Suffolk Law School. He is a
member of the Massachusetts bar and a Chartered Financial Analyst. Mr. Tuttle is
also a member of the Boston Security Analysts Society and has 18 years of
investment experience. There are four other portfolio managers who work with Mr.
Tuttle in managing the Fund.
Emerging Markets Fund. Mr. Josh Feuerman, Vice President, is the
portfolio manager primarily responsible of investment decisions regarding the
Fund. Mr. Feuerman joined State Street in 1987. He is a portfolio manager in
SSgA's Global Active Equities Group responsible for emerging markets portfolios.
He also assists in the marketing of SSgA's equity products to existing and
prospective clients as well as to the consultant community. There are seven
other portfolio managers who work with Mr. Feuerman in managing the Fund.
Active International Fund. Mr. Robert Rubano, Assistant Vice President.
Mr. Rubano has been the lead portfolio manager for this Fund since its inception
in March 1995. Mr. Rubano has been with State Street since 1990 as a portfolio
manager of active international funds. There are seven other portfolio managers
who work with Mr. Rubano in managing the Fund.
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. 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 are two
other portfolio managers who assist in the management of the Life Solutions
Funds.
Administration Agreement. Frank Russell Investment Management Company
("FRIMCo" or "Administrator") serves as the Funds' administrator. The
Administrator currently serves as investment manager and administrator to 32
mutual funds with assets of $11.3 billion as of October 31, 1997, and acts as
administrator to 20 mutual funds, including the Funds presented in this
Prospectus, with assets of $10.8 billion as of October 31, 1997.
Pursuant to the Administration Agreement with Investment Company, the
Administrator will: (1) supervise all aspects of the Funds' operations; (2)
provide the Funds with administrative and clerical services, including the
maintenance of certain of the Funds' books and records; (3) arrange the periodic
updating of the Funds' prospectuses
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<PAGE>
and any supplements thereto; (4) provide proxy materials and reports to Fund
shareholders and the Securities and Exchange Commission; and (5) provide the
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 Funds pay the Administrator a combined
fee that on an annual basis is equal to the following percentages of their
average aggregate daily net assets:
o All Funds (except Emerging Markets and Active International)
o To and including $500 million--.06%;
o Over $500 million to and including $1 billion--.05%; and
o Over $1 billion--.03%.
o Emerging Markets and Active International
o To and including $500 million--.07%;
o Over $500 million to and including $1 billion--.06%;
o Over $1 billion to and including $1.5 billion--.04%; and
o Over $1.5 billion--.03%.
The percentage of the fee paid by the each Fund is equal to the
percentage of average aggregate daily net assets that are attributable to that
Fund. Administrator will also receive reimbursement of expenses it incurs in
connection with establishing new investment portfolios. Further, the
administration fees noted above which are paid by the Investment Company will be
reduced by the sum of certain distribution related expenses, up to certain
maximum percentages, as follows: (1) 10% from January 1, 1997 to December 31,
1997; 5% from January 1, 1998 to December 31, 1998; and (3) 0% from January 1,
1999 thereafter.
The Administrator also provides administrative services in connection
with the registration of shares of Investment Company 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 Fund shares.
The 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 Fund's 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 Fund
shares including: (1) payments made to certain broker-dealers, investment
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 Fund shares, including
Distributor's overhead expenses for rent, office supplies, equipment, travel,
communication, compensation and benefits of sales personnel.
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<PAGE>
Under the Plan, the Fund may also enter into agreements ("Service
Agreements") with financial institutions, which may include the Advisor
("Service Organizations"), to provide shareholder servicing with respect to 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 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 Fund, to the extent permitted by applicable statute, rule or
regulation. Service Organizations may receive from a 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 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.
The Investment Company has entered into Service Agreements with the
Advisor and the following entities related to the Advisor: State Street
Brokerage Services, Inc., Metropolitan Division of Commercial Banking,
Retirement Investment Services Division and State Street Solutions. The purpose
of the Service Agreements is to obtain shareholder services for Fund shares
owned by clients of each of these entities. In return for these services, the
Investment Company pays each of the entities a fee. These agreements are
reviewed annually by the Board of Trustees.
Payments to Distributor, as well as payments to Service Organizations
from a Fund, are not permitted by the Plan to exceed .25% of a 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 Fund's liability for any such expenses carried
forward shall terminate at the end of two years 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.
FUND EXPENSES
The Funds will pay all of their expenses other than those expressly
assumed by the Advisor and the Administrator. The Funds' principal expenses are
the annual advisory fee payable to the Advisor and distribution and shareholder
servicing expenses. Other expenses include: (1) amortization of deferred
organizational costs; (2) taxes, if any; (3) expenses for legal, auditing and
financial accounting services; (4) expense of preparing (including typesetting,
printing and mailing) reports, prospectuses and notices to existing
shareholders; (5) administrative fees; (6) custodian fees; (7) expense of
issuing and redeeming Fund shares; (8) the cost of registering 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 Funds. Certain expenses
not directly attributable to any one Fund but applicable to all Funds, such as
Trustee fees, insurance, legal and other expenses will be allocated to each Fund
based on each Fund's net assets.
-69-
<PAGE>
PERFORMANCE CALCULATIONS
Yield
Money Market, Government, Tax Free, Yield Plus, Bond and Intermediate
Funds may from time to time advertise their yields. Yield for each Fund is
calculated as follows:
Money Market, Government and Tax Free 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 prescribed by the Securities and Exchange Commission because of the
compounding effect of this assumed reinvestment.
With respect to the Tax Free Fund only, the tax-equivalent yield shows
the level of taxable yield needed to produce an after-tax equivalent to the Tax
Free Fund's tax-free yield. This is done by increasing the Fund's yield by the
amount necessary to reflect the payment of federal income tax (and state income
tax, if applicable) at a stated tax rate.
From time to time, the Money Market, Government and Tax Free Funds may
also report yield and effective yield (and tax-equivalent yield, with respect to
the Tax Free Fund) 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.
Total Return
From time to time, each Fund may advertise its total return. The total
return of a Fund is the average annual compounded rate of return from a
hypothetical investment in the Fund over one-year, five-year and ten-year
periods or for the life of the 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 Fund shares, including data (as applicable to each
respective Fund) from Lipper Analytical Services, Inc., IBC's Money Fund Report,
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 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.
-70-
<PAGE>
ADDITIONAL INFORMATION
Custodian, Transfer Agent and Independent Accountants. State Street
holds all portfolio securities and cash assets of the Funds, provides portfolio
recordkeeping services and serves as the 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 the
Fund 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 Fund share represents an equal proportionate interest in a 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 Fund as may
be declared by the Board of Trustees. Fund shares are fully paid and
nonassessable by the Investment Company and have no preemptive rights.
Each 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.
The Investment Company does not issue share certificates for the 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.
Controlling Persons. As of November 30, 1997, the following
shareholders owned of record the stated percentage of outstanding shares of the
stated Funds, and are therefore deemed to be controlling persons of the
respective Funds. Such shares may be held pursuant to a shareholder servicing
arrangement in omnibus accounts for underlying shareholders:
Small Cap Fund
o Boeing FLW1, State Street Bank and Trust Company, JQ7S Newport Avenue,
Quincy, MA 02171 -- 26%;
Yield Plus Fund
o Stock Performance Index Futures Fund CM18, a fund of State Street Bank
and Trust Company, 225 Franklin Street, Boston, MA 02110-- 57%;
Emerging Markets Fund
o Charles Schwab & Company, Inc., 101 Montgomery Street, San Francisco,
CA 94104 -- 47%.
-71-
<PAGE>
Growth and Income Fund
o State Street Solutions, State Street Bank and Trust Company, TTEE, P.O.
Box 1389, Boston, MA 02104 -- 28%; and
o State Street Bank, Employee 401K Plan IA06, an account of State Street
Bank and Trust Company, 225 Franklin St., Quincy, MA 02169 -- 30%.
Tax Free Money Market Fund
o Lazard Freres & Company LLC, 30 Rockefeller Plaza 57th Floor, New York,
NY 02112-- 61%.
-72-
<PAGE>
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
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 Fund regarding the advisability of investing in securities
generally or in the Fund particularly or the ability of the S&P 500 Index to
track general stock market performance. Standard & Poor's only relationship to
the 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 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 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 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 FUND OR THE SHAREHOLDERS OF THE 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
-73-
<PAGE>
SSgA FUNDS
One International Place
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
-74-
<PAGE>
Filed pursuant to Rule 485(b)
File Nos. 33-19229; 811-5430
SSgA FUNDS
One International Place
Boston, Massachusetts 02110
(800) 647-7327
MONEY MARKET FUND
SSgA Funds is a registered, open-end management investment company with
multiple portfolios, each of which is commonly referred to as a mutual fund.
This Prospectus describes and offers shares of beneficial interest in one of the
mutual funds, the SSgA Money Market Fund (the "Money Market Fund" or "Fund").
The Money Market Fund seeks 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's shares are offered
without sales commissions. However, the Fund pays certain distribution expenses
under its 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 FUND ARE NEITHER INSURED NOR GUARANTEED BY THE US
GOVERNMENT. THERE IS NO ASSURANCE THAT THE MONEY MARKET FUND WILL MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
SHARES IN THE FUND 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 sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Please read and retain this
document for future reference. Additional information about the SSgA Funds has
been filed with the Securities and Exchange Commission ("SEC") in Statements of
Additional Information ("SAI") dated December 24, 1997. The SAI is incorporated
herein by reference and is available without charge from Distributor at its
address noted below or by calling (800) 647-7327. The SEC also maintains a
website (www.sec.gov) that contains the SAI, material incorporated by reference
and other information regarding the SSgA Funds. You may also access the SSgA
Funds' website at www.ssgafunds.com.
<TABLE>
<S> <C> <C>
Investment Advisor, Custodian
and Transfer Agent: Distributor: Administrator:
State Street Bank and Trust Frank Russell Investment
Company Russell Fund Distributors, Inc. Management Company
225 Franklin Street One International Place 909 A Street
Boston, Massachusetts 02110 Boston, Massachusetts 02110 Tacoma, Washington 98402
</TABLE>
PROSPECTUS DATED December 24, 1997
-1-
<PAGE>
TABLE OF CONTENTS
Page
----
Fund Operating Expenses.................................................. 3
Financial Highlights..................................................... 4
SSgA Funds............................................................... 6
Manner of Offering....................................................... 6
Investment Objective, Policies and Restrictions.......................... 6
Portfolio Maturity ...................................................... 9
Dividends and Distributions.............................................. 10
Taxes.................................................................... 10
Valuation of Fund Shares................................................. 11
Purchase of Fund Shares.................................................. 11
Redemption of Fund Shares................................................ 13
General Management....................................................... 15
Fund Expenses............................................................ 18
Performance Calculations................................................. 18
Additional Information................................................... 19
-2-
<PAGE>
FUND OPERATING EXPENSES
SSgA MONEY MARKET FUND
The purpose of the following table is to assist the investor in understanding
the various costs and expenses that an investor in the Money Market Fund will
incur directly or indirectly. The examples should not be considered a
representation of past or future expenses. Actual expenses may be greater or
less than those shown. For additional information, see "General Management."
Shareholder Transaction Expenses:
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
Annual Fund Operating Expenses:
(as a percentage of average daily net assets)
Advisory Fees .25%
12b-1 Distribution Fees .04
12b-1 Shareholder Servicing Fees .04
Other Expenses .06
---
Total Operating Expenses(1) .39%
Examples: 1 year 3 years 5 years 10 years
- -------- ------ ------- ------- --------
You would pay the following expenses on a
$1,000 investment, assuming: (i) 5.0%
annual return; and (ii) redemption at the
end of each time period: $ 4 $13 $22 $49
=== === === ===
(1) Investors purchasing 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-
<PAGE>
FINANCIAL HIGHLIGHTS
SSgA MONEY MARKET FUND
The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Fund's independent
accountants. The table includes selected data for a share outstanding throughout
each fiscal year or period ended August 31, and other performance information
derived from the financial statements. The table appears in the Fund's Annual
Report and should be read in conjunction with the Fund's financial statements
and related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand L.L.P., in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Distributor at (800) 647-7327.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .0516 .0524 .0538 .0330 .0320
LESS DISTRIBUTIONS:
Net investment income (.0516) (.0524) (.0538) (.0330) (.0320)
------- ------- ------- ------- -------
NET ASSET VALUE,
END OF YEAR $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= =======
TOTAL RETURN (%)(a) 5.28 5.36 5.52 3.35 3.24
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
($000 omitted) 4,278,165 3,475,409 2,752,895 3,020,796 2,502,483
Ratios to average net assets
(%) (b):
Operating expenses, net .39 .39 .39 .36 .33
Operating expenses, gross .39 .39 .39 .36 .38
Net investment income 5.17 5.20 5.37 3.33 3.20
Per share amount of expense
reductions ($ omitted) -- -- -- -- .0005
</TABLE>
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended August 31, 1988 are annualized.
FINANCIAL HIGHLIGHTS ARE CONTINUED ON THE FOLLOWING PAGE
-4-
<PAGE>
FINANCIAL HIGHLIGHTS, CONTINUED:
<TABLE>
<CAPTION>
1992 1991 1990 1989 1988++
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .0458 .0686 .0817 .0883 .0239
LESS DISTRIBUTIONS:
Net investment income (.0458) (.0686) (.0817) (.0883) (.0239)
------- ------- ------- ------- -------
NET ASSET VALUE,
END OF YEAR $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= =======
TOTAL RETURN (%)(a) 4.68 7.08 8.48 9.19 2.41
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
($000 omitted) 4,263,057 1,645,428 650,598 442,614 193,777
Ratios to average net assets
(%) (b):
Operating expenses, net .35 .37 .37 .43 .44
Operating expenses, gross .35 .38 .43 .51 .63
Net investment income 4.40 6.59 8.13 8.97 7.30
Per share amount of expense
reductions ($ omitted) .0000 .0000 .0005 .0004 .0010
</TABLE>
++ For the period May 2, 1988 (commencement of operations) to August 31, 1988.
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended August 31, 1988 are annualized.
-5-
<PAGE>
SSgA FUNDS
SSgA Funds (the "Investment Company") is an open-end management investment
company that is organized as a Massachusetts business trust. In addition, each
series of the Investment Company is diversified as defined in the Investment
Company Act of 1940, as amended ("1940 Act"). As a "series" company, the
Investment Company is authorized to issue an unlimited number of shares
evidencing beneficial interests in different investment portfolios. Through this
Prospectus, the Investment Company offers shares in the Money Market Fund. State
Street Bank and Trust Company (the "Advisor" or "State Street") serves as the
investment advisor for the Fund.
MANNER OF OFFERING
Distribution and Eligible Investors. Shares of the Fund are offered without
a sales commission by Russell Fund Distributors, Inc. (the "Distributor"), the
Investment Company's distributor, to US and foreign institutional and retail
investors that invest for their own account or in a fiduciary or agency
capacity. The Fund will incur distribution expenses under its Rule 12b-1 plan.
See "General Management -- Distribution Services and Shareholder Servicing
Arrangements."
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
The Fund has a fundamental investment objective, which may be changed only
with the approval of a majority of the Fund's shareholders as defined by the
1940 Act. There can be no assurance that the Fund will meet its investment
objective.
The Money Market Fund's 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 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 US and foreign banks, including certificates of deposit,
banker's acceptances and time deposits; these instruments may include Eurodollar
Certificates of Deposit ("ECDs"), Eurodollar Time Deposits ("ETDs") and Yankee
Certificates of Deposit ("YCDs"); (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.
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 at 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 Fund's Advisor in accordance with procedures
established by the Board of Trustees. See the Appendix in the Statement of
Additional Information for a description of a NRSRO.
Investment Policies
The investment policies described below reflect the Fund's current
practices, are not fundamental and may be changed by the Board of Trustees of
the Investment Company without shareholder approval. For more information on
these investment policies, please see the Statement of Additional Information.
To the extent consistent with the Fund's investment objective and restrictions,
the Fund may invest in the following instruments and may use the following
investment techniques:
-6-
<PAGE>
US Government Securities. 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. The 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 Fund receives securities as
collateral. Under a repurchase agreement, a Fund purchases securities from a
financial institution that agrees to repurchase the securities at the Fund's
original purchase price plus interest within a specified time (normally one
business day). The Fund 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, the 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 the Fund.
Reverse Repurchase Agreements. The Fund may enter into reverse repurchase
agreements under the circumstances described in "Investment Restrictions." In
substance, a reverse repurchase agreement is a borrowing for which the Fund
provides securities as collateral. Under a reverse repurchase agreement, the
Fund sells portfolio securities to a financial institution 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 at a prescribed repurchase
price equal to the amount of cash originally received plus interest on such
amount. The Fund retains the right to receive interest and principal payments
with respect to the securities while they are in the possession of the financial
institutions. Reverse repurchase agreements involve the risk of default by the
counterparty, which may adversely affect the Fund's ability to reacquire the
underlying securities.
Forward Commitments. The Fund 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 the Fund of a dollar
amount sufficient to make payment for the portfolio securities to be purchased
will be segregated on the Fund'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 the Fund to miss an advantageous price or
yield. The Fund bears the risk of price fluctuations during the period between
the trade and settlement dates.
When-Issued Transactions. The Fund may purchase securities on a when-issued
basis. In these transactions, a Fund purchases securities with payment and
delivery scheduled for a future time. Until settlement, the Fund segregates cash
and marketable securities equal in value to their when-issued commitments.
Between the trade and settlement dates, the 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 the Fund to miss a price or yield considered advantageous. The Fund will
engage in when-issued transactions only for the purpose of acquiring portfolio
securities consistent with its investment objective and policies and not for
investment leverage. The Fund will not invest more than 25% of its net assets in
when-issued securities.
Section 4(2) Commercial Paper. The Fund may also 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 institutional investors such as
the Prime Money Market Fund that agree that they are purchasing the paper for
investment and not with a view to public distribution. Any resale by the
purchaser must be in an exempt transaction. Section 4(2) paper normally is
resold to other institutional investors like the Fund through or with the
assistance of the issuer or investment dealers that make a market in Section
4(2) paper. Section 4(2) paper will not be subject to the Investment Company's
10% limitation on illiquid securities set forth below where the Board of
Trustees of the Investment Company (pursuant to guidelines adopted by the Board)
determines that a liquid trading market exists.
-7-
<PAGE>
Illiquid Securities. The Fund will invest no more than 10% of its net
assets in illiquid securities or securities that are not readily marketable,
including repurchase agreements and time deposits of more than seven days'
duration. The absence of a regular trading market for illiquid securities
imposes additional risks on investments in these securities. Illiquid securities
may be difficult to value and may often be disposed of only after considerable
expense and delay.
Variable Amount Master Demand Notes. 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. Asset-backed securities represent undivided
fractional interests in pools of instruments, such as consumer loans, and are
similar in structure to mortgage-related 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 Fund has been exhausted, and if any required payments of principal
and interest are not made with respect to the underlying loans, the Fund may
experience loss or delay in receiving payment and a decrease in the value of the
security. Further details are set forth in the Statement of Additional
Information under "Investment Restrictions and Policies -- Investment Policies."
Mortgage-Related Securities. The Fund 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 Certificates ("Fannie Maes").
Mortgage 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. 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. 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, 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, Eurodollar Time Deposits and Yankee
Certificates of Deposit. 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
-8-
<PAGE>
to the same regulatory requirements that apply to domestic banks, such as loan
limitations, examinations and reserve, accounting, auditing, recordkeeping and
public reporting requirements.
Lending Portfolio Securities. The Fund may lend portfolio securities with a
value of up to 33-1/3% of its total assets. For these purposes, total assets
shall include the value of all assets received as collateral for the loan. Such
loans may be terminated at any time. The 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, the
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, the 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.
The 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, the 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, the Fund will also bear the risk of any decline in value of
securities acquired with cash collateral. The Fund will minimize this risk by
limiting the investment of cash collateral to high quality instruments of short
maturity.
Purchase of Other Funds. To the extent permitted under the 1940 Act and
exemptive rules and orders thereunder, the Fund may seek to achieve its
investment objective by investing solely in the shares of another investment
company that has a substantially similar investment objective and policies.
Investment Restrictions
The Fund has fundamental investment restrictions, which may be changed only
with the approval of a majority of the Fund's shareholders as defined in the
1940 Act. A more detailed discussion of the Fund's 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. The
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 non-depository
instruments issued by European banks). Concentration may occur as a result
of changes in the market value of portfolio securities, but may not result
from investment. US banks and certain domestic branches of foreign banks
are not considered a single industry for purposes of this restriction.
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 Fund's
assets taken at market value, less liabilities other than borrowings. If at
any time the 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. The 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, the Fund may pledge
securities having a market value at the time of the pledge not exceeding
33-1/3% of the value of the Fund's total assets to secure permitted
borrowings.
PORTFOLIO MATURITY
The Fund must limit investments to securities with remaining maturities of
397 days or less (as determined in accordance with the applicable SEC
regulations) and must maintain a dollar-weighted average maturity of 90 days or
less. The Fund normally holds portfolio instruments to maturity but may dispose
of them prior to maturity if the Advisor finds it advantageous.
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<PAGE>
DIVIDENDS AND DISTRIBUTIONS
The Board of Trustees intends to declare dividends on shares of the Fund
from net investment income daily and have them payable as of the last business
day of each month. Distributions will be made at least annually from net short-
and long-term capital gains, if any. In most instances, distributions will be
declared and paid in mid-October with additional distributions declared and paid
in December, if required, for the Fund to avoid imposition of a 4% federal
excise tax on undistributed capital gains. The Fund does not expect any material
long-term capital gains or losses.
Dividends declared in October, November or December and payable to
shareholders of record in such months will be deemed to have been paid by the
Fund and received by shareholders on December 31 of that year if the dividend is
paid prior to February 1 of the following year.
Income dividend and capital gain distributions will be paid 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 Fund mailings to an investor, the 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 Fund until the
investor notifies the SSgA Funds in writing of the correct address and request
in writing that the election to receive dividends and other distributions in
cash be reinstated.
Distribution Option. Investors can choose from four different distribution
options as indicated on the account Application:
[bullet] Reinvestment Option--Dividends and capital gains distributions
will be automatically reinvested in additional shares of the
Fund. If the investor does not indicate a choice on the
Application, this option will be automatically assigned.
[bullet] Income-Earned Option--Capital gain distributions will be
automatically reinvested, but a check or wire will be sent for
each dividend distribution.
[bullet] Cash Option--A check or wire will be sent for each dividend
and capital gain distribution.
[bullet] Direct Dividends Option--Dividends and capital gain
distribution will be automatically invested in another
identically registered SSgA Fund.
The Transfer Agent will wire dividends (if that option is elected) to a
pre-designated bank on the first business day of the following month in which
the dividend is payable.
TAXES
The Fund intends to qualify as a regulated investment company ("RIC") under
Subchapter M of the Internal Revenue Code, as amended (the "Code"). As a RIC,
the Fund will not be subject to federal income taxes to the extent it
distributes its net investment income and net capital gain (long-term capital
gains in excess of short-term capital losses) to its shareholders. The Board
intends to distribute each year substantially all of the Fund's net investment
income and capital gain net income.
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 20% gains and 28% gains are taxable as 20% gains or 28% gains regardless of
the length of time a shareholder has held such shares.
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<PAGE>
Dividends and distributions may also be subject to state or local taxes.
Depending on the state tax rules pertaining to a shareholder, a portion of the
dividends paid by the Fund attributable to direct obligations of the US Treasury
and certain agencies may be exempt from state and local taxes.
Shareholders will be notified after each calendar year of the amount of
income dividends and net capital gains distributed and the percentage of the
Fund's income attributable to US Treasury and agency obligations. The 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 Fund with the shareholder's correct taxpayer
identification number or certification that the shareholder is not subject to
backup withholding.
The foregoing discussion is only a summary of certain federal income tax
issues generally affecting the Fund and its shareholders. Circumstances among
investors may vary and each investor is encouraged to discuss investment in the
Fund with the investor's tax advisor.
VALUATION OF FUND SHARES
Net Asset Value Per Share. Net asset value per share of the Fund is
computed by adding the value of all securities and other assets of the Fund,
deducting accrued liabilities allocated to the class, dividing by the number of
shares outstanding in a class and rounding to the nearest cent. The Fund will
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 and Boston Federal
Reserve are open for business.
Valuation of Fund Securities. The Fund seeks to maintain a $1.00 per share
net asset value and, accordingly, uses the amortized cost valuation method to
value its portfolio instruments. The amortized cost valuation method 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 FUND SHARES
Minimum Initial and Subsequent Investments and Account Balance. The 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 the Fund (other than IRA
accounts) may be subject to redemption at the 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. The Fund reserves
the right to reject any purchase order. Investors purchasing Fund assets through
a pension or other participation plan should contact their plan administrator
for further information on purchases.
Offering Dates and Times. Fund shares may be purchased on any business day
without a sales commission. All purchases must be made in US dollars. 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 to be effective on the date received and to be
eligible to earn the dividend declared on date of purchase. The Fund reserves
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.
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<PAGE>
Order and Payment Procedures. There are several ways to invest in the Fund.
The Fund requires 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 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 may be withheld until the check or account
clears, which may take up to 15 calendar days.
Telephone Exchange Privilege. Subject to the Fund's minimum investment
requirement, investors may exchange a minimum of $100 of their 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 on the business day on which the
call is placed or upon written receipt of instructions in good form by the
Transfer Agent. Exchanges may be made over the phone if the registrations of the
two accounts are identical. If the shares of the 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 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.
Federal Funds Wire. An investor may make initial or subsequent investments
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 Fund in which the
investment is to be made and the account number; and (c) the amount
being wired.
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 Money Market Fund
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.
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<PAGE>
Systematic Investment Plan. Investors can make regular investments in the
Fund 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 Fund's minimum initial requirement 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 Fund offers 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 Fund has been satisfied.
Third Party Transactions. Investors purchasing 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.
In Kind Exchange of Securities. The Transfer Agent may, at its discretion,
permit investors to purchase shares through the exchange of securities they
hold. Any securities exchanged must meet the investment objective, policies and
limitations of the Fund, must have a readily ascertainable market value, must be
liquid and must not be subject to restrictions on resale. The market value of
any securities exchanged, plus any cash, must be at least $10 million. Shares
purchased in exchange for securities generally may not be redeemed or exchanged
until the transfer has settled--usually within 15 days following the purchase
exchange.
The basis of the exchange will depend upon the relative net asset value of
the shares purchased and securities exchanged. Securities accepted by the Fund
will be valued in the same manner as the Fund values its assets. Any interest
earned on the securities following their delivery to the Transfer Agent and
prior to the exchange will be considered in valuing the securities. All
interest, dividends subscription or other rights attached to the securities
become the property of the Fund, along with the securities.
REDEMPTION OF FUND SHARES
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. Typically, 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. No dividends will be paid on shares on the date of redemption.
Redemption requests must be received prior to 4:00 p.m. Eastern time in
order be effective on the date received. Shareholder servicing agents with
underlying shareholders in omnibus accounts who receive redemption requests by
4:00 p.m. Eastern time may transmit the request to the Transfer Agent by 9:00
a.m. Eastern time the next succeeding business day and receive the dividend as
of the day the redemption request was originally made by the underlying
shareholder.
Checkwriting Service. If investors have authorized the check writing
feature on the Application and have completed the signature card, they may
redeem shares in their account, provided that the appropriate signatures are on
the check. The minimum check amount is $500. There is a one-time service charge
of $5 per Fund to establish this feature, and investors may write an unlimited
number of checks provided that the account minimum of $1,000 per Fund is
maintained.
Cash Sweep Program. Money managers of master trust clients may participate
in a cash sweep program to automatically invest excess cash in the Fund. A money
manager must select the Fund, give authorization to complete
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<PAGE>
the Fund's Application and authorize the investment of excess cash into or the
withdrawal of required cash from the Fund on a daily basis. Where the Advisor
acts as the money manager, the Advisor will receive an advisory fee from the
client.
Telephone Redemption. Shareholders may normally redeem 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 Fund and the Transfer Agent will employ reasonable procedures
to confirm that instructions communicated by telephone are properly authorized.
The 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.
Requests received via telephone prior to 4:00 p.m. Eastern time will be sent the
same day according to pre-designated instructions.
By Wire. Proceeds exceeding $1,000 may be sent via wire transfer to the
investor's pre-designated bank. Proceeds may be sent, depending on the Fund, on
the same or the next day. Although the Fund does 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 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.
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<TABLE>
<CAPTION>
Seller Requirements for Written Requests
<S> <C>
Owner of individual, [bullet] Letter of instruction, signed by all persons
joint, sole proprietorship, authorized to sign for the account stating general
UGMA/UTMA (custodial accounts titles/capacity, exactly as the account is
for minors) or general registered; and
partner accounts [bullet] Signature guarantee, if applicable (see above).
Owners of corporate or [bullet] Letter of instruction signed by authorized
association accounts person(s), stating capacity as indicated by the
corporate resolution;
[bullet] Corporate resolution, certified within the past 90
days; and
[bullet] Signature guarantee, if applicable (see above).
Owners or trustees of [bullet] Letter of instruction, signed by all trustees;
trust accounts [bullet] If the trustees are not named in the registration,
please provide a copy of the trust document certified
within the past 60 days; and
[bullet] Signature guarantee, if applicable (see above).
Joint tenancy shareholders [bullet] Letter of instruction signed by surviving tenant(s);
whose co-tenants are [bullet] Certified copy of the death certificate; and
deceased [bullet] Signature guarantee, if applicable (see above).
</TABLE>
Please contact the Customer Service Department at (800) 647-7327 for
questions and further instructions.
The Fund may pay any portion of the redemption amount in excess of $250,000
by a distribution in kind of readily marketable securities from the portfolio of
the Fund in lieu of cash. Investors will incur brokerage charges on the sale of
these portfolio securities. The Fund reserves 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 Fund and has approved contracts with various financial organizations to
provide, among other services, day-to-day management required by the Fund.
Advisory Agreement. The Investment Company employs State Street to furnish
investment services to the Fund. State Street is one of the largest providers of
securities processing and recordkeeping services for US mutual funds and pension
funds. State Street Global Advisors is the investment management business of
State Street, a 200 year old pioneer and leader in the world of financial
services. State Street is a wholly owned subsidiary of State Street Corporation,
a publicly held bank holding company. State Street, with over $370 billion (US)
under management as of September 30, 1997, provides complete global investment
management services from offices in Atlanta, Boston, Brussels, Copenhagen,
Dubai, Hong Kong, London, Minneapolis, Montpellier, Montreal, Munich, Paris, San
Francisco, Sydney, Tokyo, and Toronto.
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<PAGE>
The Advisor, subject to Board supervision, directs the investments of the
Fund in accordance with the Fund's investment objective, policies and
restrictions. For these services, the Fund pays the Advisor a fee, calculated
daily and paid monthly, that on an annual basis is equal to .25% of the Fund's
average daily net assets.
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 Fund, 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 Fund 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 Fund. If the Advisor were
prohibited from serving the Fund 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 Fund 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 Investment Company portfolios 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 November 30, 1997,
State Street held of record less than 25% of the issued and outstanding shares
of the Investment Company in connection with its discretionary accounts.
Consequently, State Street is not deemed to be a controlling person of the
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 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.
Administration Agreement. Frank Russell Investment Management Company
("Administrator") serves as administrator of the Fund. Administrator currently
serves as investment manager and administrator to 32 mutual funds with assets of
$11.3 billion as of October 31, 1997, and acts as administrator to 20 mutual
funds, including the Fund, with assets of $10.8 billion as of October 31, 1997.
Pursuant to the Administration Agreement with the Investment Company,
Administrator will: (1) supervise all aspects of the Fund's operations; (2)
provide the Fund with administrative and clerical services, including the
maintenance of certain of the Fund's books and records; (3) arrange the periodic
updating of the Fund's Prospectuses and any supplements thereto; (4) provide
proxy materials and reports to Fund shareholders and the Securities and Exchange
Commission; and (5) provide the Fund 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 Fund
and the Investment Company's other domestic investment portfolios pay
Administrator a combined fee that on an annual basis is equal to the following
percentages of their average aggregate daily net assets: (1) $0 to and including
$500 million -- .06%; (2) over $500 million to and including $1 billion -- .05%;
and (3) over $1 billion -- .03%. The percentage of the fee paid by a particular
Fund is equal to the percentage of average aggregate daily net assets that are
attributable to that Fund. Administrator will also receive reimbursement of
expenses it incurs in connection with establishing new investment portfolios.
Further, the administration fee paid by the Investment Company will be reduced
by the sum of certain distribution related expenses, up to certain maximum
percentages, as follows: (1) 10% from January 1, 1997 to December 31, 1997; 5%
from January 1, 1998 to December 31, 1998; and (3) 0% from January 1, 1999
thereafter.
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<PAGE>
Administrator also provides administrative services in connection with the
registration of shares of the Investment Company 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 the Investment Company, the Distributor, a
wholly owned subsidiary of the Administrator, serves as distributor for all Fund
shares.
The Fund has 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, the Distributor will be reimbursed in an amount up to
.25% of the Fund's average annual net assets for distribution-related and
shareholder servicing expenses. Payments under the Plan will be made to the
Distributor to finance activity that is intended to result in the sale and
retention of Fund shares including: (1) payments made to certain broker-dealers,
investment 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 Fund shares,
including Distributor's overhead expenses for rent, office supplies, equipment,
travel, communication, compensation and benefits of sales personnel.
Under the Plan, the Fund may also enter into agreements ("Service
Agreements") with financial institutions, which may include the Advisor
("Service Organizations"), to provide shareholder servicing with respect to 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: answering inquiries regarding the Fund; assisting
customers in changing dividend options, account designations and addresses;
performing subaccounting for such customers; establishing and maintaining
customer accounts and records; processing purchase and redemption transactions;
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; arranging for
bank wires transferring customers' funds; and such other services as the
customers may request in connection with the Fund, to the extent permitted by
applicable statute, rule or regulation. Service Organizations may receive from
the 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 the 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.
The Investment Company has entered into Service Agreements with the Advisor
and the following entities related to the Advisor: State Street Brokerage
Services, Inc., Metropolitan Division of Commercial Banking, Retirement
Investment Services Division and State Street Solutions. The purpose of the
Service Agreements is to obtain shareholder services for Fund shares owned by
clients of each of these entities. In return for these services, the Investment
Company pays each of the entities a fee. These agreements are reviewed annually
by the Board of Trustees.
Payments to the Distributor, as well as payments to Service Organizations
from the Fund, are not permitted by the Plan to exceed .25% per year of the
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. The Fund's liability for any
such expenses carried forward shall terminate at the end of two years following
the year in which the
-17-
<PAGE>
expenditure was incurred. Service Organizations will be responsible for prompt
transmission of purchase and redemption orders and may charge fees for their
services.
FUND EXPENSES
The Fund will pay all of its expenses other than those expressly assumed by
the Advisor and Administrator. The Fund's principal expenses are the annual
advisory fee payable to the Advisor and distribution and shareholder servicing
expenses. Other expenses include: (1) amortization of deferred organizational
costs; (2) taxes, if any; (3) expenses for legal, auditing and financial
accounting services; (4) expense of preparing (including typesetting, printing
and mailing) reports, prospectuses and notices to existing shareholders; (5)
administrative fees; (6) custodian fees; (7) expense of issuing and redeeming
Fund shares; (8) the cost of registering 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 the 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 the Investment Company to indemnify its Trustees,
officers, employees, shareholders, distributors and agents; and (13) other
expenses properly payable by the Fund. Where any of these other expenses are
attributable to a particular class of shares, they will be borne by the
beneficial owners of such shares.
PERFORMANCE CALCULATIONS
From time to time the Fund may advertise its yield and effective yield. The
yield of each Fund refers to the income generated by an investment in shares of
the Fund 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 the Fund is assumed to be reinvested. The effective yield
will be slightly higher than the yield prescribed by the Securities and Exchange
Commission because of the compounding effect of this assumed reinvestment.
From time to time, the Fund 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.
From time to time the Fund may advertise its total return. The total return
of the Fund is the average annual compounded rate of return from a hypothetical
investment in the Fund over one-, five- and ten-year periods or for the life of
the Fund (as stated in the advertisement), assuming the reinvestment of all
dividends and capital gain distributions.
Comparative performance information may be used from time to time in
advertising or marketing Fund shares, including data from Lipper Analytical
Services, Inc., IBC's Money Fund Report, the Bank Rate Monitor, Wall Street
Journal Score Card, or other industry publications, business periodicals, rating
services and market indices. The Fund may also advertise nonstandardized
performance information which is for periods in addition to those required to be
presented.
Quoted yields, total returns and other performance figures are based on
historical earnings and are not indications of future performance.
-18-
<PAGE>
ADDITIONAL INFORMATION
Custodian, Transfer Agent and Independent Accountants. State Street holds
all portfolio securities and cash assets of the Fund, provides portfolio
recordkeeping services and serves as the Fund's 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 the
Fund except as investment advisor. Coopers & Lybrand L.L.P., Boston,
Massachusetts, is the Investment Company's independent accountants.
Reports to Shareholders and Shareholder Inquiries. Shareholders will
receive unaudited semiannual financial statements and annual financial
statements audited by the Investment Company's independent accountants.
Shareholder inquiries regarding the Prospectus, financial statements, or
shareholder balances may be made by calling (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. The Money Market Fund is one such series. Shares of a fund
are entitled to such relative rights and preferences and dividends and
distributions earned on assets of the Fund as may be declared by the Board of
Trustees. Fund shares are fully paid and nonassessable by the Investment Company
and have no preemptive rights.
Each 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.
The Investment Company does not issue share certificates for the Fund.
Transfer Agent sends monthly statements to shareholders of the Fund 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.
As of November 30, 1997, no single shareholder owned of record 25% or more
of the issued and outstanding shares of the Fund.
-19-
<PAGE>
SSgA FUNDS
One International Place
Boston, Massachusetts 02110
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
-20-
<PAGE>
SSgA FUNDS
SSgA Money Market Fund
SSgA US Government Money Market Fund
SSgA Tax Free Money Market Fund
SSgA S&P 500 Index Fund
SSgA Small Cap Fund
SSgA Matrix Equity Fund
SSgA Yield Plus Fund
SSgA Growth and Income Fund
SSgA Intermediate Fund
SSgA Active International Fund
SSgA Emerging Markets Fund
SSgA Bond Market Fund
SSgA Life Solutions Growth Fund
SSgA Life Solutions Balanced Fund
SSgA Life Solutions Income and Growth Fund
-21-
<PAGE>
Filed pursuant to Rule 485(b)
File Nos. 33-19229; 811-5430
SSgA FUNDS
One International Place
Boston, Massachusetts 02110
(800) 647-7327
US GOVERNMENT MONEY MARKET FUND
SSgA Funds is a registered, open-end management investment company with
multiple portfolios, each of which is commonly referred to as a mutual fund.
This Prospectus describes and offers shares of beneficial interest in one of the
mutual funds, the SSgA US Government Money Market Fund (the "Government Money
Market Fund" or "Fund"). The Government Money Market Fund seeks 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 instrumentalities with
remaining maturities of one year or less. The Fund's shares are offered without
sales commissions. However, the Fund pays certain distribution expenses under
its 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 FUND ARE NEITHER INSURED NOR GUARANTEED BY THE US
GOVERNMENT. THERE IS NO ASSURANCE THAT THE GOVERNMENT MONEY MARKET FUND WILL
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
SHARES IN THE FUND 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 sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Please read and retain this
document for future reference. Additional information about the SSgA Funds has
been filed with the Securities and Exchange Commission ("SEC") in Statements of
Additional Information ("SAI") dated December 24, 1997. The SAI is incorporated
herein by reference and is available without charge from Distributor at its
address noted below or by calling (800) 647-7327. The SEC also maintains a
website (www.sec.gov) that contains the SAI, material incorporated by reference
and other information regarding the SSgA Funds. You may also access the SSgA
Funds' website at www.ssgafunds.com
<TABLE>
<S> <C> <C>
Investment Advisor, Custodian
and Transfer Agent: Distributor: Administrator:
State Street Bank and Trust Russell Fund Distributors, Inc. Frank Russell Investment
Company One International Place Management Company
225 Franklin Street Boston, Massachusetts 02110 909 A Street
Boston, Massachusetts 02110 Tacoma, Washington 98402
</TABLE>
PROSPECTUS DATED December 24, 1997
<PAGE>
TABLE OF CONTENTS
Page
----
Fund Operating Expenses................................................. 3
Financial Highlights.................................................... 4
SSgA Funds.............................................................. 5
Manner of Offering...................................................... 5
Investment Objective, Policies and Restrictions......................... 5
Portfolio Maturity ..................................................... 8
Dividends and Distributions............................................. 8
Taxes................................................................... 8
Valuation of Fund Shares................................................ 9
Purchase of Fund Shares................................................. 9
Redemption of Fund Shares............................................... 11
General Management...................................................... 13
Fund Expenses........................................................... 15
Performance Calculations................................................ 15
Additional Information.................................................. 16
-2-
<PAGE>
FUND OPERATING EXPENSES
SSgA US GOVERNMENT MONEY MARKET FUND
The purpose of the following table is to assist the investor in understanding
the various costs and expenses that an investor in the US Government Money
Market Fund will incur directly or indirectly. The examples should not be
considered a representation of past or future expenses. Actual expenses may be
greater or less than those shown. For additional information, see "General
Management."
Shareholder Transaction Expenses:
- ---------------------------------
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
Annual Fund Operating Expenses:
- -------------------------------
(as a percentage of average daily net assets)
Advisory Fees .25%
12b-1 Distribution Fees .03
12b-1 Shareholder Servicing Fees .09
Other Expenses .07
---
Total Operating Expenses(1) .44%
===
<TABLE>
<CAPTION>
Examples: 1 year 3 years 5 years 10 years
- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
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:
$5 $14 $25 $55
== === === ===
</TABLE>
- ------------
(1) Investors purchasing 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-
<PAGE>
FINANCIAL HIGHLIGHTS
SSgA US GOVERNMENT MONEY MARKET FUND
The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Fund's independent
accountants. The table includes selected data for a share outstanding throughout
each fiscal year or period ended August 31, and other performance information
derived from the financial statements. The table appears in the Fund's Annual
Report and should be read in conjunction with the Fund's financial statements
and related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand L.L.P., in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Distributor at (800) 647-7327.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991++
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- ------- ------- -------
INCOME FROM INVEST-
MENT OPERATIONS:
Net investment income .0500 .0515 .0528 .0324 .0304 .0441 .0302
LESS DISTRIBUTIONS:
Net investment income (.0500) (.0515) (.0528) (.0324) (.0304) (.0441) (.0302)
------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE,
END OF YEAR $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= ======= ======= =======
TOTAL RETURN (%)(a) 5.19 5.27 5.38 3.30 3.08 4.49 3.06
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of year
($000 omitted) 904,483 683,210 490,138 251,165 137,136 156,707 94,646
Ratios to average net assets
(%) (b):
Operating expenses, net .44 .40 .42 .38 .39 .41 .23
Operating expenses, gross .44 .40 .42 .39 .46 .42 .43
Net investment income 5.08 5.12 5.37 3.27 3.04 4.26 5.94
Per share amount of expense
reductions ($ omitted) -- -- -- .0001 .0007 .0001 .0011
</TABLE>
- ---------------
++ For the period March 1, 1991 (commencement of operations) to
August 31, 1991.
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended August 31, 1991 are annualized.
-4-
<PAGE>
SSgA FUNDS
SSgA Funds ("Investment Company") is an open-end management investment
company that is organized as a Massachusetts business trust. In addition, each
series of the Investment Company is diversified as defined in the Investment
Company Act of 1940, as amended ("1940 Act"). As a "series" company, Investment
Company is authorized to issue an unlimited number of shares evidencing
beneficial interests in different investment portfolios. Through this
Prospectus, Investment Company offers shares in the US Government Money Market
Fund. State Street Bank and Trust Company (the "Advisor" or "State Street")
serves as the investment advisor for the Fund.
MANNER OF OFFERING
Distribution and Eligible Investors. Shares of the Fund are offered
without a sales commission by Russell Fund Distributors, Inc. (the
"Distributor"), Investment Company's distributor, to US and foreign
institutional and retail investors that invest for their own account or in a
fiduciary or agency capacity. The Fund will incur distribution expenses under
its Rule 12b-1 plan. See "General Management -- Distribution Services and
Shareholder Servicing Arrangements."
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
The Fund has a fundamental investment objective, which may be changed
only with the approval of a majority of the Fund's shareholders as defined by
the 1940 Act. There can be no assurance that the Fund will meet its investment
objective.
The Government Money Market Fund's 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 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. (See "Investment Policies -- US Government
Securities.") Under normal market conditions, the Government Money Market Fund
will be 100% invested in such securities.
Investment Policies
- -------------------
The investment policies described below reflect the Fund's current
practices, are not fundamental and may be changed by the Board of Trustees of
Investment Company without shareholder approval. For more information on these
investment policies, please see the Statement of Additional Information. To the
extent consistent with the Fund's fundamental investment objective and
restrictions, the Fund may invest in the following instruments and may use the
following investment techniques:
US Government Securities. 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. The 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 Fund receives
securities as collateral. Under a repurchase agreement, a Fund purchases
securities from a financial institution that agrees to repurchase the securities
at the Fund's original purchase price plus interest within a specified time
(normally one business day). The Fund will limit repurchase transactions to
those member banks of the Federal Reserve System and broker-dealers whose
creditworthiness Advisor considers satisfactory. Should the counterparty to a
transaction fail financially, the Fund may encounter delay and
-5-
<PAGE>
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 the Fund.
Reverse Repurchase Agreements. The Fund may enter into reverse
repurchase agreements under the circumstances described in "Investment
Restrictions." In substance, a reverse repurchase agreement is a borrowing for
which the Fund provides securities as collateral. Under a reverse repurchase
agreement, the Fund sells portfolio securities to a financial institution 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 at a
prescribed repurchase price equal to the amount of cash originally received plus
interest on such amount. The Fund retains the right to receive interest and
principal payments with respect to the securities while they are in the
possession of the financial institutions. Reverse repurchase agreements involve
the risk of default by the counterparty, which may adversely affect the Fund's
ability to reacquire the underlying securities.
Forward Commitments. The Fund 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 the Fund of a dollar
amount sufficient to make payment for the portfolio securities to be purchased
will be segregated on the Fund'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 the Fund to miss an advantageous price or
yield. The Fund bears the risk of price fluctuations during the period between
the trade and settlement dates.
When-Issued Transactions. The Fund may purchase securities on a
when-issued basis. In these transactions, a Fund purchases securities with
payment and delivery scheduled for a future time. Until settlement, the Fund
segregates cash and marketable securities equal in value to their when-issued
commitments. Between the trade and settlement dates, the 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 the Fund to miss a price or yield considered advantageous. The Fund will
engage in when-issued transactions only for the purpose of acquiring portfolio
securities consistent with its investment objective and policies and not for
investment leverage. The Fund will not invest more than 25% of its net assets in
when-issued securities.
Illiquid Securities. The Fund will invest no more than 10% of its net
assets in illiquid securities or securities that are not readily marketable,
including repurchase agreements and of more than seven days' duration. The
absence of a regular trading market for illiquid securities imposes additional
risks on investments in these securities. Illiquid securities may be difficult
to value and may often be disposed of only after considerable expense and delay.
Variable Amount Master Demand Notes. 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.
Mortgage-Related Pass-Through Securities. The Fund 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. 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 compatible securities that pay interest periodically
during the life of the instrument.
-6-
<PAGE>
Variable and Floating Rate Securities. 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, 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.
Lending Portfolio Securities. The Fund may lend portfolio securities
with a value of up to 33-1/3% of its total assets. For these purposes, total
assets shall include the value of all assets received as collateral for the
loan. Such loans may be terminated at any time. The 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, the 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, the 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. The 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, the 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 Advisor to be of good financial standing. In a
loan transaction, the Fund will also bear the risk of any decline in value of
securities acquired with cash collateral. The Fund will minimize this risk by
limiting the investment of cash collateral to high quality instruments of short
maturity.
Purchase of Other Funds. To the extent permitted under the 1940 Act and
exemptive rules and orders thereunder, the Fund may seek to achieve its
investment objective by investing solely in the shares of another investment
company that has a substantially similar investment objective and policies.
Investment Restrictions
- -----------------------
The Fund has fundamental investment restrictions, which may be changed
only with the approval of a majority of the Fund's shareholders as defined in
the 1940 Act. A more detailed discussion of the Fund's 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. The 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). Concentration may occur as a result of
changes in the market value of portfolio securities, but may
not result from investment. US banks and certain domestic
branches of foreign banks are not considered a single industry
for purposes of this restriction.
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 Fund's assets
taken at market value, less liabilities other than borrowings.
If at any time the 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 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, the Fund
may pledge securities having a market value at the time of the
pledge not exceeding 33-1/3% of the value of the Fund's total
assets to secure permitted borrowings.
-7-
<PAGE>
PORTFOLIO MATURITY
The Fund must limit investments to securities with remaining maturities
of 397 days or less (as determined in accordance with applicable SEC
regulations) and must maintain a dollar-weighted average maturity of 90 days or
less. The Fund normally holds portfolio instruments to maturity but may dispose
of them prior to maturity if Advisor finds it advantageous.
DIVIDENDS AND DISTRIBUTIONS
The Board of Trustees intends to declare dividends on shares of the Fund
from net investment income daily and have them payable as of the last business
day of each month. Distributions will be made at least annually from net short-
and long-term capital gains, if any. In most instances, distributions will be
declared and paid in mid-October with additional distributions declared and paid
in December, if required, for the Fund to avoid imposition of a 4% federal
excise tax on undistributed capital gains. The Fund does not expect any material
long-term capital gains or losses.
Dividends declared in October, November or December and payable to
shareholders of record in such months will be deemed to have been paid by the
Fund and received by shareholders on December 31 of that year if the dividend is
paid prior to February 1 of the following year.
Income dividend and capital gain distributions will be paid 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 Fund mailings to an investor, the 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 Fund until the
investor notifies the SSgA Funds in writing of the correct address and request
in writing that the election to receive dividends and other distributions in
cash be reinstated.
Distribution Option. Investors can choose from four different distribution
options as indicated on the account Application:
[BULLET] Reinvestment Option--Dividends and capital gains distributions will be
automatically reinvested in additional shares of the Fund. If the
investor does not indicate a choice on the Application, this option
will be automatically assigned.
[BULLET] Income-Earned Option--Capital gain distributions will be automatically
reinvested, but a check or wire will be sent for each dividend
distribution.
[BULLET] Cash Option--A check or wire will be sent for each dividend and
capital gain distribution.
[BULLET] Direct Dividends Option--Dividends and capital gain distribution will
be automatically invested in another identically registered SSgA Fund.
The Transfer Agent will wire dividends (if that option is elected) to a
pre-designated bank on the first business day of the following month in which
the dividend is payable.
TAXES
The Fund intends to qualify as a regulated investment company ("RIC") under
Subchapter M of the Internal Revenue Code, as amended (the "Code"). As a RIC,
the Fund will not be subject to federal income taxes to the extent it
distributes its net investment income and net capital gain (long-term capital
gains in excess of short-term capital losses) to its shareholders. The Board
intends to distribute each year substantially all of the Fund's net investment
income and capital gain net income.
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 20% gains and 28% gains are taxable as 20% gains or 28% gains regardless of
the length of time a shareholder has held such shares.
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<PAGE>
Dividends and distributions may also be subject to state or local taxes.
Depending on the state tax rules pertaining to a shareholder, a portion of the
dividends paid by the Fund attributable to direct obligations of the US Treasury
and certain agencies may be exempt from state and local taxes.
The sale of 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 portfolios of a mutual fund). Any loss incurred on sale or exchange of
Fund shares held for one year or more will be treated as a 20% loss or a 28%
loss to the extent of capital gain dividends received with respect to such
shares.
Shareholders will be notified after each calendar year of the amount of
income dividends and net capital gains distributed and the percentage of the
Fund's income attributable to US Treasury and agency obligations. The 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 Fund with the shareholder's correct taxpayer
identification number or certification that the shareholder is not subject to
backup withholding.
The foregoing discussion is only a summary of certain federal income tax
issues generally affecting the Fund and its shareholders. Circumstances among
investors may vary and each investor is encouraged to discuss investment in the
Fund with the investor's tax advisor.
VALUATION OF FUND SHARES
Net Asset Value Per Share. Net asset value per share for each class of
shares of the Fund is computed by adding the value of all securities and other
assets of the Fund, deducting accrued liabilities allocated to the class,
dividing by the number of shares outstanding in a class and rounding to the
nearest cent. The 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 4:00 p.m. Eastern time). A business day
is one on which the New York Stock Exchange and Boston Federal Reserve are open
for business.
Valuation of Fund Securities. The Fund seeks to maintain a $1.00 per share
net asset value and, accordingly, uses the amortized cost valuation method to
value its portfolio instruments. The amortized cost valuation method 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 FUND SHARES
Minimum Initial and Subsequent Investments and Account Balance. The 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 the Fund (other than IRA
accounts) may be subject to redemption at the 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. The Fund reserves
the right to reject any purchase order. Investors purchasing Fund assets through
a pension or other participation plan should contact their plan administrator
for further information on purchases.
Offering Dates and Times. Fund shares may be purchased on any business day
without a sales commission. All purchases must be made in US dollars and in
Federal funds (or converted to Federal funds). Purchase orders which are
accepted: (1) prior to 12:00
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<PAGE>
noon Eastern time will earn the dividend declared on the date of purchase; and
(2) at or after 12:00 noon Eastern time will earn the dividend determined on the
next day. The Fund reserves 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.
Order and Payment Procedures. There are several ways to invest in the Fund.
The Fund requires 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 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 may be withheld until the check or account
clears, which may take up to 15 calendar days.
Telephone Exchange Privilege. Subject to the Fund's minimum investment
requirement, investors may exchange a minimum of $100 of their 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 on the business day on which the
call is placed or upon written receipt of instructions in good form by the
Transfer Agent. Exchanges may be made over the phone if the registrations of the
two accounts are identical. If the shares of the 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 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.
Federal Funds Wire. An investor may make initial or subsequent
investments 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 Fund in
which the investment is to be made and the account number; and (c)
the amount being wired.
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 US Government Money Market Fund
Account Number and Registration
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<PAGE>
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
Fund 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 Fund's minimum initial requirement 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 Fund offers 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 Fund has been satisfied.
Third Party Transactions. Investors purchasing 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.
In Kind Exchange of Securities. The Transfer Agent may, at its discretion,
permit investors to purchase shares through the exchange of securities they
hold. Any securities exchanged must meet the investment objective, policies and
limitations of the Fund, must have a readily ascertainable market value, must be
liquid and must not be subject to restrictions on resale. The market value of
any securities exchanged, plus any cash, must be at least $10 million. Shares
purchased in exchange for securities generally may not be redeemed or exchanged
until the transfer has settled--usually within 15 days following the purchase
exchange.
The basis of the exchange will depend upon the relative net asset value of
the shares purchased and securities exchanged. Securities accepted by the Fund
will be valued in the same manner as the Fund values its assets. Any interest
earned on the securities following their delivery to the Transfer Agent and
prior to the exchange will be considered in valuing the securities. All
interest, dividends subscription or other rights attached to the securities
become the property of the Fund, along with the securities.
REDEMPTION OF FUND SHARES
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 in order be effective on the date received. Shareholder servicing
agents with underlying shareholders in omnibus accounts who receive redemption
requests by 4:00 p.m. Eastern time may transmit the request to the Transfer
Agent by 9:00 a.m. Eastern time the next succeeding business day and receive the
dividend as of the day the redemption request was originally made by the
underlying shareholder. Typically, 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. A dividend will be paid according to the established dividend
payment schedule on shares redeemed if the redemption request is received by
State Street after 12:00 noon Eastern time. Redemption requests received before
12:00 noon Eastern time will not be entitled to that day's dividend.
Checkwriting Service. If investors have authorized the check writing
feature on the Application and have completed the signature card, they may
redeem shares in their account, provided that the appropriate signatures are on
the check. The minimum check amount is $500. There is a one-time service charge
of $5 per Fund to establish this feature, and investors may write an unlimited
number of checks provided that the account minimum of $1,000 per Fund is
maintained.
Telephone Redemption. Shareholders may normally redeem 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
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<PAGE>
section of the application and attach a voided check (if applicable) before
utilizing this feature. The Fund and the Transfer Agent will employ reasonable
procedures to confirm that instructions communicated by telephone are properly
authorized. The 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.
By Wire. Proceeds exceeding $1,000 may be sent via wire transfer to the
investor's pre-designated bank. Proceeds may be sent, depending on the Fund, on
the same or the next day. Although the Fund does 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. Requests
received prior to 12:00 noon Eastern time will have proceeds wired the same day.
Requests received after 12:00 noon Eastern time will have the shares redeemed
that day and the proceeds will be wired the following business day.
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 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.
<TABLE>
<CAPTION>
Seller Requirements for Written Requests
<S> <C>
Owner of individual, [BULLET] Letter of instruction, signed by all persons authorized
joint, sole proprietorship to sign for the account stating general titles/capacity,
UGMA/UTMA (custodial exactly as the account is registered; and
accounts for minors) [BULLET] Signature guarantee, if applicable (see above).
or general partner
accounts
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Owners of corporate or [BULLET] Letter of instruction signed by authorized person(s),
association accounts stating capacity as indicated by the corporate resolution;
[BULLET] Corporate resolution, certified within the past 90 days; and
[BULLET] Signature guarantee, if applicable (see above).
Owners or trustees of [BULLET] Letter of instruction, signed by all trustees;
trust accounts [BULLET] If the trustees are not named in the registration,
please provide a copy of the trust document certified
within the past 60 days; and
[BULLET] Signature guarantee, if applicable (see above).
Joint tenancy share- [BULLET] Letter of instruction signed by surviving tenant(s);
holders whose co-tenants [BULLET] Certified copy of the death certificate; and
are deceased [BULLET] Signature guarantee, if applicable (see above).
</TABLE>
Please contact the Customer Service Department at (800) 647-7327 for
questions and further instructions.
The Fund may pay any portion of the redemption amount in excess of
$250,000 by a distribution in kind of readily marketable securities from the
portfolio of the Fund in lieu of cash. Investors will incur brokerage charges on
the sale of these portfolio securities. The Fund reserves 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 Fund and has approved contracts with various financial organizations to
provide, among other services, day-to-day management required by the Fund.
Advisory Agreement. Investment Company employs State Street to furnish
investment services to the Fund. State Street is one of the largest providers of
securities processing and recordkeeping services for US mutual funds and pension
funds. State Street Global Advisors is the investment management business of
State Street, a 200 year old pioneer and leader in the world of financial
services. State Street is a wholly owned subsidiary of State Street Corporation,
a publicly held bank holding company. State Street, with over $370 billion (US)
under management as of September 30, 1997, provides complete global investment
management services from offices in Atlanta, Boston, Brussels, Copenhagen,
Dubai, Hong Kong, London, Minneapolis, Montpellier, Montreal, Munich, Paris, San
Francisco, Sydney, Tokyo, and Toronto.
Advisor, subject to Board supervision, directs the investments of the
Fund in accordance with the Fund's investment objective, policies and
restrictions. For these services, the Fund pays Advisor a fee, calculated daily
and paid monthly, that on an annual basis is equal to .25% of the Fund's average
daily net assets.
The Glass-Steagall Act prohibits a depository state chartered bank such
as Advisor from engaging in the business of issuing, underwriting, selling or
distributing certain securities. The activities of Advisor in informing its
customers of the Fund, performing investment and redemption services and
providing custodian, transfer, shareholder servicing, dividend disbursing and
investment advisory services may raise issues under these provisions. Advisor
has been advised by its counsel that its activities in connection with the Fund
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 Advisor from continuing to perform all or a part of
the above services for its customers and/or the Fund. If Advisor were prohibited
from serving the Fund 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 Fund may occur. It is not expected by Advisor that
existing
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<PAGE>
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 Investment Company portfolios as short-term cash sweep investments.
Shares purchased for all discretionary accounts are held of record by State
Street, who retains voting control of them. As of November 30, 1997, State
Street held of record less than 25% of the issued and outstanding shares of
Investment Company in connection with its discretionary accounts. Consequently,
State Street is not 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 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.
Administration Agreement. Frank Russell Investment Management Company
("Administrator") serves as administrator of the Fund. Administrator currently
serves as investment manager and administrator to 32 mutual funds with assets of
$11.3 billion as of October 31, 1997, and acts as administrator to 20 mutual
funds, including the Fund, with assets of $10.8 billion as of October 31, 1997.
Pursuant to the Administration Agreement with Investment Company,
Administrator will: (1) supervise all aspects of the Fund's operations; (2)
provide the Fund with administrative and clerical services, including the
maintenance of certain of the Fund's books and records; (3) arrange the periodic
updating of the Fund's prospectuses and any supplements thereto; (4) provide
proxy materials and reports to Fund shareholders and the Securities and Exchange
Commission; and (5) provide the Fund 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 Fund
and Investment Company's other domestic investment portfolios pay Administrator
a combined fee that on an annual basis is equal to the following percentages of
their average aggregate daily net assets: (1) $0 to and including $500 million
- -- .06%; (2) over $500 million to and including $1 billion -- .05%; and (3) over
$1 billion -- .03%. The percentage of the fee paid by a particular Fund is equal
to the percentage of average aggregate daily net assets that are attributable to
that Fund. Administrator will also receive reimbursement of expenses it incurs
in connection with establishing new investment portfolios. Further, the
administration fee paid by the Investment Company will be reduced by the sum of
certain distribution related expenses, up to certain maximum percentages, as
follows: (1) 10% from January 1, 1997 to December 31, 1997; 5% from January 1,
1998 to December 31, 1998; and (3) 0% from January 1, 1999 thereafter.
Administrator also provides administrative services in connection with
the registration of shares of Investment Company 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, the Distributor, a wholly
owned subsidiary of Administrator, serves as distributor for all Fund shares.
The Fund has 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 Fund's 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 Fund
shares including: (1) payments made to certain broker-dealers, investment
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<PAGE>
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 Fund shares, including
Distributor's overhead expenses for rent, office supplies, equipment, travel,
communication, compensation and benefits of sales personnel.
Under the Plan, the Fund may also enter into agreements ("Service
Agreements") with financial institutions, which may include Advisor ("Service
Organizations"), to provide shareholder servicing with respect to 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: answering inquiries regarding the Fund; assisting customers
in changing dividend options, account designations and addresses; performing
subaccounting for such customers; establishing and maintaining customer accounts
and records; processing purchase and redemption transactions; 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; arranging for bank wires transferring
customers' funds; and such other services as the customers may request in
connection with the Fund, to the extent permitted by applicable statute, rule or
regulation. Service Organizations may receive from the 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 the 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.
The Investment Company has entered into Service Agreements with the
Advisor and the following entities related to the Advisor: State Street
Brokerage Services, Inc., Metropolitan Division of Commercial Banking,
Retirement Investment Services Division and State Street Solutions. The purpose
of the Service Agreements is to obtain shareholder services for Fund shares
owned by clients of each of these entities. In return for these services, the
Investment Company pays each of the entities a fee. These agreements are
reviewed annually by the Board of Trustees.
Payments to Distributor, as well as payments to Service Organizations
from the Fund, are not permitted by the Plan to exceed .25% per year of the
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. The Fund's liability for any
such expenses carried forward shall terminate at the end of two years 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.
FUND EXPENSES
The Fund will pay all of its expenses other than those expressly
assumed by Advisor and Administrator. The Fund's principal expenses are the
annual advisory fee payable to Advisor and distribution and shareholder
servicing expenses. Other expenses include: (1) amortization of deferred
organizational costs; (2) taxes, if any; (3) expenses for legal, auditing and
financial accounting services; (4) expense of preparing (including typesetting,
printing and mailing) reports, prospectuses and notices to existing
shareholders; (5) administrative fees; (6) custodian fees; (7) expense of
issuing and redeeming Fund shares; (8) the cost of registering 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 Fund. Where any of these
other expenses are attributable to a particular class of shares, they will be
borne by the beneficial owners of such shares.
PERFORMANCE CALCULATIONS
From time to time the Fund may advertise its yield and effective yield.
The yield of each Fund refers to the income generated by an investment in the
Fund 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
the Fund is assumed to be reinvested. The effective
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<PAGE>
yield will be slightly higher than the yield prescribed by the Securities and
Exchange Commission because of the compounding effect of this assumed
reinvestment.
From time to time, the Fund 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.
From time to time the Fund may advertise its total return. The total
return of the Fund is the average annual compounded rate of return from a
hypothetical investment in the Fund over one-, five- and ten-year periods or for
the life of the Fund (as stated in the advertisement), assuming the reinvestment
of all dividends and capital gain distributions.
Comparative performance information may be used from time to time in
advertising or marketing Fund shares, including data from Lipper Analytical
Services, Inc., IBC's Money Fund Report, the Bank Rate Monitor, Wall Street
Journal Score Card, or other industry publications, business periodicals, rating
services and market indices. The Fund may also advertise nonstandardized
performance information which is for periods in addition to those required to be
presented.
Quoted yields, total 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 Fund, provides portfolio
recordkeeping services and serves as the Fund's 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 the
Fund 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 Distributor at (800) 647-7327.
Organization, Capitalization and Voting. 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 issues shares divisible into an unlimited
number of series (or funds), each of which is a separate trust under
Massachusetts law. The Government Money Market Fund is one such series. Shares
of a fund are entitled to such relative rights and preferences and dividends and
distributions earned on assets of the Fund as may be declared by the Board of
Trustees. Fund shares are fully paid and nonassessable by Investment Company and
have no preemptive rights.
Each 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.
Investment Company does not issue share certificates for the Fund.
Transfer Agent sends monthly statements to shareholders of the Fund 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.
-16-
<PAGE>
As of November 30, 1997, no single shareholder owned of record 25% or
more of the issued and outstanding shares of the Fund.
-17-
<PAGE>
SSgA FUNDS
One International Place
Boston, Massachusetts 02110
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
-18-
<PAGE>
SSgA FUNDS
SSgA Money Market Fund
SSgA US Government Money Market Fund
SSgA Tax Free Money Market Fund
SSgA S&P 500 Index Fund
SSgA Small Cap Fund
SSgA Matrix Equity Fund
SSgA Yield Plus Fund
SSgA Growth and Income Fund
SSgA Intermediate Fund
SSgA Active International Fund
SSgA Emerging Markets Fund
SSgA Bond Market Fund
SSgA Life Solutions Growth Fund
SSgA Life Solutions Balanced Fund
SSgA Life Solutions Income and Growth Fund
-19-
<PAGE>
Filed pursuant to Rule 485(b)
File Nos. 33-19229; 811-5430
SSgA FUNDS
One International Place
Boston, Massachusetts 02110
(800) 647-7327
MONEY MARKET FUNDS
Class B Shares
The SSgA Funds is a registered, open-end management investment company
with multiple portfolios, each of which is commonly referred to as a mutual
fund. This Prospectus describes and offers Class B shares of beneficial interest
in the mutual funds listed below, each referred to as a "Fund." Shares may not
be purchased by individuals directly, but must be purchased through a financial
institution which is permitted by contract with the Funds to offer the shares.
This Prospectus should be read together with any materials provided by such
institution.
Each Fund seeks to achieve a specific investment objective by using
distinct investment strategies:
The SSgA Money Market Fund seeks 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 SSgA US Government Money Market Fund seeks 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 instrumentalities with remaining
maturities of one year or less.
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 MONEY MARKET FUND AND US GOVERNMENT MONEY MARKET
FUND ARE NEITHER INSURED NOR GUARANTEED BY THE US GOVERNMENT. THERE IS NO
ASSURANCE THAT EITHER THE MONEY MARKET FUND OR US GOVERNMENT MONEY MARKET FUND
WILL MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
SHARES IN THE 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 sets forth concisely the information about the Funds
that a prospective investor ought to know before investing. Please read and
retain this document for future reference. Additional information about the SSgA
Funds has been filed with the Securities and Exchange Commission ("SEC") in a
Statement of Additional Information ("SAI") dated December 24, 1997. The SAI is
incorporated herein by reference and is available without charge from
Distributor at its address noted below or by calling (800) 647-7327. The SEC
also maintains a website (www.sec.gov) that contains the SAI, material
incorporated by reference and other information regarding the SSgA Funds. You
may also access the SSgA Funds' website at www.ssgafunds.com.
<TABLE>
<CAPTION>
Investment Advisor, Custodian
and Transfer Agent: Distributor: Administrator:
<S> <C> <C>
State Street Bank and Trust Frank Russell Investment
Company Russell Fund Distributors, Inc. Management Company
225 Franklin Street One International Place 909 A Street
Boston, Massachusetts 02110 Boston, Massachusetts 02110 Tacoma, Washington 98402
</TABLE>
PROSPECTUS DATED December 24, 1997
-1-
<PAGE>
TABLE OF CONTENTS
Page
----
Summary............................................................... 3
Fund Operating Expenses............................................... 4
Financial Highlights.................................................. 6
The SSgA Funds........................................................ 9
Manner of Offering.................................................... 9
Investment Objectives, Policies and Restrictions...................... 9
Portfolio Maturity ................................................... 12
Dividends and Distributions........................................... 12
Taxes................................................................. 13
Valuation of Fund Shares.............................................. 14
Purchase of Fund Shares............................................... 14
Redemption of Fund Shares............................................. 15
General Management.................................................... 15
Fund Expenses......................................................... 17
Performance Calculations.............................................. 18
Additional Information................................................ 18
-2-
<PAGE>
SUMMARY
The following summary is qualified in its entirety by reference to the
more detailed information included elsewhere in the Prospectus.
Investment Objective. The Money Market Fund's 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. Such securities consist principally of: US Treasury bills,
notes and bonds; other obligations issued or guaranteed as to interest and
principal by the US Government, its agencies or instrumentalities; instruments
of US and foreign banks; and commercial paper of US and foreign companies.
The US Government Money Market Fund's 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 Fund's
portfolio typically consists entirely of securities issued or guaranteed by the
US Government or its agencies or instrumentalities.
Dividends. Dividends from net investment income are declared daily and paid
monthly. Net capital gains, if any, are distributed annually.
Potential Investors. The Funds are designed to be an economical and efficient
means for retail investors to participate in professionally managed portfolios
of money market instruments. In this Prospectus, Class B shares of the Funds are
offered to customers of certain financial institutions ("Service Organizations")
who act as record holders of the shares and provide services to their customers
who invest in the Funds.
Purchases and Redemptions. Because shares of the Funds are offered through
Service Organizations, to purchase and redeem shares potential investors should
contact their Service Organizations for information regarding purchase and
redemption procedures. Shares may be purchased or redeemed at the net asset
value next determined after receipt of the order.
Investment Advisors. State Street Bank and Trust Company serves as investment
advisor to the Funds in return for a fee equal to .25% annually of each Fund's
average daily net assets.
Certain Class Information. The shares of each Fund are divided into three
classes: Class A, Class B and Class C. Class A shares are designed for
institutional investors. Class B shares are offered through Service
Organizations that provide certain account administration services. Class C
shares are offered through Service Organizations that provide certain account
administration and shareholder liaison services. Each class of shares of a Fund
is entitled to the same rights and privileges as all other classes of shares of
that Fund, provided however, that each class bears the expenses related to its
distribution and shareholder servicing arrangements and certain other expenses
attributable to the class. Annual distribution and shareholder servicing
expenses for Class A, Class B and Class C shares are equal to approximately
.08%, .31% and .56%, respectively, of the average daily net asset value of the
shares of the class. Total operating expenses for Class A, Class B and Class C
shares of the Money Market Fund are equal to approximately .39%, .66% and .94%,
respectively, of the average daily net asset value of the shares of the class.
Total operating expenses for Class A, Class B and Class C shares of the US
Government Money Market Fund are equal to approximately .44%, .69% and .94%,
respectively, of the average daily net asset value of the shares of the class.
-3-
<PAGE>
FUND OPERATING EXPENSES
THE SSgA MONEY MARKET FUND
CLASS B SHARES
The purpose of the following table is to assist the investor in understanding
the various costs and expenses that an investor in Class B shares of the Money
Market Fund will incur directly or indirectly. The examples should not be
considered a representation of past or future expenses. Actual expenses may be
greater or less than those shown. For additional information, see "General
Management."
Shareholder Transaction Expenses:
- ---------------------------------
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
Annual Fund Operating Expenses:
- -------------------------------
(as a percentage of average daily net assets)
Advisory Fees .25%
12b-1 Fees (including Shareholder Servicing
Fees)(1),(2) .31
Other Expenses(2) .10
---
Total Operating Expenses(3) .66%
====
Examples: 1 year 3 years 5 years 10 years
- -------- ------ ------- ------- --------
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: $ 7 $21 $37 $82
=== === === ===
(1) 12b-1 Fees include shareholder servicing fees payable to Service
Organizations in the amount of .25% of annual average daily net asset
value of the Fund's Class B shares.
(2) "Other Expenses" and a portion of 12b-1 fees are based on estimated
amounts for the current fiscal year.
(3) Service Organizations may impose additional fees for services provided
to investors. Investors should contact their Service Organization for
information concerning what additional fees, if any, will be charged.
Long-term holders of the Fund's Class B shares may pay more in Rule 12b-1 fees
than the economic equivalent of the front-end sales charge permitted by the
National Association of Securities Dealers, Inc.
-4-
<PAGE>
FUND OPERATING EXPENSES
THE SSgA US GOVERNMENT MONEY MARKET FUND
CLASS B SHARES
The purpose of the following table is to assist the investor in understanding
the various costs and expenses that an investor in Class B shares of the US
Government Money Market Fund will incur directly or indirectly. The examples
should not be considered a representation of past or future expenses. Actual
expenses may be greater or less than those shown. For additional information,
see "General Management."
Shareholder Transaction Expenses:
- ---------------------------------
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
Annual Fund Operating Expenses:
- -------------------------------
(as a percentage of average daily net assets)
Advisory Fees .25%
12b-1 Fees (including Shareholder Servicing Fees)(1),(2) .31
Other Expenses(2) .13
---
Total Operating Expenses(3) .69%
====
Examples: 1 year 3 years 5 years 10 years
- -------- ------ ------- ------- --------
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: $7 $22 $38 $86
== === === ===
(1) 12b-1 Fees include shareholder servicing fees payable to Service
Organizations in the amount of .25% of annual average daily net asset
value of the Fund's Class B shares.
(2) "Other Expenses" and a portion of 12b-1 fees are based on estimated
amounts for the current fiscal year.
(3) Service Organizations may impose additional fees for services provided
to investors. Investors should contact their Service Organization for
information concerning what additional fees, if any, will be charged.
Long-term holders of the Fund's Class B shares may pay more in Rule 12b-1 fees
than the economic equivalent of the front-end sales charge permitted by the
National Association of Securities Dealers, Inc.
-5-
<PAGE>
FINANCIAL HIGHLIGHTS
SSgA MONEY MARKET FUND
The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Fund's independent
accountants. The table includes selected data for a share outstanding throughout
each fiscal year or period ended August 31, and other performance information
derived from the financial statements. The Investment Company is authorized to
issue Class B and Class C shares of the Fund although shares have not been
offered on these classes as of the date of this Prospectus. The table appears in
the Fund's Annual Report and should be read in conjunction with the Fund's
financial statements and related notes, which are incorporated by reference in
the Statement of Additional Information and which appear, along with the report
of Coopers & Lybrand L.L.P., in the Fund's Annual Report to Shareholders. More
detailed information concerning the Fund's performance, including a complete
portfolio listing and audited financial statements, is available in the Fund's
Annual Report, which may be obtained without charge by writing or calling the
Distributor at (800) 647-7327.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .0516 .0524 .0538 .0330 .0320
LESS DISTRIBUTIONS:
Net investment income (.0516) (.0524) (.0538) (.0330) (.0320)
------- ------- ------- ------- -------
NET ASSET VALUE,
END OF YEAR $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= =======
TOTAL RETURN (%)(a) 5.28 5.36 5.52 3.35 3.24
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
($000 omitted) 4,278,165 3,475,409 2,752,895 3,020,796 2,502,483
Ratios to average net assets (%) (b):
Operating expenses, net .39 .39 .39 .36 .33
Operating expenses, gross .39 .39 .39 .36 .38
Net investment income 5.17 5.20 5.37 3.33 3.20
Per share amount of expense
reductions ($ omitted) -- -- -- -- .0005
</TABLE>
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended August 31, 1988 are annualized.
FINANCIAL HIGHLIGHTS ARE CONTINUED ON THE FOLLOWING PAGE
-6-
<PAGE>
FINANCIAL HIGHLIGHTS, CONTINUED:
<TABLE>
<CAPTION>
1992 1991 1990 1989 1988++
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .0458 .0686 .0817 .0883 .0239
LESS DISTRIBUTIONS:
Net investment income (.0458) (.0686) (.0817) (.0883) (.0239)
------- ------- ------- ------- -------
NET ASSET VALUE,
END OF YEAR $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= =======
TOTAL RETURN (%)(a) 4.68 7.08 8.48 9.19 2.41
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
($000 omitted) 4,263,057 1,645,428 650,598 442,614 193,777
Ratios to average net assets (%) (b):
Operating expenses, net .35 .37 .37 .43 .44
Operating expenses, gross .35 .38 .43 .51 .63
Net investment income 4.40 6.59 8.13 8.97 7.30
Per share amount of expense
reductions ($ omitted) -- .0000 .0005 .0004 .0010
</TABLE>
++ For the period May 2, 1988 (commencement of operations) to August 31, 1988.
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended August 31, 1988 are annualized.
-7-
<PAGE>
FINANCIAL HIGHLIGHTS
SSgA US GOVERNMENT MONEY MARKET FUND
The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Fund's independent
accountants. The table includes selected data for a share outstanding throughout
each fiscal year or period ended August 31, and other performance information
derived from the financial statements. The table appears in the Fund's Annual
Report and should be read in conjunction with the Fund's financial statements
and related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand L.L.P., in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Distributor at (800) 647-7327.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991++
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- ------- ------- -------
INCOME FROM INVEST-
MENT OPERATIONS:
Net investment income .0500 .0515 .0528 .0324 .0304 .0441 .0302
------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Net investment income (.0500) (.0515) (.0528) (.0324) (.0304) (.0441) (.0302)
------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE,
END OF YEAR $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= ======= ======= =======
TOTAL RETURN (%)(a) 5.19 5.27 5.38 3.30 3.08 4.49 3.06
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of year
($000 omitted) 904,483 683,210 490,138 251,165 137,136 156,707 94,646
Ratios to average net assets (%) (b):
Operating expenses, net .44 .40 .42 .38 .39 .41 .23
Operating expenses, gross .44 .40 .42 .39 .46 .42 .43
Net investment income 5.08 5.12 5.37 3.27 3.04 4.26 5.94
Per share amount of expense
reductions ($ omitted) -- -- -- .0001 .0007 .0001 .0011
</TABLE>
++ For the period March 1, 1991 (commencement of operations) to August 31,
1991.
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended August 31, 1991 are annualized.
-8-
<PAGE>
THE SSgA FUNDS
The SSgA Funds ("Investment Company") are an open-end management
investment company that is organized as a Massachusetts business trust. In
addition, each series of the Investment Company is diversified as defined in the
Investment Company Act of 1940, as amended ("1940 Act"). As a "series" company,
Investment Company is authorized to issue an unlimited number of shares
evidencing beneficial interests in different investment portfolios. Through this
Prospectus, Investment Company offers Class B shares in two such portfolios
(collectively, "Funds"): The SSgA Money Market Fund ("Money Market Fund") and
the SSgA Government Money Market Fund ("Government Money Market Fund"). State
Street Bank and Trust Company (the "Advisor" or "State Street") serves as the
investment advisor for each Fund.
MANNER OF OFFERING
The Funds are designed to be an economical and efficient means for
retail investors to participate in professionally managed portfolios of money
market instruments. Class B shares of the Funds are offered to customers of
certain financial institutions ("Service Organizations") that act as record
holders of shares and provide services to their customers who invest in the
Funds. Each Service Organization may set a minimum initial investment for its
customers and may redeem all shares in an investor's account if the value of
these shares falls below a predetermined amount.
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
Each Fund has a fundamental investment objective, which may be changed
only with the approval of a majority of the Fund's shareholders as defined by
the 1940 Act. There can be no assurance that either Fund will meet its
investment objective.
Money Market Fund
The Money Market Fund's 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 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 US and foreign banks, including certificates of deposit,
banker's acceptances and time deposits; these instruments may include Eurodollar
Certificates of Deposit ("ECDs"), Eurodollar Time Deposits ("ETDs") and Yankee
Certificates of Deposit ("YCDs"); (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.
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
services has rated the security; or (3) if unrated, are of comparable quality,
as determined by the Portfolio's Advisor in accordance with procedures
established by the Board of Trustees. See the Appendix in the Statement of
Additional Information for a description of a NRSRO.
Government Money Market Fund
The Government Money Market Fund's 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 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.
-9-
<PAGE>
(See "Investment Policies -- US Government Securities.") Under normal market
conditions, the Government Money Market Fund will be 100% invested in such
securities.
Investment Policies
The investment policies described below reflect the Funds' current
practices, are not fundamental and may be changed by the Board of Trustees of
Investment Company without shareholder approval. To the extent consistent with
the Fund's investment objective and restrictions the Fund may invest in the
following instruments and may use the following investment techniques:
US Government Securities. 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. The Fund may enter into repurchase agreements
with banks and other financial institutions, such as broker-dealers. Under a
repurchase agreement, a Fund purchases securities from a financial institution
that agrees to repurchase the securities at the Fund's original purchase price
plus interest within a specified time (normally one business day). The Fund will
limit repurchase transactions to those member banks of the Federal Reserve
System and broker-dealers whose creditworthiness Advisor considers satisfactory.
Should the counterparty to a transaction fail financially, the 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 the Fund.
Reverse Repurchase Agreements. The Fund may enter into reverse
repurchase agreements under the circumstances described in "Investment
Restrictions." Under a reverse repurchase agreement, the Fund sells portfolio
securities to a financial institution 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 at a prescribed repurchase price equal to the
amount of cash originally received plus interest on such amount. The Fund
retains the right to receive interest and principal payments with respect to the
securities while they are in the possession of the financial institutions.
Reverse repurchase agreements involve the risk of default by the counterparty,
which may adversely affect the Fund's ability to reacquire the underlying
securities.
Forward Commitments. Each Fund may contract to purchase securities for
a fixed price at a future date beyond customary settlement time. When effecting
such transactions, cash or liquid high quality debt obligations held by the Fund
of a dollar amount sufficient to make payment for the portfolio securities to be
purchased will be segregated on the Fund'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 the Fund to miss an
advantageous price or yield. The Fund bears the risk of price fluctuations
during the period between the trade and settlement dates.
When-Issued Transactions. The Funds may purchase securities on a
when-issued basis. In these transactions, a Fund purchases securities with
payment and delivery scheduled for a future time. Until settlement, the Funds
segregate cash and marketable high quality debt securities equal in value to
their when-issued commitments. Between the trade and settlement dates, the 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 the Fund to miss a price or yield considered
advantageous. Each Fund will engage in when-issued transactions only for the
purpose of acquiring portfolio securities consistent with its investment
objective and policies and not for investment leverage. The Funds will not
invest more than 25% of their net assets in when-issued securities.
Illiquid Securities. Neither Fund will invest more than 10% of its net
assets in illiquid securities or securities that are not readily marketable,
including repurchase agreements and time deposits of more than seven days'
duration. The absence of a regular trading market for illiquid securities
imposes additional risks on investments in these securities. Illiquid securities
may be difficult to value and may often be disposed of only after considerable
expense and delay.
-10-
<PAGE>
Variable Amount Master Demand Notes. 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 Fund 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 Fund has been
exhausted, and if any required payments of principal and interest are not made
with respect to the underlying loans, the Fund may experience loss or delay in
receiving payment and a decrease in the value of the security. Further details
are set forth in the Statement of Additional Information under "Investment
Restrictions and Policies -- Investment Policies."
Mortgage-Related Pass-Through Securities. The Funds 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. 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.
Variable and Floating Rate Securities. 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, 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, Eurodollar Time Deposits and Yankee
Certificates of Deposit (Money Market Fund 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, record keeping and
public reporting requirements.
Lending Portfolio Securities. The Fund may lend portfolio securities
with a value of up to 33-1/3% of its total assets. For these purposes, total
assets shall include the value of all assets received as collateral for the
loan. Such loans may be terminated at any time. The 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, the 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, the Fund will receive the amount of all dividends, interest and other
distributions on
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the loaned securities. However, the borrower has the right to vote the loaned
securities. The 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, the 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 Advisor to be of good financial standing. In a loan
transaction, the Fund will also bear the risk of any decline in value of
securities acquired with cash collateral. The Fund will minimize this risk by
limiting the investment of cash collateral to high quality instruments of short
maturity.
Purchase of Other Funds. To the extent permitted under the 1940 Act and
exemptive rules and orders thereunder, the Funds may seek to achieve their
investment objectives by investing solely in the shares of another investment
company that has a substantially similar investment objective and policies.
Investment Restrictions
Each Fund has fundamental investment restrictions, which may be changed
only with the approval of a majority of the Fund's shareholders as defined in
the 1940 Act. A more detailed discussion of the 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 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). Concentration may occur as a result of
changes in the market value of portfolio securities, but may
not result from investment. US banks and certain domestic
branches of foreign banks are not considered a single industry
for purposes of this restriction.
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 Fund's assets
taken at market value, less liabilities other than borrowings.
If at any time a 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 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 Fund
may pledge securities having a market value at the time of the
pledge not exceeding 33-1/3% of the value of the Fund's total
assets to secure permitted borrowings.
PORTFOLIO MATURITY
Each Fund must limit investments to securities with remaining
maturities of 397 days or less (as determined in accordance with applicable SEC
regulations) and must maintain a dollar-weighted average maturity of 90 days or
less. The Funds normally hold portfolio instruments to maturity, but may dispose
of them prior to maturity if Advisor finds it advantageous.
DIVIDENDS AND DISTRIBUTIONS
The Board of Trustees intends to declare dividends on shares of the
Fund from net investment income daily and have them payable as of the last
business day of each month. Distributions will be made at least annually from
net short- and long-term capital gains, if any. In most instances, distributions
will be declared and paid in mid-October with additional distributions declared
and paid in December, if required, for the Fund to avoid imposition of a 4%
federal excise tax on undistributed capital gains. The Fund does not expect any
material long-term capital gains or losses.
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Dividends declared in October, November or December and payable to
shareholders of record in such months will be deemed to have been paid by the
Fund and received by shareholders on December 31 of that year if the dividend is
paid prior to February 1 of the following year.
Income dividend and capital gain distributions will be paid 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 Fund mailings to an investor, the
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 Fund until
the investor notifies the SSgA Funds 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 Fund shortly
after a purchase of shares will reduce the per share net asset value of the Fund
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:
[bullet] Reinvestment Option--Dividends and capital gains distributions
will be automatically reinvested in additional shares of the
Fund. If the investor does not indicate a choice on the
Application, this option will be automatically assigned.
[bullet] Income-Earned Option--Capital gain distributions will be
automatically reinvested, but a check or wire will be sent for
each dividend distribution.
[bullet] Cash Option--A check or wire will be sent for each dividend
and capital gain distribution.
[bullet] Direct Dividends Option--Dividends and capital gain
distribution will be automatically invested in another
identically registered SSgA Fund.
The Transfer Agent will wire dividends (if that option is elected) to a
pre-designated bank on the first business day of the following month in which
the dividend is payable.
TAXES
Each Fund intends to qualify as a regulated investment company ("RIC")
under Subchapter M of the Internal Revenue Code, as amended. As a RIC, each Fund
will not be subject to federal income taxes to the extent it distributes its net
investment income and net capital gain (long-term capital gains in excess of
short-term capital losses) to its shareholders. The Board intends to distribute
each year substantially all of the Funds' net investment income and capital gain
net income.
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.
The Fund may purchase bonds at market discount (i.e., bonds with a
purchase price less than original issue price or adjusted issue price). If such
bonds are subsequently sold at a gain then a portion of that gain equal to the
amount of market discount, which should have been accrued through the sale date,
will be taxable to shareholders as ordinary income.
Dividends and distributions may also be subject to state or local
taxes. Depending on the state tax rules pertaining to a shareholder, a portion
of the dividends paid by a Fund attributable to direct obligations of the US
Treasury and certain agencies may be exempt from state and local taxes.
The sale of 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
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portfolios of a mutual fund). Any loss incurred on sale or exchange of 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.
Shareholders will be notified after each calendar year of the amount of
income dividends and net capital gains distributed and the percentage of a
Fund's income attributable to US Treasury and agency obligations. The Funds are
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.
The foregoing discussion is only a summary of certain federal income
tax issues generally affecting the Fund and its shareholders. Circumstances
among investors may vary and each investor is encouraged to discuss investment
in the Fund with the investor's tax advisor.
VALUATION OF FUND SHARES
Net Asset Value Per Share. Net asset value per share for each class of
shares of a Fund is determined by adding the value of all securities and other
assets of the Fund, deducting accrued liabilities allocated to the class,
dividing by the number of shares outstanding in a class and rounding to the
nearest cent. The Funds determine 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 4:00 p.m. Eastern time). A business day
is one on which the New York Stock Exchange and Boston Federal Reserve are open
for business.
Valuation of Fund Securities. Each Fund seeks to maintain a $1.00 per
share net asset value and, accordingly, use the amortized cost valuation method
to value its portfolio instruments. The amortized cost valuation method
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 FUND SHARES
Shares are offered through Service Organizations, who act as record
holders of the shares and provide services to their customers who invest in
shares. To purchase shares, investors should contact a Service Organization and
follow its procedures for the purchase of shares. Beneficial ownership of shares
will be recorded by Service Organizations and reflected in account statements
provided to their customers.
Offering Dates and Times. Fund shares may be purchased on any business
day. All purchases must be made in US dollars. Purchase orders and payments for
Fund shares must be received by the Transfer Agent prior to 4:00 p.m. Eastern
time to be effective on the date received. The accompanying payment must be in
federal funds or converted into federal funds by the Transfer Agent before the
purchase order can be accepted. Purchase orders in good form are described
below. Purchase orders which are accepted: (1) prior to 12:00 noon Eastern time
will earn the dividend declared on the date of purchase; and (2) at or after
12:00 noon Eastern time will earn the dividend determined on the next day.
Order and Payment Procedures. On behalf of their customers, Service
Organizations may purchase shares by wiring federal funds to State Street Bank
and Trust Company as Transfer Agent by:
1. Telephoning State Street Bank and Trust Company at (800)
647-7327 and providing: (1) the Service Organization's account
registration number, address and tax identification number;
(2) the name of the Fund to be invested in; (3) the amount
being wired; (4) the name of the wiring bank; and (5) the name
and telephone number of the person at the wiring bank to be
contacted in connection with the order.
2. Instructing the wiring bank to wire federal funds to: State
Street Bank and Trust Company, Boston, MA (ABA #0110-00028),
Attention: SSgA Fund, Mutual Funds Service Division (DDA
#9904-631-0). The wire instructions should also include the
name the account is registered in, the account number and the
name of the Fund to be invested in.
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Each Fund reserves the right to reject any order.
Service Organizations may charge investors fees for certain services.
Investors should contact their Service Organization for information concerning
what additional fees, if any, may be charged.
Exchange Privilege. An investor's Service Organization may permit
shares of either Fund to be exchanged for shares of certain other investment
portfolios. Shares are exchanged on the basis of relative net asset value per
share. Investors should contact their Service Organizations for information
regarding exchange options and procedures and fees imposed in connection with
exchanges.
REDEMPTION OF FUND SHARES
Investors may redeem all or part of their shares in accordance with
instructions and limitations pertaining to their account at a Service
Organization. These procedures will vary according to the type of account and
the Service Organization involved, and investors should consult their account
managers in this regard. It is the responsibility of the Service Organizations
to transmit redemption orders to the Transfer Agent and credit their customers'
accounts with the redemption proceeds on a timely basis.
On behalf of their customers, Service Organizations may redeem Fund
shares on any business day at the net asset value next determined after the
receipt of a redemption request. Payment for redemption orders will be wired in
federal funds to the Service Organization's account at a domestic commercial
bank that is a member of the Federal Reserve System. The Funds reserve the right
to suspend redemptions or postpone the date of payment if emergency conditions,
as specified in the 1940 Act or determined by the Securities and Exchange
Commission, should exist.
A dividend will be paid on shares redeemed if the redemption request is
received by State Street Bank and Trust Company after 12:00 noon Eastern time.
Redemption requests received before 12:00 noon Eastern time will not be entitled
to that day's dividend.
GENERAL MANAGEMENT
The Board of Trustees supervises the management, activities and affairs
of the Funds and has approved contracts with various financial organizations to
provide, among other services, day-to-day management required by the Funds.
Advisory Agreement. Investment Company employs State Street to furnish
investment services to the Funds. State Street is one of the largest providers
of securities processing and record keeping services for US mutual funds and
pension funds. State Street is a wholly owned subsidiary of State Street
Corporation, a publicly held bank holding company. State Street, with over $370
billion (US) under management as of September 30, 1997, provides complete global
investment management services from offices in Atlanta, Boston, Brussels,
Copenhagen, Dubai, Hong Kong, London, Minneapolis, Montpellier, Montreal,
Munich, Paris, San Francisco, Sydney, Tokyo, and Toronto.
Advisor, subject to Board supervision, directs the investments of each
Fund in accordance with the Fund's investment objective, policies and
restrictions. For these services, each Fund pays Advisor a fee, calculated daily
and paid monthly, that on an annual basis is equal to .25% of the Fund's average
daily net assets.
The Glass-Steagall Act prohibits a depository state chartered bank such
as Advisor from engaging in the business of issuing, underwriting, selling or
distributing certain securities. The activities of Advisor in informing its
customers of the Funds, performing investment and redemption services and
providing custodian, transfer, shareholder servicing, dividend disbursing and
investment advisory services may raise issues under these provisions. Advisor
has been advised by its counsel that its activities in connection with the Funds
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
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<PAGE>
Advisor from continuing to perform all or a part of the above services for its
customers and/or the Funds. If Advisor were prohibited from serving the 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
Funds may occur. It is not expected by 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 Investment Company portfolios 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 November 30, 1997, State
Street held of record less than 25% of the issued and outstanding shares of
Investment Company in connection with its discretionary accounts. Consequently,
State Street may be 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 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.
Administration Agreement. Frank Russell Investment Management Company
("Administrator") serves as administrator of the Funds. Administrator currently
serves as investment manager and administrator to 32 mutual funds with assets of
$11.3 billion as of October 31, 1997, and acts as administrator to 20 mutual
funds, including those Funds presented in this Prospectus, with assets of $10.8
billion as of October 31, 1997.
Pursuant to the Administration Agreement with Investment Company,
Administrator will: (1) supervise all aspects of the Funds' operations; (2)
provide the Funds with administrative and clerical services, including the
maintenance of certain of the Funds' books and records; (3) arrange the periodic
updating of the Funds' prospectuses and any supplements thereto; (4) provide
proxy materials and reports to Fund shareholders and the Securities and Exchange
Commission; and (5) provide the 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 Funds
and Investment Company's other domestic investment portfolios pay Administrator
a combined fee that on an annual basis is equal to the following percentages of
their average aggregate daily net assets: (1) $0 to and including $500 million
- -- .06%; (2) over $500 million to and including $1 billion -- .05%; and (3) over
$1 billion -- .03%. The percentage of the fee paid by a particular Fund is equal
to the percentage of average aggregate daily net assets that are attributable to
that Fund. Administrator will also receive reimbursement of expenses it incurs
in connection with establishing new investment portfolios. Further, the
administration fee paid by the Investment Company will be reduced by the sum of
certain distribution related expenses, up to certain maximum percentages, as
follows: (1) 10% from January 1, 1997 to December 31, 1997; 5% from January 1,
1998 to December 31, 1998; and (3) 0% from January 1, 1999 thereafter.
Administrator also provides administrative services in connection with
the registration of shares of Investment Company 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 Administrator,
serves as distributor for all Fund shares.
The Funds have adopted a distribution plan pursuant to Rule 12b-1 (the
"Plan") under the 1940 Act for the Class B shares. The purpose of the Plan is to
provide for the payment of certain Investment Company distribution and
shareholder
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servicing expenses. Under the Plan, Distributor will be reimbursed in an amount
up to .35% of the net asset value of Class B shares of each Fund 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 Fund shares including: (1) payments made to certain
broker-dealers, investment 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 Fund shares, including Distributor's overhead expenses for rent, office
supplies, equipment, travel, communication, compensation and benefits of sales
personnel.
Under the Plan, the Funds may also enter into agreements ("Service
Agreements") with financial institutions, which may include Advisor ("Service
Organizations"), to provide distribution and shareholder services with respect
to Class B shares of the Funds 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: processing customer
purchase and redemption requests; answering inquiries regarding the Funds;
assisting customers in changing dividend options, account designations and
addresses; performing subaccounting for such customers; establishing and
maintaining customer accounts and records; processing purchase and redemption
transactions; 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; arranging
for bank wires transferring customers' funds; transmitting proxy statements,
annual and semi-annual reports, prospectuses and other communications from the
Funds to customers; and such other services as the customers may request in
connection with the Funds, to the extent permitted by applicable statute, rule
or regulation. Service Organizations may receive from each Fund a monthly fee at
a rate that shall not exceed .25% per annum of the average daily net asset value
of the Fund's Class B 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 Fund, are not permitted by the Plan to exceed .35% per year of the
average net asset value of the Fund's Class B shares. Any payments that are
required to be made by the Distribution Agreement and any Service Agreement but
could not be made because of the .35% limitation may be carried forward and paid
in subsequent years so long as the Plan is in effect. A Fund's liability for any
such expenses may be carried forward indefinitely. Service Organizations will be
responsible for prompt transmission of purchase and redemption orders and may
charge fees for their services.
FUND EXPENSES
The Funds will pay all of their expenses other than those expressly
assumed by Advisor and Administrator. The principal expenses of the Funds are
the annual advisory fee payable to Advisor and distribution and shareholder
servicing expenses. Other expenses include: (1) amortization of deferred
organizational costs; (2) taxes, if any; (3) expenses for legal, auditing and
financial accounting services; (4) expense of preparing (including typesetting,
printing and mailing) reports, prospectuses and notices to existing
shareholders; (5) administrative fees; (6) custodian fees, (7) expense of
issuing and redeeming Fund shares; (8) the cost of registering 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 Funds. Where any of
these other expenses are attributable to a particular class of shares, they will
be borne by the beneficial owners of such shares.
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PERFORMANCE CALCULATIONS
From time to time the Funds may advertise the yield and effective yield
of their Class B shares. The yield of each Fund refers to the income generated
by an investment in Class B shares of the Fund 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 each Fund is assumed to
be reinvested. The effective yield will be slightly higher than the yield
prescribed by the Securities and Exchange Commission because of the compounding
effect of this assumed reinvestment.
From time to time, the 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.
From time to time, the Funds may advertise the total return of their
Class B shares . The total return of a Fund is the average annual compounded
rate of return from a hypothetical investment in the Fund's Class B shares over
one, five and ten-year periods or for the life of the Fund (as stated in the
advertisement), assuming the reinvestment of all dividend and capital gain
distributions.
Comparative performance information may be used from time to time in
advertising or marketing Fund shares, including data from Lipper Analytical
Services, Inc., IBC/Donoghue's Money Fund Report, the Bank Rate Monitor, Wall
Street Journal Score Card, Lehman Brothers Index or other industry publications,
business periodicals, rating services and market indices. The Funds may also
advertise nonstandardized performance information which is for periods in
addition to those required to be presented.
Quoted yields, total 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 Funds, provides portfolio
record keeping services and serves as the 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 the
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. Potential
investors who wish to obtain more information about the Funds should contact a
Service Organization. Inquiries from Servicing Organizations regarding the
Prospectus and financial statements may be made by calling Distributor at (800)
647-7327.
Organization, Capitalization and Voting. 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 issues shares divisible into an unlimited
number of series (or funds), each of which is a separate trust under
Massachusetts law. The Money Market and Government Money Market Funds are two
such series. Shares of a Fund are entitled to such relative rights and
preferences and dividends and distributions earned on assets of the Fund as may
be declared by the Board of Trustees. Fund shares are fully paid and
nonassessable by Investment Company and have no preemptive rights. Investment
Company is authorized to subdivide each series into two or more classes of
shares. Currently, shares of the Money Market and Government Money Market Funds
are divided into Class A, Class B and Class C. Each class of shares of a Fund is
entitled to the same rights and privileges as all other classes of that Fund,
provided, however, that each class bears the expenses related to its
distribution and shareholder servicing arrangements, as well as other expenses
attributable to the class and unrelated to managing the Fund's portfolio
securities. As described above, Investment Company has adopted a plan of
distribution under rule 12b-1 for Class B shares. Similar plans have been
adopted for Class A and Class C shares. However, total payments under those
plans are limited to .25% and .60% annually of the average net asset value of
-18-
<PAGE>
the Class A and Class C shares, respectively of a Fund. As a result of these
plan and other class expenses, the yield on Class B and Class C shares will be
approximately .25% and .50% lower, respectively, than the yield on Class A
shares.
Each 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. Further, any matter that affects only the holders of a particular
class of shares may be voted on only by such shareholders. Each class of shares
votes separately with respect to any Rule 12b-1 plan applicable to such class.
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 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.
-19-
<PAGE>
SSgA FUNDS
One International Place
Boston, Massachusetts 02110
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
-20-
<PAGE>
Filed pursuant to Rule 485(b)
File Nos. 33-19229; 811-5430
THE SSgA FUNDS
One International Place
Boston, Massachusetts 02110
(800) 647-7327
MONEY MARKET FUNDS
Class C Shares
The SSgA Funds is a registered open-end management investment company
with multiple portfolios, each of which is commonly referred to as a mutual
fund. This Prospectus describes and offers Class C shares of beneficial interest
in the mutual funds listed below, each referred to as a "Fund." Shares may not
be purchased by individuals directly, but must be purchased through a financial
institution which is permitted by contract with the Funds to offer the shares.
This Prospectus should be read together with any materials provided by such
institution.
Each Fund seeks to achieve a specific investment objective by using
distinct investment strategies:
The SSgA Money Market Fund seeks 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 SSgA US Government Money Market Fund seeks 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 instrumentalities with remaining
maturities of one year or less.
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 MONEY MARKET FUND AND US GOVERNMENT MONEY MARKET
FUND ARE NEITHER INSURED NOR GUARANTEED BY THE US GOVERNMENT. THERE IS NO
ASSURANCE THAT EITHER THE MONEY MARKET FUND OR US GOVERNMENT MONEY MARKET FUND
WILL MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
SHARES IN THE 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 sets forth concisely the information about the Fund
that a prospective investor ought to know before investing. Please read and
retain this document for future reference. Additional information about the SSgA
Funds has been filed with the Securities and Exchange Commission ("SEC") in
Statements of Additional Information ("SAI") dated December 24, 1997. The SAI is
incorporated herein by reference and is available without charge from
Distributor at its address noted below or by calling (800) 647-7327. The SEC
also maintains a website (www.sec.gov) that contains the SAI, material
incorporated by reference and other information regarding the SSgA Funds. You
may also access the SSgA Funds' website at www.ssgafunds.com.
-1-
<PAGE>
<TABLE>
<CAPTION>
Investment Advisor, Custodian
and Transfer Agent: Distributor: Administrator:
<S> <C> <C>
State Street Bank and Trust Frank Russell Investment
Company Russell Fund Distributors, Inc. Management Company
225 Franklin Street One International Place 909 A Street
Boston, Massachusetts 02110 Boston, Massachusetts 02110 Tacoma, Washington 98402
</TABLE>
PROSPECTUS DATED December 24, 1997
-2-
<PAGE>
TABLE OF CONTENTS
Page
----
Summary................................................................. 4
Fund Operating Expenses................................................. 5
Financial Highlights.................................................... 7
The SSgA Funds.......................................................... 10
Manner of Offering...................................................... 10
Investment Objectives, Policies and Restrictions........................ 10
Portfolio Maturity ..................................................... 13
Dividends and Distributions............................................. 13
Taxes................................................................... 14
Valuation of Fund Shares................................................ 15
Purchase of Fund Shares................................................. 15
Redemption of Fund Shares............................................... 16
General Management...................................................... 16
Fund Expenses........................................................... 18
Performance Calculations................................................ 19
Additional Information.................................................. 19
-3-
<PAGE>
SUMMARY
The following summary is qualified in its entirety by reference to the
more detailed information included elsewhere in the Prospectus.
Investment Objective. The Money Market Fund's 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. Such securities consist principally of: US Treasury bills,
notes and bonds; other obligations issued or guaranteed as to interest and
principal by the US Government, its agencies or instrumentalities; instruments
of US and foreign banks; and commercial paper of US and foreign companies.
The US Government Money Market Fund's 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 Fund's
portfolio typically consists entirely of securities issued or guaranteed by the
US Government or its agencies or instrumentalities.
Dividends. Dividends from net investment income are declared daily and paid
monthly. Net capital gains, if any, are distributed annually.
Potential Investors. The Funds are designed to be an economical and efficient
means for retail investors to participate in professionally managed portfolios
of money market instruments. In this Prospectus, Class C shares of the Funds are
offered to customers of certain financial institutions ("Service Organizations")
who act as record holders of the shares and provide services to their customers
who invest in the Funds.
Purchases and Redemptions. Because shares of the Funds are offered through
Service Organizations, to purchase and redeem shares potential investors should
contact their Service Organizations for information regarding purchase and
redemption procedures. Shares may be purchased or redeemed at the net asset
value next determined after receipt of the order.
Investment Advisors. State Street Bank and Trust Company serves as investment
advisor to the Funds in return for a fee equal to .25% annually of each Fund's
average daily net assets.
Certain Class Information. The shares of each Fund are divided into three
classes: Class A, Class B and Class C. Class A shares are designed for
institutional investors. Class B shares are offered through Service
Organizations that provide certain account administration services. Class C
shares are offered through Service Organizations that provide certain account
administration and shareholder liaison services. Each class of shares of a Fund
is entitled to the same rights and privileges as all other classes of shares of
that Fund, provided however, that each class bears the expenses related to its
distribution and shareholder servicing arrangements and certain other expenses
attributable to the class. Annual distribution and shareholder servicing
expenses for Class A, Class B and Class C shares are equal to approximately
.08%, .31% and .56%, respectively, of the average daily net asset value of the
shares of the class. Total operating expenses for Class A, Class B and Class C
shares of the Money Market Fund are equal to approximately .39%, .66% and .94%,
respectively, of the average daily net asset value of the shares of the class.
Total operating expenses for Class A, Class B and Class C shares of the US
Government Money Market Fund are equal to approximately .44%, .69% and .94%,
respectively, of the average daily net asset value of the shares of the class.
-4-
<PAGE>
FUND OPERATING EXPENSES
THE SSgA MONEY MARKET FUND
CLASS C SHARES
The purpose of the following table is to assist the investor in understanding
the various costs and expenses that an investor in Class C shares of the Money
Market Fund will incur directly or indirectly. The examples should not be
considered a representation of past or future expenses. Actual expenses may be
greater or less than those shown. For additional information, see "General
Management."
Shareholder Transaction Expenses:
- ---------------------------------
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
Annual Fund Operating Expenses:
- -------------------------------
(as a percentage of average daily net assets)
Advisory Fees .25%
12b-1 Fees (including Shareholder Servicing Fees)(1),(2) .56
Other Expenses(2) .13
---
Total Operating Expenses(3) .94%
===
Examples: 1 year 3 years 5 years 10 years
- -------- ------ ------- ------- --------
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: $10 $30 $52 $115
=== === === ====
- -----------------------
(1) 12b-1 Fees include shareholder servicing fees payable to Service
Organizations in the amount of .25% of the annual average daily net
asset value of the Fund's Class C Shares.
(2) "Other Expenses" and a portion of 12b-1 fees are based on estimated
amounts for the current fiscal year.
(3) Service Organizations may impose additional fees for services provided
to investors. Investors should contact their Service Organization for
information concerning what additional fees, if any, will be charged.
Long-term holders of the Fund's Class C shares may pay more in Rule 12b-1 fees
than the economic equivalent of the front-end sales charge permitted by the
National Association of Securities Dealers, Inc.
-5-
<PAGE>
FUND OPERATING EXPENSES
THE SSgA US GOVERNMENT MONEY MARKET FUND
CLASS C SHARES
The purpose of the following table is to assist the investor in understanding
the various costs and expenses that an investor in Class C shares of the US
Government Money Market Fund will incur directly or indirectly. The examples
should not be considered a representation of past or future expenses. Actual
expenses may be greater or less than those shown. For additional information,
see "General Management."
Shareholder Transaction Expenses:
- ---------------------------------
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
Annual Fund Operating Expenses:
- -------------------------------
(as a percentage of average daily net assets)
Advisory Fees .25%
12b-1 Fees (including Shareholder Servicing Fees) (1), (2) .56
Other Expenses(2) .13
---
Total Operating Expenses(3) .94%
===
Examples: 1 year 3 years 5 years 10 years
- -------- ------ ------- ------- --------
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: $10 $30 $52 $115
=== === === ====
- --------------------------
(1) 12b-1 Fees include shareholder servicing fees payable to service
organizations in the amount of .25% of annual average daily net asset
value of the Fund's Class C shares.
(2) "Other Expenses" and a portion of 12b-1 fees are based on estimated
amounts for the current fiscal year.
(3) Service Organizations may impose additional fees for services provided
to investors. Investors should contact their Service Organization for
information concerning what additional fees, if any, will be charged.
Long-term holders of the Fund's Class C shares may pay more in Rule 12b-1 fees
than the economic equivalent of the front-end sales charge permitted by the
National Association of Securities Dealers, Inc.
-6-
<PAGE>
FINANCIAL HIGHLIGHTS
SSgA MONEY MARKET FUND
The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Fund's independent
accountants. The table includes selected data for a share outstanding throughout
each fiscal year or period ended August 31, and other performance information
derived from the financial statements. The Investment Company is authorized to
issue Class B and Class C shares of the Fund although shares have not been
offered on these classes as of the date of this Prospectus. The table appears in
the Fund's Annual Report and should be read in conjunction with the Fund's
financial statements and related notes, which are incorporated by reference in
the Statement of Additional Information and which appear, along with the report
of Coopers & Lybrand L.L.P., in the Fund's Annual Report to Shareholders. More
detailed information concerning the Fund's performance, including a complete
portfolio listing and audited financial statements, is available in the Fund's
Annual Report, which may be obtained without charge by writing or calling the
Distributor at (800) 647-7327.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .0516 .0524 .0538 .0330 .0320
LESS DISTRIBUTIONS:
Net investment income (.0516) (.0524) (.0538) (.0330) (.0320)
------- ------- ------- ------- -------
NET ASSET VALUE,
END OF YEAR $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= =======
TOTAL RETURN (%)(a) 5.28 5.36 5.52 3.35 3.24
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
($000 omitted) 4,278,165 3,475,409 2,752,895 3,020,796 2,502,483
Ratios to average net assets (%) (b):
Operating expenses, net .39 .39 .39 .36 .33
Operating expenses, gross .39 .39 .39 .36 .38
Net investment income 5.17 5.20 5.37 3.33 3.20
Per share amount of expense
reductions ($ omitted) -- -- -- -- .0005
</TABLE>
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended August 31, 1988 are annualized.
FINANCIAL HIGHLIGHTS ARE CONTINUED ON THE FOLLOWING PAGE
-7-
<PAGE>
FINANCIAL HIGHLIGHTS, CONTINUED:
<TABLE>
<CAPTION>
1992 1991 1990 1989 1988++
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .0458 .0686 .0817 .0883 .0239
LESS DISTRIBUTIONS:
Net investment income (.0458) (.0686) (.0817) (.0883) (.0239)
------- ------- ------- ------- -------
NET ASSET VALUE,
END OF YEAR $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= =======
TOTAL RETURN (%)(a) 4.68 7.08 8.48 9.19 2.41
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
($000 omitted) 4,263,057 1,645,428 650,598 442,614 193,777
Ratios to average net assets (%) (b):
Operating expenses, net .35 .37 .37 .43 .44
Operating expenses, gross .35 .38 .43 .51 .63
Net investment income 4.40 6.59 8.13 8.97 7.30
Per share amount of expense
reductions ($ omitted) -- .0000 .0005 .0004 .0010
</TABLE>
++ For the period May 2, 1988 (commencement of operations) to August 31, 1988.
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended August 31, 1988 are annualized.
-8-
<PAGE>
FINANCIAL HIGHLIGHTS
SSgA US GOVERNMENT MONEY MARKET FUND
The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Fund's independent
accountants. The table includes selected data for a share outstanding throughout
each fiscal year or period ended August 31, and other performance information
derived from the financial statements. The table appears in the Fund's Annual
Report and should be read in conjunction with the Fund's financial statements
and related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand L.L.P., in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Distributor at (800) 647-7327.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991++
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- ------- ------- -------
INCOME FROM INVEST-
MENT OPERATIONS:
Net investment income .0500 .0515 .0528 .0324 .0304 .0441 .0302
------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Net investment income (.0500) (.0515) (.0528) (.0324) (.0304) (.0441) (.0302)
------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE,
END OF YEAR $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= ======= ======= =======
TOTAL RETURN (%)(a) 5.19 5.27 5.38 3.30 3.08 4.49 3.06
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of year
($000 omitted) 904,483 683,210 490,138 251,165 137,136 156,707 94,646
Ratios to average net assets (%) (b):
Operating expenses, net .44 .40 .42 .38 .39 .41 .23
Operating expenses, gross .44 .40 .42 .39 .46 .42 .43
Net investment income 5.08 5.12 5.37 3.27 3.04 4.26 5.94
Per share amount of expense
reductions ($ omitted) -- -- -- .0001 .0007 .0001 .0011
</TABLE>
++ For the period March 1, 1991 (commencement of operations) to August 31,
1991.
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended August 31, 1991 are annualized.
-9-
<PAGE>
THE SSgA FUNDS
The SSgA Funds ("Investment Company") is an open-end management
investment company that is organized as a Massachusetts business trust. In
addition, each series of the Investment Company is diversified as defined in the
Investment Company Act of 1940, as amended ("1940 Act"). As a "series" company,
Investment Company is authorized to issue an unlimited number of shares
evidencing beneficial interests in different investment portfolios. Through this
Prospectus, Investment Company offers Class C shares in two such portfolios
(collectively, "Funds"): The Money Market Fund ("Money Market Fund") and the US
Government Money Market Fund ("Government Money Market Fund"). State Street Bank
and Trust Company (the "Advisor" or "State Street") serves as the investment
advisor for each Fund.
MANNER OF OFFERING
The Funds are designed to be an economical and efficient means for
retail investors to participate in professionally managed portfolios of money
market instruments. Class C shares of the Funds are offered to customers of
certain financial institutions ("Service Organizations") that act as record
holders of shares and provide services to their customers who invest in the
Funds. Each Service Organization may set a minimum initial investment for its
customers and may involuntarily redeem all shares in an investor's account if
the value of these shares falls below a predetermined amount.
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
Each Fund has a fundamental investment objective, which may be changed
only with the approval of a majority of the Fund's shareholders as defined by
the 1940 Act. There can be no assurance that either Fund will meet its
investment objective.
Money Market Fund
The Money Market Fund's 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 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 US and foreign banks, including certificates of deposit,
banker's acceptances and time deposits; these instruments may include Eurodollar
Certificates of Deposit ("ECDs"), Eurodollar Time Deposits ("ETDs") and Yankee
Certificates of Deposit ("YCDs"); (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.
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
services has rated the security; or (3) if unrated, are of comparable quality,
as determined by the Portfolio's Advisor in accordance with procedures
established by the Board of Trustees. See the Appendix in the Statement of
Additional Information for a description of a NRSRO.
Government Money Market Fund
The Government Money Market Fund's 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.
-10-
<PAGE>
The 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. (See "Investment Policies -- US Government
Securities.") Under normal market conditions, the Government Money Market Fund
will be 100% invested in such securities.
Investment Policies
The investment policies described below reflect the Funds' current
practices, are not fundamental and may be changed by the Board of Trustees of
Investment Company without shareholder approval. To the extent consistent with
the Fund's fundamental investment objective and restrictions the Fund may invest
in the following instruments and may use the following investment techniques:
US Government Securities. 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. The Fund may enter into repurchase agreements
with banks and other financial institutions, such as broker-dealers. Under a
repurchase agreement, a Fund purchases securities from a financial institution
that agrees to repurchase the securities at the Fund's original purchase price
plus interest within a specified time (normally one business day). The Fund will
limit repurchase transactions to those member banks of the Federal Reserve
System and broker-dealers whose creditworthiness Advisor considers satisfactory.
Should the counterparty to a transaction fail financially, the 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 the Fund.
Reverse Repurchase Agreements. The Fund may enter into reverse
repurchase agreements under the circumstances described in "Investment
Restrictions." Under a reverse repurchase agreement, the Fund sells portfolio
securities to a financial institution 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 at a prescribed repurchase price equal to the
amount of cash originally received plus interest on such amount. The Fund
retains the right to receive interest and principal payments with respect to the
securities while they are in the possession of the financial institutions.
Reverse repurchase agreements involve the risk of default by the counterparty,
which may adversely affect the Fund's ability to reacquire the underlying
securities.
Forward Commitments. Each Fund may contract to purchase securities for
a fixed price at a future date beyond customary settlement time. When effecting
such transactions, cash or liquid high quality debt obligations held by the Fund
of a dollar amount sufficient to make payment for the portfolio securities to be
purchased will be segregated on the Fund'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 the Fund to miss an
advantageous price or yield. The Fund bears the risk of price fluctuations
during the period between the trade and settlement dates.
When-Issued Transactions. The Funds may purchase securities on a
when-issued basis. In these transactions, a Fund purchases securities with
payment and delivery scheduled for a future time. Until settlement, the Funds
segregate cash and marketable high quality debt securities equal in value to
their when-issued commitments. Between the trade and settlement dates, the 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 the Fund to miss a price or yield considered
advantageous. Each Fund will engage in when-issued transactions only for the
purpose of acquiring portfolio securities consistent with its investment
objective and policies and not for investment leverage. The Funds will not
invest more than 25% of their net assets in when-issued securities.
Illiquid Securities. Neither Fund will invest more than 10% of its net
assets in illiquid securities or securities that are not readily marketable,
including repurchase agreements and time deposits of more than seven days'
duration. The
-11-
<PAGE>
absence of a regular trading market for illiquid securities imposes additional
risks on the investments in these securities. Illiquid securities may be
difficult to value and may often be disposed of only after considerable expense
and delay.
Variable Amount Master Demand Notes. 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 Fund 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 Fund has been
exhausted, and if any required payments of principal and interest are not made
with respect to the underlying loans, the Fund may experience loss or delay in
receiving payment and a decrease in the value of the security. Further details
are set forth in the Statement of Additional Information under "Investment
Restrictions and Policies -- Investment Policies."
Mortgage-Related Pass-Through Securities. The Funds 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. 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.
Variable and Floating Rate Securities. 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, 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, Eurodollar Time Deposits and Yankee
Certificates of Deposit (Money Market Fund 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, record keeping and
public reporting requirements.
Lending Portfolio Securities. The Fund may lend portfolio securities
with a value of up to 33-1/3% of its total assets. For these purposes, total
assets shall include the value of all assets received as collateral for the
loan. Such loans may be terminated at any time. The 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
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accrued interest. In a loan transaction, as compensation for lending it
securities, the 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, the 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. The 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, the 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 Advisor to be of good financial standing. In a loan
transaction, the Fund will also bear the risk of any decline in value of
securities acquired with cash collateral. The Fund will minimize this risk by
limiting the investment of cash collateral to high quality instruments of short
maturity.
Purchase of Other Funds. To the extent permitted under the 1940 Act and
exemptive rules and orders thereunder, the Funds may seek to achieve their
investment objectives by investing solely in the shares of another investment
company that has a substantially similar investment objective and policies.
Investment Restrictions
Each Fund has fundamental investment restrictions, which may be changed
only with the approval of a majority of the Fund's shareholders as defined in
the 1940 Act. A more detailed discussion of the 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 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). Concentration may occur as a result of
changes in the market value of portfolio securities, but may
not result from investment. US banks and certain domestic
branches of foreign banks are not considered a single industry
for purposes of this restriction.
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 Fund's assets
taken at market value, less liabilities other than borrowings.
If at any time a 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 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 Fund
may pledge securities having a market value at the time of the
pledge not exceeding 33-1/3% of the value of the Fund's total
assets to secure permitted borrowings.
PORTFOLIO MATURITY
Each Fund must limit its investments to securities with remaining
maturities of 397 days or less (as determined in accordance with applicable SEC
regulations) and must maintain a dollar-weighted average maturity of 90 days or
less. The Funds normally hold portfolio instruments to maturity, but may dispose
of them prior to maturity if Advisor finds it advantageous.
DIVIDENDS AND DISTRIBUTIONS
The Board of Trustees intends to declare dividends on shares of the
Fund from net investment income daily and have them payable as of the last
business day of each month. Distributions will be made at least annually from
net short- and long-term capital gains, if any. In most instances, distributions
will be declared and paid in mid-October with additional distributions declared
and paid in December, if required, for the Fund to avoid imposition of a 4%
federal excise tax on undistributed capital gains. The Fund does not expect any
material long-term capital gains or losses.
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Dividends declared in October, November or December and payable to
shareholders of record in such months will be deemed to have been paid by the
Fund and received by shareholders on December 31 of that year if the dividend is
paid prior to February 1 of the following year.
Income dividend and capital gain distributions will be paid 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 Fund mailings to an investor, the
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 Fund until
the investor notifies the SSgA Funds 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 Fund shortly
after a purchase of shares will reduce the per share net asset value of the Fund
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:
[bullet] Reinvestment Option--Dividends and capital gains distributions
will be automatically reinvested in additional shares of the
Fund. If the investor does not indicate a choice on the
Application, this option will be automatically assigned.
[bullet] Income-Earned Option--Capital gain distributions will be
automatically reinvested, but a check or wire will be sent for
each dividend distribution.
[bullet] Cash Option--A check or wire will be sent for each dividend
and capital gain distribution.
[bullet] Direct Dividends Option--Dividends and capital gain
distribution will be automatically invested in another
identically registered SSgA Fund.
The Transfer Agent will wire dividends (if that option is elected) to a
pre-designated bank on the first business day of the following month in which
the dividend is payable.
TAXES
Each Fund intends to qualify as a regulated investment company ("RIC")
under Subchapter M of the Internal Revenue Code, as amended (the "Code"). As a
RIC, each Fund will not be subject to federal income taxes to the extent it
distributes its net investment income and net capital gain (long-term capital
gains in excess of short-term capital losses) to its shareholders. The Board
intends to distribute each year substantially all of the Funds' net investment
income and capital gain net income.
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.
Dividends and distributions may also be subject to state or local
taxes. Depending on the state tax rules pertaining to a shareholder, a portion
of the dividends paid by a Fund attributable to direct obligations of the US
Treasury and certain agencies may be exempt from state and local taxes.
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The sale of 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 portfolios of a mutual fund). Any loss incurred on sale or
exchange of 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.
Shareholders will be notified after each calendar year of the amount of
income dividends and net capital gains distributed and the percentage of a
Fund's income attributable to US Treasury and agency obligations. The Funds are
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.
The foregoing discussion is only a summary of certain federal income
tax issues generally affecting the Fund and its shareholders. Circumstances
among investors may vary and each investor is encouraged to discuss investment
in the Fund with the investor's tax advisor.
VALUATION OF FUND SHARES
Net Asset Value Per Share. Net asset value per share for each class of
shares of a Fund is determined by adding the value of all securities and other
assets of the Fund, deducting accrued liabilities allocated to the class,
dividing by the number of shares outstanding in a class and rounding to the
nearest cent. The Funds determine 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 4:00 p.m. Eastern time). A business day
is one on which the New York Stock Exchange and Boston Federal Reserve are open
for business.
Valuation of Fund Securities. Each Fund seeks to maintain a $1.00 per
share net asset value and, accordingly, use the amortized cost valuation method
to value its portfolio instruments. The amortized cost valuation method
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 FUND SHARES
Shares are offered through Service Organizations, who act as record
holders of the shares and provide services to their customers who invest in
shares. To purchase shares, investors should contact a Service Organization and
follow its procedures for the purchase of shares. Beneficial ownership of shares
will be recorded by Service Organizations and reflected in account statements
provided to their customers.
Offering Dates and Times. Fund shares may be purchased on any business
day. All purchases must be made in US dollars. Purchase orders and payments for
Fund shares must be received by the Transfer Agent prior to 4:00 p.m. Eastern
time to be effective on the date received. The accompanying payment must be in
federal funds or converted into federal funds by the Transfer Agent before the
purchase order can be accepted. Purchase orders in good form are described
below. Purchase orders which are accepted: (1) prior to 12:00 noon Eastern time
will earn the dividend declared on the date of purchase; and (2) at or after
12:00 noon Eastern time will earn the dividend determined on the next day.
Order and Payment Procedures. On behalf of their customers, Service
Organizations may purchase shares by wiring federal funds to State Street Bank
and Trust Company as Transfer Agent by:
1. Telephoning State Street Bank and Trust Company at (800)
647-7327 and providing: (1) the Service Organization's account
registration number, address and tax identification number;
(2) the name of the Fund to be invested in; (3) the amount
being wired; (4) the name of the wiring bank; and (5) the name
and telephone number of the person at the wiring bank to be
contacted in connection with the order.
2. Instructing the wiring bank to wire federal funds to: State
Street Bank and Trust Company, Boston, MA (ABA #0110-00028),
Attention: The SSgA Funds, Mutual Funds Service Division (DDA
#9904-631-0).
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<PAGE>
The wire instructions should also include the name the account
is registered in, the account number and the name of the Fund
to be invested in.
Each Fund reserves the right to reject any order.
Service Organizations may charge investors fees for certain services.
Investors should contact their Service Organization for information concerning
what additional fees, if any, may be charged.
Exchange Privilege. An investor's Service Organization may permit
shares of either Fund to be exchanged for shares of certain other investment
portfolios. Shares are exchanged on the basis of relative net asset value per
share. Investors should contact their Service Organizations for information
regarding exchange options and procedures and fees imposed in connection with
exchanges.
REDEMPTION OF FUND SHARES
An investor may redeem all or part of their shares in accordance with
instructions and limitations pertaining to their account at a Service
Organization. These procedures will vary according to the type of account and
the Service Organization involved, and investors should consult their account
managers in this regard. It is the responsibility of the Service Organizations
to transmit redemption orders to the Transfer Agent and credit their customers'
accounts with the redemption proceeds on a timely basis.
On behalf of their customers, Service Organizations may redeem Fund
shares on any business day at the net asset value next determined after the
receipt of a redemption request. Payment for redemption orders will be wired in
federal funds to the Service Organization's account at a domestic commercial
bank that is a member of the Federal Reserve System. The Funds reserve the right
to suspend redemptions or postpone the date of payment if emergency conditions,
as specified in the 1940 Act or determined by the Securities and Exchange
Commission, should exist.
A dividend will be paid on shares redeemed if the redemption request is
received by State Street Bank and Trust Company after 12:00 noon Eastern time.
Redemption requests received before 12:00 noon Eastern time will not be entitled
to that day's dividend.
GENERAL MANAGEMENT
The Board of Trustees supervises the management, activities and affairs
of the Funds and has approved contracts with various financial organizations to
provide, among other services, day-to-day management required by the Funds.
Advisory Agreement. Investment Company employs State Street to furnish
investment services to the Funds. State Street is one of the largest providers
of securities processing and record keeping services for US mutual funds and
pension funds. State Street is a wholly owned subsidiary of State Street
Corporation, a publicly held bank holding company. State Street, with over $370
billion (US) under management as of September 30, 1997, provides complete global
investment management services from offices in Atlanta, Boston, Brussels,
Copenhagen, Dubai, Hong Kong, London, Minneapolis, Montpellier, Montreal,
Munich, Paris, San Francisco, Sydney, Tokyo, and Toronto.
Advisor, subject to Board supervision, directs the investments of each
Fund in accordance with the Fund's investment objective, policies and
restrictions. For these services, each Fund pays Advisor a fee, calculated daily
and paid monthly, that on an annual basis is equal to .25% of the Fund's average
daily net assets.
The Glass-Steagall Act prohibits a depository state chartered bank such
as Advisor from engaging in the business of issuing, underwriting, selling or
distributing certain securities. The activities of Advisor in informing its
customers of the Funds, performing investment and redemption services and
providing custodian, transfer, shareholder servicing, dividend disbursing and
investment advisory services may raise issues under these provisions. Advisor
has been advised by its counsel that its activities in connection with the Funds
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
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<PAGE>
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 Advisor from continuing to perform all or a part of
the above services for its customers and/or the Funds. If Advisor were
prohibited from serving the 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 Funds may occur. It is not expected by 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 Investment Company portfolios 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 November 30, 1997, State
Street held of record less than 25% of the issued and outstanding shares of
Investment Company in connection with its discretionary accounts. Consequently,
State Street is not 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 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.
Administration Agreement. Frank Russell Investment Management Company
("Administrator") serves as administrator of the Fund. Administrator currently
serves as investment manager and administrator to 32 mutual funds with assets of
$11.3 billion as of October 31, 1997, and acts as administrator to 20 mutual
funds, including the Fund, with assets of $10.8 billion as of October 31, 1997.
Pursuant to the Administration Agreement with Investment Company,
Administrator will: (1) supervise all aspects of the Funds' operations; (2)
provide the Funds with administrative and clerical services, including the
maintenance of certain of the Funds' books and records; (3) arrange the periodic
updating of the Funds' prospectuses and any supplements thereto; (4) provide
proxy materials and reports to Fund shareholders and the Securities and Exchange
Commission; and (5) provide the 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 Funds
and Investment Company's other domestic investment portfolios pay Administrator
a combined fee that on an annual basis is equal to the following percentages of
their average aggregate daily net assets: (1) $0 to and including $500 million
- -- .06%; (2) over $500 million to and including $1 billion -- .05%; and (3) over
$1 billion -- .03%. The percentage of the fee paid by a particular Fund is equal
to the percentage of average aggregate daily net assets that are attributable to
that Fund. Administrator will also receive reimbursement of expenses it incurs
in connection with establishing new investment portfolios. Further, the
administration fee paid by the Investment Company will be reduced by the sum of
certain distribution related expenses, up to certain maximum percentages, as
follows: (1) 10% from January 1, 1997 to December 31, 1997; 5% from January 1,
1998 to December 31, 1998; and (3) 0% from January 1, 1999 thereafter.
Administrator also provides administrative services in connection with
the registration of shares of Investment Company 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.
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<PAGE>
Distribution Services and Shareholder Servicing Arrangements. Pursuant
to the Distribution Agreement with Investment Company, Russell Fund
Distributors, Inc. ("Distributor"), a wholly owned subsidiary of Administrator,
serves as distributor for all Fund shares.
The Funds have adopted a distribution plan pursuant to Rule 12b-1 (the
"Plan") under the 1940 Act for the Class C shares. 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 .60% of the net asset value of Class C shares of each Fund
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 Fund shares including: (1) payments made to certain
broker-dealers, investment 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 Fund shares, including Distributor's overhead expenses for rent, office
supplies, equipment, travel, communication, compensation and benefits of sales
personnel.
Under the Plan, the Funds may also enter into agreements ("Service
Agreements") with financial institutions, which may include Advisor ("Service
Organizations"), to provide distribution and shareholder services with respect
to Class C shares of the Funds 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: processing customer
purchase and redemption requests; answering inquiries regarding the Funds;
assisting customers in changing dividend options, account designations and
addresses; performing subaccounting for such customers; establishing and
maintaining customer accounts and records; processing purchase and redemption
transactions; 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; arranging
for bank wires transferring customers' funds; transmitting proxy statements,
annual and semi-annual reports, prospectuses and other communications from the
Funds to customers; and such other services as the customers may request in
connection with the Funds, to the extent permitted by applicable statute, rule
or regulation. Service Organizations may receive from each Fund a monthly fee at
a rate that shall not exceed .50% per annum of the average daily net asset value
of the Fund's Class C 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 Fund, are not permitted by the Plan to exceed .60% per year of the
average net asset value of the Fund's Class C shares. Any payments that are
required to be made by the Distribution Agreement and any Service Agreement but
could not be made because of the .60% limitation may be carried forward and paid
in subsequent years so long as the Plan is in effect. A Fund's liability for any
such expenses may be carried forward indefinitely. Service Organizations will be
responsible for prompt transmission of purchase and redemption orders and may
charge fees for their services.
FUND EXPENSES
The Funds will pay all of their expenses other than those expressly
assumed by Advisor and Administrator. The principal expenses of the Funds are
the annual advisory fee payable to Advisor and distribution and shareholder
servicing expenses. Other expenses include: (1) amortization of deferred
organizational costs; (2) taxes, if any; (3) expenses for legal, auditing and
financial accounting services; (4) expense of preparing (including typesetting,
printing and mailing) reports, prospectuses and notices to existing
shareholders; (5) administrative fees; (6) custodian fees, (7) expense of
issuing and redeeming Fund shares; (8) the cost of registering 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 Funds. Where any of
these other expenses are attributable to a particular class of shares, they will
be borne by the beneficial owners of such shares.
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<PAGE>
PERFORMANCE CALCULATIONS
From time to time the Funds may advertise the yield and effective yield
of their Class C shares. The yield of each Fund refers to the income generated
by an investment in Class C shares of the Fund 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 each Fund is assumed to
be reinvested. The effective yield will be slightly higher than the yield
prescribed by the Securities and Exchange Commission because of the compounding
effect of this assumed reinvestment.
From time to time, the 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.
From time to time, the Funds may advertise the total return of their
Class C shares. The total return of a Fund is the average annual compounded rate
of return from a hypothetical investment in the Fund's Class C shares over one,
five and ten-year periods or for the life of the Fund (as stated in the
advertisement), assuming the reinvestment of all dividend and capital gain
distributions.
Comparative performance information may be used from time to time in
advertising or marketing Fund shares, including data from Lipper Analytical
Services, Inc., IBC/Donoghue's Money Fund Report, the Bank Rate Monitor, Wall
Street Journal Score Card, Lehman Brothers Index or other industry publications,
business periodicals, rating services and market indices. The Funds may also
advertise nonstandardized performance information which is for periods in
addition to those required to be presented.
Quoted yields, total 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 Funds, provides portfolio
record keeping services and serves as the 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 the
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. Potential
investors who wish to obtain more information about the Funds should contact a
Service Organization. Inquiries from Servicing Organizations regarding the
Prospectus and financial statements may be made by calling Distributor at (800)
647-7327.
Organization, Capitalization and Voting. 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 issues shares divisible into an unlimited
number of series (or funds), each of which is a separate trust under
Massachusetts law. The Money Market and Government Money Market Funds are two
such series. Shares of a Fund are entitled to such relative rights and
preferences and dividends and distributions earned on assets of the Fund as may
be declared by the Board of Trustees. Fund shares are fully paid and
nonassessable by Investment Company and have no preemptive rights. Investment
Company is authorized to subdivide each series into two or more classes of
shares. Currently, shares of the Money Market and Government Money Market Funds
are divided into Class A, Class B and Class C. Each class of shares of a Fund is
entitled to the same rights and privileges as all other classes of that Fund,
provided, however, that each class bears the expenses related to its
distribution and shareholder servicing arrangements, as well as other expenses
attributable to the class and unrelated to managing the Fund's portfolio
securities. As described above, Investment Company has adopted a plan of
distribution under rule 12b-1 for Class C shares. Similar plans have been
adopted for Class A and Class
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B shares. However, total payments under those plans are limited to .25% and .35%
annually of the average net asset value of the Class A and Class B shares,
respectively of a Fund. As a result of these plan and other class expenses, the
yield on Class B and Class C shares will be approximately .25% and .50% lower,
respectively, than the yield on Class A shares.
Each 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. Further, any matter that affects only the holders of a particular
class of shares may be voted on only by such shareholders. Each class of shares
votes separately with respect to any Rule 12b-1 plan applicable to such class.
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.
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THE SSgA FUNDS
One International Place
Boston, Massachusetts 02110
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
-21-
<PAGE>
Filed pursuant to Rule 485(b)
File Nos. 33-19229; 811-5430
SSgA FUNDS
One International Place
Boston, Massachusetts 02110
(800) 647-7327
Filed pursuant to Rule 485(b)
File Nos. 33-19229; 811-5430
SSgA FUNDS
One International Place
Boston, Massachusetts 02110
(800) 647-7327
MATRIX EQUITY FUND
SSgA Funds is a registered, open-end management investment company with
multiple portfolios, each of which is commonly referred to as a mutual fund.
This Prospectus describes and offers shares of beneficial interest in one mutual
fund, the SSgA Matrix Equity Fund (the "Matrix Fund" or the "Fund"). The Matrix
Fund seeks to provide total returns that exceed over time the S&P 500 Index
through investment in equity securities. The Fund's shares are offered without
sales commissions. However, the Fund pays certain distribution expenses under
its 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.
SHARES IN THE FUND 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 sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Please read and retain this
document for future reference. Additional information about the SSgA Funds has
been filed with the Securities and Exchange Commission ("SEC") in Statements of
Additional Information ("SAI") dated December 24, 1997. The SAI is incorporated
herein by reference and is available without charge from Distributor at its
address noted below or by calling (800) 647-7327. The SEC also maintains a
website (www.sec.gov) that contains the SAI, material incorporated by reference
and other information regarding the SSgA Funds. You may also access the SSgA
Funds' website at www.ssgafunds.com
<TABLE>
<S> <C> <C>
Investment Advisor, Custodian and
Transfer Agent: Distributor: Administrator:
State Street Bank and Trust Frank Russell Investment
Company Russell Fund Distributors, Inc. Management Company
225 Franklin Street One International Place 909 A Street
Boston, Massachusetts 02110 Boston, Massachusetts 02110 Tacoma, Washington 98402
</TABLE>
PROSPECTUS DATED December 24, 1997
<PAGE>
TABLE OF CONTENTS
Page
Fund Operating Expenses............................................. 3
Financial Highlights................................................ 4
SSgA Funds.......................................................... 5
Manner of Offering.................................................. 5
Investment Objective, Policies and Restrictions..................... 5
Certain Risk Factors................................................ 8
Portfolio Turnover ................................................. 9
Dividends and Distributions......................................... 9
Taxes .............................................................. 9
Valuation of Fund Shares............................................ 10
Purchase of Fund Shares............................................. 11
Redemption of Fund Shares........................................... 13
General Management.................................................. 15
Fund Expenses....................................................... 18
Performance Calculations............................................ 18
Additional Information.............................................. 18
-2-
<PAGE>
FUND OPERATING EXPENSES AFTER FEE WAIVER
SSgA MATRIX EQUITY FUND
The following table is intended to assist the investor in understanding the
various costs and expenses that an investor in the Matrix Fund will incur
directly or indirectly. The examples should not be considered a representation
of past or future expenses. Actual expenses may be greater or less than those
shown. For additional information, see "General Management."
Shareholder Transaction Expenses:
- ---------------------------------
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
Annual Fund Operating Expenses:
- -------------------------------
(as a percentage of average daily net assets)
Advisory Fees (After Fee Waiver)(1) .50%
12b-1 Distribution Fees(1) .03
12b-1 Shareholder Servicing Fees(1) .06
Other Expenses(1) .11
---
Total Operating Expenses (After Fee Waiver)(1), (2) .70%
====
Examples: 1 year 3 years 5 years 10 years
- -------- ------ ------- ------- --------
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:
$7 $22 $39 $87
== === === ===
1 The Advisor has voluntarily agreed to waive .25% of its advisory fee. The
gross annual Advisory expense before the waiver would be .75% of average
daily net assets. The total operating expense of the Fund absent the fee
waiver would be 0.95% of average daily net assets on an annual basis. The
Advisory fee waiver agreement will be in effect for the current fiscal
year.
2 The expense information in the table has been restated to reflect current
fees. Investors purchasing 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.
Long-term shareholders of the Fund may pay more in Rule 12b-1 fees than the
economic equivalent of the maximum front-end sales charges permitted by National
Association of Securities Dealers, Inc.
-3-
<PAGE>
FINANCIAL HIGHLIGHTS
SSgA MATRIX EQUITY FUND
The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Fund's independent
accountants. The table includes selected data for a share outstanding throughout
each fiscal year or period ended August 31, and other performance information
derived from the financial statements. The table appears in the Fund's Annual
Report and should be read in conjunction with the Fund's financial statements
and related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand L.L.P., in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Distributor at (800) 997-7327.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992++
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $ 14.13 $13.93 $12.06 $11.95 $ 9.78 $ 10.00
------- ------ ------ ------ ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .21 .24 .28 .24 .18 .05
Net realized and unrealized gain
(loss) on investments 5.43 1.64 1.93 .28 2.17 (.27)
------- ------ ------ ------ ------- -------
Total From Investment Operations 5.64 1.88 2.21 .52 2.35 (.22)
------- ------ ------ ------ ------- -------
LESS DISTRIBUTIONS:
Net investment income (.22) (.24) (.28) (.23) (.18) --
Net realized gain on investments (1.14) (1.44) (.06) (.09) -- --
In excess of net realized
gain on investments -- -- (.09) -- -- --
------- ------ ------ ------ ------- -------
Total Distributions (1.36) (1.68) (.34) (.41) (.18) --
------- ------ ------ ------ ------- -------
NET ASSET VALUE,
END OF YEAR $ 18.41 $14.13 $13.93 $ 12.06 $ 11.95 $ 9.78
======= ====== ====== ====== ======= =======
TOTAL RETURN (%)(a) 42.75 14.67 18.81 4.41 24.24 (2.20)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
($000 omitted) 429,397 261,888 198,341 130,764 62,549 12,408
Ratios to average net assets (%):
Operating expenses, net (b) .58 .66 .68 .58 .60 .18
Operating expenses, gross (b) .96 1.04 1.06 .96 1.25 1.90
Net investment income 1.33 1.76 2.25 2.16 2.13 2.69
Portfolio turnover rate (%) 117.27 150.68 129.98 127.20 57.65 None
Per share amount of expense
reductions ($ omitted) (b) .0590 .0510 .0466 .0410 .0539 .0314
Average commission rate paid
per share of security ($ omitted) .0376 .0404 N/A N/A N/A N/A
</TABLE>
- ------------
++ For the period May 4, 1992 (commencement of operations) to August 31, 1992.
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended August 31, 1992 are annualized.
-4-
<PAGE>
SSgA FUNDS
SSgA Funds ("Investment Company") is an open-end management investment
company that is organized as a Massachusetts business trust. In addition, each
series of the Investment Company is diversified as defined in the Investment
Company Act of 1940, as amended ("1940 Act"). As a "series" company, the
Investment Company is authorized to issue an unlimited number of shares
evidencing beneficial interests in different investment portfolios. Through this
Prospectus, the Investment Company offers shares in one such portfolio, the
Matrix Equity Fund. State Street Bank and Trust Company (the "Advisor" or "State
Street") serves as the investment advisor for the Fund.
MANNER OF OFFERING
Distribution and Eligible Investors. Shares of the Fund are offered
without a sales commission by Russell Fund Distributors, Inc. (the
"Distributor"), the Investment Company's distributor, to US and foreign
institutional and retail investors which invest for their own account or in a
fiduciary or agency capacity. The Fund will incur distribution expenses under
its Rule 12b-1 plan. See "General Management -- Distribution Services and
Shareholder Servicing."
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
The Fund's fundamental investment objective is to provide total returns
that exceed over time the S&P 500 Index through investment in equity securities.
This objective may be changed only with the approval of a majority of the Fund's
shareholders as defined by the 1940 Act. There can be no assurance that the Fund
will meet its investment objective.
Equity securities will be selected by the Fund on the basis of a
proprietary analytical model of 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.
Under normal market conditions, the Fund will invest at least 65% of its
total assets in equity securities. However, the Fund may invest temporarily for
defensive purposes, without limitation, in certain short-term fixed income
securities. Such securities may be used to invest uncommitted cash balances or
to maintain liquidity to meet shareholder redemptions. See "Investment Policies
- -- Cash Reserves."
Investment Policies
- -------------------
The investment policies described below reflect the Fund's current
practices, are not fundamental and may be changed by the Board of Trustees of
Investment Company without shareholder approval. For more information on the
Fund's Investment Policies, please see the Statement of Additional Information.
To the extent consistent with the Fund's investment objective and restrictions,
the Fund may invest in the following instruments and may use the following
investment techniques:
US Government Securities. 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, 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.
-5-
<PAGE>
Repurchase Agreements. The 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 Fund receives securities as
collateral. Under a repurchase agreement, a Fund purchases securities from a
financial institution that agrees to repurchase the securities at the Fund's
original purchase price plus interest within a specified time (normally one
business day). The Fund will limit repurchase transactions to those member banks
of the Federal Reserve System and broker-dealers whose creditworthiness Advisor
considers satisfactory. Should the counterparty to a transaction fail
financially, the 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 the Fund.
Reverse Repurchase Agreements. The Fund may enter into reverse repurchase
agreements under the circumstances described in "Investment Restrictions." In
substance, a reverse repurchase agreement is a borrowing for which the Fund
provides securities as collateral. Under a reverse repurchase agreement, the
Fund sells portfolio securities to a financial institution 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 at a prescribed repurchase
price equal to the amount of cash originally received plus interest on such
amount. The Fund retains the right to receive interest and principal payments
with respect to the securities while they are in the possession of the financial
institutions. Reverse repurchase agreements involve the risk of default by the
counterparty, which may adversely affect the Fund's ability to reacquire the
underlying securities.
Forward Commitments. The Fund 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 the Fund of a dollar
amount sufficient to make payment for the portfolio securities to be purchased
will be segregated on the Fund'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 the Fund to miss an advantageous price or
yield. The Fund bears the risk of price fluctuations during the period between
the trade and settlement dates.
When-Issued Transactions. The Fund may purchase securities on a
when-issued basis. In these transactions, the Fund purchases securities with
payment and delivery scheduled for a future time. Until settlement, the Fund
segregates cash and marketable securities equal in value to its when-issued
commitments. Between the trade and settlement dates, the Fund bears the risk of
any fluctuations in the value of the securities. These transactions involve the
additional risk that the other party may fail to complete the transaction and
cause the Fund to miss a price or yield considered advantageous. The Fund will
engage in when-issued transactions only for the purpose of acquiring portfolio
securities consistent with its investment objective and policies and not for
investment leverage. The Fund will not invest more than 25% of net assets in
when-issued securities.
Illiquid Securities. The Fund will not invest more than 15% of its net
assets in illiquid securities or securities that are not readily marketable,
including repurchase agreements and time deposits of more than seven days'
duration. 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.
Variable Amount Master Demand Notes. 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 the issuers and the 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.
-6-
<PAGE>
Futures Contracts and Options on Futures. For hedging purposes,
including protecting the price or interest rate of a security the Fund intends
to buy, the 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. A stock index futures contract is a contract to buy
or sell specified units of a stock index at a specified date at a price agreed
upon when the contract is made. The value of a unit is based on the current
value of the stock index. 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. Upon entering into a
futures contract, the 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 the Fund will honor its futures commitment. 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, the 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. The Fund may write and
purchase covered put and call options on securities in which it may directly
invest. Option transactions 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 Fund's total assets. Further, the 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 all such options outstanding would exceed
25% of the value of the Fund's total assets.
The Fund may purchase or sell options on securities indices that are
comprised of securities in which the Fund 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 price of
the index and the exercise price of the option times a multiplier established by
the exchange upon which the option is traded.
Lending Portfolio Securities. The Fund may lend portfolio securities
with a value of up to 33-1/3% of its total assets. For these purposes, total
assets shall include the value of all assets received as collateral for the
loan. Such loans may be terminated at any time. The 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, the 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, the 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. The 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, the 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 Advisor to be of good financial standing. In a
loan transaction, the Fund will also bear the risk of any decline in value of
securities acquired with cash collateral. The Fund will minimize this risk by
limiting the investment of cash collateral to high quality instruments of short
maturity.
-7-
<PAGE>
Cash Reserves. For defensive purposes, the Fund may temporarily and
without limitation concentrate its portfolio in high quality short-term fixed
income securities. 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.
Other Investment Policies. In addition to the policies noted above, the
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 during the coming year. See the Statement of
Additional Information for a more detailed discussion of these instruments.
Purchase of Other Funds. To the extent permitted under the 1940 Act and
exemptive rules and orders thereunder, the Fund may seek to achieve its
investment objective by investing solely in the shares of another investment
company that has a substantially similar investment objective and policies.
Investment Restrictions
- -----------------------
The Fund has fundamental investment restrictions, which may be changed
only with the approval of a majority of the Fund's shareholders as defined in
the 1940 Act. A more detailed discussion of the Fund's investment restrictions
and investment policies appears in the Statement of Additional Information.
Unless otherwise noted, the fundamental restrictions apply at the time an
investment is made. The 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 non-depository instruments issued by
European banks). 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 Fund's assets
taken at market value, less liabilities other than borrowings.
If at any time the 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. The 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, the Fund
may pledge securities having a market value at the time of the
pledge not exceeding 33-1/3% of the value of the Fund's total
assets to secure permitted borrowings.
CERTAIN RISK FACTORS
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.
-8-
<PAGE>
PORTFOLIO TURNOVER
The portfolio turnover rate cannot be predicted, but it is anticipated
that the Fund's annual turnover rate generally will not exceed 150%. A high
turnover rate (over 100%) will: (1) increase transaction expenses which will
adversely affect a Fund's performance; and (2) result in increased brokerage
commissions and other transaction costs, and the possibility of realized capital
gains.
The Fund may effect portfolio transactions with or through State Street
Brokerage Services, Inc. an affiliate of the Advisor, when the Advisor
determines that the Fund will receive competitive execution, price and
commissions.
DIVIDENDS AND DISTRIBUTIONS
The Board of Trustees intends to declare and pay dividends on shares of
the Fund quarterly from net investment income. The Board of Trustees intends to
declare distributions annually from net short- and long-term capital gains, if
any, generally in mid-October. It is intended that an additional distribution
may be declared and paid in December if required for the Fund 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 Fund and received by shareholders on December
31 of that year if the dividend is paid prior to February 1 of the following
year.
Income dividend and capital gain distributions will be paid 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 Fund mailings to an investor, the
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 Fund until
the investor notifies the SSgA Funds 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 Fund shortly
after a purchase of shares will reduce the per share net asset value of the Fund
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--Dividends and capital gains distributions will be
automatically reinvested in additional shares of the Fund. If the
investor does not indicate a choice on the Application, this option
will be automatically assigned.
[ ] Income-Earned Option--Capital gain distributions will be automatically
reinvested, but a check or wire will be sent for each dividend
distribution.
[ ] Cash Option--A check or wire will be sent for each dividend and
capital gain distribution.
[ ] Direct Dividends Option--Dividends and capital gain distribution will
be automatically invested in another identically registered SSgA Fund.
[ ] Distributions will be sent to a pre-designated bank by the Automatic
Clearing House ("ACH") on the payable date.
-9-
<PAGE>
TAXES
The Fund intends to qualify as a regulated investment company ("RIC")
under Subchapter M of the Internal Revenue Code, as amended (the "Code"). As a
RIC, the Fund will not be subject to federal income taxes to the extent it
distributes its net investment income and net capital gain (long-term capital
gains in excess of short-term capital losses) to shareholders. The Board intends
to distribute each year substantially all of the Fund's net investment income
and capital gain net income.
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 20% gains and 28% gains are taxable as 20% gains or 28% gains regardless of
the length of time a shareholder has held such shares and whether paid in cash
or additional shares.
Dividends and distributions may also be subject to state or local
taxes. Depending on the state tax rules pertaining to a shareholder, a portion
of the dividends paid by the Fund attributable to direct obligations of the US
Treasury and certain agencies may be exempt from state and local taxes.
The sale of 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 portfolios of a mutual fund). Any loss incurred on sale or exchange of
Fund shares held for one year or more will be treated as a 20% loss or a 28%
loss to the extent of capital gain dividends received with respect to such
shares.
Shareholders will be notified after each calendar year of the amount of
income dividends and net capital gains distributed and the percentage of the
Fund's income attributable to US Treasury and agency obligations. The 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 Fund with the shareholder's correct taxpayer
identification number or certification that the shareholder is not subject to
backup withholding.
The foregoing discussion is only a summary of certain federal income
tax issues generally affecting the Fund and its shareholders. Circumstances
among investors may vary and each investor is encouraged to discuss investment
in the Fund with the investor's tax advisor.
VALUATION OF FUND SHARES
Net Asset Value Per Share. The net asset value per share is calculated
on 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. Net asset value per
share is computed by dividing the current value of the Fund's assets, less its
liabilities, by the number of shares of the Fund outstanding and rounding to the
nearest cent.
Valuation of Fund Securities. With the exceptions noted below, the Fund
values portfolio securities at market value. This generally means that 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.
-10-
<PAGE>
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.
Securities maturing within 60 days of the valuation date are valued at
amortized cost unless the Board determines that the amortized cost method does
not represent market value. The amortized cost valuation method 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 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 Fund would
receive if it sold the instrument.
The Fund values 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.
PURCHASE OF FUND SHARES
Minimum Initial and Subsequent Investments and Account Balance. The
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 the Fund (other than IRA
accounts) may be subject to redemption at the 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. The Fund reserves
the right to reject any purchase order. Investors purchasing Fund assets through
a pension or other participation plan should contact their plan administrator
for further information on purchases.
Offering Dates and Times. Fund shares may be purchased on any business
day without a sales commission. All purchases must be made in US dollars.
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 to be effective on the date received. The
Fund reserves 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.
Order and Payment Procedures. There are several ways to invest in the
Fund. The Fund requires 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 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:
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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 may be withheld until the check or account
clears, which may take up to 15 calendar days.
Telephone Exchange Privilege. Subject to the Fund's minimum investment
requirement, investors may exchange a minimum of $100 of their 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 on the business day on which the
call is placed or upon written receipt of instructions in good form by the
Transfer Agent. Exchanges may be made over the phone if the registrations of the
two accounts are identical. If the shares of the 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 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.
Federal Funds Wire. An investor may make initial or subsequent investments
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 Fund in which the
investment is to be made and the account number; and (c) the amount
being wired.
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 Matrix Equity Fund
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 Fund 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 Fund's minimum initial requirement
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.
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<PAGE>
Systematic Exchange. The Fund offers 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 Fund has been satisfied.
Third Party Transactions. Investors purchasing 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.
In Kind Exchange of Securities. The Transfer Agent may, at its discretion,
permit investors to purchase shares through the exchange of securities they
hold. Any securities exchanged must meet the investment objective, policies and
limitations of the Fund, must have a readily ascertainable market value, must be
liquid and must not be subject to restrictions on resale. The market value of
any securities exchanged, plus any cash, must be at least $10 million. Shares
purchased in exchange for securities generally may not be redeemed or exchanged
until the transfer has settled--usually within 15 days following the purchase
exchange.
The basis of the exchange will depend upon the relative net asset value
of the shares purchased and securities exchanged. Securities accepted by the
Fund will be valued in the same manner as the Fund values its assets. Any
interest earned on the securities following their delivery to the Transfer Agent
and prior to the exchange will be considered in valuing the securities. All
interest, dividends subscription or other rights attached to the securities
become the property of the Fund, along with the securities.
REDEMPTION OF FUND SHARES
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. Typically, 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.
Redemption requests must be received prior to 4:00 p.m. Eastern time in
order be effective on the date received. Shareholder servicing agents with
underlying shareholders in omnibus accounts who receive redemption requests by
4:00 p.m. Eastern time may transmit the request to the Transfer Agent by 9:00
a.m. Eastern time the next succeeding business day and receive the dividend as
of the day the redemption request was originally made by the underlying
shareholder.
Telephone Redemption. Shareholders may normally redeem 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 Fund and the Transfer Agent will employ reasonable procedures
to confirm that instructions communicated by telephone are properly authorized.
The 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.
By Wire. Proceeds exceeding $1,000 may be sent via wire transfer to the
investor's pre-designated bank. Proceeds may be sent, depending on the Fund, on
the same or the next day. Although the Fund does 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. Requests
must be received prior to 4:00 p.m. The shares will be redeemed using that day's
closing price, and the proceeds will be wired the following business day.
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<PAGE>
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 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.
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<PAGE>
<TABLE>
<CAPTION>
Seller Requirements for Written Requests
<S> <C>
Owner of individual, joint, Letter of instruction, signed by all persons
sole proprietorship, authorized to sign for the account stating general
UGMA/UTMA (custodial titles/capacity, exactly as the account is
accounts for minors)or registered; and
general partner accounts Signature guarantee, if applicable (see above).
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 trust Letter of instruction, signed by all trustees;
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 are Certified copy of the death certificate; and
deceased Signature guarantee, if applicable (see above).
</TABLE>
Please contact the Customer Service Department at (800) 647-7327 for
questions and further instructions.
The Fund may pay any portion of the redemption amount in excess of
$250,000 by a distribution in kind of readily marketable securities from the
portfolio of the Fund in lieu of cash. Investors will incur brokerage charges on
the sale of these portfolio securities. The 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 Fund and has approved contracts with various financial organizations to
provide, among other services, day-to-day management required by the Fund.
Advisory Agreement. Investment Company employs State Street to furnish
investment services to the Fund. State Street is one of the largest providers of
securities processing and recordkeeping services for US mutual funds and pension
funds. State Street Global Advisors is the investment management business of
State Street, a 200 year old pioneer and leader in the world of financial
services. State Street is a wholly owned subsidiary of State Street Corporation,
a publicly held bank holding company. State Street, with over $370 billion (US)
under management as of September 30, 1997, provides complete global investment
management services from offices in Atlanta, Boston, Brussels, Copenhagen,
Dubai, Hong Kong, London, Minneapolis, Montpellier, Montreal, Munich, Paris, San
Francisco, Sydney, Tokyo, and Toronto.
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<PAGE>
Advisor, subject to Board supervision, directs the investment of the Fund
in accordance with the Fund's investment objective, policies and restrictions.
Since January 1997, the portfolio manager with responsibility for investment
decisions of the Fund is Mr. Peter M. Stonberg, CFA. Mr. Stonberg is a Principal
of State Street Global Advisors ("SSgA"). Mr. Stonberg joined State Street in
1981. Prior to joining SSgA, he was a securities analyst with the Fidelity group
of mutual funds, Director of Research at the Mercantile National Bank in Dallas,
a performance measurement consultant to major pension and endowment funds in the
Master Trust Division of State Street Bank and Trust Company. Mr. Stonberg has
taught courses in investment and computer disciplines. He is a graduate of
Carleton College and holds an MBA from Columbia University. There are seven
other portfolio managers working with Mr. Stonberg in managing the Fund. For
these services, the Fund pays Advisor a fee, calculated daily and paid monthly,
equal to .75% annually of the Fund's average daily net assets.
The Glass-Steagall Act prohibits a depository state chartered bank such as
Advisor from engaging in the business of issuing, underwriting, selling or
distributing certain securities. The activities of Advisor in informing its
customers of the Fund, performing investment and redemption services and
providing custodian, transfer, shareholder servicing, dividend disbursing and
investment advisory services may raise issues under these provisions. Advisor
has been advised by its counsel that its activities in connection with the Fund
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 Advisor from continuing to perform all or a part of
the above services for its customers and/or the Fund. If Advisor were prohibited
from serving the Fund 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 Fund may occur. It is not expected by 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 Investment Company portfolios 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 November 30, 1997,
State Street held of record less than 25% of the issued and outstanding shares
of Investment Company in connection with its discretionary accounts.
Consequently, State Street is not 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 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.
Administration Agreement. Frank Russell Investment Management Company
("Administrator") serves as administrator of the Fund. Administrator currently
serves as investment manager and administrator to 32 mutual funds with assets of
$11.3 billion as of October 31, 1997, and acts as administrator to 20 mutual
funds, including the Fund, with assets of $10.8 billion as of October 31, 1997.
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<PAGE>
Pursuant to the Administration Agreement with Investment Company,
Administrator will: (1) supervise all aspects of the Fund's operations; (2)
provide the Fund with administrative and clerical services, including the
maintenance of certain of the Fund's books and records; (3) arrange the periodic
updating of the Fund's prospectuses and any supplements thereto; (4) provide
proxy materials and reports to Fund shareholders and the Securities and Exchange
Commission; and (5) provide the Fund 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 Matrix
Fund and Investment Company's other domestic investment portfolios pay
Administrator a combined fee that on an annual basis is equal to the following
percentages of their average aggregate daily net assets: (1) $0 to and including
$500 million -- .06%; (2) over $500 million to and including $1 billion -- .05%;
and (3) over $1 billion -- .03%. The percentage of the fee paid by the Matrix
Fund is equal to the percentage of average aggregate daily net assets that are
attributable to the Fund. Administrator will also receive reimbursement of
expenses it incurs in connection with establishing new investment portfolios.
Further, the administration fee paid by the Investment Company will be reduced
by the sum of certain distribution related expenses, up to certain maximum
percentages, as follows: (1) 10% from January 1, 1997 to December 31, 1997; 5%
from January 1, 1998 to December 31, 1998; and (3) 0% from January 1, 1999
thereafter.
Administrator also provides administrative services in connection with the
registration of shares of Investment Company 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, the Distributor, a wholly
owned subsidiary of Administrator, serves as distributor for all Fund shares.
The Fund has 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 Fund's average annual net assets for distribution-related and shareholder
servicing expenses. Payments under the Plan will be made to Distributor to
finance activity which is intended to result in the sale and retention of Fund
shares including: (1) payments made to certain broker-dealers, investment
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 Fund shares, including
Distributor's overhead expenses for rent, office supplies, equipment, travel,
communication, compensation and benefits of sales personnel.
Under the Plan, the Fund may also enter into agreements ("Service
Agreements") with financial institutions, which may include Advisor ("Service
Organizations"), to provide shareholder servicing with respect to 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: answering inquiries regarding the Fund; assisting customers
in changing dividend options, account designations and addresses; performing
subaccounting for such customers; establishing and maintaining customer accounts
and records; processing purchase and redemption transactions; 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; arranging for bank wires transferring
customers' funds; and such other services as the customers may request in
connection with the Fund, to the extent permitted by applicable statute, rule or
regulation. Service Organizations may receive from the Fund, for shareholder
servicing, monthly fees at a rate that shall not exceed .20% per annum of the
average daily net asset value of Fund 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.
-17-
<PAGE>
The Investment Company has entered into Service Agreements with the
Advisor and the following entities related to the Advisor: State Street
Brokerage Services, Inc., Metropolitan Division of Commercial Banking,
Retirement Investment Services Division and State Street Solutions. The purpose
of the Service Agreements is to obtain shareholder services for Fund shares
owned by clients of each of these entities. In return for these services, the
Investment Company pays each of the entities a fee. These agreements are
reviewed annually by the Board of Trustees.
Payments to Distributor, as well as payments to Service Organizations, are
not permitted by the Plan to exceed .25% of the 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. The Fund's liability for any such expenses carried forward
shall terminate at the end of two years 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.
FUND EXPENSES
The Fund will pay all of its expenses other than those expressly assumed
by Advisor and Administrator. The principal expenses of the Fund are the annual
advisory fee payable to Advisor and distribution and shareholder servicing
expenses. Other expenses include: (1) amortization of deferred organizational
costs; (2) taxes, if any; (3) expenses for legal, auditing and financial
accounting services; (4) expense of preparing (including typesetting, printing
and mailing) reports, prospectuses and notices to existing shareholders; (5)
administrative fees; (6) custodian fees; (7) expense of issuing and redeeming
Fund shares; (8) the cost of registering 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 Fund.
PERFORMANCE CALCULATIONS
From time to time the Fund may advertise its total return. The total
return of the Fund is the average annual compounded rate of return from a
hypothetical investment in the Fund over one-, five-, and ten-year periods or
for the life of the Fund (as stated in the advertisement), assuming the
reinvestment of all dividend and capital gain distributions.
Comparative performance information may be used from time to time in
advertising or marketing Fund shares, including data from Lipper Analytical
Services, Inc., Morningstar, Wall Street Journal Score Card or other industry
publications, business periodicals, rating services and market indices. The Fund
may also advertise nonstandardized performance information which is for periods
in addition to those required to be presented.
Total return 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 Fund, provides portfolio
recordkeeping services and serves as the Fund's 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 the
Fund except as investment advisor. Coopers & Lybrand L.L.P, Boston,
Massachusetts, is Investment Company's independent accountants.
-18-
<PAGE>
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 Distributor at (800) 647-7327.
Organization, Capitalization and Voting. 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 issues shares divisible into an unlimited number of
series (or funds), each of which is a separate trust under Massachusetts law.
The Matrix Fund is one such series.
Each Fund share represents an equal proportionate interest in the Fund,
has a par value of $.001 per share and is entitled to such relative rights and
preferences and dividends and distributions earned on Fund assets as may be
declared by the Board of Trustees. Shares of the Fund are fully paid and
nonassessable by Investment Company and have no preemptive rights.
Each 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 which 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 the
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 the 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.
Investment Company does not issue share certificates for the Fund.
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.
As of November 30, 1997, no single shareholder owned of record 25% or more
of the issued and outstanding shares of the Fund.
-19-
<PAGE>
SSgA FUNDS
One International Place
Boston, Massachusetts 02110
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
-20-
<PAGE>
SSgA FUNDS
SSgA Money Market Fund
SSgA US Government Money Market Fund
SSgA Tax Free Money Market Fund
SSgA S&P 500 Index Fund
SSgA Small Cap Fund
SSgA Matrix Equity Fund
SSgA Yield Plus Fund
SSgA Growth and Income Fund
SSgA Intermediate Fund
SSgA Active International Fund
SSgA Emerging Markets Fund
SSgA Bond Market Fund
SSgA Life Solutions Growth Fund
SSgA Life Solutions Balanced Fund
SSgA Life Solutions Income and Growth Fund
-21-
<PAGE>
Filed pursuant to Rule 485(b)
File Nos. 33-19229; 811-5430
SSgA FUNDS
One International Place
Boston, Massachusetts 02110
(800) 647-7327
S&P 500 Index Fund
SSgA Funds is a registered, open-end management investment company with
multiple portfolios, each of which is commonly referred to as a mutual fund.
This Prospectus describes and offers shares of beneficial interest in one such
mutual fund, the SSgA S&P 500 Index Fund (the "S&P 500 Index Fund" or the
"Fund") The Fund seeks to replicate the total return of the Standard & Poor's
500 Composite Stock Price Index. The Fund's shares are offered without sales
commissions. However, the Fund pays certain distribution expenses under its 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.
"S&P 500" IS A TRADEMARK OF STANDARD & POOR'S CORPORATION AND HAS BEEN
LICENSED FOR USE BY THE SSgA FUNDS. THE FUND IS NOT SPONSORED, ENDORSED, SOLD OR
PROMOTED BY S&P, AND S&P MAKES NO REPRESENTATION REGARDING THE ADVISABILITY OF
INVESTING IN THIS FUND.
SHARES IN THE FUND 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 RISKS INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Please read and retain this
document for future reference. Additional information about the SSgA Funds has
been filed with the Securities and Exchange Commission ("SEC") in Statements of
Additional Information ("SAI") dated December 24, 1997. The SAI is incorporated
herein by reference and is available without charge from Distributor at its
address noted below or by calling (800) 647-7327. The SEC also maintains a
website (www.sec.gov) that contains the SAI, material incorporated by reference
and other information regarding the SSgA Funds. You may also access the SSgA
Funds' website at www.ssgafunds.com
<TABLE>
<S> <C> <C>
Investment Advisor, Custodian
and Transfer Agent: Distributor: Administrator:
State Street Bank and Trust Frank Russell Investment
Company Russell Fund Distributors, Inc. Management Company
225 Franklin Street One International Place 909 A Street
Boston, Massachusetts 02110 Boston, Massachusetts 02110 Tacoma, Washington 98402
</TABLE>
PROSPECTUS DATED December 24, 1997
-1-
<PAGE>
TABLE OF CONTENTS
Page
----
Fund Operating Expenses................................................. 3
Financial Highlights.................................................... 4
SSgA Funds.............................................................. 5
Manner of Offering...................................................... 5
Investment Objectives, Policies and Restrictions........................ 5
Certain Risk Factors.................................................... 9
Portfolio Turnover...................................................... 9
Dividends and Distributions............................................. 10
Taxes................................................................... 10
Valuation of Fund Shares................................................ 11
Purchase of Fund Shares................................................. 12
Redemption of Fund Shares............................................... 14
General Management...................................................... 16
Fund Expenses........................................................... 19
Performance Calculations................................................ 19
Additional Information.................................................. 19
Information Regarding Standard & Poor's Corporation..................... 20
-2-
<PAGE>
FUND OPERATING EXPENSES AFTER FEE WAIVER
SSgA S&P 500 INDEX FUND
The following table is intended to assist the investor in understanding the
various costs and expenses that an investor in the Index Fund will incur
directly or indirectly. The examples should not be considered a representation
of past or future expenses. Actual expenses may be greater or less than those
shown. For additional information, see "General Management."
Shareholder Transaction Expenses:
- ---------------------------------
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
Annual Fund Operating Expenses:
- -------------------------------
(as a percentage of average daily net assets)
Advisory Fees (After Fee Waiver)(1) .00%
12b-1 Distribution Fees1 .03
12b-1 Shareholder Servicing Fees(1) .03
Other Expenses(1) .10
---
Total Operating Expenses (After Fee Waiver)(1, 2) .16%
===
<TABLE>
<CAPTION>
Examples: 1 year 3 years 5 years 10 years
- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
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: ................. $2 $ 6 $10 $23
== === === ===
</TABLE>
- ---------------
(1)The Advisor voluntarily agrees to waive up to the full amount of its
Advisory fee of .10% of average daily net assets to the extent that total
expenses exceed .15% of average daily net assets on an annual basis. The
total operating expenses of the Fund absent the fee waiver would be .26%
of average daily net assets on an annual basis. The gross annual Advisory
expense before the fee waiver would be .10% of average daily net assets.
The Advisory fee waiver agreement will remain in effect for the current
fiscal year.
(2)The expense information in the table has been restated to reflect current
fees. Investors purchasing 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.
Long-term shareholders of the Fund may pay more in Rule 12b-1 fees than the
economic equivalent of the maximum front-end sales charges permitted by the
National Association of Securities Dealers, Inc.
-3-
<PAGE>
FINANCIAL HIGHLIGHTS
SSgA S&P 500 INDEX FUND
The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Fund's independent
accountants. The table includes selected data for a share outstanding throughout
each fiscal year or period ended August 31, and other performance information
derived from the financial statements. The table appears in the Fund's Annual
Report and should be read in conjunction with the Fund's financial statements
and related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand L.L.P., in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Distributor at (800) 647-7327.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993++
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $ 14.41 $ 12.81 $ 10.89 $ 10.72 $ 10.00
--------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .32 .32 .29 .26 .15
Net realized and unrealized
gain on investments 5.22 1.98 1.95 .29 .65
--------- ------- ------- ------- -------
Total From Investment Operations 5.54 2.30 2.24 .55 .80
--------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Net investment income (.32) (.31) (.29) (.26) (.08)
Net realized gain on investments (.67) (.39) (.03) (.07) --
In excess of net realized gain
on investments -- -- -- (.05) --
--------- ------- ------- ------- -------
Total Distributions (.99) (.70) (.32) (.38) (.08)
--------- ------- ------- ------- -------
NET ASSET VALUE, END OF YEAR $ 18.96 $ 14.41 $ 12.81 $ 10.89 $ 10.72
========= ======= ========= ======= =======
TOTAL RETURN (%)(a) 40.30 18.46 21.11 5.29 8.06
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year ($000 1,299,571 704,683 545,200 361,712 238,666
omitted)
Ratios to average net assets (%) (b):
Operating expenses, net .16 .18 .19 .15 .15
Operating expenses, gross .26 .28 .29 .25 .35
Net investment income 2.00 2.32 2.76 2.69 3.02
Portfolio turnover (b) 7.54 28.72 38.56 7.97 48.10
Per share amount of expense
reductions ($ omitted) .0162 .0135 .0107 .0097 .0098
Average commission rate paid per
share of security ($ omitted) .0188 .0115 N/A N/A N/A
</TABLE>
- -----------------
++ For the period December 30, 1992 (commencement of operations) to
August 31, 1993.
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended August 31, 1993 are annualized.
-4-
<PAGE>
SSgA FUNDS
SSgA Funds ("Investment Company") is an open-end management investment
company that is organized as a Massachusetts business trust. In addition, each
series of the Investment Company is diversified as defined in the Investment
Company Act of 1940, as amended ("1940 Act"). As a "series" company, the
Investment Company is authorized to issue an unlimited number of shares
evidencing beneficial interests in different investment portfolios. Through this
Prospectus, the Investment Company offers shares in one such portfolio, the S&P
500 Index Fund. State Street Bank and Trust Company (the "Advisor" or "State
Street") serves as the investment advisor for the Fund
MANNER OF OFFERING
Distribution and Eligible Investors. Shares of the Fund are offered
without a sales commission by Russell Fund Distributors, Inc. (the
"Distributor"), Investment Company's distributor, to US and foreign
institutional and retail investors that invest for their own account or in a
fiduciary or agency capacity. The Fund will incur distribution expenses under
its Rule 12b-1 plan. See "General Management -- Distribution Services and
Shareholder Servicing."
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
The Fund's 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"). This objective may be changed only with the approval of a majority
of the Fund's shareholders as defined by the 1940 Act. There can be no assurance
that the Fund will meet its investment objective.
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 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 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 foreign securities.
The Fund intends to invest in all 500 stocks in the S&P 500 Index in
proportion to their weighting in the Index. No subscription for the Fund will be
accepted until Advisor has a reasonable basis to believe that the Fund will be
able to acquire substantially all 500 stocks in the Index. To the extent that
all 500 stocks cannot be purchased, the Fund will purchase a representative
sample of the stocks listed in the Index in proportion to their weightings.
To the extent that the Fund seeks to replicate the S&P 500 Index using
such sampling techniques, a close correlation between the Fund's performance and
the performance of the Index is anticipated in both rising and falling markets.
The 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 Fund
expenses. A correlation of 1.00 would represent perfect correlation between
portfolio and index performance. It is anticipated that the correlation of the
Fund's performance to that of the Index will increase as the size of the Fund
increases. The Fund's ability to achieve significant correlation between Fund
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
Fund shares. Advisor will monitor correlation. Should
-5-
<PAGE>
the Fund fail to achieve an appropriate level of correlation, Advisor will
report to the Board of Trustees, which will consider alternative arrangements.
The Fund will be substantially invested in the securities included in the
S&P 500 Index. However, the Fund may invest temporarily, without limitation, in
certain short-term fixed income securities. Such securities may be used to
invest uncommitted cash balances or to maintain liquidity to meet shareholder
redemptions. See "Investment Policies -- Cash Reserves."
Investment Policies
- -------------------
The investment policies described below reflect the Fund's current
practices, are not fundamental and may be changed by the Board of Trustees of
Investment Company without shareholder approval. For more information on the
Fund's Investment Policies, please see the Statement of Additional Information.
To the extent consistent with the Fund's investment objective and restrictions,
the Fund may invest in the following instruments and may use the following
investment techniques:
Management of an Index Fund. The 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 Fund utilizes a "passive" investment approach,
attempting to duplicate the investment performance of its benchmark index
through automated statistical analytic procedures.
US Government Securities. 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. The 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 Fund receives securities as
collateral. Under a repurchase agreement, a Fund purchases securities from a
financial institution that agrees to repurchase the securities at the Fund's
original purchase price plus interest within a specified time (normally one
business day). The Fund will limit repurchase transactions to those member banks
of the Federal Reserve System and broker-dealers whose creditworthiness Advisor
considers satisfactory. Should the counterparty to a transaction fail
financially, the 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 the Fund.
Reverse Repurchase Agreements. The Fund may enter into reverse repurchase
agreements under the circumstances described in "Investment Restrictions." In
substance, a reverse repurchase agreement is a borrowing for which the Fund
provides securities as collateral. Under a reverse repurchase agreement, the
Fund sells portfolio securities to a financial institution 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 at a prescribed repurchase
price equal to the amount of cash originally received plus interest on such
amount. The Fund retains the right to receive interest and principal payments
with respect to the securities while they are in the possession of the financial
institutions. Reverse repurchase agreements involve the risk of default by the
counterparty, which may adversely affect the Fund's ability to reacquire the
underlying securities.
Forward Commitments. The Fund 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 the Fund of a dollar
amount sufficient to make payment for the portfolio securities to be purchased
will be segregated on the
-6-
<PAGE>
Fund'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 the Fund to miss an advantageous price or yield. The Fund
bears the risk of price fluctuations during the period between the trade and
settlement dates.
When-Issued Transactions. The Fund may purchase securities on a
when-issued basis. In these transactions, a Fund purchases securities with
payment and delivery scheduled for a future time. Until settlement, the Fund
segregates cash and marketable securities equal in value to their when-issued
commitments. Between the trade and settlement dates, the 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 the Fund to miss a price or yield considered advantageous. The Fund will
engage in when-issued transactions only for the purpose of acquiring portfolio
securities consistent with its investment objective and policies and not for
investment leverage. The Fund will not invest more than 25% of its net assets in
when-issued securities.
Illiquid Securities. The Fund will not invest more than 15% of its net
assets in illiquid securities or securities that are not readily marketable,
including repurchase agreements and time deposits of more than seven days'
duration. The absence of a regular trading market for illiquid securities
imposes additional risks on investments in these securities. Illiquid securities
may be difficult to value and may often be disposed of only after considerable
expense and delay.
Variable Amount Master Demand Notes. 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.
Futures Contracts and Options on Futures. For hedging purposes, including
protecting the price or interest rate of securities that the Fund intends to
buy, the Fund may enter into futures contracts that relate to securities in
which they 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. A stock index futures contract is a contract to buy
or sell specified units of a stock index at a specified future date at a price
agreed upon when the contract is made. The value of a unit is based on the
current value of the contract index. Under such contracts no delivery of the
actual stocks 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. Upon entering into a futures
contract, a 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 the Fund will honor their 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, the 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.
-7-
<PAGE>
Options on Securities and Securities Indices. The Fund may write and
purchase covered put and call options on securities in which it may directly
invest. Option transactions of the 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 Fund's total assets. Further, the 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 Fund's total assets.
The Fund may purchase or sell options on securities indices that are
comprised of securities in which it 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.
Lending Portfolio Securities. The Fund may lend portfolio securities with
a value of up to 33-1/3% of its total assets. For these purposes, total assets
shall include the value of all assets received as collateral for the loan. Such
loans may be terminated at any time. The Fund will continuously maintain as
collateral cash or obligations issued by the US Government, its agencies or
instrumentalities in an amount equal to not less than 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, the
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.
The Fund will retain most rights of beneficial ownership, including the
right to receive dividends, interest or other distributions on the loaned
securities. However, the borrower has the right to vote the loaned securities.
The 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, the Fund may experience delay in recovering the securities or loss
of rights in the collateral. Loans are made only to borrowers that are deemed by
Advisor to be of good financial standing. In a loan transaction, the Fund will
bear the risk of any decline in value of securities acquired with cash
collateral. The Fund will minimize the risk by limiting the investment of cash
collateral to high quality instruments of short maturity.
Cash Reserves. For the purpose of investing uncommitted cash balances or
to maintain liquidity to meet shareholder redemptions, the Fund may invest
temporarily and without limitation in certain high quality short-term fixed
income securities. 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.
American Depository Receipts. The Fund may invest in American Depository
Receipts (ADRs). Investment in these instruments will not exceed 5% of the
Fund's total net assets during the coming year. See the Statement of Additional
Information for a more detailed discussion of these instruments. For a
discussion of the risks associated with the use of ADRs, see "Certain Risk
Factors - Foreign Investments."
Debt Securities. The Fund may also invest temporarily in investment grade
debt securities. The Fund will primarily invest in equity securities as defined
under the Securities Exchange Act of 1934 (including convertible debt
securities). Debt securities and cash will typically represent less than 10% of
the Fund's total assets. Please see the Statement of Additional Information for
a description of securities ratings.
Purchase of Other Funds. To the extent permitted under the 1940 Act and
exemptive rules and orders thereunder, the Fund may seek to achieve its
investment objective by investing solely in the shares of another investment
company that has a substantially similar investment objective and policies.
-8-
<PAGE>
Investment Restrictions
- -----------------------
The Fund has fundamental investment restrictions, which may be changed
only with the approval of a majority of the Fund's shareholders as defined in
the 1940 Act. A more detailed discussion of the Fund's investment restrictions
and investment policies appears in the Statement of Additional Information.
Unless otherwise noted, the fundamental restrictions apply at the time an
investment is made. The 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 non-depository
instruments issued by European banks). Concentration may occur as a
result of changes in the market value of portfolio securities, but may
not result from investment. Notwithstanding the foregoing general
restrictions, the Fund will concentrate in particular industries to
the extent the underlying index concentrates in those industries.
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 Fund's assets taken at market value, less
liabilities other than borrowings. If at any time a 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. The 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, the Fund may
pledge securities having a market value at the time of the pledge not
exceeding 33-1/3% of the value of the Fund's total assets to secure
permitted borrowings.
CERTAIN RISK FACTORS
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, including: changes in currency rates;
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. ADRs are subject
to all of the above risks, except the imposition of exchange controls and
currency fluctuations during the settlement period.
PORTFOLIO TURNOVER
Ordinarily, securities will be sold from the Fund only to reflect certain
changes in its benchmark index (including mergers or changes in the composition
of the index) or to accommodate cash flows into and out of the Fund while
maintaining the similarity of the Fund to the benchmark index. Accordingly, the
turnover rate for the Fund is not expected to exceed 50%, a generally lower
turnover rate than for most actively managed investment companies.
-9-
<PAGE>
The Fund may effect portfolio transactions through State Street Brokerage
Services, Inc., an affiliate of the Advisor, when the Advisor determines that
the Fund will receive competitive execution, price and commissions.
DIVIDENDS AND DISTRIBUTIONS
The Board of Trustees intends to declare and pay dividends on shares of
the Fund quarterly from net investment income. The Board of Trustees intends to
declare distributions annually from net short-and long-term capital gains, if
any, generally in mid-October. It is intended that an additional distribution
may be declared and paid in December if required for the Fund 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 Fund and received by shareholders on December
31 of that year if the dividend is paid prior to February 1 of the following
year.
Income dividend and capital gains distributions will be paid 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 Fund mailings to an investor, the
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 Fund until
the investor notifies the SSgA Funds 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 Fund shortly after
a purchase of shares will reduce the per share net asset value of the Fund 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:
[BULLET] Reinvestment Option--Income dividends and capital gains distributions
will be automatically reinvested in additional shares of the Fund. If
the investor does not indicate a choice on the Application, this
option will be automatically assigned.
[BULLET] Income-Earned Option--Capital gain distributions will be automatically
reinvested, but a check or wire will be sent for each income dividend
distribution.
[BULLET] Cash Option--A check or wire will be sent for each income dividend and
capital gain distribution.
[BULLET] Direct Dividends Option--Dividends and capital gain distribution will
be automatically invested in another identically registered SSgA Fund.
Distributions will be sent to a pre-designated bank by the Automatic
Clearing House ("ACH") on the payable date.
TAXES
The Fund intends to qualify as a regulated investment company ("RIC")
under Subchapter M of the Internal Revenue Code, as amended (the "Code"). As a
RIC, the Fund will not be subject to federal income taxes to the extent it
distributes its net investment income and net capital gain (long-term capital
gains in excess of short-term capital losses) to
-10-
<PAGE>
its shareholders. The Board intends to distribute each year substantially all of
the Fund's net investment income and capital gain net income.
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 20% gains and 28% gains are taxable as 20% gains or 28%
gains regardless of the length of time a shareholder has held such shares and
whether paid in cash or additional shares.
Dividends and distributions may also be subject to state or local taxes.
Depending on the state tax rules pertaining to a shareholder, a portion of the
dividends paid by a Fund attributable to direct obligations of the US Treasury
and certain agencies may be exempt from state and local taxes.
The sale of 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 portfolios of a mutual fund). Any loss incurred on the sale or
exchange of Fund shares held for one year or more will be treated as a 20% loss
or a 28% loss to the extent of capital gain dividends received with respect to
such shares.
Shareholders will be notified after each calendar year of the amounts of
income dividends and net capital gains distributions and the percentage of a
Fund's income attributable to US Treasury and agency obligations. The 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 Fund with the shareholder's correct taxpayer
identification number or certification that the shareholder is not subject to
backup withholding.
The foregoing discussion is only a summary of certain federal income tax
issues generally affecting the Fund and its shareholders. Circumstances among
investors may vary and each investor is encouraged to discuss investment in the
Fund with the investor's tax advisor.
VALUATION OF FUND SHARES
Net Asset Value Per Share. The Fund determines 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. Net asset value per share is
computed by dividing the current value of the Fund's assets, less its
liabilities, by the number of shares of the Fund outstanding and rounding to the
nearest cent.
Valuation of Fund Securities. With the exceptions noted below, the Fund
values portfolio securities at market value. This generally means that 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.
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<PAGE>
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 or
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.
Securities maturing within 60 days of the valuation date are valued at
amortized cost unless the Board determines that the amortized cost method does
not represent market value. The amortized cost valuation method 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 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 a Fund would
receive if it sold the instrument.
The Fund values 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.
PURCHASE OF FUND SHARES
Minimum Initial and Subsequent Investments and Account Balance. The
Fund requires a minimum initial investment of $10,000, with the exception of IRA
accounts, for which the minimum initial investment is $250. Subsequent
investments must be at least $100. An investment in the Fund (other than IRA
accounts) may be subject to redemption at the Fund's discretion if the account
balance is less than $10,000 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
$10,000 minimum. Failure to bring the account balance to $10,000 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. Shareholders with
accounts established prior to December 24, 1997 are not subject to the $10,000
minimum requirements. The Fund reserves the right to reject any purchase order.
Investors purchasing Fund assets through a pension or other participation plan
should contact their plan administrator for further information on purchases.
Offering Dates and Times. Fund shares may be purchased on any business
day without a sales commission. All purchases must be made in US dollars.
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 to be effective on the date received. The
Fund reserves 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.
Order and Payment Procedures. There are several ways to invest in the
Fund. The Fund requires 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 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:
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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. Purchases cannot be effective until Federal
funds are received. When purchases are made by check or periodic account
investment, payment for redemptions may be withheld until the check or account
clears, which may take up to 15 calendar days.
Telephone Exchange Privilege. Subject to the Fund's minimum investment
requirement, investors may exchange a minimum of $100 of their 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 on the business day on which the
call is placed or upon written receipt of instructions in good form by the
Transfer Agent. Exchanges may be made over the phone if the registrations of the
two accounts are identical. If the shares of the 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 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.
Federal Funds Wire. An investor may make initial or subsequent investments
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 Fund in which the
investment is to be made and the account number; and (c) the amount
being wired.
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 S&P 500 Index Fund
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 Fund 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 Fund's minimum initial requirement
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 Fund offers 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
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<PAGE>
annually) and the amount. Exchanges may be done among the SSgA Funds once the
initial investment per Fund has been satisfied.
Third Party Transactions. Investors purchasing 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.
In Kind Exchange of Securities. The Transfer Agent may, at its
discretion, permit investors to purchase shares through the exchange of
securities they hold. Any securities exchanged must meet the investment
objective, policies and limitations of the Fund, must have a readily
ascertainable market value, must be liquid and must not be subject to
restrictions on resale. The market value of any securities exchanged, plus any
cash, must be at least $10 million. Shares purchased in exchange for securities
generally may not be redeemed or exchanged until the transfer has
settled--usually within 15 days following the purchase exchange.
The basis of the exchange will depend upon the relative net asset value
of the shares purchased and securities exchanged. Securities accepted by the
Fund will be valued in the same manner as the Fund values its assets. Any
interest earned on the securities following their delivery to the Transfer Agent
and prior to the exchange will be considered in valuing the securities. All
interest, dividends subscription or other rights attached to the securities
become the property of the Fund, along with the securities.
REDEMPTION OF FUND SHARES
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. Typically, 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.
Redemption requests must be received prior to 4:00 p.m. Eastern time in
order be effective on the date received. Shareholder servicing agents with
underlying shareholders in omnibus accounts who receive redemption requests by
4:00 p.m. Eastern time may transmit the request to the Transfer Agent by 9:00
a.m. Eastern time the next succeeding business day and receive the dividend as
of the day the redemption request was originally made by the underlying
shareholder.
Telephone Redemption. Shareholders may normally redeem 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 Fund and the Transfer Agent will employ reasonable procedures
to confirm that instructions communicated by telephone are properly authorized.
The 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.
By Wire. Proceeds exceeding $1,000 may be sent via wire transfer to the
investor's pre-designated bank. Proceeds may be sent, depending on the Fund, on
the same or the next day. Although the Fund does 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. Requests
must be received prior to 4:00 p.m. The shares will be redeemed using that day's
closing price, and the proceeds will be wired the following business day.
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<PAGE>
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 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.
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<TABLE>
<CAPTION>
Seller Requirements for Written Requests
<S> <C> <C>
Owner of individual, [BULLET] 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
accounts [BULLET] Signature guarantee, if applicable (see above).
Owners of corporate or [BULLET] Letter of instruction signed by authorized
association accounts person(s), stating capacity as indicated by the
corporate resolution;
[BULLET] Corporate resolution, certified within the past 90
days; and
[BULLET] Signature guarantee, if applicable (see above).
Owners or trustees of [BULLET] Letter of instruction, signed by all trustees;
trust accounts
[BULLET] If the trustees are not named in the registration,
please provide a copy of the trust document certified
within the past 60 days; and
[BULLET] Signature guarantee, if applicable (see above).
Joint tenancy shareholders [BULLET] Letter of instruction signed by surviving tenant(s);
whose co-tenants are
deceased [BULLET] Certified copy of the death certificate; and
[BULLET] Signature guarantee, if applicable (see above).
</TABLE>
Please contact the Customer Service Department at (800) 647-7327 for
questions and further instructions.
The Fund may pay any portion of the redemption amount in excess of
$250,000 by a distribution in kind of readily marketable securities from the
portfolio of the Fund in lieu of cash. Investors will incur brokerage charges on
the sale of these portfolio securities. The 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 Fund and has approved contracts with various financial organizations to
provide, among other services, day-to-day management required by the Fund.
Advisory Agreement. The Investment Company employs State Street to furnish
investment services to the Fund. State Street is one of the largest providers of
securities processing and recordkeeping services for US mutual funds and pension
funds. State Street Global Advisors is the investment management business of
State Street, a 200 year old pioneer and leader in the world of financial
services. State Street is a wholly owned subsidiary of State Street Corporation,
a publicly held bank holding company. State Street, with over $370 billion (US)
under management as of September 30, 1997, provides complete global investment
management services from offices in Atlanta, Boston, Brussels, Copenhagen,
Dubai, Hong Kong, London, Minneapolis, Montpellier, Montreal, Munich, Paris, San
Francisco, Sydney, Tokyo, and Toronto.
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<PAGE>
Advisor, subject to Board supervision, directs the investment of the Fund
in accordance with the Fund's investment objective, policies and restrictions.
Mr. James B. May, Assistant Vice President, has been the portfolio manager
primarily responsible for investment decisions regarding the Fund since May
1995. Mr. May has been an investment officer since January 1994 and a portfolio
manager in the US Structured Products Group of State Street since that time.
From 1991 to 1993, he served as an Investment Support Analyst in the US Passive
Services Group of State Street Global Advisors. There are four other portfolio
managers who work with Mr. May in managing the Fund. For these services, the
Fund pays Advisor a fee, calculated daily and paid monthly, that on an annual
basis is equal to .10% of the Fund's average daily net assets.
The Glass-Steagall Act prohibits a depository state chartered bank such as
Advisor from engaging in the business of issuing, underwriting, selling or
distributing certain securities. The activities of Advisor in informing its
customers of the Fund, performing investment and redemption services and
providing custodian, transfer, shareholder servicing, dividend disbursing and
investment advisory services may raise issues under these provisions. Advisor
has been advised by its counsel that its activities in connection with the Fund
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 Advisor from continuing to perform all or a part of
the above services for its customers and/or the Fund. If Advisor were prohibited
from serving the Fund 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 Fund may occur. It is not expected by 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 Investment Company portfolios 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 November 30, 1997,
State Street held of record less than 25% of the issued and outstanding shares
of Investment Company in connection with its discretionary accounts.
Consequently, State Street is not 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 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.
Administration Agreement. Frank Russell Investment Management Company
("Administrator") serves as administrator of the Fund. Administrator currently
serves as investment manager and administrator to 32 mutual funds with assets of
$11.3 billion as of October 31, 1997, and acts as administrator to 20 mutual
funds, including the Fund, with assets of $10.8 billion as of October 31, 1997.
Pursuant to the Administration Agreement with Investment Company,
Administrator will: (1) supervise all aspects of the Fund's operations; (2)
provide the Fund with administrative and clerical services, including the
maintenance of certain of the Fund's books and records; (3) arrange the periodic
updating of the Fund's prospectuses and any supplements thereto; (4) provide
proxy materials and reports to Fund shareholders and the Securities and Exchange
Commission; and (5) provide the Fund 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 Fund
and Investment Company's other domestic investment portfolios pay Administrator
a combined fee that on an
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annual basis is equal to the following percentages of their average aggregate
daily net assets: $0 to and including $500 million -- .06%; over $500 million to
and including $1 billion -- .05%; and over $1 billion -- .03%. The percentage of
the fee paid by a particular Fund is equal to the percentage of average
aggregate daily net assets that are attributable to that Fund. Administrator
will also receive reimbursement of expenses it incurs in connection with
establishing new investment portfolios. Further, the administration fee paid by
the Investment Company will be reduced by the sum of certain distribution
related expenses, up to certain maximum percentages, as follows: (1) 10% from
January 1, 1997 to December 31, 1997; 5% from January 1, 1998 to December 31,
1998; and (3) 0% from January 1, 1999 thereafter.
Administrator also provides administrative services in connection with the
registration of shares of Investment Company 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, the Distributor, a wholly
owned subsidiary of Administrator, serves as distributor for all Fund shares.
The Fund has 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 Fund's average annual net assets for distribution-related and shareholder
servicing expenses. Payments under the Plan will be made to Distributor to
finance activity which is intended to result in the sale and retention of Fund
shares including: (1) payments made to certain broker-dealers, investment
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 Fund shares, including
Distributor's overhead expenses for rent, office supplies, equipment, travel,
communication, compensation and benefits of sales personnel.
Under the Plan, the Fund may also enter into agreements ("Service
Agreements") with financial institutions, which may include Advisor ("Service
Organizations"), to provide shareholder servicing with respect to 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: answering inquiries regarding the Fund; assisting customers
in changing dividend options, account designations and addresses; performing
subaccounting for such customers; establishing and maintaining customer accounts
and records; processing purchase and redemption transactions; 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; arranging for bank wires transferring
customers' funds; and such other services as the customers may request in
connection with the Fund, to the extent permitted by applicable statute, rule or
regulation. Service Organizations may receive from the Fund, for shareholder
servicing, monthly fees at a rate that shall not exceed .20% per annum of the
average daily net asset value of the 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.
The Investment Company has entered into Service Agreements with the
Advisor and the following entities related to the Advisor: State Street
Brokerage Services, Inc., Metropolitan Division of Commercial Banking,
Retirement Investment Services Division and State Street Solutions. The purpose
of the Service Agreements is to
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<PAGE>
obtain shareholder services for Fund shares owned by clients of each of these
entities. In return for these services, the Investment Company pays each of the
entities a fee. These agreements are reviewed annually by the Board of Trustees.
Payments to the Distributor, as well as payments to Service Organizations
from a Fund are not permitted by the Plan to exceed .25% of the 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 Fund's liability for any such expenses carried
forward shall terminate at the end of two years 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.
FUND EXPENSES
The Fund will pay all of its expenses other than those expressly
assumed by Advisor and Administrator. The principal expenses of the Fund is the
annual advisory fee payable to Advisor and distribution and shareholder
servicing expenses. Other expenses include: (1) amortization of deferred
organizational costs; (2) taxes, if any; (3) expenses for legal, auditing and
financial accounting services; (4) expense of preparing (including typesetting,
printing and mailing) reports, prospectuses and notices to existing
shareholders; (5) administrative fees; (6) custodian fees; (7) expense of
issuing and redeeming Fund shares; (8) the cost of registering 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 Fund.
PERFORMANCE CALCULATIONS
From time to time the Fund may advertise its total return. The total
return of a Fund refers to the average annual compounded rates of return from a
hypothetical investment in the Fund over one-, five- and ten-year periods or for
the life of the Fund (as stated in the advertisement), assuming the reinvestment
of all dividend and capital gain distributions.
Comparative performance information may be used from time to time in
advertising or marketing Fund shares, including data from Morningstar, Lipper
Analytical Services, Inc., Wall Street Journal Score Card, S&P 500 Index, or
other industry publications, business periodicals, rating services and market
indices. The Fund may also advertise nonstandardized performance information
which is for periods in addition to those required to be presented.
Total return and other performance figures are based on historical
earnings and are not indications of future performance.
-19-
<PAGE>
ADDITIONAL INFORMATION
Custodian, Transfer Agent and Independent Accountants. State Street holds
all portfolio securities and cash assets of the Fund, provides portfolio
recordkeeping services and serves as the Fund's 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 the
Fund 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 Distributor at (800) 647-7327.
Organization, Capitalization and Voting. 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 issues shares divisible into an unlimited number of
series (or funds), each of which is a separate trust under Massachusetts law.
The Fund is one such series.
Each Fund share represents an equal proportionate interest in the Fund,
has a par value of $.001 per share and is entitled to such relative rights and
preferences and dividends and distributions earned on the assets belonging to
the Fund as may be declared by the Board of Trustees. Fund shares are fully paid
and nonassessable by Investment Company and have no preemptive rights.
Each 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 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 a Trustee may be removed at any time by a vote of
two-thirds of the 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.
Investment Company does not issue share certificates for the Fund.
Transfer Agent sends shareholders of the Fund 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.
As of November 30, 1997, no single shareholder owned of record 25% or more
of the issued and outstanding shares of the Fund.
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
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 Fund regarding the advisability of investing in securities
generally or in the Fund particularly or the ability of the S&P 500 Index to
track general stock market performance. Standard & Poor's only relationship to
the Fund is the licensing of
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<PAGE>
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 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 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 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 FUND
OR THE SHAREHOLDERS OF THE 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.
-21-
<PAGE>
SSgA FUNDS
One International Place
Boston, Massachusetts 02110
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
-22-
<PAGE>
SSgA FUNDS
SSgA Money Market Fund
SSgA US Government Money Market Fund
SSgA Tax Free Money Market Fund
SSgA S&P 500 Index Fund
SSgA Small Cap Fund
SSgA Matrix Equity Fund
SSgA Yield Plus Fund
SSgA Growth and Income Fund
SSgA Intermediate Fund
SSgA Active International Fund
SSgA Emerging Markets Fund
SSgA Bond Market Fund
SSgA Life Solutions Growth Fund
SSgA Life Solutions Balanced Fund
SSgA Life Solutions Income and Growth Fund
-23-
<PAGE>
Filed pursuant to Rule 485(b)
File Nos. 33-19229; 811-5430
SSgA FUNDS
One International Place
Boston, Massachusetts 02110
(800) 647-7327
YIELD PLUS FUND
SSgA Funds is a registered, open-end management investment company with
multiple portfolios, each of which is commonly referred to as a mutual fund.
This Prospectus describes and offers shares of beneficial interest in one mutual
fund, the SSgA Yield Plus Fund, (the "Yield Plus Fund" or the "Fund"). The Yield
Plus Fund seeks 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 Fund's shares are offered without
sales commissions. However, the Fund pays certain distribution expenses under
its 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.
SHARES IN THE FUND 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 sets forth concisely the information about the Fund
that a prospective investor ought to know before investing. Please read and
retain this document for future reference. Additional information about the SSgA
Funds has been filed with the Securities and Exchange Commission ("SEC") in
Statements of Additional Information ("SAI") dated December 24, 1997. The SAI is
incorporated herein by reference and is available without charge from
Distributor at its address noted below or by calling (800) 647-7327. The SEC
also maintains a website (www.sec.gov) that contains the SAI, material
incorporated by reference and other information regarding the SSgA Funds. You
may also access the SSgA Funds' website at www.ssgafunds.com
<TABLE>
<CAPTION>
Investment Advisor, Custodian
and Transfer Agent: Distributor: Administrator:
<S> <C> <C>
State Street Bank and Trust Frank Russell Investment
Company Russell Fund Distributors, Inc. Management Company
225 Franklin Street One International Place 909 A Street
Boston, Massachusetts 02110 Boston, Massachusetts 02110 Tacoma, Washington 98402
</TABLE>
PROSPECTUS DATED December 24, 1997
<PAGE>
TABLE OF CONTENTS
Page
----
Fund Operating Expenses................................................. 3
Financial Highlights.................................................... 4
SSgA Funds.............................................................. 5
Manner of Offering...................................................... 5
Investment Objective, Policies and Restrictions......................... 5
Certain Risk Factors.................................................... 10
Portfolio Turnover ..................................................... 10
Dividends and Distributions............................................. 10
Taxes................................................................... 11
Valuation of Fund Shares................................................ 12
Purchase of Fund Shares................................................. 12
Redemption of Fund Shares............................................... 14
General Management...................................................... 16
Fund Expenses........................................................... 18
Performance Calculations................................................ 19
Additional Information.................................................. 19
-2-
<PAGE>
FUND OPERATING EXPENSES
SSgA YIELD PLUS FUND
The purpose of the following table is to assist the investor in understanding
the various costs and expenses that an investor in the Yield Plus Fund will
incur directly or indirectly. The examples should not be considered a
representation of past or future expenses. Actual expenses may be greater or
less than those shown. For additional information, see "General Management."
Shareholder Transaction Expenses:
- ---------------------------------
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
Annual Fund Operating Expenses:
- -------------------------------
(as a percentage of average daily net assets)
Advisory Fees .25%
12b-1 Distribution Fees .03
12b-1 Shareholder Servicing Fees .03
Other Expenses .07
---
Total Operating Expenses(1) .38%
===
Examples: 1 year 3 years 5 years 10 years
- -------- ------ ------- ------- --------
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: $4 $12 $21 $48
== === === ===
(1) Investors purchasing 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.
Long-term shareholders of the Fund may pay more in Rule 12b-1 fees than the
economic equivalent of the maximum front-end sales charge permitted by the
National Association of Securities Dealers, Inc.
-3-
<PAGE>
FINANCIAL HIGHLIGHTS
SSgA YIELD PLUS FUND
The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Fund's independent
accountants. The table includes selected data for a share outstanding throughout
each fiscal year or period ended August 31, and other performance information
derived from the financial statements. The table appears in the Fund's Annual
Report and should be read in conjunction with the Fund's financial statements
and related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand L.L.P., in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Distributor at (800) 647-7327.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993++
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $ 10.00 $ 10.00 $ 9.99 $ 10.01 $ 10.00
-------- --------- --------- --------- ---------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .54 .56 .56 .38 .27
Net realized and unrealized
gain (loss) on investments .01 -- .02 (.02) .01
-------- --------- --------- --------- ---------
Total From Investment Operations .55 .56 .58 .36 .28
-------- --------- --------- --------- ---------
LESS DISTRIBUTIONS:
Net investment income (.54) (.56) (.56) (.38) (.27)
In excess of net realized gain
on investments -- -- (.01) -- --
-------- --------- -------- --------- ---------
Total Distributions (.54) (.56) (.57) (.38) (.27)
-------- -------- -------- --------- ---------
NET ASSET VALUE, END OF YEAR $ 10.01 $ 10.00 $ 10.00 $ 9.99 $ 10.01
======== ========= ========= ========= =========
TOTAL RETURN (%)(a) 5.67 5.73 6.01 3.65 2.85
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
($000 omitted) 840,055 933,485 1,447,097 1,358,464 589,594
Ratios to average net assets (%) (b)
Operating expenses .38 .36 .38 .35 .38
Net investment income 5.42 5.59 5.64 3.82 3.54
Portfolio turnover (%) (b) 92.38 97.05 199.69 142.68 137.86
Per share amount of expense reductions
($ omitted) -- -- -- -- .00042
</TABLE>
++ For the period November 9, 1992 (commencement of operations) to
August 31, 1993.
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended August 31, 1993 are annualized.
-4-
<PAGE>
SSgA FUNDS
SSgA Funds ("Investment Company") is an open-end management investment
company that is organized as a Massachusetts business trust. In addition, each
series of the Investment Company is diversified as defined in the Investment
Company Act of 1940, as amended ("1940 Act"). As a "series" company, the
Investment Company is authorized to issue an unlimited number of shares
evidencing beneficial interests in different investment portfolios. Through this
Prospectus, the Investment Company offers shares in one such portfolio, the
Yield Plus Fund. State Street Bank and Trust Company (the "Advisor" or "State
Street") serves as the investment advisor for the Fund.
MANNER OF OFFERING
Distribution and Eligible Investors. Shares of the Fund are offered
without a sales commission by Russell Fund Distributors, Inc. (the
"Distributor"), Investment Company's distributor, to US and foreign
institutional and retail investors that invest for their own account or in a
fiduciary or agency capacity. The Fund will incur distribution expenses under a
Rule 12b-1 plan. See "General Management -- Distribution Services and
Shareholder Servicing."
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
The Fund's 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. This
investment objective may be changed by the Fund's Board of Trustees without
shareholder approval, although shareholders will receive prior notice of any
change to the Fund's investment objective. There can be no assurance that the
Fund will meet its investment objective.
The 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 securities; and
(7) interest rate swaps.
The Fund limits its investments to bank instruments, mortgage-related
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 nationally
recognized statistical rating organization; 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 income,
zero coupon or variable- or floating-rate securities and may be denominated in
US dollars or selected foreign currencies.
Investment Policies
The investment policies described below reflect the Fund's current
practices, are not fundamental and may be changed by the Board of Trustees of
Investment Company without shareholder approval. For more information on the
Fund's Investment Policies, see the Statement of Additional Information. To the
extent consistent with the Fund's investment objective and restrictions, the
Fund may invest in the following instruments and may use the following
investment techniques:
Portfolio Duration. The 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.
-5-
<PAGE>
US Government Securities. 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. The 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 Fund receives
securities as collateral. Under a repurchase agreement, a Fund purchases
securities from a financial institution that agrees to repurchase the securities
at the Fund's original purchase price plus interest within a specified time
(normally one business day). The Fund will limit repurchase transactions to
those member banks of the Federal Reserve System and broker-dealers whose
creditworthiness Advisor considers satisfactory. Should the counterparty to a
transaction fail financially, the 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 the
Fund.
Reverse Repurchase Agreements. The Fund may enter into reverse
repurchase agreements under the circumstances described in "Investment
Restrictions." In substance, a reverse repurchase agreement is a borrowing for
which the Fund provides securities as collateral. Under a reverse repurchase
agreement, the Fund sells portfolio securities to a financial institution 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 at a
prescribed repurchase price equal to the amount of cash originally received plus
interest on such amount. The Fund retains the right to receive interest and
principal payments with respect to the securities while they are in the
possession of the financial institutions. Reverse repurchase agreements involve
the risk of default by the counterparty, which may adversely affect the Fund's
ability to reacquire the underlying securities.
Section 4(2) Commercial Paper. The Fund may also 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 institutional investors such as
the Prime Money Market Fund that agree that they are purchasing the paper for
investment and not with a view to public distribution. Any resale by the
purchaser must be in an exempt transaction. Section 4(2) paper normally is
resold to other institutional investors like the Fund through or with the
assistance of the issuer or investment dealers that make a market in Section
4(2) paper. Section 4(2) paper will not be subject to the Investment Company's
15% limitation on illiquid securities set forth below where the Board of
Trustees of the Investment Company (pursuant to guidelines adopted by the Board)
determines that a liquid trading market exists.
Forward Commitments. The Fund 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 the Fund of a dollar
amount sufficient to make payment for the portfolio securities to be purchased
will be segregated on the Fund'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 the Fund to miss an advantageous price or
yield. The Fund bears the risk of price fluctuations during the period between
the trade and settlement dates.
When-Issued Transactions. The Fund may purchase securities on a
when-issued basis. In these transactions, the Fund purchases securities with
payment and delivery scheduled for a future time. Until settlement, the Fund
segregates cash and marketable securities equal in value to their when-issued
commitments. Between the trade and settlement dates, the 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 the Fund to miss a price or yield considered advantageous. The Fund will
engage in when-issued transactions only for the purpose of acquiring portfolio
securities consistent with its investment objective and policies and not for
investment leverage. The Fund will not invest more than 25% of its net assets in
when-issued securities.
Illiquid Securities. The Fund will not invest more than 15% of its net
assets in illiquid securities or securities that are not readily marketable,
including repurchase agreements and time deposits of more than seven days'
duration. The absence of a regular trading market for illiquid securities
imposes additional risks on investments in these securities. Illiquid securities
may be difficult to value and may often be disposed of only after considerable
expense and delay.
-6-
<PAGE>
Variable Amount Master Demand Notes. 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. Asset-backed securities represent undivided
fractional interests in pools of instruments, such as consumer loans, and are
similar in structure to mortgage-related 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 Fund has been exhausted, and if any required payments of principal
and interest are not made with respect to the underlying loans, the Fund may
experience loss or delay in receiving payment and a decrease in the value of the
security. Further details are set forth in the Statement of Additional
Information under "Investment Restrictions and Policies -- Investment Policies."
Mortgage-Related Securities. The Fund 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 Certificates ("Fannie Maes").
Mortgage-related 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. 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. 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, 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, Eurodollar Time Deposits and Yankee
Certificates of Deposit. 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.
Foreign Currency Transactions. The Fund may engage in foreign currency
transactions as described below. The US dollar value of assets held by the Fund
may be affected favorably or unfavorably by changes in foreign currency exchange
rates and exchange control regulations, and the Fund may incur costs in
connection with conversions between various currencies. The Fund will engage in
foreign currency exchange transactions either on a spot (i.e., cash) basis at
the spot rate
-7-
<PAGE>
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 Fund 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 subject to
procedures and regulations applicable to other futures contracts. Forward
foreign currency exchange contracts and foreign currency futures contracts may
protect the 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
exchanges, in the over-the-counter market, and privately among major recognized
dealers in such options. The Fund 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 offset 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 the Fund to lose the
premium it paid and its transaction costs.
Futures Contracts and Options on Futures. For hedging purposes,
including protecting the price or interest rate of a security that the Fund
intends to buy, the 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. Upon entering into a
futures contract, the 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 the 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, the 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. The Fund may write and
purchase covered put and call options on securities in which it may directly
invest. Option transactions of the 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 Fund's total assets. Further, the 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 Fund's total assets.
The Fund may purchase or sell options on securities indices that are
comprised of securities in which the Fund 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
-8-
<PAGE>
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.
Lending Portfolio Securities. The Fund may lend portfolio securities
with a value of up to 33-1/3% of its total assets. For these purposes, total
assets shall include the value of all assets received as collateral for the
loan. Such loans may be terminated at any time. The 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, the 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, the 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. The 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, the 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 Advisor to be of good financial standing. In a
loan transaction, the Fund will also bear the risk of any decline in value of
securities acquired with cash collateral. The Fund will minimize this risk by
limiting the investment of cash collateral to high quality instruments of short
maturity.
Cash Reserves. For defensive purposes, the Fund may temporarily invest,
without limitation, in high quality short-term fixed income securities. 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 the Fund will
decline, and thereby possibly cause its yield to decline as well.
Interest Rate Swaps. The Fund may enter into interest rate swap
transactions with respect to any security it is entitled to hold. Interest rate
swaps involve the exchange by the Fund with another party of their respective
rights to receive interest, e.g., an exchange of floating rate payments for
fixed rate payments. The Fund expects to enter into these transactions primarily
to preserve a return or spread on a particular investment or portion of its
portfolio or to protect against any increase in the price of securities it
anticipates purchasing at a later date. The Fund intends to use these
transactions as a hedge and not as a speculative investment.
Purchase of Other Funds. To the extent permitted under the 1940 Act and
exemptive rules and orders thereunder, the Fund may seek to achieve its
investment objective by investing solely in the shares of another investment
company that has a substantially similar investment objective and policies.
Investment Restrictions
The Fund has fundamental investment restrictions, which may be changed
only with the approval of a majority of the Fund's shareholders as defined in
the 1940 Act. A more detailed discussion of the Fund's 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. The 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 non-depository instruments issued by
European banks). 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 Fund's assets
taken at market value, less liabilities other than borrowings.
If at any time the 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. The Fund will not purchase additional
investments if borrowed funds (including reverse repurchase
agreements) exceed 5% of total assets.
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<PAGE>
3. Pledge, mortgage, or hypothecate its assets. However, the Fund
may pledge securities having a market value at the time of the
pledge not exceeding 33-1/3% of the value of the Fund's total
assets to secure permitted borrowings.
CERTAIN RISK FACTORS
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, including: changes in currency rates;
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.
PORTFOLIO TURNOVER
Because the Fund will actively trade to benefit from short-term yield
disparities among different issues of fixed-income securities, or otherwise to
increase its income, the Fund may be subject to a greater degree of portfolio
turnover than might be expected from investment companies which invest
substantially all of their assets on a long-term basis. The portfolio turnover
rate cannot be predicted, but it is anticipated that the Fund's annual turnover
rate generally fall within the range of 100-300% (excluding turnover of
securities having a maturity of one year or less). A high turnover rate (over
100%) will: (1) increase transaction expenses which will adversely affect a
Fund's performance; and (2) result in increased brokerage commissions and other
transaction costs, and the possibility of realized capital gains.
DIVIDENDS AND DISTRIBUTIONS
The Board of Trustees intends to declare dividends on shares of the
Fund from net investment income daily and have them payable as of the last
business day of each month. Distributions will be made at least annually from
net short- and long-term capital gains, if any. In most instances, distributions
will be declared and paid in mid-October with additional distributions declared
and paid in December, if required, for the Fund to avoid 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 to have been paid by the
Fund and received by shareholders on December 31 of that year if the dividend is
paid prior to February 1 of the following year.
Income dividend and capital gain distributions will be paid 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 Fund mailings to an investor, the
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 Fund until
the investor notifies the SSgA Funds 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 Fund shortly
after a purchase of shares will reduce the per share net asset value of the Fund
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:
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<PAGE>
[bullet] Reinvestment Option--Income dividends and capital gains
distributions will be automatically reinvested in additional
shares of the Fund. If the investor does not indicate a choice
on the Application, this option will be automatically
assigned.
[bullet] Income-Earned Option--Capital gain distributions will be
automatically reinvested, but a check or wire will be sent for
each income dividend distribution.
[bullet] Cash Option--A check or wire will be sent for each income
dividend and capital gain distribution.
[bullet] Direct Dividends Option--Dividends and capital gain
distribution will be automatically invested in another
identically registered SSgA Fund.
The Transfer Agent will wire dividends (if that option is elected) to a
pre-designated bank on the first business day of the following month in which
the dividend is payable.
TAXES
The Fund intends to qualify as a regulated investment company ("RIC")
under Subchapter M of the Internal Revenue Code, as amended (the "Code") . As a
RIC, the Fund will not be subject to federal income taxes to the extent it
distributes its net investment income and net capital gain (long-term capital
gains in excess of short-term capital losses) to its shareholders. The Board
intends to distribute each year substantially all of the Fund's net investment
income and capital gain net income.
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 20% gains and 28% gains are taxable as 20% gains or 28%
gains regardless of the length of time a shareholder has held such shares and
whether paid in cash or additional shares.
Dividends and distributions may also be subject to state or local
taxes. Depending on the state tax rules pertaining to a shareholder, a portion
of the dividends paid by the Fund attributable to direct obligations of the US
Treasury and certain agencies may be exempt from state and local taxes.
The sale of 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 portfolios of a mutual fund). Any loss incurred on sale or
exchange of Fund shares held for one year or more will be treated as a 20% loss
or a 28% loss to the extent of capital gain dividends received with respect to
such shares.
Shareholders will be notified after each calendar year of the amount of
income dividends and net capital gains distributed and the percentage of a
Fund's income attributable to US Treasury and agency obligations. The 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 Fund with the shareholder's correct taxpayer
identification number or certification that the shareholder is not subject to
backup withholding.
The forgoing discussion is only a summary of certain federal income tax
issues generally affecting the Fund and its shareholders. Circumstances among
investors may vary and each investor is encouraged to discuss investment in the
Fund with the investor's tax advisor.
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<PAGE>
VALUATION OF FUND SHARES
Net Asset Value Per Share. The Fund determines 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. Net asset value per share is computed
by dividing the current value of a Fund's assets, less its liabilities, by the
number of shares of the Fund outstanding and rounding to the nearest cent.
Valuation of Fund Securities. The Fund values securities maturing
within 60 days of the valuation date at amortized cost unless the Board
determines that the amortized cost method does not represent their market value.
The amortized cost valuation method 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 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 Fund would receive if it sold the instrument.
With the exceptions noted below, the Fund values portfolio securities
with remaining maturities in excess of 60 days at "market value." This generally
means that 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 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.
The Fund values 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.
PURCHASE OF FUND SHARES
Minimum Initial and Subsequent Investments and Account Balance. The
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 the Fund (other than IRA
accounts) may be subject to redemption at the 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. The Fund reserves
the right to reject any purchase order. Investors purchasing Fund assets through
a pension or other participation plan should contact their plan administrator
for further information on purchases.
Offering Dates and Times. Fund shares may be purchased on any business
day without a sales commission. All purchases must be made in US dollars.
Purchase orders in good form (described below) and payments for Fund shares in
Federal funds (or converted into Federal funds) must be received by the Transfer
Agent prior to 4:00 p.m. Eastern time to be effective on the date received. The
Fund reserves 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.
Order and Payment Procedures. There are several ways to invest in the
Fund. The Fund requires a purchase order in good form, which consists of a
completed and signed Application for each new account regardless of the
investment method.
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<PAGE>
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 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 may be withheld until the check or account
clears, which may take up to 15 calendar days.
Telephone Exchange Privilege. Subject to the Fund's minimum investment
requirement, investors may exchange a minimum of $100 of their 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 on the business day on which the
call is placed or upon written receipt of instructions in good form by the
Transfer Agent. Exchanges may be made over the phone if the registrations of the
two accounts are identical. If the shares of the 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 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.
Federal Funds Wire. An investor may make initial or subsequent
investments 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 Fund in which the investment is to be made and
the account number; and (c) the amount being wired.
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 Money Market Fund
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 Fund 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
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<PAGE>
change the amount or stop systematic purchase at any time by calling the
Customer Service Department at (800) 647-7327. Investors must meet the Fund's
minimum initial requirement 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 Fund offers 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 Fund has been satisfied.
Third Party Transactions. Investors purchasing 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.
In Kind Exchange of Securities. The Transfer Agent may, at its
discretion, permit investors to purchase shares through the exchange of
securities they hold. Any securities exchanged must meet the investment
objective, policies and limitations of the Fund, must have a readily
ascertainable market value, must be liquid and must not be subject to
restrictions on resale. The market value of any securities exchanged, plus any
cash, must be at least $10 million. Shares purchased in exchange for securities
generally may not be redeemed or exchanged until the transfer has
settled--usually within 15 days following the purchase exchange.
The basis of the exchange will depend upon the relative net asset value
of the shares purchased and securities exchanged. Securities accepted by the
Fund will be valued in the same manner as the Fund values its assets. Any
interest earned on the securities following their delivery to the Transfer Agent
and prior to the exchange will be considered in valuing the securities. All
interest, dividends subscription or other rights attached to the securities
become the property of the Fund, along with the securities.
REDEMPTION OF FUND SHARES
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. Typically, 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. No dividends will be paid on shares on the date of redemption.
A dividend will be paid according to the established dividend payment schedule
on shares redeemed if the redemption request is received by State Street after
12:00 noon Eastern time. Redemption requests received before 12:00 noon Eastern
time will not be entitled to that day's dividend.
Redemption requests must be received prior to 4:00 p.m. Eastern time in
order be effective on the date received. Shareholder servicing agents with
underlying shareholders in omnibus accounts who receive redemption requests by
4:00 p.m. Eastern time may transmit the request to the Transfer Agent by 9:00
a.m. Eastern time the next succeeding business day and receive the dividend as
of the day the redemption request was originally made by the underlying
shareholder.
Cash Sweep Program. Money managers of master trust clients may
participate in a cash sweep program to automatically invest excess cash in the
Fund. A money manager must select the Fund, give authorization to complete the
Fund's Application and authorize the investment of excess cash into or the
withdrawal of required cash from the Fund on a daily basis. Where the Advisor
acts as the money manager, the Advisor will receive an advisory fee from the
client.
Telephone Redemption. Shareholders may normally redeem 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 Fund and the Transfer Agent will employ reasonable procedures
to confirm that instructions communicated by telephone are properly authorized.
The 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
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<PAGE>
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.
By Wire. Proceeds exceeding $1,000 may be sent via wire transfer to the
investor's pre-designated bank. Proceeds may be sent, depending on the Fund, on
the same or the next day. Although the Fund does 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. Requests
received prior to 12:00 noon Eastern time will have the shares redeemed using
that day's closing price with the proceeds wired the same day, unless the
request is for 100% of the account. Because Yield Plus has a fluctuating NAV,
redemption requests for 100% of the account (if received prior to 12:00 noon
Eastern time) will have 100% of the shares redeemed using that day's closing
price, with 95% of the proceeds being wired the same day and the remaining 5%
automatically wired the following business day. All requests received after
12:00 noon Eastern time will have the shares redeemed using that day's closing
price and the proceeds wired the following business day. Redemption requests
received prior to 12:00 noon Eastern time will not be eligible for that day's
interest.
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 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.
<TABLE>
<CAPTION>
Seller Requirements for Written Requests
<S> <C>
Owner of individual, joint, [bullet] Letter of instruction, signed by all persons authorized to sign
sole proprietorship, for the account stating general titles/capacity, exactly
UGMA/UTMA (custodial as the account is registered; and
accounts for minors) or [bullet] Signature guarantee, if applicable (see above).
general partner accounts
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Owners of corporate or [bullet] Letter of instruction signed by authorized person(s), stating
association accounts capacity as indicated by the corporate resolution;
[bullet] Corporate resolution, certified within the
past 90 days; and
[bullet] Signature guarantee, if applicable (see above).
Owners or trustees of [bullet] Letter of instruction, signed by all trustees;
trust accounts [bullet] If the trustees are not named in the registration, please
provide a copy of the trust document certified within the
past 60 days; and
[bullet] Signature guarantee, if applicable (see above).
Joint tenancy shareholders [bullet] Letter of instruction signed by surviving tenant(s);
whose co-tenants are [bullet] Certified copy of the death certificate; and
deceased [bullet] Signature guarantee, if applicable (see above).
</TABLE>
Please contact the Customer Service Department at (800) 647-7327 for
questions and further instructions.
The Fund may pay any portion of the redemption amount in excess of
$250,000 by a distribution in kind of readily marketable securities from the
portfolio of the Fund in lieu of cash. Investors will incur brokerage charges on
the sale of these portfolio securities. The Fund reserves 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 Fund and has approved contracts with various financial organizations to
provide, among other services, day-to-day management required by the Fund.
Advisory Agreement. Investment Company employs the Advisor to furnish
investment services to the Fund. State Street is one of the largest providers of
securities processing and recordkeeping services for US mutual funds and pension
funds. State Street Global Advisors is the investment management business of
State Street, a 200 year old pioneer and leader in the world of financial
services. State Street is a wholly owned subsidiary of State Street Corporation,
a publicly held bank holding company. State Street, with over $370 billion (US)
under management as of September 30, 1997, provides complete global investment
management services from offices in Atlanta, Boston, Brussels, Copenhagen,
Dubai, Hong Kong, London, Minneapolis, Montpellier, Montreal, Munich, Paris, San
Francisco, Sydney, Tokyo, and Toronto.
Advisor, subject to Board supervision, directs the investments of the
Fund in accordance with the Fund's investment objective, policies and
restrictions. Mr. John Reohr, Vice President, is the portfolio manager primarily
responsible for investment decisions regarding the Fund. Mr. Reohr joined State
Street in April 1993 with responsibilities in cash and enhanced cash portfolio
management. Prior to joining SSgA, Mr. Reohr managed the Federal Home Loan Bank
of Boston's investments, including government, mortgage, and money market
portfolios. He has also managed short- and intermediate-term portfolios for
Continental Bank's Trust Department. Prior to working in investment management,
Mr. Reohr was an institutional bond salesman for Lehman Brothers and Hamilton
Investments. He earned is BA degree in Political Science at Dickinson College,
and his MBA degree, with a concentration in Financial Management, from the
University of Chicago. There are 10 other portfolio managers who work with Mr.
Reohr in managing the Fund. For these services, the Fund pays Advisor a fee,
calculated daily and paid monthly, that on an annual basis is equal to .25% of
the Fund's average daily net assets.
The Glass-Steagall Act prohibits a depository state chartered bank such
as Advisor from engaging in the business of issuing, underwriting, selling or
distributing certain securities. The activities of Advisor in informing its
customers of the Fund, performing investment and redemption services and
providing custodian, transfer, shareholder servicing, dividend disbursing and
investment advisory services may raise issues under these provisions. Advisor
has been advised by its counsel that its activities in connection with the Fund
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
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<PAGE>
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 Advisor from continuing to perform all or a part of
the above services for its customers and/or the Fund. If Advisor were prohibited
from serving the Fund 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 Fund may occur. It is not expected by 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 Investment Company portfolios 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 November 30, 1997,
State Street held of record less than 25% of the issued and outstanding shares
of Investment Company in connection with its discretionary accounts.
Consequently, State Street is not 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 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.
Administration Agreement. Frank Russell Investment Management Company
("Administrator") serves as administrator of the Fund. Administrator currently
serves as investment manager and administrator to 32 mutual funds with assets of
$11.3 billion as of October 31, 1997, and acts as administrator to 20 mutual
funds, including the Fund, with assets of $10.8 billion as of October 31, 1997.
Pursuant to the Administration Agreement with Investment Company,
Administrator will: (1) supervise all aspects of the Fund's operations; (2)
provide the Fund with administrative and clerical services, including the
maintenance of certain of the Fund's books and records; (3) arrange the periodic
updating of the Fund's prospectuses and any supplements thereto; (4) provide
proxy materials and reports to Fund shareholders and the Securities and Exchange
Commission; and (5) provide the Fund 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 Yield
Plus Fund and Investment Company's other domestic investment portfolios pay
Administrator a combined fee that on an annual basis is equal to the following
percentages of their average aggregate daily net assets: (1) $0 to and including
$500 million -- .06%; (2) over $500 million to and including $1 billion -- .05%;
and (3) over $1 billion -- .03%. The percentage of the fee paid by the Yield
Plus Fund is equal to the percentage of average aggregate daily net assets that
are attributable to the Fund. Administrator will also receive reimbursement of
expenses it incurs in connection with establishing new investment portfolios.
Further, the administration fee paid by the Investment Company will be reduced
by the sum of certain distribution related expenses, up to certain maximum
percentages, as follows: (1) 10% from January 1, 1997 to December 31, 1997; 5%
from January 1, 1998 to December 31, 1998; and (3) 0% from January 1, 1999
thereafter.
Administrator also provides administrative services in connection with
the registration of shares of Investment Company 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.
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<PAGE>
Distribution Services and Shareholder Servicing Arrangements. Pursuant
to the Distribution Agreement with Investment Company, Distributor, a wholly
owned subsidiary of Administrator, serves as distributor for all Fund shares.
The Fund has 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 Fund's 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 Fund
shares including: (1) payments made to certain broker-dealers, investment
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 Fund shares, including
Distributor's overhead expenses for rent, office supplies, equipment, travel,
communication, compensation and benefits of sales personnel.
Under the Plan, the Fund may also enter into agreements ("Service
Agreements") with financial institutions, which may include Advisor ("Service
Organizations"), to provide shareholder servicing with respect to 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: answering inquiries regarding the Fund; assisting customers
in changing dividend options, account designations and addresses; performing
subaccounting for such customers; establishing and maintaining customer accounts
and records; processing purchase and redemption transactions; 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; arranging for bank wires transferring
customers' funds; and such other services as the customers may request in
connection with the Fund, to the extent permitted by applicable statute, rule or
regulation. Service Organizations may receive from the 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 the 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.
The Investment Company has entered into Service Agreements with the
Advisor and the following entities related to the Advisor: State Street
Brokerage Services, Inc., Metropolitan Division of Commercial Banking,
Retirement Investment Services Division and State Street Solutions. The purpose
of the Service Agreements is to obtain shareholder services for Fund shares
owned by clients of each of these entities. In return for these services, the
Investment Company pays each of the entities a fee. These agreements are
reviewed annually by the Board of Trustees.
Payments to Distributor, as well as payments to Service Organizations
from the Fund, are not permitted by the Plan to exceed .25% of the 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. The Fund's liability for any such
expenses carried forward shall terminate at the end of two years 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.
FUND EXPENSES
The Fund will pay all of its expenses other than those expressly
assumed by Advisor and Administrator. The principal expenses of the Fund are the
annual advisory fee payable to Advisor and distribution and shareholder
servicing expenses. Other expenses include: (1) amortization of deferred
organizational costs; (2) taxes, if any; (3) expenses for legal, auditing and
financial accounting services; (4) expense of preparing (including typesetting,
printing and mailing) reports, prospectuses and notices to existing
shareholders; (5) administrative fees; (6) custodian fees; (7) expense of
issuing and redeeming Fund shares; (8) the cost of registering 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 Fund.
-18-
<PAGE>
PERFORMANCE CALCULATIONS
The Fund may from time to time advertise its 30-day yield. 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. The
calculation includes all recurring fees that are charged to all shareholder
accounts.
From time to time the Fund may advertise its total return. The total
return of the Fund is the average annual compounded rate of return from a
hypothetical investment in the Fund over one-year, five-year and ten-year
periods or for the life of the 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 Fund shares, including data from Morningstar, Lipper
Analytical Services, Inc., the Bank Rate Monitor, Wall Street Journal Score
Card, Lehman Brothers Index or other industry publications, business
periodicals, rating services and market indices. The Fund may also advertise
nonstandardized performance information which is for periods in addition to
those required to be presented.
Quoted yields, total 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 Fund, provides portfolio
recordkeeping services and serves as the Fund's 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 the
Fund 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 Distributor at (800) 647-7327.
Organization, Capitalization and Voting. 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 issues shares divisible into an unlimited number of
series (or funds), each of which is a separate trust under Massachusetts law.
The Yield Plus Fund is one of such series.
Each Fund share represents an equal proportionate interest in the 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 Fund as may
be declared by the Board of Trustees. Fund shares are fully paid and
nonassessable by Investment Company and have no preemptive rights.
Each 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.
-19-
<PAGE>
Investment Company does not issue share certificates for the Fund.
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.
As of November 30, 1997, Stock Performance Index Futures Fund CM18, a
fund of State Street Bank and Trust Company, owned of record 57% of the issued
and outstanding shares of the Fund and is therefore deemed to be a controlling
person for purposes of the 1940 Act. Such shares may be held pursuant to a
shareholder servicing arrangement in omnibus accounts for underlying
shareholders.
-20-
<PAGE>
SSgA FUNDS
One International Place
Boston, Massachusetts 02110
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
-21-
<PAGE>
SSgA FUNDS
SSgA Money Market Fund
SSgA US Government Money Market Fund
SSgA Tax Free Money Market Fund
SSgA S&P 500 Index Fund
SSgA Small Cap Fund
SSgA Matrix Equity Fund
SSgA Yield Plus Fund
SSgA Growth and Income Fund
SSgA Intermediate Fund
SSgA Active International Fund
SSgA Emerging Markets Fund
SSgA Bond Market Fund
SSgA Life Solutions Growth Fund
SSgA Life Solutions Balanced Fund
SSgA Life Solutions Income and Growth Fund
-22-
<PAGE>
Filed pursuant to Rule 485(b)
File Nos. 33-19229; 811-5430
SSgA FUNDS
One International Place
Boston, Massachusetts 02110
(800) 647-7327
EMERGING MARKETS FUND
SSgA Funds is a registered, open-end management investment company with
multiple portfolios, each of which is commonly referred to as a mutual fund.
This Prospectus describes and offers shares of beneficial interest in one such
mutual fund, the SSgA Emerging Markets Fund (the "Emerging Markets Fund" or the
"Fund"). The Emerging Markets Fund seeks to provide maximum total return,
primarily through capital appreciation, by investing primarily in securities of
foreign issuers.
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.
SHARES IN THE FUND 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 sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Please read and retain this
document for future reference. Additional information about the SSgA Funds has
been filed with the Securities and Exchange Commission ("SEC") in Statements of
Additional Information ("SAI") dated December 24, 1997. The SAI is incorporated
herein by reference and is available without charge from Distributor at its
address noted below or by calling (800) 647-7327. The SEC also maintains a
website (www.sec.gov) that contains the SAI, material incorporated by reference
and other information regarding the SSgA Funds. You may also access the SSgA
Funds' website at www.ssgafunds.com
<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 One International Place Management Company
225 Franklin Street Boston, Massachusetts 02110 909 A Street
Boston, Massachusetts 02110 Tacoma, Washington 98402
</TABLE>
PROSPECTUS DATED December 24, 1997
<PAGE>
TABLE OF CONTENTS
Page
----
Fund Operating Expenses................................................ 3
Financial Highlights................................................... 4
SSgA Funds............................................................. 5
Manner of Offering..................................................... 5
Investment Objective, Policies and Restrictions........................ 5
Risk Factors........................................................... 9
Portfolio Turnover .................................................... 10
Dividends and Distributions............................................ 10
Taxes.................................................................. 11
Valuation of Fund Shares............................................... 12
Purchase of Fund Shares................................................ 13
Redemption of Fund Shares.............................................. 15
General Management..................................................... 17
Fund Expenses.......................................................... 19
Performance Calculations............................................... 19
Additional Information................................................. 20
-2-
<PAGE>
FUND OPERATING EXPENSES AFTER REIMBURSEMENT
SSgA EMERGING MARKETS FUND
The following table is intended to assist the investor in understanding the
various costs and expenses that an investor in the Emerging Markets Fund will
incur directly or indirectly. The examples should not be considered a
representation of past or future expenses. Actual expenses may be greater or
less than those shown. For additional information, see "General Management."
Shareholder Transaction Expenses:
- ---------------------------------
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
Annual Fund Operating Expenses:
- -------------------------------
(as a percentage of average daily net assets)
Advisory Fees (After Fee Reimbursement)(1) 49%
12b-1 Distribution Fees(1) .18
12b-1 Shareholder Servicing Fees(1) .03
Other Expenses(1) .55
----
Total Operating Expenses (After Fee Reimbursement)(1,2) 1.25%
=====
<TABLE>
<CAPTION>
Examples: 1 year 3 years 5 years 10 years
- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
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:
$13 $40 $69 $151
=== === === ====
</TABLE>
- ----------------
(1)The Advisor has voluntarily agreed to reimburse the Fund for all expenses
in excess of 1.25% of average daily net assets on an annual basis. The
gross annual Advisory fee expense before reimbursement would be .75% of
average daily net assets. The total operating expenses of the Fund absent
reimbursement would be 1.51% of average daily net assets on an annual
basis. This agreement will remain in effect for the current fiscal year.
(2)Investors purchasing 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.
Long-term shareholders of the Fund may pay more in Rule 12b-1 fees than the
economic equivalent of the maximum front-end sales charges permitted by the
National Association of Securities Dealers, Inc.
-3-
<PAGE>
FINANCIAL HIGHLIGHTS
SSgA EMERGING MARKETS FUND
The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Fund's independent
accountants. The table includes selected data for a share outstanding throughout
each fiscal year or period ended August 31, and other performance information
derived from the financial statements. The table appears in the Fund's Annual
Report and should be read in conjunction with the Fund's financial statements
and related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand L.L.P., in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Distributor at (800) 647-7327.
<TABLE>
<CAPTION>
1997 1996 1995 1994++
-------- -------- -------- -------
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $ 10.87 $ 10.30 $ 11.45 $ 10.00
-------- -------- -------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .12 .11 .14 .05
Net realized and unrealized gain
(loss) on investments 1.51 .68 (1.19) 1.40
-------- -------- -------- -------
Total From Investment Operations 1.63 .79 (1.05) 1.45
-------- -------- -------- -------
LESS DISTRIBUTIONS:
Net investment income (.11) (.12) (.10) --
Net realized gain on investments (.06) (.10) -- --
-------- -------- -------- -------
Total Distributions (.17) (.22) (.10) --
-------- -------- -------- -------
NET ASSET VALUE, END OF YEAR $ 12.33 $ 10.87 $ 10.30 $ 11.45
======== ======== ======== =======
TOTAL RETURN (%) (a) 15.12 7.83 (9.28) 14.50
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
($000 omitted) 252,708 120,216 68,385 27,479
Ratios to average net assets (%) (b):
Operating expenses, net 1.25 1.28 1.50 1.50
Operating expenses, gross 1.51 1.67 1.90 2.45
Net investment income 1.07 1.10 1.74 1.31
Portfolio turnover (%) 15.00 4.36 19.77 --
Per share amount of expense reductions .0286 .0376 .0320 .0334
($ omitted)
Average commission rate paid per
share of security ($ omitted) (c) .0017 .0006 N/A N/A
</TABLE>
- -------------
++ For the period March 1, 1994 (commencement of operations) to
August 31, 1994.
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended August 31, 1994 are annualized.
(c) In certain foreign markets, the relationship between the translated US
dollar price per share of security and commission paid per share of security
may vary from that of domestic markets.
-4-
<PAGE>
SSgA FUNDS
SSgA Funds (the "Investment Company") is an open-end management investment
company that is organized as a Massachusetts business trust. In addition, each
series of the Investment Company is diversified as defined in the Investment
Company Act of 1940, as amended (the "1940 Act"). As a "series" company, the
Investment Company is authorized to issue an unlimited number of shares
evidencing beneficial interests in different investment portfolios. Through this
Prospectus, the Investment Company offers shares in one such portfolio, the
Emerging Markets Fund. State Street Bank and Trust Company (the "Advisor" or
"State Street") serves as the investment advisor for the Fund.
MANNER OF OFFERING
Distribution and Eligible Investors. Shares of the Fund are offered
without a sales commission by Russell Fund Distributors, Inc. (the
"Distributor"), the Investment Company's distributor, to US and foreign
institutional and retail investors which invest for their own account or in a
fiduciary or agency capacity. The Fund will incur distribution expenses under
its Rule 12b-1 plan. See "General Management -- Distribution Services and
Shareholder Servicing."
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
The Fund's fundamental investment objective is to provide maximum total
return, primarily through capital appreciation, by investing primarily in
securities of foreign issuers. The investment objective may be changed only with
the approval of a majority of the Fund's shareholders as defined by the 1940
Act. There can be no assurance that the Fund will meet its stated objective.
Investment Policies
The investment policies described below reflect the Fund's current
practices, are not fundamental and may be changed by the Board of Trustees of
Investment Company without shareholder approval. For more information on the
Fund's Investment Policies, see the Statement of Additional Information. To the
extent consistent with the Fund's investment objective and restrictions, the
Fund may invest in the following instruments and may use the following
investment techniques:
Emerging Markets. 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 Fund's
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, and equity-like, securities of emerging market countries
(i.e., typically over 85%). Currently, the definition of an emerging market is
that gross domestic product per capita is less than $10,000 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.
Equity Securities. 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 under "Risk Factors -- Emerging Markets." The risks
associated with investment in securities issued by foreign governments and
companies are described below under "Foreign Government Securities."
-5-
<PAGE>
Convertible Securities. The Fund 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.
Securities Warrants. The Fund may invest up to 5% of its net assets in
warrants of foreign or domestic issuers, including warrants that are not listed
on a securities exchange. A warrant typically is a long term option issued by a
corporation which generally gives the holder the privilege of buying a specified
number of shares of the underlying common stock of the issuer at a specified
exercise price at any time on or before an expiration date. Stock index warrants
entitle the holder to receive, upon exercise, an amount in cash determined by
reference to fluctuations in the level of a specified stock index. If the Fund
does not exercise or dispose of a warrant prior to its expiration, it will
expire worthless.
Equity Swaps. Equity swap agreements are contracts between parties in
which one party agrees to make payments to the other party based on the change
in market value of a specified index or asset. In return, the other party agrees
to make payments to the first party based on the return of a different specified
index or asset. Although swap agreements entail the risk that a party will
default on its payment obligations, the portfolios will minimize this risk by
entering into agreements only with counterparties that the Advisor deems
creditworthy. Swap agreements also bear the risk that the portfolios will not be
able to meet their obligation to the counterparty. This risk will be mitigated
by investing the portfolios in the specific asset for which it is obligated to
pay a return.
Special Situations and Illiquid Securities. The Fund 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 Fund's capital
appreciation potential. These investments are generally illiquid. The Fund will
invest no more than 15% of its net assets in all types of illiquid securities or
securities that are not readily marketable, including special situations. The
Fund is not likely to hold illiquid securities initially. However, due to
foreign ownership restrictions, the Fund 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.
Depository Receipts. The Fund may invest in securities of foreign issuers
in the form of American Depository Receipts ("ADRs"), European Depository
Receipts ("EDRs") and similar instruments available in emerging markets, 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 many
foreign issuers are subject. For purposes of the Fund's investment policies, the
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.
Debt Securities. The Fund may also invest in debt securities, including
instruments issued by emerging market companies, governments and their agencies.
The Fund will primarily invest in equity securities as defined under the
Securities Exchange Act of 1934 (including convertible debt securities). Other
debt will typically
-6-
<PAGE>
represent less than 10% of the Fund's 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 may include obligations that are
in default or that face the risk of default with respect to principal or
interest. Such securities are sometimes referred to as "junk bonds." Please see
the Statement of Additional Information for a description of securities ratings.
Foreign Government Securities. Foreign government securities which the
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 Fund will not invest a material percentage of
its assets in sovereign debt.
Foreign Currency. The 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 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 portfolio positions generally. The Fund is not
obligated to hedge its portfolio positions and will enter into such transactions
only to the extent, if any, deemed appropriate by Advisor. 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 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 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 Fund
will not speculate in foreign security or currency options or futures or related
options.
The 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, the Fund 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.
Repurchase Agreements. The 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 Fund receives securities as
collateral. Under a repurchase agreement, a Fund purchases securities from a
financial institution that agrees to repurchase the securities at the Fund's
original purchase price plus interest within a specified time (normally one
business day). The Fund will limit repurchase transactions to those member banks
of the Federal Reserve System and broker-dealers whose creditworthiness Advisor
considers satisfactory. Should the counterparty to a transaction fail
financially, the 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 the Fund.
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Reverse Repurchase Agreements. The Fund may enter into reverse repurchase
agreements under the circumstances described in "Investment Restrictions." In
substance, a reverse repurchase agreement is a borrowing for which the Fund
receives securities as collateral. Under a reverse repurchase agreement, the
Fund sells portfolio securities to a financial institution 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 at a prescribed repurchase
price equal to the amount of cash originally received plus interest on such
amount. The Fund retains the right to receive interest and principal payments
with respect to the securities while they are in the possession of the financial
institutions. Reverse repurchase agreements involve the risk of default by the
counterparty, which may adversely affect the Fund's ability to reacquire the
underlying securities.
Cash Reserves. For defensive purposes, the Fund may temporarily invest,
without limitation, in high quality short-term fixed income securities. 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 the Fund will
decline, and thereby possibly cause its yield to decline as well.
Options on Securities and Securities Indices. The Fund may write and
purchase covered put and call options on securities in which it may directly
invest. Option transactions of the 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 Fund's total assets. Further, the 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 Fund's total assets.
The Fund may purchase or sell options on securities indices that are
comprised of securities in which the Fund 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.
Futures Contracts and Options on Futures. For hedging purposes, including
protecting the price or interest rate of a security the Fund intends to buy, the
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. A stock index futures contract is a contract to buy
or sell specified units of a stock index at a specified date at a price agreed
upon when the contract is made. The value of a unit is based on the current
value of the stock index. 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. Upon entering into a futures
contract, the 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 the Fund will honor its futures commitment. 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.
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When trading futures contracts, the 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.
Purchase of Other Funds. To the extent permitted under the 1940 Act and
exemptive rules and orders thereunder, the Fund may seek to achieve its
investment objective by investing solely in the shares of another investment
company that has a substantially similar investment objective and policies.
Investment Restrictions
The Fund's fundamental investment restrictions described below may be
amended only with approval of the Fund's shareholders and, unless otherwise
noted, apply at the time an investment is made. See the Statement of Additional
Information for other investment restrictions. The 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, emerging market governments, their agencies or
instrumentalities and non-depository instruments issued by European
banks). Concentration may occur as a result of changes in the market
value of portfolio securities, but may not result from investment.
2. Borrow money, 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 Fund's assets taken at market
value, less liabilities other than borrowings. If at any time a 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 Fund will not purchase investments once
borrowed funds exceed 5% of its total assets.
3. Pledge, mortgage, or hypothecate its assets. However, the Fund may
pledge securities having a market value (on a daily marked-to-market
basis) at the time of the pledge not exceeding 33-1/3% of the value of
the Fund's total assets to secure permitted borrowings.
RISK FACTORS
Foreign Securities. Investors should consider carefully the substantial
risks involved in securities of companies and governments of foreign nations.
There may be less publicly available information about foreign companies
comparable to the reports and ratings published regarding US companies. Foreign
companies are not generally subject to uniform accounting, auditing and
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to US companies. Many foreign markets have
substantially less volume than either the established domestic securities
exchanges or the OTC markets. Securities of some foreign companies are less
liquid and more volatile than securities of comparable US companies. 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 and related
administrative uncertainties.
Emerging Markets. Investments in companies domiciled in emerging market
countries may be subject to additional risks. These risks include: (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 can have political systems which
can be expected to have less stability 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 such
securities and the currently low or nonexistent volume of trading can result in
a lack of liquidity and in greater price
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volatility. Until recently, there has been an absence of a capital market
structure or market-oriented economy in certain emerging market countries.
Because the Fund's securities will generally be denominated in foreign
currencies, the value of such securities to the Fund will be affected by changes
in currency exchange rates and in 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 Fund's securities. In addition, some
emerging market countries may have fixed or managed currencies which are not
free-floating against the US dollar. Further, certain emerging market currencies
may not be internationally traded. Certain of these 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 Fund's 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.
Foreign Currency. The 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 Fund endeavors 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.
Futures Contracts and Options on Futures. 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.
PORTFOLIO TURNOVER
The portfolio turnover rate cannot be predicted, but it is anticipated
that the Fund's annual turnover rate generally will not exceed 60%. A high
turnover rate (over 100%) will: (1) increase transaction expenses which will
adversely affect a Fund's performance; and (2) result in increased brokerage
commissions and other transaction costs, and the possibility of realized capital
gains. The Advisor's sell discipline for the Fund's investment in emerging
market companies is based on the premise of a long-term investment horizon,
however, sudden changes in valuation levels arising from, for example, new
macroeconomic policies, political developments, and industry conditions could
change the assumed time horizon. Some countries impose restrictions on
repatriation of capital and/or dividends which would lengthen the Advisor's
assumed time horizon in those countries. Liquidity, volatility, and overall risk
of a position are other factors considered by the Advisor in determining the
appropriate investment horizon. Therefore, the Fund may dispose of securities
without regard to the time they have been held when such action, for defensive
or other purposes, appears advisable.
The Fund may effect portfolio transactions through State Street Brokerage
Services, Inc., an affiliate of the Advisor, when the Advisor determines that
the Fund will receive competitive execution, price and commissions.
DIVIDENDS AND DISTRIBUTIONS
The Board of Trustees intends to declare and pay dividends on shares of
the Fund annually from net investment income. The Board of Trustees intends to
declare distributions annually from net short- and long-term capital gains, if
any, generally in mid-October. It is intended that an additional distribution
may be declared and paid
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in December if required for the Fund 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 Fund and received by shareholders on December
31 of that year if the dividend is paid prior to February 1 of the following
year.
Income dividend and capital gain distributions will be paid 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 Fund mailings to an investor, the 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 Fund until the
investor notifies the SSgA Funds 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 Fund shortly after a
purchase of shares will reduce the per share net asset value of the Fund 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:
[BULLET] Reinvestment Option--Income dividends and capital gains
distributions will be automatically reinvested in additional
shares of the Fund. If the investor does not indicate a choice on
the Application, this option will be automatically assigned.
[BULLET] Income-Earned Option--Capital gain distributions will be
automatically reinvested, but a check or wire will be sent for
each income dividend distribution.
[BULLET] Cash Option--A check or wire will be sent for each income
dividend and capital gain distribution.
[BULLLET] Direct Dividends Option--Dividends and capital gain distribution
will be automatically invested in another identically registered
SSgA Fund.
Distributions will be sent to a pre-designated bank by the Automatic
Clearing House ("ACH") on the payable date.
TAXES
The Fund intends to qualify as a regulated investment company ("RIC")
under Subchapter M of the Internal Revenue Code, as amended ("the Code"). As a
RIC, the Fund will not be subject to federal income taxes to the extent it
distributes its net investment income and net capital gain (long-term capital
gains in excess of short-term capital losses) to shareholders. The Board intends
to distribute each year substantially all of the Fund's net investment income
and capital gain net income.
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 20% gains and 28% gains are taxable as 20% gains or 28% gains regardless of
the length of time a shareholder has held such shares and whether paid in cash
or additional shares.
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<PAGE>
Dividends and distributions may also be subject to state or local taxes.
Depending on the state tax rules pertaining to a shareholder, a portion of the
dividends paid by the Fund attributable to direct obligations of the US Treasury
and certain agencies may be exempt from state and local taxes.
The sale of 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 portfolios of a mutual fund). Any loss incurred on the sale or
exchange of Fund shares held for one year or more will be treated as a 20% loss
or a 28% loss to the extent of capital gain dividends received with respect to
such shares.
Shareholders will be notified after each calendar year of the amount of
income dividends and net capital gains distributed and the percentage of the
Fund's income attributable to US Treasury and agency obligations. The 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 Fund with the shareholder's correct taxpayer
identification number or certification that the shareholder is not subject to
backup withholding.
The foregoing discussion is only a summary of certain federal income tax
issues generally affecting the Fund and its shareholders. Circumstances among
investors may vary and each investor is encouraged to discuss investment in the
Fund with the investor's tax advisor.
Foreign Income Taxes. Investment income received by the Fund 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 the 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 the Fund in advance since the amount of the assets to be
invested within various countries is not known.
If the Fund invests 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 Fund. The Fund can elect to
mark-to-market its PFIC holdings in lieu of paying taxes on gains or
distributions therefrom. It is anticipated that any taxes on a Fund with respect
to investments in PFICs would be insignificant.
Foreign shareholders should consult with their tax advisors as to if and
how the federal income tax and its withholding requirements applies to them.
If more than 50% in value of a Fund's total assets at the close of any
taxable year consists of securities of foreign corporations, the Fund may file
an election with the Internal Revenue Service (the "Foreign Election") that
would permit shareholders to take a credit (or a deduction) for foreign income
taxes paid by the Fund. The Fund may be subject to certain holding requirements
with respect to securities held to take advantage of this credit.If the Foreign
Election is made, shareholders would include in their gross income both
dividends received from the Fund and foreign income taxes paid by the Fund.
Shareholders of the Fund would be entitled to treat the foreign income taxes
withheld as a credit against their United States federal income taxes, subject
to the limitations set forth in the Internal Revenue Code with respect to the
foreign tax credit generally. Alternatively, shareholders could treat the
foreign income taxes withheld as a deduction from gross income in computing
taxable income rather than as a tax credit. It is anticipated that the Fund will
qualify to make the Foreign Election; however, the Fund cannot be certain that
it will be eligible to make such an election or that any particular shareholder
will be eligible for the foreign tax credit.
VALUATION OF FUND SHARES
Net Asset Value Per Share. The net asset value per share is calculated on
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. Net asset value per share is
computed by dividing the current value of the Fund's assets, less its
liabilities, by the number of shares of the Fund outstanding and rounding to the
nearest cent.
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Valuation of Fund Securities. With the exceptions noted below, the Fund
values portfolio securities at market value. This generally means that 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 the 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 or
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
is valued at amortized cost unless the Board determines that the amortized cost
method does not represent 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 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
Fund would receive if it sold the instrument.
The Fund values 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.
PURCHASE OF FUND SHARES
Minimum Initial and Subsequent Investments and Account Balance. The 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 the Fund (other than IRA
accounts) may be subject to redemption at the 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. The Fund reserves
the right to reject any purchase order. Investors purchasing Fund assets through
a pension or other participation plan should contact their plan administrator
for further information on purchases.
Offering Dates and Times. Fund shares may be purchased on any business day
without a sales commission. All purchases must be made in US dollars. 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 to be effective on the date received. The Fund
reserves 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.
Order and Payment Procedures. There are several ways to invest in the
Fund. The Fund requires 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 Fund name and account number on their checks,
or use the remittance form attached to the confirmation statement (in the return
envelope provided). All
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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 may be withheld until the check or account
clears, which may take up to 15 calendar days.
Telephone Exchange Privilege. Subject to the Fund's minimum investment
requirement, investors may exchange a minimum of $100 of their 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 on the business day on which the
call is placed or upon written receipt of instructions in good form by the
Transfer Agent. Exchanges may be made over the phone if the registrations of the
two accounts are identical. If the shares of the 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 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.
Federal Funds Wire. An investor may make initial or subsequent investments
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 Fund in which the
investment is to be made and the account number; and (c) the amount
being wired.
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 Emerging Markets Fund
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 Fund 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 Fund's minimum initial requirement
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 Fund offers 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
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annually) and the amount. Exchanges may be done among the SSgA Funds once the
initial investment per Fund has been satisfied.
Third Party Transactions. Investors purchasing 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.
In Kind Exchange of Securities. The Transfer Agent may, at its discretion,
permit investors to purchase shares through the exchange of securities they
hold. Any securities exchanged must meet the investment objective, policies and
limitations of the Fund, must have a readily ascertainable market value, must be
liquid and must not be subject to restrictions on resale. The market value of
any securities exchanged, plus any cash, must be at least $10 million. Shares
purchased in exchange for securities generally may not be redeemed or exchanged
until the transfer has settled--usually within 15 days following the purchase
exchange.
The basis of the exchange will depend upon the relative net asset value of
the shares purchased and securities exchanged. Securities accepted by the Fund
will be valued in the same manner as the Fund values its assets. Any interest
earned on the securities following their delivery to the Transfer Agent and
prior to the exchange will be considered in valuing the securities. All
interest, dividends subscription or other rights attached to the securities
become the property of the Fund, along with the securities.
REDEMPTION OF FUND SHARES
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. Typically, 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.
Redemption requests must be received prior to 4:00 p.m. Eastern time in
order be effective on the date received. Shareholder servicing agents with
underlying shareholders in omnibus accounts who receive redemption requests by
4:00 p.m. Eastern time may transmit the request to the Transfer Agent by 9:00
a.m. Eastern time the next succeeding business day and receive the dividend as
of the day the redemption request was originally made by the underlying
shareholder.
Telephone Redemption. Shareholders may normally redeem 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 Fund and the Transfer Agent will employ reasonable procedures
to confirm that instructions communicated by telephone are properly authorized.
The 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.
By Wire. Proceeds exceeding $1,000 may be sent via wire transfer to the
investor's pre-designated bank. Proceeds may be sent, depending on the Fund, on
the same or the next day. Although the Fund does 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. Requests
must be received prior to 4:00 p.m. The shares will be redeemed using that day's
closing price, and the proceeds will be wired the following business day.
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.
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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 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.
-16-
<PAGE>
<TABLE>
<CAPTION>
Seller Requirements for Written Requests
<S> <C> <C>
Owner of individual, [BULLET] Letter of instruction, signed by all persons authorized to
joint, sole proprietorship, sign for the account stating general titles/capacity,
UGMA/UTMA (custodial exactly as the account is registered; and
accounts for minors) or
general partner accounts [BULLET] Signature guarantee, if applicable (see above).
Owners of corporate or [BULLET] Letter of instruction signed by authorized person(s),
association accounts stating capacity as indicated by the corporate resolution;
[BULLET] Corporate resolution, certified within the past 90 days;
and
[BULLET] Signature guarantee, if applicable (see above).
Owners or trustees of trust [BULLET] Letter of instruction, signed by all trustees;
accounts
[BULLET] If the trustees are not named in the registration, please
provide a copy of the trust document certified within
the past 60 days; and
[BULLET] Signature guarantee, if applicable (see above).
Joint tenancy shareholders [BULLET] Letter of instruction signed by surviving tenant(s);
whose co-tenants are
deceased
[BULLET] Certified copy of the death certificate; and
[BULLET] Signature guarantee, if applicable (see above).
</TABLE>
Please contact the Customer Service Department at (800) 647-7327 for
questions and further instructions.
The Fund may pay any portion of the redemption amount in excess of
$250,000 by a distribution in kind of readily marketable securities from the
portfolio of the Fund in lieu of cash. Investors will incur brokerage charges on
the sale of these portfolio securities. The 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 Fund and has approved contracts with various financial organizations to
provide, among other services, day-to-day management required by the Fund.
Advisory Agreement. The Investment Company employs the Advisor to furnish
investment services to the Fund. State Street is one of the largest providers of
securities processing and recordkeeping services for US mutual funds and pension
funds. State Street Global Advisors is the investment management business of
State Street, a 200 year old pioneer and leader in the world of financial
services. State Street is a wholly owned subsidiary of State Street Corporation,
a publicly held bank holding company. State Street, with over $370 billion (US)
under management as of September 30, 1997, provides complete global investment
management services from offices in Atlanta, Boston, Brussels, Copenhagen,
Dubai, Hong Kong, London, Minneapolis, Montpellier, Montreal, Munich, Paris, San
Francisco, Sydney, Tokyo, and Toronto.
The Advisor, subject to Board supervision, directs the investment of the
Fund in accordance with the Fund's investment objective, policies and
restrictions. Mr. Josh Feuerman, Vice President, is the portfolio manager
primarily in charge of investment decisions regarding the Fund. Mr. Feuerman
joined State Street in 1987. He is a portfolio manager in SSgA's Global Active
Equities Group responsible for emerging markets portfolios. He also assists in
the marketing of SSgA's equity products to existing and prospective clients as
well as to the consultant
-17-
<PAGE>
community. There are seven other portfolio managers who work with Mr. Fuerman in
managing the Fund. For these services, the Fund pays the Advisor a fee,
calculated daily and paid monthly, equal to .75% annually of the Fund's average
daily net assets.
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 Fund, 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 Fund 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 Fund. If the Advisor were
prohibited from serving the Fund 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 Fund 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 Investment Company portfolios 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 November 30, 1997,
State Street held of record less than 25% of the issued and outstanding shares
of Investment Company in connection with its discretionary accounts.
Consequently, State Street is not 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 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.
Administration Agreement. Frank Russell Investment Management Company
("Administrator") serves as administrator of the Fund. Administrator currently
serves as investment manager and administrator to 32 mutual funds with assets of
$11.3 billion as of October 31, 1997, and acts as administrator to 20 mutual
funds, including the Fund, with assets of $10.8 billion as of October 31, 1997.
Pursuant to the Administration Agreement with the Investment Company, the
Administrator will: (1) supervise all aspects of the Fund's operations; (2)
provide the Fund with administrative and clerical services, including the
maintenance of certain of the Fund's books and records; (3) arrange the periodic
updating of the Fund's prospectuses and any supplements thereto; (4) provide
proxy materials and reports to Fund shareholders and the Securities and Exchange
Commission; and (5) provide the Fund 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
Emerging Markets Fund pays the Administrator a fee that on an annual basis is
equal to the following percentages of average aggregate daily net assets: $0 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 Emerging Markets
Fund is equal to the percentage of average aggregate daily net assets. The
Administrator will also receive reimbursement of expenses it incurs in
connection with establishing new investment portfolios. Further, the
administration fee paid by the Investment Company will be reduced by the sum of
certain distribution related expenses, up to certain maximum percentages, as
follows: (1) 10% from January 1, 1997 to December 31, 1997; 5% from January 1,
1998 to December 31, 1998; and (3) 0% from January 1, 1999 thereafter.
-18-
<PAGE>
The Administrator also provides administrative services in connection with
the registration of shares of the Investment Company with those states in which
its shares are offered or sold. Compensation for such services is on a "time
spent" basis. The 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 the Investment Company, the "Distributor", a
wholly owned subsidiary of the Administrator, serves as distributor for all Fund
shares.
The Fund has 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, the Distributor will be reimbursed in an amount up to
.25% of the Fund's average annual net assets for distribution-related and
shareholder servicing expenses. Payments under the Plan will be made to the
Distributor to finance activity which is intended to result in the sale and
retention of Fund shares including: (1) payments made to certain broker-dealers,
investment 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 Fund shares,
including Distributor's overhead expenses for rent, office supplies, equipment,
travel, communication, compensation and benefits of sales personnel.
Under the Plan, the Fund may also enter into agreements (the "Service
Agreements") with financial institutions, which may include the Advisor (the
"Service Organizations"), to provide shareholder servicing with respect to 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: answering inquiries regarding the Fund; assisting
customers in changing dividend options, account designations and addresses;
performing subaccounting for such customers; establishing and maintaining
customer accounts and records; processing purchase and redemption transactions;
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; arranging for
bank wires transferring customers' funds; and such other services as the
customers may request in connection with the Fund, to the extent permitted by
applicable statute, rule or regulation. The Service Organizations may receive
from the Fund, for shareholder servicing, monthly fees at a rate that shall not
exceed .20% per annum of the average daily net asset value of Fund 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.
The Investment Company has entered into Service Agreements with the
Advisor and the following entities related to the Advisor: State Street
Brokerage Services, Inc., Metropolitan Division of Commercial Banking,
Retirement Investment Services Division and State Street Solutions. The purpose
of the Service Agreements is to obtain shareholder services for Fund shares
owned by clients of each of these entities. In return for these services, the
Investment Company pays each of the entities a fee. These agreements are
reviewed annually by the Board of Trustees.
Payments to the Distributor, as well as payments to the Service
Organizations, are not permitted by the Plan to exceed .25% of the 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. The Fund's liability for any such
expenses carried forward shall terminate at the end of two years following the
year in which the expenditure was incurred. The Service Organizations will be
responsible for prompt transmission of purchase and redemption orders and may
charge fees for their services.
-19-
<PAGE>
FUND EXPENSES
The Fund will pay all of its expenses other than those expressly assumed
by the Advisor and the Administrator. The principal expenses of the Fund are the
annual advisory fee payable to the Advisor and distribution and shareholder
servicing expenses. Other expenses include: (1) amortization of deferred
organizational costs; (2) taxes, if any; (3) expenses for legal, auditing and
financial accounting services; (4) expense of preparing (including typesetting,
printing and mailing) reports, prospectuses and notices to existing
shareholders; (5) administrative fees; (6) custodian fees; (7) expense of
issuing and redeeming Fund shares; (8) the cost of registering 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 Fund.
PERFORMANCE CALCULATIONS
From time to time the Fund may advertise its total return. The total
return of the Fund is the average annual compounded rate of return from a
hypothetical investment in the Fund over one-, five-, and ten-year periods or
for the life of the 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 Fund shares, including data from Morningstar, Lipper
Analytical Services, Inc., Wall Street Journal Score Card or other industry
publications, business periodicals, rating services and market indices. The Fund
may also advertise nonstandardized performance information which is for periods
in addition to those required to be presented.
Total return 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 Fund, provides portfolio
recordkeeping services and serves as the Fund's transfer agent (the "Transfer
Agent") and custodian (the "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 the
Fund except as investment advisor. Coopers & Lybrand L.L.P., Boston,
Massachusetts, is the Investment Company's independent accountants.
Reports to Shareholders and Shareholder Inquiries. Shareholders will
receive unaudited semiannual financial statements and annual financial
statements audited by the 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 a single class of shares divisible into an
unlimited number of series (or funds), each of which is a separate trust under
Massachusetts law. The Emerging Markets Fund is one such series.
Each Fund share represents an equal proportionate interest in the Fund,
has a par value of $.001 per share and is entitled to such relative rights and
preferences and dividends and distributions earned on Fund assets as may
-20-
<PAGE>
be declared by the Board of Trustees. Shares of the Fund are fully paid and
nonassessable by the Investment Company and have no preemptive rights.
Each 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 which 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 the
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 the 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.
The Investment Company does not issue share certificates for the Fund. 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.
As of November 30, 1997, Charles Schwab & Company, Inc., owned of record
47% of the issued and outstanding shares of the Fund and is therefore deemed to
be a controlling person for purposes of the 1940 Act. Such shares may be held
pursuant to a shareholder servicing arrangement in omnibus accounts for
underlying shareholders.
-21-
<PAGE>
SSgA FUNDS
One International Place
Boston, Massachusetts 02110
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
-22-
<PAGE>
SSgA FUNDS
SSgA Money Market Fund
SSgA US Government Money Market Fund
SSgA Tax Free Money Market Fund
SSgA S&P 500 Index Fund
SSgA Small Cap Fund
SSgA Matrix Equity Fund
SSgA Yield Plus Fund
SSgA Growth and Income Fund
SSgA Intermediate Fund
SSgA Active International Fund
SSgA Emerging Markets Fund
SSgA Bond Market Fund
SSgA Life Solutions Growth Fund
SSgA Life Solutions Balanced Fund
SSgA Life Solutions Income and Growth Fund
-23-
<PAGE>
Filed pursuant to Rule 485(b)
File Nos. 33-19229; 811-5430
SSgA FUNDS
One International Place
Boston, Massachusetts 02110
(800) 647-7327
US TREASURY MONEY MARKET FUND
SSgA Funds is a registered, open-end management investment company with
multiple portfolios, each of which is commonly referred to as a mutual fund.
This Prospectus describes and offers shares of beneficial interest in one mutual
fund, the SSgA US Treasury Money Market Fund (the "Treasury Money Market Fund"
or the "Fund"). The Fund seeks 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 that are
issued or guaranteed as to principal and interest by the US Government and
repurchase agreements backed by such securities. The Fund intends to meet its
investment objective by investing only in US Treasury bills, notes and bonds.
The Fund's shares are offered without sales commissions. However, the Fund pays
certain distribution expenses under its 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 FUND ARE NEITHER INSURED NOR GUARANTEED BY THE US
GOVERNMENT. THERE IS NO ASSURANCE THAT THE FUND WILL MAINTAIN A STABLE NET ASSET
VALUE OF $1.00 PER SHARE.
SHARES IN THE FUND 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 RISK, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Please read and retain this
document for future reference. Additional information about the SSgA Funds has
been filed with the Securities and Exchange Commission ("SEC") in Statements of
Additional Information ("SAI") dated December 24, 1997. The SAI is incorporated
herein by reference and is available without charge from Distributor at its
address noted below or by calling (800) 647-7327. The SEC also maintains a
website (www.sec.gov) that contains the SAI, material incorporated by reference
and other information regarding the SSgA Funds. You may also access the SSgA
Funds' website at www.ssgafunds.com.
<TABLE>
Investment Advisor, Custodian
and Transfer Agent: Distributor: Administrator:
<S> <C> <C>
State Street Bank and Trust Russell Fund Distributors, Inc. Frank Russell Investment
Company Management Company
225 Franklin Street One International Place 909 A Street
Boston, Massachusetts 02110 Boston, Massachusetts 02110 Tacoma, Washington 98402
</TABLE>
PROSPECTUS DATED December 24, 1997
-1-
<PAGE>
TABLE OF CONTENTS
Page
----
Fund Operating Expenses................................................. 3
Financial Highlights.................................................... 4
SSgA Funds.............................................................. 5
Manner of Offering...................................................... 5
Investment Objectives and Policies...................................... 5
Purchase of Fund Shares................................................. 7
Redemption of Fund Shares............................................... 8
Additional Purchase and Redemption Information.......................... 9
Investment Restrictions.................................................10
Portfolio Maturity .....................................................10
Dividends and Distributions.............................................10
Taxes...................................................................11
Valuation of Fund Shares................................................12
General Management......................................................12
Fund Expenses...........................................................14
Performance Calculations................................................14
Description of the Fund.................................................15
-2-
<PAGE>
FUND OPERATING EXPENSES AFTER REIMBURSEMENT
SSgA US TREASURY MONEY MARKET FUND
The following table is intended to assist the investor in understanding the
costs and expenses that an investor in the Treasury Money Market Fund will incur
directly or indirectly. The examples should not be considered a representation
of past or future expenses. Actual expenses may be greater or less than those
shown. For additional information, see "General Management."
Shareholder Transaction Expenses:
- --------------------------------
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
Annual Fund Operating Expenses:
- ------------------------------
(as a percentage of average daily net assets)
Advisory Fees(1) .00%
12b-1 Distribution Fees(1) .03
12b-1 Shareholder Servicing Fees(1) .03
Other Expenses(1) .14
---
Total Operating Expenses(1, 2) .20%
===
<TABLE>
<CAPTION>
Examples: 1 year 3 years 5 years 10 years
- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
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:
$2 $6 $11 $26
== == === ===
</TABLE>
- -----------
(1) The Advisor has agreed to reimburse the Fund for all expenses in excess of
.20% of average daily net assets on an annual basis. The total operating
expenses of the Fund absent fee reimbursement would be .46% of average
daily net assets on an annual basis. The gross annual Advisory fee expense
before reimbursement would be .25% of average daily net assets. This
agreement will be in effect until further notice.
(2) The expense information in the table has been adjusted to reflect current
fees. Investors purchasing 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-
<PAGE>
FINANCIAL HIGHLIGHTS
SSgA US TREASURY MONEY MARKET FUND
The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Fund's independent
accountants. The table includes selected data for a share outstanding throughout
each fiscal year or period ended August 31, and other performance information
derived from the financial statements. The table appears in the Fund's Annual
Report and should be read in conjunction with the Fund's financial statements
and related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand L.L.P., in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete Fund listing
and audited financial statements, is available in the Fund's Annual Report,
which may be obtained without charge by writing or calling the Distributor at
(800) 647-7327.
<TABLE>
<CAPTION>
1997 1996 1995 1994++
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $ 1.000 $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .0515 .0529 .0536 .0249
LESS DISTRIBUTIONS:
Net investment income (.0515) (.0529) (.0536) (.0249)
-------- -------- -------- --------
NET ASSET VALUE, END OF YEAR $ 1.000 $ 1.0000 $ 1.0000 $ 1.0000
======== ======== ======== ========
TOTAL RETURN (%)(a) 5.36 5.42 5.48 2.51
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
($000 omitted) 916,845 189,004 160,893 154,858
Ratios to average net assets (%) (b):
Operating expenses, net .20 .20 .13 .13
Operating expenses, gross .46 .38 .39 .38
Net investment income 5.28 5.29 5.38 3.28
Per share amount of expense reductions .0025 .0018 .0018 .0019
($ omitted)
</TABLE>
- ---------------
++ For the period December 1, 1993 (commencement of operations) to
August 31, 1994.
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended August 31, 1994 are annualized.
-4-
<PAGE>
SSgA FUNDS
Investment Company is a registered open-end management investment
company that is organized as a Massachusetts business trust. In addition, each
series of the Investment Company is diversified as defined in the Investment
Company Act of 1940, as amended (the "1940 Act"). As a "series" company, the
Investment Company is authorized to issue an unlimited number of shares
evidencing beneficial interests in a variety of investment portfolios. Through
this Prospectus, the Investment Company offers shares in the Treasury Money
Market Fund. State Street Bank and Trust Company (the "Advisor" or "State
Street") serves as the investment advisor for the Fund.
MANNER OF OFFERING
Distribution and Eligible Investors. Shares of the Fund are offered
without a sales commission by the Distributor, the Investment Company's
distributor, to US and foreign institutional and corporate investors that invest
for their own account or in a fiduciary or agency capacity. The Fund will incur
distribution expenses under its Rule 12b-1 Plan. See "General Management --
Distribution Services and Shareholder Servicing Arrangements."
Minimum and Subsequent Investment. The Treasury Money Market Fund requires
a minimum initial investment of $10 million, and a shareholder's investment may
be subject to redemption at the Fund's discretion if the account balance is less
than $7.5 million as a result of shareholder redemptions. The Fund reserves the
right to reject any purchase order.
INVESTMENT OBJECTIVE AND POLICIES
The Fund has a fundamental investment objective which may be changed only
with the approval of a majority of the Fund's shareholders as defined by the
1940 Act. The Fund also maintains certain nonfundamental investment policies
which reflect the Fund's current practices and may be changed at any time by the
Investment Company's Board of Trustees upon written notice to the shareholders.
There can be no assurance the Fund will meet its investment objective.
The Treasury Money Market Fund's 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 that are issued or guaranteed as to principal and
interest by the US Government and repurchase agreements backed by such
securities.
The Treasury Money Market Fund's investment policy is to invest its assets
primarily in US Treasury bills, notes and bonds (which are direct obligations of
the US Government) and repurchase agreements backed by such securities.
The Treasury Money Market Fund intends to seek a quality rating from one
or more national security rating organizations. To obtain such rating the Fund
may be required to adopt additional investment restrictions, which may affect
the Fund's performance.
Investment Policies
The Fund will limit its portfolio investments to securities that, at the
time of acquisition: (1) are rated in the highest category by least two
nationally recognized statistical rating organizations ("NRSRO"); (2) by one
NRSRO, if only one rating services has rated the security; or (3) if unrated,
are of comparable quality, as determined by the Fund's Advisor in accordance
with procedures established by the Board of Trustees. See the Appendix in the
Statement of Additional Information for a description of a NRSRO.
The investment policies described below reflect the Fund's current
practices and are not fundamental. Investment policies may be changed by the
Board of Trustees of the Investment Company without shareholder approval. For
more information on the Fund's Investment Policies, please see the Statement of
Additional Information. To the extent consistent with the Fund's fundamental
investment objective and restrictions, and unless otherwise indicated, the Fund
may invest in the following instruments and may use the following investment
techniques:
-5-
<PAGE>
US Government Securities. 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.
When-Issued Transactions. The Fund may purchase securities on a
when-issued or delayed delivery basis. In these transactions, the Fund purchases
securities with payment and delivery scheduled for a future time. Until
settlement, the Fund segregates cash and marketable securities equal in value to
its when-issued commitments. Between the trade and settlement dates, the 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 the Fund to miss a price or yield considered
advantageous. The Fund will engage in when-issued transactions only for the
purpose of acquiring portfolio securities consistent with its investment
objective and policies and not for investment leverage. No Fund will invest more
than 25% of its net assets in when-issued securities.
Lending Fund Securities. The Fund may lend portfolio securities with a
value of up to 33-1/3% of its total assets. For these purposes, total assets
shall include the value of all assets received as collateral for the loan. Such
loans may be terminated at any time. The 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, the
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, the 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.
The 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, the 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 Advisor to be of good financial standing. In a loan transaction,
the Fund will also bear the risk of any decline in value of securities acquired
with cash collateral. The Fund will minimize this risk by limiting the
investment of cash collateral to high quality instruments of short maturity.
Repurchase Agreements. The 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 Fund receives securities as
collateral. Under a repurchase agreement, the Fund purchases securities from a
financial institution that agrees to repurchase the securities at the Fund's
original purchase price plus interest within a specified time (normally one
business day). The Fund will limit repurchase transactions to those member banks
of the Federal Reserve System and broker-dealers whose creditworthiness Advisor
considers satisfactory. Should the counterparty to a transaction fail
financially, the Fund may encounter delay and incur costs before being able to
sell the security. Further, the amount realized upon the sale of the collateral
may be less than that necessary to fully compensate the Fund.
The Fund will invest no than 10% of its net assets (taken at current
market value) in repurchase agreements maturing in more than seven days.
Stripped Securities. The Fund may invest in stripped securities, which are
US Treasury bonds and notes the unmatured interest coupons of which have been
separated from the underlying obligation. Stripped securities are zero coupon
obligations that are normally issued at a discount to their face value, and may
exhibit greater price volatility than ordinary debt securities because of the
manner in which their principal securities issued by the US Treasury and
recorded in the Federal Reserve book-entry record-keeping system. The Fund may
invest no more than 25% of its assets in stripped securities that have been
stripped by their holder, typically a custodian bank or investment brokerage
firm. A number of securities firms and banks have stripped the interest coupons
and resold them in custodian receipt programs with different names such as
Treasury Income Growth Receipts ("TIGRS") and Certificates of Accrual on
Treasuries ("CATS"). The Treasury Money Market Fund intends to rely on the
opinions of counsel to the sellers of these certificates or other evidences of
ownership of US Treasury obligations that, for Federal tax and securities
purposes, purchasers of such certificates most likely will be deemed the
beneficial holders of the underlying US Government obligations. Privately-issued
stripped
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securities such as TIGRS and CATS are not themselves guaranteed by the US
Government, but the future payment of principal or interest on US Treasury
obligations which they represent is so guaranteed.
Purchase of Other Funds. To the extent permitted under the 1940 Act and
exemptive rules and orders thereunder, the Fund may seek to achieve its
investment objective by investing solely in the shares of another investment
company that has a substantially similar investment objective and policies.
PURCHASE OF FUND SHARES
Minimum Initial Investment and Account Balance. The Treasury Money Market
Fund requires a minimum initial investment of $10 million and a minimum account
balance of $7.5 million. The Fund reserves the right to reject any purchase
order.
Offering Dates and Times. Fund shares may be purchased on any business day
without a sales commission. All purchases must be made in US dollars. Payments
for Fund shares must be received by the Transfer Agent, and the accompanying
payment must be in federal funds or converted into federal funds by the Transfer
Agent before the purchase order can be accepted. Fund shares purchased by orders
which are accepted: (1) prior to 3:00 p.m. Eastern time will earn the dividend
declared on the date of purchase; and (2) on or after 3:00 p.m. Eastern time
will earn the dividend determined on the next day.
Order and Payment Procedures. There are several ways to invest in the
Fund. The Fund requires a purchase order in good form which consists of a
completed and signed Application Form ("Application") for each new account
regardless of the investment method. For additional information, copies of forms
or questions, call the Transfer Agent at (800) 647-7327, or write to Transfer
Agent at: State Street Bank and Trust Company, P.O. Box 8317, Boston, MA
02266-8317 Attention: SSgA US Treasury Money Market Fund.
Federal Funds Wire. In order to assure timely processing of purchase
orders, the Investment Company strongly recommends that investors make initial
or subsequent investments by wiring federal funds to State Street Bank and Trust
Company as the Transfer Agent. An investor using this purchase method should:
1. Telephone State Street Bank and Trust Company at (800) 647-7327 and
provide: (1) the investor's account registration number, address and
social security or tax identification number; (2) the name of the Fund;
(3) the amount being wired; (4) the name of the wiring bank; and (5)
the name and telephone number of the person at the wiring bank to be
contacted in connection with the order.
2. Instruct the wiring bank to wire federal funds to: State Street Bank
and Trust Company, Boston, MA, (ABA #0110-00028) Attention: SSgA US
Treasury Money Market Fund, Mutual Funds Service Division (DDA
#9904-631-0). The wire instructions should also include the name in
which the account is registered, the account number, and the name of
the Fund in which to be invested.
3. Complete the Application and forward it to the Transfer Agent at the
above address.
Orders transmitted via this purchase method will be credited when federal funds
are received by State Street, even though the investor's Application may not
arrive until later. However, an investor will not be permitted to redeem shares
from the account until a completed Application is on file.
Mail. To purchase shares by mail, send a check or other negotiable bank
draft payable to: State Street Bank and Trust Company, P.O. Box 8317, Boston, MA
02266-8317, Attention: SSgA US Treasury Money Market Fund. Third party
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checks, except those payable to an existing shareholder who is a natural person
(as opposed to a corporation or partnership) and checks drawn on credit card
accounts will not be accepted. Certified checks are not necessary; however, all
checks are accepted subject to collection at full face value in United States
funds and must be drawn in United States dollars on a United States bank.
Normally, checks and drafts are converted to federal funds within two business
days following receipt of the check or draft. Initial investments should be
accompanied by a completed Application, and subsequent investments are to be
accompanied by the investor's account number.
Third Party Transactions. Investors purchasing 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 such
intermediary to pay additional fees. Investors should contact such intermediary
for information concerning what additional fees, if any, may be charged.
In-Kind Exchange of Securities. The Transfer Agent may, at its discretion,
permit investors to purchase shares through the exchange of securities they
hold. Any securities exchanged must meet the investment objective, policies and
limitations of the Fund, must have a readily ascertainable market value, must be
liquid and must not be subject to restrictions on resale. The market value of
any securities exchanged, plus any cash, must be at least $10 million. Shares
purchased in exchange for securities generally may not be redeemed or exchanged
until the transfer has settled -- usually within 15 days following the purchase
by exchange.
The basis of the exchange will depend upon the relative net asset value of
the shares purchased and securities exchanged. Securities accepted by the Fund
will be valued in the same manner as the Fund values its assets. Any interest
earned on the securities following their delivery to the Transfer Agent and
prior to the exchange will be considered in valuing the securities. All
interest, dividends, subscription or other rights attached to the securities
become the property of the Fund, along with the securities.
Exchange Privilege. Subject to the Fund's minimum investment requirement,
investors may exchange their Fund shares without charge for shares of any other
investment portfolio offered by the Investment Company. Shares are exchanged on
the basis of relative net asset value per share on the business day on which the
call is placed or upon written receipt of instructions in good form by the
Transfer Agent. Exchanges may be made: (1) by telephone if the registrations of
the two accounts are identical; or (2) in writing addressed to State Street Bank
and Trust Company, P.O. Box 8317, Boston, MA 02266-8317, Attention: SSgA US
Treasury Money Market Fund. If shares of the Fund were purchased by check, the
shares must have been present in an account for 10 days before an exchange is
made. The exchange privilege will only be available in states where the exchange
may legally be made, and may be modified or terminated by the Funds upon 60
days' notice to shareholders.
REDEMPTION OF FUND SHARES
Fund shares may be redeemed on any business day at the net asset value
next determined after the receipt of a redemption request in proper form as
described below. Redemption requests must be received prior to 4:00 p.m. Eastern
time in order be effective on the date received. Shareholder servicing agents
with underlying shareholders in omnibus accounts who receive redemption requests
by 4:00 p.m. Eastern time may transmit the request to the Transfer Agent by 9:00
a.m. Eastern time the next succeeding business day and receive the dividend as
of the day the redemption request was originally made by the underlying
shareholder. Typically, payment 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. Although the Investment Company does not currently
charge a fee for this service, Investment Company reserves the right to charge a
fee for the cost of wire-transferred redemptions of less than $1,000. Payment
for redemption of shares purchased by check may be withheld for up to 15 days
after the date of purchase to assure that such checks are honored. An investor
will not be permitted to redeem shares from the account until a completed
Application is on file. Shareholders who redeem shares of the Fund pursuant to a
request received by State Street prior to 3:00 p.m. Eastern time will not be
entitled to that day's dividend with respect to the shares redeemed.
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<PAGE>
Expedited Redemption. Shareholders may normally redeem Fund shares by
telephoning State Street between 9:00 a.m. and 4:00 p.m. Eastern time at (800)
647-7327, Attention: SSgA US Treasury Money Market Fund. Shareholders using the
expedited redemption method must complete the appropriate section on the
Application. The Funds and the Transfer Agent will employ reasonable procedures
to confirm that instructions communicated by telephone are properly authorized.
The Funds and the Transfer Agent will not be liable for executing telephone
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. 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. Redemption requests may be made in writing directly to State Street
Bank and Trust Company, P.O. Box 8317, Boston, MA 02266-8317, Attention: SSgA US
Treasury Money Market Fund. The redemption price will be the net asset value
next determined after receipt by State Street of all required documents in good
order. Good order means that the request must include the following:
1. A letter of instruction or a stock assignment stating the Fund or Funds
out of which the shares are to be redeemed and designating specifically
the dollar amount to be redeemed signed by all owners of the shares in
the exact names in which they appear on the account, together with a
guarantee of the signature of each owner by a bank, trust company or
member of a recognized stock exchange; and
2. Such other supporting legal documents, if required by applicable law or
the Transfer Agent, in the case of estates, trusts, guardianships,
custodianships, corporations and pension and profit-sharing plans.
The Treasury Money Market Fund reserves the right to redeem the shares in
any account with a balance of less than $7.5 million as a result of shareholder
redemptions. Before shares are redeemed to close an account, the shareholder
will be notified in writing and allowed 60 days to purchase additional shares to
meet the minimum account balance.
The Treasury Money Market Fund may pay any portion of the redemption
amount in excess of $5 million by a distribution in kind of readily marketable
securities from the portfolio of the Fund in lieu of cash. Investors will incur
brokerage charges on the sale of these portfolio securities. The Fund reserves
the right to suspend the right of redemption or postpone the date of payment if
emergency conditions, as specified in the 1940 Act or determined by the
Securities and Exchange Commission, should exist.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
To allow the Advisor to manage the Fund most effectively, investors are
strongly urged to initiate all trades (investments, exchanges or redemptions of
shares) as early in the day as possible and to notify the Transfer Agent at
least one day in advance of transactions in excess of $5 million. To protect the
Fund's performance and shareholders, the Advisor discourages frequent trading in
response to short-term market fluctuations.
Neither the Fund, the Distributor nor the Transfer Agent will be
responsible for any loss or expense for acting upon any telephone instructions
that are reasonably believed to be genuine. In attempting to confirm that
telephone instructions are genuine, the Transfer Agent will use such procedures
as are considered reasonable, including recording those instructions and
requesting information as to account registration (such as the name in which an
account is registered, the account number, recent transactions in the account,
the account holder's taxpayer identification number and its bank routing
information). To the extent the Transfer Agent fails to use reasonable
procedures as a basis for its belief, it and/or its service contractors may be
liable for telephone instructions that prove to be fraudulent or unauthorized.
The Fund, the Distributor or the Transfer Agent will be responsible for the
authenticity of terminal access instructions only if it acts with willful
misfeasance, bad faith or gross negligence.
INVESTMENT RESTRICTIONS
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The Fund's fundamental investment restrictions described below may be
amended only with the approval of the Fund's shareholders and, unless otherwise
noted, apply at the time an investment is made. See the Statement of Additional
Information for other investment restrictions. The Fund will 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). Concentration may occur
as a result of changes in the market value of portfolio securities, but
may not result from investment.
2. Borrow money, 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 Fund's assets taken at market
value, less liabilities other than borrowings. If at any time the
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. The 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, the Fund may
pledge securities having a market value at the time of the pledge not
exceeding 33-1/3% of the value of the Fund's total assets to secure
permitted borrowings.
PORTFOLIO MATURITY
The Fund must limit its investments to securities with remaining
maturities of 397 days or less (as determined in accordance with applicable SEC
regulations) and must maintain a dollar-weighted average maturity of 90 days or
less.
The Fund will normally hold portfolio instruments to maturity, but may
dispose of them prior to maturity if the Advisor finds it advantageous or
necessary. Investing in short-term money market instruments will result in high
portfolio turnover. Since the cost of these transactions is small, high turnover
is not expected to adversely affect the Fund's net asset value or yield.
DIVIDENDS AND DISTRIBUTIONS
The Board of Trustees intends to declare dividends on shares of the Fund
from net investment income daily and have them payable as of the last business
day of each month. Distributions will be made at least annually from net short-
and long-term capital gains, if any. In most instances, distributions will be
declared and paid in mid-October with additional distributions declared and paid
in December, if required, for the Fund to avoid imposition of a 4% federal
excise tax on undistributed capital gains. The Fund does not expect any material
long-term capital gains or losses.
Dividends declared in October, November or December and payable to
shareholders of record in such months will be deemed to have been paid by the
Fund and received by shareholders on December 31 of that year if the dividend is
paid prior to February 1 of the following year.
Income dividend and capital gain distributions will be paid 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 Fund mailings to an investor, the 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 Fund until the
investor notifies the SSgA Funds in writing of the correct address and request
in writing that the election to receive dividends and other distributions in
cash be reinstated.
Distribution Option. Investors can choose from four different distribution
options as indicated on the account Application:
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[BULLET] Reinvestment Option--Dividends and capital gains distributions will be
automatically reinvested in additional shares of the Fund. If the
investor does not indicate a choice on the Application, this option
will be automatically assigned.
[BULLET] Income-Earned Option--Capital gain distributions will be automatically
reinvested, but a check or wire will be sent for each dividend
distribution.
[BULLET] Cash Option--A check or wire will be sent for each dividend and
capital gain distribution.
[BULLET] Direct Dividends Option--Dividends and capital gain distribution will
be automatically invested in another identically registered SSgA Fund.
The Transfer Agent will wire dividends (if that option is elected) to a
pre-designated bank on the first business day of the following month in which
the dividend is payable.
TAXES
The Fund intends to qualify as a regulated investment company ("RIC")
under Subchapter M of the Internal Revenue Code, as amended (the "Code"). As a
RIC, the Fund will not be subject to federal income taxes to the extent it
distributes its net investment income and net capital gain (long-term capital
gains in excess of short-term capital losses) to shareholders. The Board intends
to distribute each year substantially all of the Fund's net investment income
and capital gain net income. The Fund does not expect to be subject to any state
and local taxes.
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 20% gains and 28% gains are taxable as 20% gains or 28% gains regardless of
the length of time a shareholder has held such shares and whether paid in cash
or additional shares.
The Fund may purchase bonds at market discount (i.e., bonds with a
purchase price less than original issue price or adjusted issue price). If such
bonds are subsequently sold at a gain then a portion of that gain equal to the
amount of market discount, which should have been accrued through the sale date,
will be taxable to shareholders as ordinary income.
Under federal law, the income derived from obligations issued by the US
Government and certain of its agencies or instrumentalities is exempt from state
income taxes. All states that tax personal income permit mutual funds to pass
this tax exemption through to their shareholders. Income from repurchase
agreements where the underlying securities are US Government obligations does
not receive this exempt treatment.
Shareholders will be notified after each calendar year of the amount of
income dividends and net capital gains distributed and the percentage of the
Fund's income attributable to US Treasury and agency obligations. The 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 Fund with the shareholder's correct taxpayer
identification number or certification that the shareholder is not subject to
backup withholding.
The foregoing discussion is only a summary of certain federal income tax
issues generally affecting the Fund and its shareholders. Circumstances among
investors may vary and each investor is encouraged to discuss investment in the
Fund with the investor's tax advisor.
VALUATION OF FUND SHARES
Net Asset Value Per Share. The Fund determines net asset value twice each
business day, as of 3:00 p.m. 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 is one on which the New York Stock Exchange and Boston Federal
Reserve are open for business. Net asset value per share is computed by dividing
the current value of the Fund's assets, less its liabilities, by the number of
shares of the Fund outstanding and rounding to the nearest cent.
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Valuation of Fund Securities. The Fund seeks to maintain a $1.00 per share
net asset value and, accordingly, uses the amortized cost valuation method to
value its portfolio instruments. The amortized cost valuation method 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.
GENERAL MANAGEMENT
The Board of Trustees supervises the management, activities and affairs of
the Fund and has approved contracts with various financial organizations to
provide, among other services, day-to-day management required by the Fund.
Advisory Agreement. The Investment Company employs State Street to furnish
investment services to the Fund. State Street is one of the largest providers of
securities processing and recordkeeping services for US mutual funds and pension
funds. State Street Global Advisors is the investment management business of
State Street, a 200 year old pioneer and leader in the world of financial
services. State Street is a wholly owned subsidiary of State Street Corporation,
a publicly held bank holding company. State Street, with over $370 billion (US)
under management as of September 30, 1997, provides complete global investment
management services from offices in Atlanta, Boston, Brussels, Copenhagen,
Dubai, Hong Kong, London, Minneapolis, Montpellier, Montreal, Munich, Paris, San
Francisco, Sydney, Tokyo, and Toronto.
The Advisor, subject to Board supervision, directs the investments of the
Fund in accordance with the Fund's investment objective, policies and
restrictions. For these services, the Fund pays the Advisor a fee, calculated
daily and paid monthly, that on an annual basis is equal to .25% of the Fund's
average daily net assets.
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 funds, performing investment and redemption services and
providing custodian, transfer agency, 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 Fund 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 Fund. If the Advisor were
prohibited from serving the 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 Fund may occur. The Advisor does not expect 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 Investment Company 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 November 30, 1997, State Street
held of record less than 25% of the issued and outstanding shares of Investment
Company in connection with its discretionary accounts. Consequently, State
Street is not 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 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.
Administration Agreement. Frank Russell Investment Management Company
("Administrator") serves as administrator of the Fund. Administrator currently
serves as investment manager and administrator to 32 mutual funds with
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assets of $11.3 billion as of October 31, 1997, and acts as administrator to 20
mutual funds, including the Fund, with assets of $10.8 billion as of October 31,
1997.
Pursuant to the Administration Agreement with the Investment Company, the
Administrator will: (1) supervise all aspects of the Fund's operations; (2)
provide the Fund with administrative and clerical services, including the
maintenance of certain of the Fund's books and records; (3) arrange the periodic
updating of the Fund's Prospectus and any supplements thereto; (4) provide proxy
materials and reports to Fund shareholders and the Securities and Exchange
Commission; and (5) provide the Fund 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 Fund
and the Investment Company's other domestic investment portfolios pay the
Administrator a combined fee that on an annual basis is equal to the following
percentages of their average aggregate daily net assets: (1) $0 to and including
$500 million -- .06%; (2) over $500 million to and including $1 billion -- .05%;
and (3) over $1 billion -- .03%. The percentage of the fee paid by a particular
Fund is equal to the percentage of average aggregate daily net assets that are
attributable to that Fund. The Administrator will also receive reimbursement of
expenses it incurs in connection with establishing new investment portfolios.
Further, the administration fee paid by the Investment Company will be reduced
by the sum of certain distribution related expenses, up to certain maximum
percentages, as follows: (1) 10% from January 1, 1997 to December 31, 1997; 5%
from January 1, 1998 to December 31, 1998; and (3) 0% from January 1, 1999
thereafter.
The Administrator also provides administrative services in connection with
the registration of shares of the Investment Company with those states in which
its shares are offered or sold. Compensation for such services is on a "time
spent" basis. The 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 the Investment Company, the Distributor, a
wholly owned subsidiary of the Administrator, serves as distributor for all Fund
shares. Under the Distribution Agreement, the Distributor is responsible for
advertising the offering and sale of Fund shares and distributing copies of the
Prospectuses and reports to shareholders. Expenses incurred in connection with
these activities are paid by Advisor.
The Fund has 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 Fund's 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 Fund
shares including: (1) payments made to certain broker-dealers, investment
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 Fund shares, including
Distributor's overhead expenses for rent, office supplies, equipment, travel,
communication, compensation and benefits of sales personnel.
Under the Plan, the Fund may also enter into agreements (the "Service
Agreements") with financial institutions, which may include the Advisor (the
"Service Organizations"), to provide shareholder servicing with respect to 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: answering inquiries regarding the Fund; assisting
customers in changing dividend options, account designations and addresses;
performing subaccounting for such customers; establishing and maintaining
customer accounts and records; processing purchase and redemption transactions;
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; arranging for
bank wires transferring customer's funds; and such other services as the
customers may request in connection with the Funds, to the extent permitted by
applicable statute, rule or regulations. The Service Organizations may receive
from each Fund, for shareholder servicing, a
-13-
<PAGE>
monthly fee at a rate that shall not exceed .20% per annum of the average daily
net asset value of the 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.
The Investment Company has entered into Service Agreements with the
Advisor and the following entities related to the Advisor: State Street
Brokerage Services, Inc., Metropolitan Division of Commercial Banking,
Retirement Investment Services Division and State Street Solutions. The purpose
of the Service Agreements is to obtain shareholder services for Fund shares
owned by clients of each of these entities. In return for these services, the
Investment Company pays each of the entities a fee. These agreements are
reviewed annually by the Board of Trustees.
Payments to the Distributor, as well as payments to the Service
Organizations from the Fund, are not permitted by the Plan to exceed .25% of the
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. The Fund's liability for any
such expenses carried forward shall terminate at the end of two years following
the year in which the expenditure was incurred. The Service Organizations will
be responsible for prompt transmission of purchase and redemption orders and may
charge fees for their services.
FUND EXPENSES
The Fund will pay all of its expenses other than those expressly assumed
by the Advisor and the Administrator. The Fund's principal expenses are the
annual advisory fee payable to the Advisor and distribution and shareholder
servicing expenses. Other expenses include: (1) amortization of deferred
organizational costs; (2) taxes, if any; (3) expenses for legal, auditing and
financial accounting services; (4) expense of preparing (including typesetting,
printing and mailing) reports, prospectuses and notices to existing
shareholders; (5) administrative fees; (6) custodian fees; (7) expense of
issuing and redeeming Fund shares; (8) the cost of registering 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 Fund.
PERFORMANCE CALCULATIONS
From time to time the Fund may advertise its yield and effective yield.
The Fund's yield refers to the income generated by an investment in the Fund
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
the Fund is assumed to be reinvested. The effective yield will be slightly
higher than the yield prescribed by the Securities and Exchange Commission
because of the compounding effect of this assumed reinvestment.
From time to time, the Fund 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.
From time to time, the Fund may advertise its total return. The Fund's
total return is the average annual compounded rate of return from a hypothetical
investment in the Fund over one-, five- and ten-year periods or for the life of
the Fund (as stated in the advertisement), assuming the reinvestment of all
dividends and capital gain distributions.
Comparative performance information may be used from time to time in
advertising or marketing Fund shares, including data from Lipper Analytical
Services, Inc., IBC's Money Fund Report, the Bank Rate Monitor, Wall Street
Journal Score Card or other industry publications, business periodicals, rating
services and market indices. The Fund may also advertise nonstandardized
performance information which is for periods in addition to those required to be
presented.
-14-
<PAGE>
Quoted yields, total returns and other performance figures are based on
historical earnings and are not indications of future performance.
DESCRIPTION OF THE FUND
Fund Organization. The Investment Company is a registered, open-end
management investment company that 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 Fund share represents an equal proportionate interest in a particular
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 Fund as
may be declared by the Board of Trustees. Fund shares are fully paid and
nonassessable by the Investment Company and have no preemptive rights.
Each 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.
The Investment Company does not issue share certificates for Fund shares.
The Transfer Agent sends monthly statements to Fund shareholders. Each statement
also sets forth the balance of shares held in the account and describes any
activity in the account during the period covered by the statement.
As of November 30, 1997, State Street Bank and Trust Company owned of
record 63% of the issued and outstanding shares of the Fund and is therefore
deemed to be a controlling person for purposes of the 1940 Act. Such shares may
be held pursuant to a shareholder servicing arrangement in omnibus accounts for
underlying shareholders.
Custodian, Transfer Agent and Independent Accountants. State Street Bank
and Trust Company holds all of the Fund's portfolio securities and cash assets,
provides portfolio recordkeeping services and serves as the Fund's transfer
agent (the "Transfer Agent") and custodian (the "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 the Fund except as investment advisor. Coopers &
Lybrand L.L.P., Boston, Massachusetts, is the Investment Company's independent
accountants.
Reports to Shareholders and Shareholder Inquiries. Shareholders will
receive unaudited semiannual financial statements and annual financial
statements audited by the Investment Company's independent accountants.
Shareholder inquiries regarding the Prospectus, financial statements or
shareholder balances may be made by calling the Distributor at (800) 647-7327.
-15-
<PAGE>
SSgA FUNDS
One International Place
Boston, Massachusetts 02110
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
-16-
<PAGE>
Filed pursuant to Rule 485(b)
File Nos. 33-19229; 811-5430
SSgA FUNDS
One International Place
Boston, Massachusetts 02110
(800) 647-7327
PRIME MONEY MARKET FUND
SSgA Funds is a registered, open-end management investment company with
multiple portfolios, each of which is commonly referred to as a mutual fund.
This Prospectus describes and offers shares of beneficial interest in one mutual
fund, the SSgA Prime Money Market Fund (the "Prime Money Market Fund" or the
"Fund"). The Fund seeks 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.
The Fund's shares are offered without sales commissions. However, the Fund pays
certain distribution expenses under its 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 FUND ARE NEITHER INSURED NOR GUARANTEED BY THE US
GOVERNMENT. THERE IS NO ASSURANCE THAT THE FUND WILL MAINTAIN A STABLE NET ASSET
VALUE OF $1.00 PER SHARE.
SHARES IN THE FUND 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 RISK, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
This Prospectus sets forth concisely the information about the Fund
that a prospective investor ought to know before investing. Please read and
retain this document for future reference. Additional information about the SSgA
Funds has been filed with the Securities and Exchange Commission ("SEC") in
Statements of Additional Information ("SAI") dated December 24, 1997. The SAI is
incorporated herein by reference and is available without charge from
Distributor at its address noted below or by calling (800) 647-7327. The SEC
also maintains a website (www.sec.gov) that contains the SAI, material
incorporated by reference and other information regarding the SSgA Funds. You
may also access the SSgA Funds' website at www.ssgafunds.com.
<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 Management Company
225 Franklin Street One International Place 909 A Street
Boston, Massachusetts 02110 Boston, Massachusetts 02110 Tacoma, Washington 98402
</TABLE>
PROSPECTUS DATED December 24, 1997
-1-
<PAGE>
TABLE OF CONTENTS
Page
----
Fund Operating Expenses.................................................. 3
Financial Highlights..................................................... 4
SSgA Funds............................................................... 5
Manner of Offering....................................................... 5
Investment Objectives and Policies....................................... 5
Purchase of Fund Shares.................................................. 9
Redemption of Fund Shares................................................10
Additional Purchase and Redemption Information...........................11
Investment Restrictions..................................................12
Portfolio Maturity ......................................................12
Dividends and Distributions..............................................12
Taxes....................................................................13
Valuation of Fund Shares.................................................14
General Management.......................................................14
Fund Expenses............................................................16
Performance Calculations.................................................16
Description of the Fund..................................................17
-2-
<PAGE>
FUND OPERATING EXPENSES AFTER REIMBURSEMENT
SSgA PRIME MONEY MARKET FUND
The following table is intended to assist the investor in understanding the
costs and expenses that an investor in the Fund will incur directly or
indirectly. The examples should not be considered a representation of past or
future expenses. Actual expenses may be greater or less than those shown. For
additional information, see "General Management."
Shareholder Transaction Expenses:
- ---------------------------------
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
Annual Fund Operating Expenses:
- -------------------------------
(as a percentage of average daily net assets)
Advisory Fees(1) .07%
12b-1 Distribution Fees(1) .03
12b-1 Shareholder Servicing Fees(1) .02
Other Expenses(1) .08
---
Total Operating Expenses(1, 2) .20%
===
<TABLE>
<CAPTION>
Examples: 1 year 3 years 5 years 10 years
- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
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:
$2 $6 $11 $26
== == === ===
</TABLE>
- --------------
(1) The Advisor has agreed to reimburse the Fund for all expenses in excess of
.20% of average daily net assets on an annual basis. The gross annual
Advisory expense before reimbursement would be .15% of average daily net
assets. The total operating expenses of the Fund absent reimbursement would
be .28% on an annual basis. This agreement will be in effect for the
current fiscal year.
(2) The expense information in the table has been adjusted to reflect current
fees. Investors purchasing 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-
<PAGE>
FINANCIAL HIGHLIGHTS
SSgA PRIME MONEY MARKET FUND
The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Fund's independent
accountants. The table includes selected data for a share outstanding throughout
each fiscal year or period ended August 31, and other performance information
derived from the financial statements. The table appears in the Fund's Annual
Report and should be read in conjunction with the Fund's financial statements
and related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand L.L.P., in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Distributor at (800) 647-7327.
<TABLE>
<CAPTION>
1997 1996 1995 1994++
-------- -------- --------- --------
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- --------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .0528 .0546 .0567 .0207
LESS DISTRIBUTIONS:
Net investment income (.0528) (.0546) (.0567) (.0207)
-------- -------- --------- --------
NET ASSET VALUE, END OF YEAR $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
======== ======== ========= ========
TOTAL RETURN (%)(a) 5.52 5.60 5.82 2.09
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
($000 omitted) 1,406,263 1,095,631 1,076,630 432,224
Ratios to average net assets (%) (b)
Operating expenses, net .20 .20 .14 .16
Operating expenses, gross .28 .25 .27 .32
Net investment income 5.40 5.44 5.76 4.00
Per share amount of expense reductions .0008 .0006 .0013 .0008
($ omitted)
</TABLE>
- -----------
++ For the period February 22, 1994 (commencement of operations) to
August 31, 1994.
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended August 31, 1994 are annualized.
-4-
<PAGE>
SSgA FUNDS
Investment Company is a registered open-end management investment company
that is organized as a Massachusetts business trust. In addition, each series of
the Investment Company is diversified as defined in the Investment Company Act
of 1940, as amended (the "1940 Act"). As a "series" company, the Investment
Company is authorized to issue an unlimited number of shares evidencing
beneficial interests in a variety of investment portfolios. Through this
Prospectus, the Investment Company offers shares in the Prime Money Market Fund.
State Street Bank and Trust Company (the "Advisor" or "State Street") serves as
the investment advisor for the Fund.
MANNER OF OFFERING
Distribution and Eligible Investors. Shares of the Fund are offered
without a sales commission by Russell Fund Distributors, Inc. (the
"Distributor"), the Investment Company's distributor, to US and foreign
institutional and corporate investors that invest for their own account or in a
fiduciary or agency capacity. The Fund will incur distribution expenses under
its Rule 12b-1 Plan. See "General Management -- Distribution Services and
Shareholder Servicing Arrangements."
Minimum and Subsequent Investment. The Prime Money Market Fund requires a
minimum initial investment of $20 million, and a shareholder's investment in the
Prime Money Market Fund may be subject to redemption at the Fund's discretion if
the account balance is less than $15 million as a result of shareholder
redemptions. The Fund reserves the right to reject any purchase order.
INVESTMENT OBJECTIVES AND POLICIES
The Fund has a fundamental investment objective which may be changed only
with the approval of a majority of the Fund's shareholders as defined by the
1940 Act. The Fund also maintains certain nonfundamental investment policies
which reflect the Fund's current practices and may be changed at any time by the
Investment Company's Board of Trustees upon written notice to the shareholders.
There can be no assurance the Fund will meet its investment objective.
The Prime Money Market Fund's 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.
The Prime Money Market 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 US and foreign banks, including
certificates of deposit, banker's acceptances and time deposits; these
instruments may include Eurodollar Certificates of Deposit ("ECDs"), Eurodollar
Time Deposits ("ETDs") and Yankee Certificates of Deposit ("YCDs"); (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.
Investment Policies
The Fund will limit its portfolio investments to securities that, at the
time of acquisition: (1) are rated in the highest category by least two
nationally recognized statistical rating organizations ("NRSRO"); (2) by one
NRSRO, if only one rating services has rated the security; or (3) if unrated,
are of comparable quality, as determined by the Fund's Advisor in accordance
with procedures established by the Board of Trustees. See the Appendix in the
Statement of Additional Information for a description of a NRSRO.
The investment policies described below reflect the Fund's current
practices and are not fundamental. Investment policies may be changed by the
Board of Trustees of the Investment Company without shareholder approval. For
more information on the Fund's Investment Policies, please see the Statement of
Additional Information. To the extent consistent
-5-
<PAGE>
with the Fund's fundamental investment objective and restrictions, and unless
otherwise indicated, the Fund may invest in the following instruments and may
use the following investment techniques:
US Government Securities. 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.
When-Issued Transactions. The Fund may purchase securities on a
when-issued or delayed delivery basis. In these transactions, the Fund purchases
securities with payment and delivery scheduled for a future time. Until
settlement, the Fund segregates cash and marketable securities equal in value to
its when-issued commitments. Between the trade and settlement dates, the 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 the Fund to miss a price or yield considered
advantageous. The Fund will engage in when-issued transactions only for the
purpose of acquiring portfolio securities consistent with its investment
objective and policies and not for investment leverage. No Fund will invest more
than 25% of its net assets in when-issued securities.
Lending Fund Securities. The Fund may lend portfolio securities with a
value of up to 33-1/3% of its total assets. For these purposes, total assets
shall include the value of all assets received as collateral for the loan. Such
loans may be terminated at any time. The 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, the
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, the 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.
The 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, the 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 Advisor to be of good financial standing. In a loan transaction,
the Fund will also bear the risk of any decline in value of securities acquired
with cash collateral. The Fund will minimize this risk by limiting the
investment of cash collateral to high quality instruments of short maturity.
Repurchase Agreements. The 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 Fund receives securities as
collateral. Under a repurchase agreement, the Fund purchases securities from a
financial institution that agrees to repurchase the securities at the Fund's
original purchase price plus interest within a specified time (normally one
business day). The Fund will limit repurchase transactions to those member banks
of the Federal Reserve System and broker-dealers whose creditworthiness Advisor
considers satisfactory. Should the counterparty to a transaction fail
financially, the Fund may encounter delay and incur costs before being able to
sell the security. Further, the amount realized upon the sale of the collateral
may be less than that necessary to fully compensate the Fund.
Stripped Securities. The Fund may invest in stripped securities, which are
US Treasury bonds and notes the unmatured interest coupons of which have been
separated from the underlying obligation. Stripped securities are zero coupon
obligations that are normally issued at a discount to their face value, and may
exhibit greater price volatility than ordinary debt securities because of the
manner in which their principal securities issued by the US Treasury and
recorded in the Federal Reserve book-entry record-keeping system. The Fund may
invest no more than 25% of its assets in stripped securities that have been
stripped by their holder, typically a custodian bank or investment brokerage
firm. A number of securities firms and banks have stripped the interest coupons
and resold them in custodian receipt programs with different names such as
Treasury Income Growth Receipts ("TIGRS") and Certificates of Accrual on
Treasuries ("CATS"). Privately-issued stripped securities such as TIGRS and CATS
are not themselves guaranteed by the US Government, but the future payment of
principal or interest on US Treasury obligations which they represent is so
guaranteed.
-6-
<PAGE>
Variable and Floating Rate Securities. 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, 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.
Securities purchased by the Fund may include variable and floating rate
instruments, which may have a stated maturity in excess of the Fund's maturity
limitations but which will, except for certain US Government obligations, permit
the Fund to demand payment of the principal of the instrument at least once
every thirteen months upon not more than 30 days' notice. Variable and floating
rate instruments may include variable amount master demand notes that permit the
indebtedness thereunder to vary in addition to providing for periodic
adjustments in the interest rate. There may be no active secondary market with
respect to a particular variable or floating rate instrument. Nevertheless, the
periodic readjustments of their interest rates tend to assure that their value
to the Fund will approximate their par value. Illiquid variable and floating
rate instruments (instruments which are not payable upon seven days' notice and
do not have an active trading market) that are acquired by the Fund are subject
to the Fund's percentage limitations regarding securities that are illiquid or
not readily marketable. The Fund's investment advisor will continuously monitor
the creditworthiness of issuers of variable and floating rate instruments in
which the Investment Company invests, and their ability to repay principal and
interest.
Reverse Repurchase Agreements. The Fund may enter into reverse repurchase
agreements under the circumstances described in "Investment Restrictions." In
substance, a reverse repurchase agreement is a borrowing for which the Fund
provides securities as collateral. Under a reverse repurchase agreement, the
Fund sells portfolio securities to a financial institution 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 at a prescribed repurchase
price equal to the amount of cash originally received plus interest on such
amount. The Fund retains the right to receive interest and principal payments
with respect to the securities while they are in the possession of the financial
institutions. Reverse repurchase agreements involve the risk of default by the
counterparty, which may adversely affect the Fund's ability to reacquire the
underlying securities.
Forward Commitments. The Fund 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 the Fund of a dollar
amount sufficient to make payment for the portfolio securities to be purchased
will be segregated on the Fund'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 the Fund to miss an advantageous price or
yield. The Fund bears the risk of price fluctuations during the period between
the trade and settlement dates.
Section 4(2) Commercial Paper. The Fund may also 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 institutional investors such as
the Prime Money Market Fund that agree that they are purchasing the paper for
investment and not with a view to public distribution. Any resale by the
purchaser must be in an exempt transaction. Section 4(2) paper normally is
-7-
<PAGE>
resold to other institutional investors like the Fund through or with the
assistance of the issuer or investment dealers that make a market in Section
4(2) paper. Section 4(2) paper will not be subject to the Investment Company's
10% limitation on illiquid securities set forth below where the Board of
Trustees of the Investment Company (pursuant to guidelines adopted by the Board)
determines that a liquid trading market exists.
Asset-Backed Securities. 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 Fund has been exhausted, and if any required
payments of principal and interest are not made with respect to the underlying
loans, the Fund may experience loss or delay in receiving payment and a decrease
in the value of the security. Further details are set forth in the Statement of
Additional Information under "Investment Restrictions and Policies -- Investment
Policies."
Illiquid Securities. The Fund will not invest more than 10% of its net
assets in illiquid securities or securities that are not readily marketable,
including repurchase agreements and time deposits of more than seven days'
duration. The absence of a regular trading market for illiquid securities
imposes additional risks on investments in these securities. Illiquid securities
may be difficult to value and may often be disposed of only after considerable
expense and delay.
Variable Amount Master Demand Notes. 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.
Mortgage-Related Securities. The Fund 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 Certificates ("Fannie Maes").
Mortgage 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. 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.
Eurodollar Certificates of Deposit (ECDs), Eurodollar Time Deposits (ETDs)
and Yankee Certificates of Deposit (YCDs). 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.
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Purchase of Other Funds. To the extent permitted under the 1940 Act and
exemptive rules and orders thereunder, the Fund may seek to achieve its
investment objective by investing solely in the shares of another investment
company that has a substantially similar investment objective and policies.
PURCHASE OF FUND SHARES
Minimum Initial Investment and Account Balance. The Prime Money Market
Fund requires a minimum initial investment of $20 million and a minimum account
balance of $15 million. The Fund reserves the right to reject any purchase
order.
Offering Dates and Times. Fund shares may be purchased on any business day
without a sales commission. All purchases must be made in US dollars. Payments
for Fund shares must be received by the Transfer Agent, and the accompanying
payment must be in federal funds or converted into federal funds by the Transfer
Agent before the purchase order can be accepted. Shares of the Fund purchased by
orders accepted prior to 4:00 p.m. Eastern time will earn the dividend
determined on the date of purchase. Orders greater than $25 million must be
placed before 3:00 p.m. Eastern time in order to be accepted.
Order and Payment Procedures. There are several ways to invest in the
Fund. The Fund requires a purchase order in good form which consists of a
completed and signed Application Form ("Application") for each new account
regardless of the investment method. For additional information, copies of forms
or questions, call the Transfer Agent at (800) 647-7327, or write to Transfer
Agent at: State Street Bank and Trust Company, P.O. Box 8317, Boston, MA
02266-8317 Attention: SSgA Prime Money Market Fund.
Federal Funds Wire. In order to assure timely processing of purchase
orders, the Investment Company strongly recommends that investors make initial
or subsequent investments by wiring federal funds to State Street Bank and Trust
Company as the Transfer Agent. An investor using this purchase method should:
1. Telephone State Street Bank and Trust Company at (800) 647-7327 and
provide: (1) the investor's account registration number, address and
social security or tax identification number; (2) the name of the Fund;
(3) the amount being wired; (4) the name of the wiring bank; and (5)
the name and telephone number of the person at the wiring bank to be
contacted in connection with the order.
2. Instruct the wiring bank to wire federal funds to: State Street Bank
and Trust Company, Boston, MA, (ABA #0110-00028) Attention: SSgA Prime
Market Fund, Mutual Funds Service Division (DDA #9904-631-0). The wire
instructions should also include the name in which the account is
registered, the account number, and the name of the Fund in which to be
invested.
3. Complete the Application and forward it to the Transfer Agent at the
above address.
Orders transmitted via this purchase method will be credited when federal funds
are received by State Street, even though the investor's Application may not
arrive until later. However, an investor will not be permitted to redeem shares
from the account until a completed Application is on file.
Mail. To purchase shares by mail, send a check or other negotiable bank
draft payable to: State Street Bank and Trust Company, P.O. Box 8317, Boston, MA
02266-8317, Attention: SSgA Prime Market Fund. Third party checks, except those
payable to an existing shareholder who is a natural person (as opposed to a
corporation or partnership) and checks drawn on credit card accounts will not be
accepted. Certified checks are not necessary; however, all checks are accepted
subject to collection at full face value in United States funds and must be
drawn in United States dollars on a United States bank. Normally, checks and
drafts are converted to federal funds within two business days following receipt
of the check or
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draft. Initial investments should be accompanied by a completed
Application, and subsequent investments are to be accompanied by the investor's
account number.
Third Party Transactions. Investors purchasing 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 such
intermediary to pay additional fees. Investors should contact such intermediary
for information concerning what additional fees, if any, may be charged.
In-Kind Exchange of Securities. The Transfer Agent may, at its discretion,
permit investors to purchase shares through the exchange of securities they
hold. Any securities exchanged must meet the investment objective, policies and
limitations of the Fund, must have a readily ascertainable market value, must be
liquid and must not be subject to restrictions on resale. The market value of
any securities exchanged, plus any cash, must be at least $10 million. Shares
purchased in exchange for securities generally may not be redeemed or exchanged
until the transfer has settled -- usually within 15 days following the purchase
by exchange.
The basis of the exchange will depend upon the relative net asset value of
the shares purchased and securities exchanged. Securities accepted by the Fund
will be valued in the same manner as the Fund values its assets. Any interest
earned on the securities following their delivery to the Transfer Agent and
prior to the exchange will be considered in valuing the securities. All
interest, dividends, subscription or other rights attached to the securities
become the property of the Fund, along with the securities.
Exchange Privilege. Subject to the Fund's minimum investment requirement,
investors may exchange their Fund shares without charge for shares of any other
investment portfolio offered by the Investment Company. Shares are exchanged on
the basis of relative net asset value per share on the business day on which the
call is placed or upon written receipt of instructions in good form by the
Transfer Agent. Exchanges may be made: (1) by telephone if the registrations of
the two accounts are identical; or (2) in writing addressed to State Street Bank
and Trust Company, P.O. Box 8317, Boston, MA 02266-8317, Attention: SSgA Prime
Market Fund. If shares of the Fund were purchased by check, the shares must have
been present in an account for 10 days before an exchange is made. The exchange
privilege will only be available in states where the exchange may legally be
made, and may be modified or terminated by the Funds upon 60 days' notice to
shareholders.
REDEMPTION OF FUND SHARES
Fund shares may be redeemed on any business day at the net asset value
next determined after the receipt of a redemption request in proper form as
described below. Payment 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. Although the Investment Company does not currently
charge a fee for this service, Investment Company reserves the right to charge a
fee for the cost of wire-transferred redemptions of less than $1,000. Payment
for redemption of shares purchased by check may be withheld for up to 15 days
after the date of purchase to assure that such checks are honored. An investor
will not be permitted to redeem shares from the account until a completed
Application is on file. Shareholders who redeem shares of the Fund amounting to
over $25 million pursuant to a request received by State Street after 3:00 p.m.
Eastern time may at the Fund's discretion not receive their proceeds that day.
Redemption requests must be received prior to 4:00 p.m. Eastern time in
order be effective on the date received. Shareholder servicing agents with
underlying shareholders in omnibus accounts who receive redemption requests by
4:00 p.m. Eastern time may transmit the request to the Transfer Agent by 9:00
a.m. Eastern time the next succeeding business day and receive the dividend as
of the day the redemption request was originally made by the underlying
shareholder.
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Expedited Redemption. Shareholders may normally redeem Fund shares by
telephoning State Street between 9:00 a.m. and 4:00 p.m. Eastern time at (800)
647-7327, Attention: SSgA Prime Market Fund. Shareholders using the expedited
redemption method must complete the appropriate section on the Application. The
Funds and the Transfer Agent will employ reasonable procedures to confirm that
instructions communicated by telephone are properly authorized. The Funds and
the Transfer Agent will not be liable for executing telephone 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.
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. Redemption requests may be made in writing directly to State Street
Bank and Trust Company, P.O. Box 8317, Boston, MA 02266-8317, Attention: SSgA
Prime Market Fund. The redemption price will be the net asset value next
determined after receipt by State Street of all required documents in good
order. Good order means that the request must include the following:
1. A letter of instruction or a stock assignment stating the Fund or Funds
out of which the shares are to be redeemed and designating specifically
the dollar amount to be redeemed signed by all owners of the shares in
the exact names in which they appear on the account, together with a
guarantee of the signature of each owner by a bank, trust company or
member of a recognized stock exchange; and
2. Such other supporting legal documents, if required by applicable law or
the Transfer Agent, in the case of estates, trusts, guardianships,
custodianships, corporations and pension and profit-sharing plans.
The Prime Money Market Fund reserves the right to redeem the shares in any
account with a balance of less than $15 million as a result of shareholder
redemptions. Before shares are redeemed to close an account, the shareholder
will be notified in writing and allowed 60 days to purchase additional shares to
meet the minimum account balance.
The Prime Money Market Fund may pay any portion of the redemption amount
in excess of $10 million by a distribution in kind of readily marketable
securities from the portfolio of the Fund in lieu of cash. Investors will incur
brokerage charges on the sale of these portfolio securities. The Fund reserves
the right to suspend the right of redemption or postpone the date of payment if
emergency conditions, as specified in the 1940 Act or determined by the
Securities and Exchange Commission, should exist.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
To allow the Advisor to manage the Fund most effectively, investors are
strongly urged to initiate all trades (investments, exchanges or redemptions of
shares) as early in the day as possible and to notify the Transfer Agent at
least one day in advance of transactions in excess of $5 million. To protect the
Fund's performance and shareholders, the Advisor discourages frequent trading in
response to short-term market fluctuations.
Neither the Fund, the Distributor nor the Transfer Agent will be
responsible for any loss or expense for acting upon any telephone instructions
that are reasonably believed to be genuine. In attempting to confirm that
telephone instructions are genuine, the Transfer Agent will use such procedures
as are considered reasonable, including recording those instructions and
requesting information as to account registration (such as the name in which an
account is registered, the account number, recent transactions in the account,
the account holder's taxpayer identification number and its bank routing
information). To the extent the Transfer Agent fails to use reasonable
procedures as a basis for its belief, it and/or its service contractors may be
liable for telephone instructions that prove to be fraudulent or unauthorized.
The Fund, the Distributor or the Transfer Agent will be responsible for the
authenticity of terminal access instructions only if it acts with willful
misfeasance, bad faith or gross negligence.
INVESTMENT RESTRICTIONS
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The Fund's fundamental investment restrictions described below may be
amended only with the approval of the Fund's shareholders and, unless otherwise
noted, apply at the time an investment is made. See the Statement of Additional
Information for other investment restrictions. The Fund will 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 non-depository
instruments issued by European banks). Concentration may occur as a
result of changes in the market value of portfolio securities, but may
not result from investment. Domestic and foreign branches of US banks
and domestic branches of foreign banks are not considered a single
industry for purposes of this restriction.
2. Borrow money, 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 Fund's assets taken at market
value, less liabilities other than borrowings. If at any time the
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. The 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, the Fund may
pledge securities having a market value at the time of the pledge not
exceeding 33-1/3% of the value of the Fund's total assets to secure
permitted borrowings.
PORTFOLIO MATURITY
The Fund must limit its investments to securities with remaining
maturities of 397 days or less (as determined in accordance with applicable SEC
regulations) and must maintain a dollar-weighted average maturity of 90 days or
less.
The Fund will normally hold portfolio instruments to maturity, but may
dispose of them prior to maturity if the Advisor finds it advantageous or
necessary. Investing in short-term money market instruments will result in high
portfolio turnover. Since the cost of these transactions is small, high turnover
is not expected to adversely affect the Fund's net asset value or yield.
DIVIDENDS AND DISTRIBUTIONS
The Board of Trustees intends to declare dividends on shares of the Fund
from net investment income daily and have them payable as of the last business
day of each month. Distributions will be made at least annually from net short-
and long-term capital gains, if any. In most instances, distributions will be
declared and paid in mid-October with additional distributions declared and paid
in December, if required, for the Fund to avoid imposition of a 4% federal
excise tax on undistributed capital gains. The Fund does not expect any material
long-term capital gains or losses.
Dividends declared in October, November or December and payable to
shareholders of record in such months will be deemed to have been paid by the
Fund and received by shareholders on December 31 of that year if the dividend is
paid prior to February 1 of the following year.
Income dividend and capital gain distributions will be paid 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 Fund mailings to an investor, the 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 Fund until the
investor notifies the SSgA Funds in writing of the correct address and request
in writing that the election to receive dividends and other distributions in
cash be reinstated.
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Distribution Option. Investors can choose from four different distribution
options as indicated on the account Application:
[BULLET] Reinvestment Option--Dividends and capital gains distributions will be
automatically reinvested in additional shares of the Fund. If the
investor does not indicate a choice on the Application, this option
will be automatically assigned.
[BULLET] Income-Earned Option--Capital gain distributions will be automatically
reinvested, but a check or wire will be sent for each dividend
distribution.
[BULLET] Cash Option--A check or wire will be sent for each dividend and capital
gain distribution.
[BULLET] Direct Dividends Option--Dividends and capital gain distribution will
be automatically invested in another identically registered SSgA Fund.
The Transfer Agent will wire dividends (if that option is elected) to a
pre-designated bank on the first business day of the following month in which
the dividend is payable.
TAXES
The Fund intends to qualify as a regulated investment company ("RIC")
under Subchapter M of the Internal Revenue Code, as amended (the "Code"). As a
RIC, the Fund will not be subject to federal income taxes to the extent it
distributes its net investment income and net capital gain (long-term capital
gains in excess of short-term capital losses) to shareholders. The Board intends
to distribute each year substantially all of the Fund's net investment income
and capital gain net income. The Fund does not expect to be subject to any state
and local taxes.
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 20% gains and 28% gains are taxable as 20% gains or 28% gains regardless of
the length of time a shareholder has held such shares and whether paid in cash
or additional shares.
Under federal law, the income derived from obligations issued by the US
Government and certain of its agencies or instrumentalities is exempt from state
income taxes. All states that tax personal income permit mutual funds to pass
this tax exemption through to their shareholders. Income from repurchase
agreements where the underlying securities are US Government obligations does
not receive this exempt treatment.
Shareholders will be notified after each calendar year of the amount of
income dividends and net capital gains distributed and the percentage of the
Fund's income attributable to US Treasury and agency obligations. The 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 Fund with the shareholder's correct taxpayer
identification number or certification that the shareholder is not subject to
backup withholding.
The foregoing discussion is only a summary of certain federal income tax
issues generally affecting the Fund and its shareholders. Circumstances among
investors may vary and each investor is encouraged to discuss investment in the
Fund with the investor's tax advisor.
VALUATION OF FUND SHARES
Net Asset Value Per Share. The Fund determines net asset value 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
and Boston Federal Reserve are open for business. Net asset value per share is
computed by dividing the current value of the Fund's assets, less its
liabilities, by the number of shares of the Fund outstanding and rounding to the
nearest cent.
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Valuation of Fund Securities. The Fund seeks to maintain a $1.00 per share
net asset value and, accordingly, uses the amortized cost valuation method to
value its portfolio instruments. The amortized cost valuation method 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.
GENERAL MANAGEMENT
The Board of Trustees supervises the management, activities and affairs of
the Funds and has approved contracts with various financial organizations to
provide, among other services, day-to-day management required by the Fund.
Advisory Agreement. The Investment Company employs State Street to
furnish investment services to the Funds. State Street is one of the largest
providers of securities processing and recordkeeping services for US mutual
funds and pension funds. State Street Global Advisors is the investment
management business of State Street, a 200 year old pioneer and leader in the
world of financial services. State Street is a wholly owned subsidiary of State
Street Corporation, a publicly held bank holding company. State Street, with
over $370 billion (US) under management as of September 30, 1997, provides
complete global investment management services from offices in Atlanta, Boston,
Brussels, Copenhagen, Dubai, Hong Kong, London, Minneapolis, Montpellier,
Montreal, Munich, Paris, San Francisco, Sydney, Tokyo, and Toronto.
The Advisor, subject to Board supervision, directs the investments of the
Fund in accordance with the Fund's investment objective, policies and
restrictions. For these services, the Fund pays the Advisor a fee, calculated
daily and paid monthly, that on an annual basis is equal to .15% of the Fund's
average daily net assets.
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 funds, performing investment and redemption services and
providing custodian, transfer agency, 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 Funds 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 Fund. If the Advisor were
prohibited from serving the Fund 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 Funds may occur. The Advisor does not expect
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 Investment Company 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 November 30, 1997, State Street
held of record less than 25% of the issued and outstanding shares of Investment
Company in connection with its discretionary accounts. Consequently, State
Street is not 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 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.
Administration Agreement. Frank Russell Investment Management Company
("Administrator") serves as administrator of the Fund. Administrator currently
serves as investment manager and administrator to 32 mutual funds with
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assets of $11.3 billion as of October 31, 1997, and acts as administrator to 20
mutual funds, including the Fund, with assets of $10.8 billion as of October 31,
1997.
Pursuant to the Administration Agreement with the Investment Company, the
Administrator will: (1) supervise all aspects of the Fund's operations; (2)
provide the Fund with administrative and clerical services, including the
maintenance of certain of the Fund's books and records; (3) arrange the periodic
updating of the Fund's Prospectus and any supplements thereto; (4) provide proxy
materials and reports to Fund shareholders and the Securities and Exchange
Commission; and (5) provide the Fund 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 Fund
and the Investment Company's other domestic investment portfolios pay the
Administrator a combined fee that on an annual basis is equal to the following
percentages of their average aggregate daily net assets: (1) $0 to and including
$500 million -- .06%; (2) over $500 million to and including $1 billion -- .05%;
and (3) over $1 billion -- .03%. The percentage of the fee paid by a particular
Fund is equal to the percentage of average aggregate daily net assets that are
attributable to that Fund. The Administrator will also receive reimbursement of
expenses it incurs in connection with establishing new investment portfolios.
Further, the administration fee paid by the Investment Company will be reduced
by the sum of certain distribution related expenses, up to certain maximum
percentages, as follows: (1) 10% from January 1, 1997 to December 31, 1997; 5%
from January 1, 1998 to December 31, 1998; and (3) 0% from January 1, 1999
thereafter.
The Administrator also provides administrative services in connection with
the registration of shares of the Investment Company with those states in which
its shares are offered or sold. Compensation for such services is on a "time
spent" basis. The 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 the Investment Company, the Distributor, a
wholly owned subsidiary of the Administrator, serves as distributor for all Fund
shares. Under the Distribution Agreement, the Distributor is responsible for
advertising the offering and sale of Fund shares and distributing copies of the
Prospectuses and reports to shareholders. Expenses incurred in connection with
these activities are paid by Advisor.
The Fund has 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 Fund's 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 Fund
shares including: (1) payments made to certain broker-dealers, investment
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 Fund shares, including
Distributor's overhead expenses for rent, office supplies, equipment, travel,
communication, compensation and benefits of sales personnel.
Under the Plan, the Fund may also enter into agreements (the "Service
Agreements") with financial institutions, which may include the Advisor (the
"Service Organizations"), to provide shareholder servicing with respect to 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: answering inquiries regarding the Fund; assisting
customers in changing dividend options, account designations and addresses;
performing subaccounting for such customers; establishing and maintaining
customer accounts and records; processing purchase and redemption transactions;
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; arranging for
bank wires transferring customer's funds; and such other services as the
customers may request in connection with the Funds, to the extent permitted by
applicable statute, rule or regulations. The Service Organizations may receive
from each 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 the Fund's
shares owned by
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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.
The Investment Company has entered into Service Agreements with the
Advisor and the following entities related to the Advisor: State Street
Brokerage Services, Inc., Metropolitan Division of Commercial Banking,
Retirement Investment Services Division and State Street Solutions. The purpose
of the Service Agreements is to obtain shareholder services for Fund shares
owned by clients of each of these entities. In return for these services, the
Investment Company pays each of the entities a fee. These agreements are
reviewed annually by the Board of Trustees.
Payments to the Distributor, as well as payments to the Service
Organizations from the Fund, are not permitted by the Plan to exceed .25% of the
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. The Fund's liability for any
such expenses carried forward shall terminate at the end of two years following
the year in which the expenditure was incurred. The Service Organizations will
be responsible for prompt transmission of purchase and redemption orders and may
charge fees for their services.
FUND EXPENSES
The Fund will pay all of its expenses other than those expressly assumed
by the Advisor and the Administrator. The Fund's principal expenses are the
annual advisory fee payable to the Advisor and distribution and shareholder
servicing expenses. Other expenses include: (1) amortization of deferred
organizational costs; (2) taxes, if any; (3) expenses for legal, auditing and
financial accounting services; (4) expense of preparing (including typesetting,
printing and mailing) reports, prospectuses and notices to existing
shareholders; (5) administrative fees; (6) custodian fees; (7) expense of
issuing and redeeming Fund shares; (8) the cost of registering 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 Fund.
PERFORMANCE CALCULATIONS
From time to time the Fund may advertise its yield and effective yield.
The Fund's yield refers to the income generated by an investment in the Fund
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
the Fund is assumed to be reinvested. The effective yield will be slightly
higher than the yield prescribed by the Securities and Exchange Commission
because of the compounding effect of this assumed reinvestment.
From time to time, the Fund 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.
From time to time, the Fund may advertise its total return. The Fund's
total return is the average annual compounded rate of return from a hypothetical
investment in the Fund over one-, five- and ten-year periods or for the life of
the Fund (as stated in the advertisement), assuming the reinvestment of all
dividends and capital gain distributions.
-16-
<PAGE>
Comparative performance information may be used from time to time in
advertising or marketing Fund shares, including data from Lipper Analytical
Services, Inc., IBC Money Fund Report, the Bank Rate Monitor, Wall Street
Journal Score Card or other industry publications, business periodicals, rating
services and market indices. The Fund may also advertise nonstandardized
performance information which is for periods in addition to those required to be
presented.
Quoted yields, total returns and other performance figures are based on
historical earnings and are not indications of future performance.
DESCRIPTION OF THE FUND
Fund Organization. The Investment Company is a registered, open-end
management investment company that 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 Fund share represents an equal proportionate interest in a
particular 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 Fund as may be declared by the Board of Trustees. Fund shares are fully
paid and nonassessable by the Investment Company and have no preemptive rights.
Each 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.
The Investment Company does not issue share certificates for Fund shares.
The Transfer Agent sends monthly statements to Fund shareholders. Each statement
also sets forth the balance of shares held in the account and describes any
activity in the account during the period covered by the statement.
As of November 30, 1997, Global Financial Asset Services Omnibus Control
Account MT01 owned of record 40% of the issued and outstanding shares of the
Fund and is therefore deemed to be a controlling person for purposes of the 1940
Act. Such shares may be held pursuant to a shareholder servicing arrangement in
omnibus accounts for underlying shareholders.
Custodian, Transfer Agent and Independent Accountants. State Street Bank
and Trust Company holds all of the Fund's portfolio securities and cash assets,
provides portfolio recordkeeping services and serves as the Fund's transfer
agent (the "Transfer Agent") and custodian (the "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 the Fund except as investment advisor. Coopers &
Lybrand L.L.P., Boston, Massachusetts, is the Investment Company's independent
accountants.
Reports to Shareholders and Shareholder Inquiries. Shareholders will
receive unaudited semiannual financial statements and annual financial
statements audited by the Investment Company's independent accountants.
Shareholder inquiries regarding the Prospectus, financial statements or
shareholder balances may be made by calling the Distributor at (800) 647-7327.
-17-
<PAGE>
SSgA FUNDS
One International Place
Boston, Massachusetts 02110
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
-18-
<PAGE>
Filed pursuant to Rule 485(b)
File Nos. 33-19229; 811-5430
SSgA FUNDS
One International Place
Boston, Massachusetts 02110
(800) 647-7327
GROWTH AND INCOME FUND
SSgA Funds is a registered, open-end management investment company with
multiple portfolios, each of which is commonly referred to as a mutual fund.
This Prospectus describes and offers shares of beneficial interest in one such
mutual fund, the SSgA Growth and Income Fund (the "Growth and Income Fund" or
the "Fund"). The Fund seeks to achieve its investment objective of long-term
capital growth, current income and growth of income primarily through
investments in equity securities. The Fund's shares are offered without sales
commissions. However, the Fund pays certain distribution expenses under its 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.
SHARES IN THE FUND 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 sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Please read and retain this
document for future reference. Additional information about the SSgA Funds has
been filed with the Securities and Exchange Commission ("SEC") in Statements of
Additional Information ("SAI") dated December 24, 1997. The SAI is incorporated
herein by reference and is available without charge from Distributor at its
address noted below or by calling (800) 647-7327. The SEC also maintains a
website (www.sec.gov) that contains the SAI, material incorporated by reference
and other information regarding the SSgA Funds. You may also access the SSgA
Funds' website at www.ssgafunds.com.
<TABLE>
Investment Advisor, Custodian
and Transfer Agent: Distributor: Administrator:
<S> <C> <C>
State Street Bank and Trust Frank Russell Investment
Company Russell Fund Distributors, Inc. Management Company
225 Franklin Street One International Place 909 A Street
Boston, Massachusetts 02110 Boston, Massachusetts 02110 Tacoma, Washington 98402
</TABLE>
PROSPECTUS DATED December 24, 1997
-1-
<PAGE>
TABLE OF CONTENTS
Page
----
Fund Operating Expenses..................................................3
Financial Highlights.....................................................4
SSgA Funds...............................................................5
Manner of Offering.......................................................5
Investment Objective, Policies and Restrictions..........................5
Certain Risk Factors.....................................................9
Portfolio Turnover.......................................................9
Dividends and Distributions..............................................9
Taxes....................................................................10
Valuation of Fund Shares.................................................11
Purchase of Fund Shares..................................................12
Redemption of Fund Shares................................................14
General Management.......................................................15
Fund Expenses............................................................18
Performance Calculations.................................................18
Additional Information...................................................18
-2-
<PAGE>
FUND OPERATING EXPENSES AFTER REIMBURSEMENT
SSgA GROWTH AND INCOME FUND
The following table is intended to assist the investor in understanding
the various costs and expenses that an investor in the Growth and Income Fund
will incur directly or indirectly. The examples should not be considered a
representation of past or future expenses. Actual expenses may be greater or
less than those shown. For additional information, see "General Management."
Shareholder Transaction Expenses:
- ---------------------------------
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
Annual Fund Operating Expenses:
- -------------------------------
(as a percentage of average daily net assets)
Advisory Fees (After Fee Reimbursement)(1) .59%
12b-1 Distribution Fees(1) .04
12b-1 Shareholder Servicing Fees(1) .04
Other Expenses(1) .28
---
Total Operating Expenses (After Fee Reimbursement)(1, 2) .95%
====
Examples: 1 year 3 years 5 years 10 years
- -------- ------ ------- ------- --------
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: $10 $30 $53 $117
=== === === ====
- ------------------------
(1) The Advisor has agreed to reimburse the Fund for all expenses in excess of
.95% of average daily net assets on an annual basis. The total operating
expenses of the Fund absent reimbursement would be 1.21% of average daily
net assets on an annual basis. This reimbursement will continue until such
time as the Board of Trustees agrees to its modification or elimination but
will remain in effect for the current fiscal year. The gross annual
Advisory fee expense before reimbursement would be .85% of average daily
net assets.
(2) The expense information in the table has been restated to reflect current
fees. Investors purchasing 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.
Long-term shareholders of the Fund may pay more in Rule 12b-1 fees than the
economic equivalent of the maximum front-end sales charges permitted by the
National Association of Securities Dealers, Inc.
-3-
<PAGE>
FINANCIAL HIGHLIGHTS
SSgA GROWTH AND INCOME FUND
The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Fund's independent
accountants. The table includes selected data for a share outstanding throughout
each fiscal year or period ended August 31, and other performance information
derived from the financial statements. The table appears in the Fund's Annual
Report and should be read in conjunction with the Fund's financial statements
and related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand L.L.P., in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Distributor at (800) 647-7327.
<TABLE>
<CAPTION>
1997 1996 1995 1994++
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 13.36 $ 11.95 $ 10.51 $ 10.00
-------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .12 .15 .18 .15
Net realized and unrealized
gain (loss) on investments 5.18 1.46 1.44 .47
-------- ------- ------- --------
Total From Investment Operations 5.30 1.61 1.62 .62
-------- ------- ------- --------
LESS DISTRIBUTIONS:
Net investment income (.14) (.16) (.18) (.11)
Net realized gain on investments (.44) (.04) -- --
-------- ------- ------- --------
Total Distributions (.58) (.20) (.18) (.11)
-------- ------- ------- --------
NET ASSET VALUE, END OF YEAR $ 18.08 $ 13.36 $ 11.95 $ 10.51
======== ======= ======= ========
TOTAL RETURN (%)(a) 40.95 13.57 15.66 6.23
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
($000 omitted) 71,736 55,823 43,884 26,747
Ratios to average net assets (%) (b):
Operating expenses, net .95 .95 .95 .95
Operating expenses, gross 1.21 1.40 1.61 1.44
Net investment income .82 1.15 1.72 1.75
Portfolio turnover (%) (b) 29.88 38.34 39.32 36.48
Per share amount of expense
reductions ($ omitted) .0396 .0574 .0685 .0420
Average commission rate paid per
share of security ($ omitted) .0421 .0436 N/A N/A
</TABLE>
- -----------------
++ For the period September 1, 1993 (commencement of operations) to
August 31, 1994.
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended August 31, 1994 are annualized.
-4-
<PAGE>
SSgA FUNDS
SSgA Funds ("Investment Company") is an open-end management investment
company that is organized as a Massachusetts business trust. In addition, each
series of the Investment Company is diversified as defined in the Investment
Company Act of 1940, as amended ("1940 Act"). As a "series" company, Investment
Company is authorized to issue an unlimited number of shares evidencing
beneficial interests in different investment portfolios. Through this
Prospectus, Investment Company offers shares in one such portfolio, the Growth
and Income Fund. State Street Bank and Trust Company (the "Advisor" or "State
Street") serves as the investment advisor for the Fund.
MANNER OF OFFERING
Distribution and Eligible Investors. Shares of the Fund are offered without
a sales commission by Russell Fund Distributors, Inc. (the "Distributor"),
Investment Company's distributor, to US and foreign institutional and retail
investors which invest for their own account or in a fiduciary or agency
capacity. The Fund will incur distribution expenses under its Rule 12b-1 plan.
See "General Management - Distribution Services and Shareholder Servicing
Arrangements."
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
The Fund's fundamental investment objective is to achieve long-term capital
growth, current income and growth of income primarily through investments in
equity securities. This investment objective may be changed only with the
approval of a majority of the Fund's shareholders as defined by the 1940 Act.
There can be no assurance that the Fund will meet its investment objective.
Under normal market conditions, the Fund will invest at least 65% of its
assets in equity securities. However, the Fund may invest temporarily for
defensive purposes, without limitation, in certain short-term fixed-income
securities. Such securities may be used to invest uncommitted cash balances or
to maintain liquidity to meet shareholder redemptions. (See "Investment
Policies--Cash Reserves.")
In addition to the policies noted above, the Fund may invest in convertible
securities obligations of foreign issuers which are dollar denominated, American
Depository Receipts (ADRs), corporate bonds, debentures, notes and warrants.
Investments in each of these instruments will not exceed 5% of the Fund's total
assets.
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 Standard & Poor's 500 Composite Stock Price Index
(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.
Investment Policies
The investment policies described below reflect the Fund's current
practices, are not fundamental and may be changed by the Board of Trustees of
Investment Company without shareholder approval. For more information on the
Fund's Investment Policies, see the Statement of Additional Information. To the
extent consistent with the
-5-
<PAGE>
Fund's fundamental investment objective and restrictions, the Fund may invest in
the following instruments and may use the following investment techniques:
US Government Securities. 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, 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. The 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 Fund receives securities as
collateral. Under a repurchase agreement, a Fund purchases securities from a
financial institution that agrees to repurchase the securities at the Fund's
original purchase price plus interest within a specified time (normally one
business day). The Fund will limit repurchase transactions to those member banks
of the Federal Reserve System and broker-dealers whose creditworthiness Advisor
considers satisfactory. Should the counterparty to a transaction fail
financially, the 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 the Fund.
Reverse Repurchase Agreements. The Fund may enter into reverse repurchase
agreements under the circumstances described in "Investment Restrictions." In
substance, a reverse repurchase agreement is a borrowing for which the Fund
provides securities as collateral. Under a reverse repurchase agreement, the
Fund sells portfolio securities to a financial institution 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 at a prescribed repurchase
price equal to the amount of cash originally received plus interest on such
amount. The Fund retains the right to receive interest and principal payments
with respect to the securities while they are in the possession of the financial
institutions. Reverse repurchase agreements involve the risk of default by the
counterparty, which may adversely affect the Fund's ability to reacquire the
underlying securities.
Forward Commitments. The Fund 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 the Fund of a dollar
amount sufficient to make payment for the portfolio securities to be purchased
will be segregated on the Fund'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 the Fund to miss an advantageous price or
yield. The Fund bears the risk of price fluctuations during the period between
the trade and settlement dates.
When-Issued Transactions. The Fund may purchase securities on a when-issued
or delayed delivery basis. In these transactions, the Fund purchases securities
with payment and delivery scheduled for a future time. Until settlement, the
Fund segregates cash and marketable securities equal in value to its when-issued
commitments. Between the trade and settlement dates, the Fund bears the risk of
any fluctuations in the value of the securities. These transactions involve the
additional risk that the other party may fail to complete the transaction and
cause the Fund to miss a price or yield considered advantageous. The Fund will
engage in when-issued transactions only for the purpose of acquiring portfolio
securities consistent with its investment objective and policies and not for
investment leverage. The Fund will not invest more than 25% of its net assets in
when-issued securities.
Illiquid Securities. The Fund will not invest more than 15% of its net
assets in illiquid securities or securities that are not readily marketable,
including repurchase agreements and time deposits of more than seven days'
duration. 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.
Variable Amount Master Demand Notes. Variable amount master demand notes
are unsecured obligations that are redeemable upon demand and are typically
unrated. These instruments are issued pursuant to
-6-
<PAGE>
written agreements between the issuers and the 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.
Futures Contracts and Options on Futures. For hedging purposes, including
protecting the price or interest rate of a security the Fund intends to buy, the
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. A stock index futures contract is a contract to buy
or sell specified units of a stock index at a specified date at a price agreed
upon when the contract is made. The value of a unit is based on the current
value of the stock index. 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. Upon entering into a futures
contract, the 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 the Fund will honor its futures commitment. 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, the 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. The Fund may write and
purchase covered put and call options on securities in which it may directly
invest. Option transactions of the 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 Fund's total assets. Further, the 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 all such options outstanding would
exceed 25% of the value of the Fund's total assets.
The Fund may purchase or sell options on securities indices that are
comprised of securities in which it 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 price of
the index and the exercise price of the option times a multiplier established by
the exchange upon which the option is traded.
Lending Portfolio Securities. The Fund may lend portfolio securities with a
value of up to 33-1/3% of its total assets. For these purposes, total assets
shall include the value of all assets received as collateral for the loan. Such
loans may be terminated at any time. The 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, the
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, the 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.
The 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, the Fund may experience delays in recovering the
-7-
<PAGE>
securities or exercising its rights in the collateral. Loans are made only to
borrowers that are deemed by Advisor to be of good financial standing. In a loan
transaction, the Fund will also bear the risk of any decline in value of
securities acquired with cash collateral. The Fund will minimize this risk by
limiting the investment of cash collateral to high quality instruments of short
maturity.
Warrants. The Fund 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. The
Fund will not invest more than 5% of the value of its net assets in warrants, or
more than 2% of net assets in warrants which are not listed on the New York or
American Stock Exchange.
American Depository Receipts (ADRs). The Fund may invest in ADRs under
certain circumstances as an alternative to directly investing in foreign
securities. Generally, ADRs, in registered form, are designed for use in the US
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. However, by investing in ADRs rather than
directly in a foreign issuer's stock, the Fund can avoid currency risks during
the settlement period for either purchases or sales. 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 many foreign issuers are subject.
For a discussion of the risks associated with the use of ADRs, see "Certain Risk
Factors - Foreign Investments."
Cash Reserves. For defensive purposes, the Fund may temporarily and without
limitation concentrate its portfolio in high quality short-term fixed income
securities. 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.
Convertible Securities. The Fund 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.
Purchase of Other Funds. To the extent permitted under the 1940 Act and
exemptive rules and orders thereunder, the Fund may seek to achieve its
investment objective by investing solely in the shares of another investment
company that has a substantially similar investment objective and policies.
Investment Restrictions
The Fund has fundamental investment restrictions, which may be changed only
with the approval of a majority of the Fund's shareholders as defined in the
1940 Act. A more detailed discussion of the Fund's investment restrictions and
investment policies appears in the Statement of Additional Information. Unless
otherwise noted, the fundamental restrictions apply at the time an investment is
made. The 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 non-
-8-
<PAGE>
depository instruments issued by European banks). 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 Fund's
assets taken at market value, less liabilities other than borrowings. If at
any time the 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. The 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, the Fund may pledge
securities having a market value at the time of the pledge not exceeding
33-1/3% of the value of the Fund's total assets to secure permitted
borrowings.
CERTAIN RISK FACTORS
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, 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. ADRs are subject to all of the above risks,
except the imposition of exchange controls, and currency fluctuations during the
settlement period.
PORTFOLIO TURNOVER
The portfolio turnover rate cannot be predicted, but it is anticipated that
the Fund's annual turnover rate generally will not exceed 80%. A high turnover
rate (over 100%) will: (1) increase transaction expenses which will adversely
affect a Fund's performance; and (2) result in increased brokerage commissions
and other transaction costs, and the possibility of realized capital gains.
The Fund may effect portfolio transactions through State Street Brokerage
Services, Inc., an affiliate of the Advisor, when the Advisor determines that
the Fund will receive competitive execution, price and commissions.
DIVIDENDS AND DISTRIBUTIONS
The Board of Trustees intends to declare and pay dividends on shares of the
Fund quarterly from net investment income. Distributions will be made at least
annually from net short- and long-term capital gains, if any, generally in
mid-October. It is intended that an additional distribution may be declared and
paid in December if required for the Fund to avoid the imposition of a 4%
federal excise tax on undistributed capital gains.
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<PAGE>
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 Fund and received by shareholders on December
31 of that year if the dividend is paid prior to February 1 of the following
year.
Income dividend and capital gain distributions will be paid 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 Fund mailings to an investor, the 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 Fund until the
investor notifies the SSgA Funds 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 Fund shortly after a
purchase of shares will reduce the per share net asset value of the Fund 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:
[bullet] Reinvestment Option--Income dividends and capital gains
distributions will be automatically reinvested in additional
shares of the Fund. If the investor does not indicate a choice on
the Application, this option will be automatically assigned.
[bullet] Income-Earned Option--Capital gain distributions will be
automatically reinvested, but a check or wire will be sent for
each income dividend distribution.
[bullet] Cash Option--A check or wire will be sent for each income
dividend and capital gain distribution.
[bullet] Direct Dividends Option--Dividends and capital gain
distribution will be automatically invested in another
identically registered SSgA Fund.
Distributions will be sent to a pre-designated bank by the Automatic
Clearing House ("ACH") on the payable date.
TAXES
The Fund intends to qualify as a "regulated investment company" ("RIC")
under Subchapter M of the Internal Revenue Code, as amended (the "Code"). As a
RIC, the Fund will not be subject to federal income taxes to the extent it
distributes its net investment income and net capital gain (long-term capital
gains in excess of short-term capital losses) to shareholders. The Board intends
to distribute each year substantially all of the Fund's net investment income
and capital gain net income.
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 20% gains and 28% gains are taxable as 20% gains or 28% gains regardless of
the length of time a shareholder has held such shares and whether paid in cash
or additional shares.
Dividends and distributions may also be subject to state or local taxes.
Depending on the state tax rules pertaining to a shareholder, a portion of the
dividends paid by the Fund, attributable to direct obligations of the US
Treasury and certain agencies, may be exempt from state and local taxes.
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The sale of 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 or portfolios of a mutual fund). Any loss incurred on the sale or
exchange of Fund shares held for one year or more will be treated as a 20% loss
or a 28% loss to the extent of capital gain dividends received with respect to
such shares.
Shareholders will be notified after each calendar year of the amount of
income dividends and net capital gains distributed and the percentage of the
Fund's income attributable to US Treasury and agency obligations. The 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 Fund with the shareholder's correct taxpayer
identification number or certification that the shareholder is not subject to
backup withholding.
The foregoing discussion is only a summary of certain federal income tax
issues generally affecting the Fund and its shareholders. Circumstances among
investors may vary and each investor is encouraged to discuss investment in the
Fund with the investor's tax advisor.
VALUATION OF FUND SHARES
Net Asset Value Per Share. The Fund determines net asset value per share
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. Net asset value per
share is computed by dividing the current value of the Fund's assets, less its
liabilities, by the number of shares of the Fund outstanding and rounding to the
nearest cent.
Valuation of Fund Securities. With the exceptions noted below, the Fund
values portfolio securities at market value. This generally means that 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 the amortized cost
method does not represent 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 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
Fund would receive if it sold the instrument.
The Fund values 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.
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<PAGE>
PURCHASE OF FUND SHARES
Minimum Initial and Subsequent Investments and Account Balance. The 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 the Fund (other than IRA
accounts) may be subject to redemption at the 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. The Fund reserves
the right to reject any purchase order. Investors purchasing Fund assets through
a pension or other participation plan should contact their plan administrator
for further information on purchases.
Offering Dates and Times. Fund shares may be purchased on any business day
without a sales commission. All purchases must be made in US dollars. 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 to be effective on the date received. The Fund
reserves 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.
Order and Payment Procedures. There are several ways to invest in the Fund.
The Fund requires 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 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 may be withheld until the check or account
clears, which may take up to 15 calendar days.
Telephone Exchange Privilege. Subject to the Fund's minimum investment
requirement, investors may exchange a minimum of $100 of their 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 on the business day on which the
call is placed or upon written receipt of instructions in good form by the
Transfer Agent. Exchanges may be made over the phone if the registrations of the
two accounts are identical. If the shares of the 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 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.
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<PAGE>
Federal Funds Wire. An investor may make initial or subsequent investments
by wiring federal funds to State Street Bank and Trust Company, 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 Fund in which the
investment is to be made and the account number; and (c) the amount
being wired.
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 Growth and Income Fund
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
Fund 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 Fund's minimum initial requirement 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 Fund offers 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 Fund has been satisfied.
Third Party Transactions. Investors purchasing 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.
In Kind Exchange of Securities. The Transfer Agent may, at its discretion,
permit investors to purchase shares through the exchange of securities they
hold. Any securities exchanged must meet the investment objective, policies and
limitations of the Fund, must have a readily ascertainable market value, must be
liquid and must not be subject to restrictions on resale. The market value of
any securities exchanged, plus any cash, must be at least $10 million. Shares
purchased in exchange for securities generally may not be redeemed or exchanged
until the transfer has settled--usually within 15 days following the purchase
exchange.
The basis of the exchange will depend upon the relative net asset value of
the shares purchased and securities exchanged. Securities accepted by the Fund
will be valued in the same manner as the Fund values its assets. Any interest
earned on the securities following their delivery to the Transfer Agent and
prior to the exchange will be considered in valuing the securities. All
interest, dividends subscription or other rights attached to the securities
become the property of the Fund, along with the securities.
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<PAGE>
REDEMPTION OF FUND SHARES
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. Typically, payment 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.
Redemption requests must be received prior to 4:00 p.m. Eastern time in
order be effective on the date received. Shareholder servicing agents with
underlying shareholders in omnibus accounts who receive redemption requests by
4:00 p.m. Eastern time may transmit the request to the Transfer Agent by 9:00
a.m. Eastern time the next succeeding business day and receive the dividend as
of the day the redemption request was originally made by the underlying
shareholder.
Telephone Redemption. Shareholders may normally redeem 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 Fund and the Transfer Agent will employ reasonable procedures
to confirm that instructions communicated by telephone are properly authorized.
The 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.
By Wire. Proceeds exceeding $1,000 may be sent via wire transfer to the
investor's pre-designated bank. Proceeds may be sent, depending on the Fund, on
the same or the next day. Although the Fund does 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. Requests
must be received prior to 4:00 p.m. The shares will be redeemed using that day's
closing price, and the proceeds will be wired the following business day.
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 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;
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<PAGE>
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.
<TABLE>
<CAPTION>
Seller Requirements for Written Requests
<S> <C>
Owner of individual, joint, sole [bullet] Letter of instruction, signed by all persons
proprietorship, UGMA/UTMA authorized to sign for the account stating general
(custodial accounts for minors) titles/capacity, exactly as the account is
or general partner accounts registered; and
[bullet] Signature guarantee, if applicable (see above).
Owners of corporate or [bullet] Letter of instruction signed by authorized
association accounts person(s), stating capacity as indicated by the
corporate resolution;
[bullet] Corporate resolution, certified within the past 90
days; and
[bullet] Signature guarantee, if applicable (see above).
Owners or trustees [bullet] Letter of instruction, signed by all trustees;
of trust accounts
[bullet] If the trustees are not named in the registration,
please provide a copy of the trust document certified
within the past 60 days; and
[bullet] Signature guarantee, if applicable (see above).
Joint tenancy shareholders [bullet] Letter of instruction signed by surviving
whose co-tenants are tenant(s);
deceased [bullet] Certified copy of the death certificate; and
[bullet] Signature guarantee, if applicable (see above).
</TABLE>
Please contact the Customer Service Department at (800) 647-7327 for
questions and further instructions.
The Fund may pay any portion of the redemption amount in excess of $250,000
by a distribution in kind of readily marketable securities from the portfolio of
the Fund in lieu of cash. Investors will incur brokerage charges on the sale of
these portfolio securities. The 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 Fund and has approved contracts with various financial organizations to
provide, among other services, day-to-day management required by the Fund.
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<PAGE>
Advisory Agreement. Investment Company employs State Street Bank and
Trust Company to furnish investment services to the Fund. State Street is one of
the largest providers of securities processing and recordkeeping services for US
mutual funds and pension funds. State Street Global Advisors is the investment
management business of State Street, a 200 year old pioneer and leader in the
world of financial services. State Street is a wholly owned subsidiary of State
Street Corporation, a publicly held bank holding company. State Street, with
over $370 billion under management as of September 30, 1997, provides complete
global investment management services from offices in Atlanta, Boston, Brussels,
Copenhagen, Dubai, Hong Kong, London, Minneapolis, Montpellier, Montreal,
Munich, Paris, San Francisco, Sydney, Tokyo, and Toronto.
Advisor, subject to Board supervision, directs the investment of the Fund
in accordance with the Fund's investment objective, policies and restrictions.
Mr. L. Emerson Tuttle, Vice President, is the portfolio manager primarily
responsible for investment decisions regarding the Fund and provides investment
management services for employee benefit plans and endowments. Mr. Tuttle joined
State Street in 1981. From 1987 to 1989, Mr. Tuttle was portfolio manager for
Private Client Services at State Street Bank in Zurich, Switzerland. Mr. Tuttle
is a 1973 magna cum laude graduate of Yale College, and earned a JD degree magna
cum laude from Suffolk Law School. He is a member of the Massachusetts bar and a
Chartered Financial Analyst. Mr. Tuttle is also a member of the Boston Security
Analysts Society and has 18 years of investment experience. There are four other
portfolio managers who work with Mr. Tuttle in managing the Fund. For these
services, the Fund pays Advisor a fee, calculated daily and paid monthly, that
on an annual basis is equal to .85% of the Fund's average daily net assets.
The Glass-Steagall Act prohibits a depository state chartered bank such as
Advisor from engaging in the business of issuing, underwriting, selling or
distributing certain securities. The activities of Advisor in informing its
customers of the Fund, performing investment and redemption services and
providing custodian, transfer, shareholder servicing, dividend disbursing and
investment advisory services may raise issues under these provisions. Advisor
has been advised by its counsel that its activities in connection with the Fund
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 Advisor from continuing to perform all or a part of
the above services for its customers and/or the Fund. If Advisor were prohibited
from serving the Fund 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 Fund may occur. It is not expected by 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 Investment Company portfolios 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 November 30, 1997,
State Street held of record less than 25% of the issued and outstanding shares
of Investment Company in connection with its discretionary accounts.
Consequently, State Street is not 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 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.
Administration Agreement. Frank Russell Investment Management Company
("Administrator") serves as administrator of the Fund. Administrator currently
serves as investment manager and administrator to 32 mutual funds with assets of
$11.3 billion as of October 31, 1997, and acts as administrator to 20 mutual
funds, including the Fund, with assets of $10.8 billion as of October 31, 1997.
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<PAGE>
Pursuant to the Administration Agreement with Investment Company,
Administrator will: (1) supervise all aspects of the Fund's operations; (2)
provide the Fund with administrative and clerical services, including the
maintenance of certain of the Fund's books and records; (3) arrange the periodic
updating of the Fund's prospectuses and any supplements thereto; (4) provide
proxy materials and reports to Fund shareholders and the Securities and Exchange
Commission; and (5) provide the Fund 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 Fund
and Investment Company's other domestic investment portfolios pay Administrator
a combined fee that on an annual basis is equal to the following percentages of
their average aggregate daily net assets: (1) $0 to and including $500 million
- -- .06%; (2) over $500 million to and including $1 billion -- .05%; and (3) over
$1 billion -- .03%. The percentage of the fee paid by the Fund is equal to the
percentage of average aggregate daily net assets that are attributable to the
Fund. Administrator also receives reimbursement of expenses it incurs in
connection with establishing new investment portfolios. Further, the
administration fee paid by the Investment Company will be reduced by the sum of
certain distribution related expenses, up to certain maximum percentages, as
follows: (1) 10% from January 1, 1997 to December 31, 1997; 5% from January 1,
1998 to December 31, 1998; and (3) 0% from January 1, 1999 thereafter.
Administrator also provides administrative services in connection with the
registration of shares of Investment Company 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, the Distributor, a wholly
owned subsidiary of Administrator, serves as distributor for all Fund shares.
The Fund has 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 Fund's average annual net assets for distribution-related and shareholder
servicing expenses. Payments under the Plan will be made to Distributor to
finance activity which is intended to result in the sale and retention of Fund
shares including: (1) payments made to certain broker-dealers, investment
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 Fund shares, including
Distributor's overhead expenses for rent, office supplies, equipment, travel,
communication, compensation and benefits of sales personnel.
Under the Plan, the Fund may also enter into agreements ("Service
Agreements") with financial institutions, which may include Advisor ("Service
Organizations"), to provide shareholder servicing with respect to 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: answering inquiries regarding the Fund; assisting customers
in changing dividend options, account designations and addresses; performing
subaccounting for such customers; establishing and maintaining customer accounts
and records; processing purchase and redemption transactions; 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; arranging for bank wires transferring
customers' funds; and such other services as the customers may request in
connection with the Fund, to the extent permitted by applicable statute, rule or
regulation. Service Organizations may receive from the Fund, for shareholder
servicing, monthly fees at a rate that shall not exceed .20% per annum of the
average daily net asset value of the Fund's shares owned by or for shareholders
with whom the Service
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<PAGE>
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.
The Investment Company has entered into Service Agreements with the Advisor
and the following entities related to the Advisor: State Street Brokerage
Services, Inc., Metropolitan Division of Commercial Banking, Retirement
Investment Services Division and State Street Solutions. The purpose of the
Service Agreements is to obtain shareholder services for Fund shares owned by
clients of each of these entities. In return for these services, the Investment
Company pays each of the entities a fee. These agreements are reviewed annually
by the Board of Trustees.
Payments to Distributor, as well as payments to Service Organizations from
the Fund, are not permitted by the Plan to exceed .25% of the 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. The Fund's liability for any such expenses
carried forward shall terminate at the end of two years 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.
FUND EXPENSES
The Fund will pay all of its expenses other than those expressly assumed by
Advisor and Administrator. The principal expenses of the Fund are the annual
advisory fee payable to Advisor and distribution and shareholder servicing
expenses. Other expenses include: (1) amortization of deferred organizational
costs; (2) taxes, if any; (3) expenses for legal, auditing and financial
accounting services; (4) expense of preparing (including typesetting, printing
and mailing) reports, prospectuses and notices to existing shareholders; (5)
administrative fees; (6) custodian fees; (7) expense of issuing and redeeming
Fund shares; (8) the cost of registering 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 Fund.
PERFORMANCE CALCULATIONS
From time to time the Fund may advertise its "total return." The total
return of the Fund is the average annual compounded rate of return from a
hypothetical investment in the Fund over one-, five- and ten-year periods or for
the life of the 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 Fund shares, including data from Morningstar, Inc.,
Lipper Analytical Services, Inc., Wall Street Journal Score Card or other
industry publications, business periodicals, rating services and market indices.
The Fund may also advertise nonstandardized performance information which is for
periods in addition to those required to be presented.
Total return and other performance figures are based on historical earnings
and are not indications of future performance.
-18-
<PAGE>
ADDITIONAL INFORMATION
Custodian, Transfer Agent and Independent Accountants. State Street holds
all portfolio securities and cash assets of the Fund, provides portfolio
recordkeeping services and serves as the Fund's 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 the
Fund 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 and financial statements may be made by
calling Distributor at (800) 647-7327. Inquiries regarding shareholder balances
may be made by calling Transfer Agent at (800) 647-7327.
Organization, Capitalization and Voting. 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 issues shares divisible into an unlimited number of
series (or investment portfolios), each of which is a separate trust under
Massachusetts law. The Growth and Income Fund is one such series.
Each Fund share represents an equal proportionate interest in the 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 belonging to the
Fund as may be declared by the Board of Trustees. Fund shares are fully paid and
nonassessable by Investment Company and have no preemptive rights.
Each 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 which affects only a particular investment portfolio, only shareholders
of that portfolio 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 the 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 the 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.
Investment Company does not issue share certificates for the Fund. Transfer
Agent sends shareholders of the Fund 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.
As of November 30, 1997, State Street Solutions; and State Street Bank
Employee 401K Plan IA06, owned of record 28% and 30%, respectively, of the
issued and outstanding shares of the Fund and are each therefore deemed to be
controlling persons for purposes of the 1940 Act. Such shares may be held
pursuant to a shareholder servicing arrangement in omnibus accounts for
underlying shareholders.
-19-
<PAGE>
SSgA FUNDS
One International Place
Boston, Massachusetts 02110
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
-20-
<PAGE>
SSgA FUNDS
SSgA Money Market Fund
SSgA US Government Money Market Fund
SSgA Tax Free Money Market Fund
SSgA S&P 500 Index Fund
SSgA Small Cap Fund
SSgA Matrix Equity Fund
SSgA Yield Plus Fund
SSgA Growth and Income Fund
SSgA Intermediate Fund
SSgA Active International Fund
SSgA Emerging Markets Fund
SSgA Bond Market Fund
SSgA Life Solutions Growth Fund
SSgA Life Solutions Balanced Fund
SSgA Life Solutions Income and Growth Fund
-21-
<PAGE>
Filed pursuant to Rule 485(b)
File Nos. 33-19229; 811-5430
SSgA FUNDS
One International Place
Boston, Massachusetts 02110
(800) 647-7327
INTERMEDIATE FUND
SSgA Funds is a registered, open-end management investment company with
multiple portfolios, each of which is commonly referred to as a mutual fund.
This Prospectus describes and offers shares of beneficial interest in one such
mutual fund, the SSgA Intermediate Fund (the "Intermediate Fund" or the "Fund").
The Fund seeks to achieve its investment objective of 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's shares are offered without sales commissions.
However, the Fund pays certain distribution expenses under its 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.
SHARES IN THE FUND 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 sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Please read and retain this
document for future reference. Additional information about the SSgA Funds has
been filed with the Securities and Exchange Commission ("SEC") in Statements of
Additional Information ("SAI") dated December 24, 1997. The SAI is incorporated
herein by reference and is available without charge from Distributor at its
address noted below or by calling (800) 647-7327. The SEC also maintains a
website (www.sec.gov) that contains the SAI, material incorporated by reference
and other information regarding the SSgA Funds. You may also access the SSgA
Funds' website at www.ssgafunds.com.
<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 One International Place Management Company
225 Franklin Street Boston, Massachusetts 02110 909 A Street
Boston, Massachusetts 02110 (617) 654-6089 Tacoma, Washington 98402
(617) 654-4721 (206) 627-7001
</TABLE>
PROSPECTUS DATED December 24, 1997
-1-
<PAGE>
TABLE OF CONTENTS
Page
----
Fund Operating Expenses................................................ 3
Financial Highlights................................................... 4
SSgA Funds............................................................. 5
Manner of Offering..................................................... 5
Investment Objective, Policies and Restrictions........................ 5
Certain Risk Factors.................................................. 10
Portfolio Turnover ................................................... 10
Dividends and Distributions........................................... 11
Taxes................................................................. 11
Valuation of Fund Shares.............................................. 12
Purchase of Fund Shares............................................... 13
Redemption of Fund Shares............................................. 14
General Management.................................................... 16
Fund Expenses......................................................... 19
Performance Calculations.............................................. 19
Additional Information................................................ 19
-2-
<PAGE>
FUND OPERATING EXPENSES AFTER REIMBURSEMENT
SSgA INTERMEDIATE FUND
The following table is intended to assist the investor in understanding the
costs and expenses that an investor in the Intermediate Fund will incur directly
or indirectly. The examples should not be considered a representation of past or
future expenses. Actual expenses may be greater or less than those shown. For
additional information, see "General Management."
<TABLE>
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses:
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
Annual Fund Operating Expenses:
(as a percentage of average daily net assets)
Advisory Fees (After Fee Reimbursement)(1) .10%
12b-1 Distribution Fees(1) .04
12b-1 Shareholder Servicing Fees(1) .04
Other Expenses(1) .42
---
Total Operating Expenses (After Fee Reimbursement)(1), (2) .60%
====
Examples: 1 year 3 years 5 years 10 years
- -------- ------ ------- ------- --------
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:
$ 6 $19 $33 $75
=== === === ===
</TABLE>
(1) The Advisor has agreed to reimburse the Fund for all expenses in excess of
.60% of average daily net assets on an annual basis. The gross annual
Advisory fee expense before reimbursement would be .80% of average daily net
assets. The total operating expense of the Fund absent reimbursement would
be 1.30% of average daily net assets on an annual basis. The reimbursement
will continue until such time as the Board of Trustees of the Fund agrees to
its modification or elimination but will remain in effect for the current
fiscal year.
(2) The expense information in the table has been restated to reflect current
fees. Investors purchasing 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.
Long-term shareholders of the Fund may pay more in Rule 12b-1 fees than the
economic equivalent of the maximum front-end sales charges permitted by the
National Association of Securities Dealers, Inc.
-3-
<PAGE>
FINANCIAL HIGHLIGHTS
SSgA INTERMEDIATE FUND
The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Fund's independent
accountants. The table includes selected data for a share outstanding throughout
each fiscal year or period ended August 31, and other performance information
derived from the financial statements. The table appears in the Fund's Annual
Report and should be read in conjunction with the Fund's financial statements
and related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand L.L.P., in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Distributor at (800) 647-7327.
<TABLE>
<CAPTION>
1997 1996 1995 1994++
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $ 9.57 $ 9.72 $ 9.37 $ 10.00
--------- ---------- --------- ---------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .54 .53 .56 .42
Net realized and unrealized
gain (loss) on investments .20 (.14) .34 (.76)
--------- ---------- --------- ---------
Total From Investment Operations .74 .39 .90 (.34)
--------- ---------- --------- ---------
LESS DISTRIBUTIONS:
Net investment income (.55) (.54) (.55) (.29)
--------- ---------- -------- ---------
NET ASSET VALUE, END OF YEAR $ 9.76 $ 9.57 $ 9.72 $ 9.37
========= ========= ========= =========
TOTAL RETURN (%) (a) 8.00 4.12 10.05 (3.42)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
($000 omitted) 53,834 41,518 33,893 19,963
Ratios to average net assets (%) (b):
Operating expenses, net .60 .60 .60 .60
Operating expenses, gross 1.30 1.38 1.67 1.51
Net investment income 5.78 5.57 6.29 5.11
Portfolio turnover (%) (b) 242.76 221.73 26.31 15.70
Per share amount of expense reductions
($ omitted) .0665 .0743 .0946 .0755
</TABLE>
++ For the period September 1, 1993 (commencement of operations) to August 31,
1994.
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended August 31, 1994 are not annualized.
-4-
<PAGE>
SSgA FUNDS
SSgA Funds ("Investment Company") is an open-end management investment
company that is organized as a Massachusetts business trust. In addition, each
series of the Investment Company is diversified as defined under the Investment
Company Act of 1940, as amended ("1940 Act"). As a "series" company, Investment
Company is authorized to issue an unlimited number of shares evidencing
beneficial interests in different investment portfolios. Through this
Prospectus, Investment Company offers shares in one such portfolio, the
Intermediate Fund. State Street Bank and Trust Company ("Advisor" or "State
Street") serves as the investment advisor for the Fund.
MANNER OF OFFERING
Distribution and Eligible Investors. Shares of the Fund are offered
without a sales commission by Russell Fund Distributors, Inc. (the
"Distributor") the Investment Company's distributor, to US and foreign
institutional and retail investors which invest for their own account or in a
fiduciary or agency capacity. The Fund will incur distribution expenses under
its Rule 12b-1 plan. See "General Management - Distribution Services and
Shareholder Servicing."
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
The Fund's 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. This investment objective may be changed only with
the approval of a majority of the Fund's shareholders as defined by the 1940
Act. There can be no assurance that the Fund will meet its investment objective.
The Fund is structured around the Lehman Brothers Intermediate
Government/Corporate Bond Index. 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
("ETDs"), Eurodollar Certificates of Deposit ("ECDs"), Yankee Certificates of
Deposit ("YCDs"), certificates of deposit, time deposits, letters of credit and
banker's acceptances.
The 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 nationally recognized statistical
rating organization; or (2) if not rated, are of comparable quality, as
determined by State Street.
The Fund will measure its performance against the Lehman Brothers
Intermediate Government/Corporate Bond Index ("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, 1997 was 3.33
years. 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 Lehman Brothers
Government/Corporate Bond Index includes the Government and Corporate Bond
Indices. The LBIGC Index includes fixed rate debt issues rated investment-grade
or higher by Moody's Investors Service, Inc. ("Moody's") Standard & Poor's
Corporation ("S&P") or Fitch Investor's Service ("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.
Investment Policies
The investment policies described below reflect the Fund's current
practices, are not fundamental and may be changed by the Board of Trustees of
Investment Company without shareholder approval. For more information on the
Fund's Investment Policies, please see the Statement of Additional Information.
To the extent consistent with the Fund's investment objective and restrictions,
the Fund may invest in the following instruments and may use the following
investment techniques:
-5-
<PAGE>
US Government Securities. 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, 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. The 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 Fund receives
securities as collateral. Under a repurchase agreement, a Fund purchases
securities from a financial institution that agrees to repurchase the securities
at the Fund's original purchase price plus interest within a specified time
(normally one business day). The Fund will limit repurchase transactions to
those member banks of the Federal Reserve System and broker-dealers whose
creditworthiness Advisor considers satisfactory. Should the counterparty to a
transaction fail financially, the 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 the
Fund.
Reverse Repurchase Agreements. The Fund may enter into reverse
repurchase agreements under the circumstances described in "Investment
Restrictions." In substance, a reverse repurchase agreement is a borrowing for
which the Fund provides securities as collateral. Under a reverse repurchase
agreement, the Fund sells portfolio securities to a financial institution 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 at a
prescribed repurchase price equal to the amount of cash originally received plus
interest on such amount. The Fund retains the right to receive interest and
principal payments with respect to the securities while they are in the
possession of the financial institutions. Reverse repurchase agreements involve
the risk of default by the counterparty, which may adversely affect the Fund's
ability to reacquire the underlying securities.
Forward Commitments. The Fund 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 the Fund of a dollar
amount sufficient to make payment for the portfolio securities to be purchased
will be segregated on the Fund'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 the Fund to miss an advantageous price or
yield. The Fund bears the risk of price fluctuations during the period between
the trade and settlement dates.
When-Issued Transactions. The Fund may purchase securities on a
when-issued or delayed delivery basis. In these transactions, the Fund purchases
securities with payment and delivery scheduled for a future time. Until
settlement, the Fund segregates cash and marketable securities equal in value to
its when-issued commitments. Between the trade and settlement dates, the Fund
bears the risk of any fluctuations in the value of the securities. These
transactions involve the additional risk that the other party may fail to
complete the transaction and cause the Fund to miss a price or yield considered
advantageous. The Fund will engage in when-issued transactions only for the
purpose of acquiring portfolio securities consistent with its investment
objective and policies and not for investment leverage. The Fund will not invest
more than 25% of its net assets in when-issued securities.
Illiquid Securities. The Fund will not invest more than 15% of its net
assets in illiquid securities or securities that are not readily marketable,
including repurchase agreements and time deposits of more than seven days'
duration. The absence of a regular trading market for illiquid securities
imposes additional risks on investments in these securities. Illiquid securities
may be difficult to value and may often be disposed of only after considerable
expense and delay.
Variable Amount Master Demand Notes. 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 the issuers and the 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.
-6-
<PAGE>
Asset-Backed Securities. 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 Fund has been exhausted, and if any required
payments of principal and interest are not made with respect to the underlying
loans, the Fund may experience loss or delay in receiving payment and a decrease
in the value of the security. Further details are set forth in the Statement of
Additional Information under "Investment Restrictions and Policies -- Investment
Policies."
Mortgage-Related Pass-Through Securities. The Fund 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.
Mortgage-Backed Security Rolls. The Fund may enter into "forward roll"
transactions with respect to mortgage-backed securities issued by GNMA, FNMA or
FHLMC. In a forward roll transaction, the Fund will sell a mortgage security to
a dealer 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 Fund 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 Fund may decline below the price at which
the Fund is obligated to purchase the securities. Upon entering into a
mortgage-backed security roll, the Fund 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. The Fund may enter into interest rate swap
transactions with respect to any security it is entitled to hold. Interest rate
swaps involve the exchange by a Fund with another party of their respective
rights to receive interest, e.g., an exchange of floating rate payments for
fixed rate payments. The Fund expects to enter into these transactions primarily
to preserve a return or spread on a particular investment or portion of its
portfolio or to protect against any increase in the price of securities it
anticipates purchasing at a later date. The Fund intends to use these
transactions as a hedge and not as a speculative investment.
Preferred Stocks. 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 fund provisions, as well as
provisions that allow the issuer to call or redeem the stock. The rights to
payment of preferred stocks are generally subordinate to rights associated with
a corporation's debt securities.
Zero Coupon Securities. 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.
-7-
<PAGE>
Variable and Floating Rate Securities. 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, 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). 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.
Foreign Currency Transactions. The Fund may engage in foreign currency
transactions as described below. The US dollar value of assets held by the Fund
may be affected favorably or unfavorably by changes in foreign currency exchange
rates and exchange control regulations, and the Fund may incur costs in
connection with conversions between various currencies. The Fund 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 Fund 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 subject to
procedures and regulations applicable to other futures contracts. Forward
foreign currency exchange contracts and foreign currency futures contracts may
protect the 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 Fund 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 the Fund to lose the premium it paid and its transaction costs.
Futures Contracts and Options on Futures. For hedging purposes,
including protecting the price or interest rate of a security the Fund intends
to buy, the 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
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<PAGE>
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. Upon entering into a
futures contract, the 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 the Fund will honor its futures commitment. 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, the 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. The Fund may write and
purchase covered put and call options on securities in which it may directly
invest. Option transactions of the 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 Fund's total assets. Further, the 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 all such options outstanding would
exceed 25% of the value of the Fund's total assets.
The Fund may purchase or sell options on securities indices that are
comprised of securities in which they 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 price of
the index and the exercise price of the option times a multiplier established by
the exchange upon which the option is traded.
Lending Portfolio Securities. The Fund may lend portfolio securities
with a value of up to 33-1/3% of its total assets. For these purposes, total
assets shall include the value of all assets received as collateral for the
loan. Such loans may be terminated at any time. The 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, the 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, the 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. The 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, the 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 Advisor to be of good financial standing. In a
loan transaction, the Fund will also bear the risk of any decline in value of
securities acquired with cash collateral. The Fund will minimize this risk by
limiting the investment of cash collateral to high quality instruments of short
maturity.
Cash Reserves. For defensive purposes, the Fund may temporarily and
without limitation concentrate its portfolio in high quality short-term fixed
income securities. 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.
Purchase of Other Funds. To the extent permitted under the 1940 Act and
exemptive rules and orders thereunder, the Fund may seek to achieve its
investment objective by investing solely in the shares of another investment
company that has a substantially similar investment objective and policies.
-9-
<PAGE>
Investment Restrictions
The Fund has fundamental investment restrictions, which may be changed
only with the approval of a majority of the Fund's shareholders as defined in
the 1940 Act. A more detailed discussion of the Fund's investment restrictions
and investment policies appears in the Statement of Additional Information.
Unless otherwise noted, the fundamental restrictions apply at the time an
investment is made. The 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 non-depository instruments issued by
European banks). 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 Fund's assets
taken at market value, less liabilities other than borrowings.
If at any time the 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. The 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, the Fund
may pledge securities having a market value at the time of the
pledge not exceeding 33-1/3% of the value of the Fund's total
assets to secure permitted borrowings.
CERTAIN RISK FACTORS
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
involves investment risks that are different from those of US issuers,
including: changes in currency rates; 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 securities of issuers located in those countries.
PORTFOLIO TURNOVER
Because the Fund will actively trade to benefit from short-term yield
disparities among different issues of fixed-income securities, or otherwise to
increase its income, the Fund may be subject to a greater degree of portfolio
turnover than might be expected from investment companies which invest
substantially all of their assets on a long-term basis. The portfolio turnover
rate cannot be predicted, but it is anticipated that the annual turnover rate of
the Fund generally will exceed 250% (excluding securities having a maturity of
one year or less). A high turnover rate (over 100%) will: (1) increase
transaction expenses which will adversely affect a Fund's performance; and (2)
result in increased brokerage commissions and other transaction costs, and the
possibility of realized capital gains.
The Fund may effect portfolio transactions through State Street
Brokerage Services, Inc. an affiliate of the Advisor, when the Advisor
determines that the Fund will receive competitive execution, price and
commissions.
-10-
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
The Board of Trustees intends to declare and pay dividends on shares of
the Fund quarterly from net investment income. The Board of Trustees intends to
declare distributions annually from net short- and long-term capital gains, if
any, generally in mid-October. It is intended that an additional distribution
may be declared and paid in December if required for the Fund 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 Fund and received by shareholders on December
31 of that year if the dividend is paid prior to February 1 of the following
year.
Income dividend and capital gains distribution will be paid 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 Fund mailings to an investor, the
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 Fund until
the investor notifies the SSgA Funds 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 Fund shortly
after a purchase of shares will reduce the per share net asset value of the Fund
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:
[bullet] Reinvestment Option--Income dividends and capital gains distributions
will be automatically reinvested in additional shares of the Fund. If
the investor does not indicate a choice on the Application, this option
will be automatically assigned.
[bullet] Income-Earned Option--Capital gain distributions will be automatically
reinvested, but a check or wire will be sent for each income dividend
distribution.
[bullet] Cash Option--A check or wire will be sent for each income dividend and
capital gain distribution.
[bullet] Direct Dividends Option--Dividends and capital gain distribution will
be automatically invested in another identically registered SSgA Fund.
Distributions will be sent to a pre-designated bank by the Automatic
Clearing House ("ACH") on the payable date.
TAXES
The Fund intends to qualify as a regulated investment company ("RIC")
under Subchapter M of the Internal Revenue Code, as amended (the "Code"). As a
regulated investment company, the Fund will not be subject to federal income
taxes to the extent it distributes its net investment income and net capital
gain (long-term capital gains in excess of short-term capital losses) to
shareholders. The Board intends to distribute each year substantially all of the
Fund's net investment income and capital gain net income.
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 20% gains and 28% gains are taxable as 20% gains or 28%
gains regardless of the length of time a shareholder has held such shares and
whether paid in cash or additional shares.
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<PAGE>
Dividends and distributions may also be subject to state or local
taxes. Depending on the state tax rules pertaining to a shareholder, a portion
of the dividends paid by the Fund attributable to direct obligations of the US
Treasury and certain agencies may be exempt from state and local taxes.
The sale of 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 or portfolios of a mutual fund). Any loss incurred on sale or
exchange of Fund shares held for one year or more will be treated as a 20% loss
or a 28% loss to the extent of capital gain dividends received with respect to
such shares.
Shareholders will be notified after each calendar year of the amount of
income dividends and net capital gains distributed and the percentage of the
Fund's income attributable to US Treasury and agency obligations. The 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 Fund with the shareholder's correct taxpayer
identification number or certification that the shareholder is not subject to
backup withholding.
The foregoing discussion is only a summary of certain federal income
tax issues generally affecting the Fund and its shareholders. Circumstances
among investors may vary and each investor is encouraged to discuss investment
in the Fund with the investor's tax advisor.
VALUATION OF FUND SHARES
Net Asset Value Per Share. The Fund determines net asset value per
share 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. Net asset value
per share is computed by dividing the current value of the Fund's assets, less
its liabilities, by the number of shares of the Fund outstanding and rounding to
the nearest cent.
Valuation of Fund Securities. With the exceptions noted below, the Fund
values portfolio securities at market value. This generally means that 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 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 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 obligations securities maturing within 60 days of the valuation
date are valued at amortized cost unless the Board determines that the amortized
cost method does not represent 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 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 Fund would receive if it sold the instrument.
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<PAGE>
The Fund values 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.
PURCHASE OF FUND SHARES
Minimum Initial and Subsequent Investments and Account Balance. The
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 the Fund (other than IRA
accounts) may be subject to redemption at the 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. The Fund reserves
the right to reject any purchase order. Investors purchasing Fund assets through
a pension or other participation plan should contact their plan administrator
for further information on purchases.
Offering Dates and Times. Fund shares may be purchased on any business
day without a sales commission. All purchases must be made in US dollars.
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 to be effective on the date received. The
Fund reserves 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.
Order and Payment Procedures. There are several ways to invest in the
Fund. The Fund requires 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 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 may be withheld until the check or account
clears, which may take up to 15 calendar days.
Telephone Exchange Privilege. Subject to the Fund's minimum investment
requirement, investors may exchange a minimum of $100 of their 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 on the business day on which the
call is placed or upon written receipt of instructions in good form by the
Transfer Agent. Exchanges may be made over the phone if the registrations of the
two accounts are identical. If the shares of the 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 Fund upon 60
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<PAGE>
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.
Federal Funds Wire. An investor may make initial or subsequent
investments by wiring federal funds to State Street Bank and Trust Company, 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 Fund in which the investment is to be made and
the account number; and (c) the amount being wired.
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 Intermediate Fund
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 Fund 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 Fund's minimum initial requirement
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 Fund offers 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 Fund has been satisfied.
Third Party Transactions. Investors purchasing 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.
In Kind Exchange of Securities. The Transfer Agent may, at its
discretion, permit investors to purchase shares through the exchange of
securities they hold. Any securities exchanged must meet the investment
objective, policies and limitations of the Fund, must have a readily
ascertainable market value, must be liquid and must not be subject to
restrictions on resale. The market value of any securities exchanged, plus any
cash, must be at least $10 million. Shares purchased in exchange for securities
generally may not be redeemed or exchanged until the transfer has
settled--usually within 15 days following the purchase exchange.
The basis of the exchange will depend upon the relative net asset value
of the shares purchased and securities exchanged. Securities accepted by the
Fund will be valued in the same manner as the Fund values its assets. Any
interest earned on the securities following their delivery to the Transfer Agent
and prior to the exchange will be considered in valuing the securities. All
interest, dividends subscription or other rights attached to the securities
become the property of the Fund, along with the securities.
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<PAGE>
REDEMPTION OF FUND SHARES
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. Typically, payment 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.
Redemption requests must be received prior to 4:00 p.m. Eastern time in
order be effective on the date received. Shareholder servicing agents with
underlying shareholders in omnibus accounts who receive redemption requests by
4:00 p.m. Eastern time may transmit the request to the Transfer Agent by 9:00
a.m. Eastern time the next succeeding business day and receive the dividend as
of the day the redemption request was originally made by the underlying
shareholder.
Telephone Redemption. Shareholders may normally redeem 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 Fund and the Transfer Agent will employ reasonable procedures
to confirm that instructions communicated by telephone are properly authorized.
The 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.
By Wire. Proceeds exceeding $1,000 may be sent via wire transfer to the
investor's pre-designated bank. Proceeds may be sent, depending on the Fund, on
the same or the next day. Although the Fund does 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. Requests
must be received prior to 4:00 p.m. The shares will be redeemed using that day's
closing price, and the proceeds will be wired the following business day.
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 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;
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<PAGE>
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.
<TABLE>
<CAPTION>
Seller Requirements for Written Requests
<S> <C>
Owner of individual, [bullet] 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 registered;
(custodial accounts for and
minors) or general partner [bullet] Signature guarantee, if applicable (see above).
accounts
Owners of corporate or [bullet] Letter of instruction signed by authorized person(s),
association accounts stating capacity as indicated by the corporate
resolution;
[bullet] Corporate resolution, certified within the past 90
days; and
[bullet] Signature guarantee, if applicable (see above).
Owners or trustees of trust [bullet] Letter of instruction, signed by all trustees;
accounts [bullet] If the trustees are not named in the registration,
please provide a copy of the trust document
certified within the past 60 days; and
[bullet] Signature guarantee, if applicable (see above).
Joint tenancy shareholders [bullet] Letter of instruction signed by surviving tenant(s);
whose co-tenants are [bullet] Certified copy of the death certificate; and
deceased [bullet] Signature guarantee, if applicable (see above).
</TABLE>
Please contact the Customer Service Department at (800) 647-7327 for
questions and further instructions.
The Fund may pay any portion of the redemption amount in excess of
$250,000 by a distribution in kind of readily marketable securities from the
portfolio of the Fund in lieu of cash. Investors will incur brokerage charges on
the sale of these portfolio securities. The 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 Fund and has approved contracts with various financial organizations to
provide, among other services, day-to-day management required by the Fund.
Advisory Agreement. Investment Company employs State Street to furnish
investment services to the Fund. State Street is one of the largest providers of
securities processing and recordkeeping services for US mutual funds and pension
-16-
<PAGE>
funds. State Street Global Advisors is the investment management business of
State Street, a 200 year old pioneer and leader in the world of financial
services. State Street is a wholly owned subsidiary of State Street Corporation,
a publicly held bank holding company. State Street, with over $370 billion (US)
under management as of September 30, 1997, provides complete global investment
management services from offices in Atlanta, Boston, Brussels, Copenhagen,
Dubai, Hong Kong, London, Minneapolis, Montpellier, Montreal, Munich, Paris, San
Francisco, Sydney, Tokyo, and Toronto.
Advisor, subject to Board supervision, directs the investment of the
Fund in accordance with the Fund's investment objective, policies and
restrictions. The individual primarily responsible for investment decisions
regarding the Fund is John P. Kirby, Assistant Vice President. Mr. Kirby has
been with State Street since 1995. Prior to joining State Street, Mr. Kirby was
an account manager with Lowell, Blake & Associates. Prior to that, Mr. Kirby was
a portfolio manager at One Federal Asset Management a Shawmut Bank subsidiary,
and at Cambridge Port Savings as an asset/liability risk specialist. There are
eight other portfolio managers who work with Mr. Kirby in managing the Fund. For
these services, the Fund pays Advisor a fee, calculated daily and paid monthly,
equal to .80% annually of the Fund's average daily net assets.
The Glass-Steagall Act prohibits a depository state chartered bank such
as Advisor from engaging in the business of issuing, underwriting, selling or
distributing certain securities. The activities of Advisor in informing its
customers of the Fund, performing investment and redemption services and
providing custodian, transfer, shareholder servicing, dividend disbursing and
investment advisory services may raise issues under these provisions. Advisor
has been advised by its counsel that its activities in connection with the Fund
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 Advisor from continuing to perform all or a part of
the above services for its customers and/or the Fund. If Advisor were prohibited
from serving the Fund 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 Fund may occur. It is not expected by 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 Investment Company portfolios 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 November 30, 1997,
State Street held of record less than 25% of the issued and outstanding shares
of Investment Company in connection with its discretionary accounts.
Consequently, State Street is not 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 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.
Administration Agreement. Frank Russell Investment Management Company
("Administrator") serves as administrator of the Fund. Administrator currently
serves as investment manager and administrator to 32 mutual funds with assets of
$11.3 billion as of October 31, 1997, and acts as administrator to 20 mutual
funds, including the Fund, with assets of $10.8 billion as of October 31, 1997.
Pursuant to the Administration Agreement with Investment Company,
Administrator will: (1) supervise all aspects of the Fund's operations; (2)
provide the Fund with administrative and clerical services, including the
maintenance of certain of the Fund's books and records; (3) arrange the periodic
updating of the Fund's prospectuses and any supplements thereto; (4) provide
proxy materials and reports to Fund shareholders and the Securities and Exchange
Commission; and (5) provide the Fund with adequate office space and all
necessary office equipment and services, including telephone service, heat,
-17-
<PAGE>
utilities, stationery supplies and similar items. For these services, the Fund
and Investment Company's other domestic portfolios pay Administrator a combined
fee that on an annual basis is equal to the following percentages of their
average aggregate daily net assets: (1) $0 to and including $500 million --
.06%; (2) over $500 million to and including $1 billion -- .05%; and (3) over $1
billion -- .03%. The percentage of the fee paid by the Fund is equal to the
percentage of average aggregate daily net assets that are attributable to the
Fund. Administrator also receives reimbursement of expenses it incurs in
connection with establishing new investment portfolios. Further, the
administration fee paid by the Investment Company will be reduced by the sum of
certain distribution related expenses, up to certain maximum percentages, as
follows: (1) 10% from January 1, 1997 to December 31, 1997; 5% from January 1,
1998 to December 31, 1998; and (3) 0% from January 1, 1999 thereafter.
Administrator also provides administrative services in connection with
the registration of shares of Investment Company 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. Pursuant to the
Distribution Agreement with Investment Company, Distributor, a wholly owned
subsidiary of Administrator, serves as distributor for all Fund shares.
The Fund has 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 Fund's average annual net assets for distribution-related and shareholder
servicing expenses. Payments under the Plan will be made to Distributor to
finance activity which is intended to result in the sale and retention of Fund
shares including: (1) payments made to certain broker-dealers, investment
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 Fund shares, including
Distributor's overhead expenses for rent, office supplies, equipment, travel,
communication, compensation and benefits of sales personnel.
Under the Plan, the Fund may also enter into agreements ("Service
Agreements") with financial institutions, which may include Advisor ("Service
Organizations"), to provide shareholder servicing with respect to 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: answering inquiries regarding the Fund; assisting customers
in changing dividend options, account designations and addresses; performing
subaccounting for such customers; establishing and maintaining customer accounts
and records; processing purchase and redemption transactions; 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; arranging for bank wires transferring
customers' funds; and such other services as the customers may request in
connection with the Fund, to the extent permitted by applicable statute, rule or
regulation. Service Organizations may receive from the Fund, for shareholder
servicing, monthly fees at a rate that shall not exceed .20% per annum of the
average daily net asset value of the 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.
The Investment Company has entered into Service Agreements with the
Advisor and the following entities related to the Advisor: State Street
Brokerage Services, Inc., Metropolitan Division of Commercial Banking,
Retirement Investment Services Division and State Street Solutions. The purpose
of the Service Agreements is to obtain shareholder services for Fund shares
owned by clients of each of these entities. In return for these services, the
Investment Company pays each of the entities a fee. These agreements are
reviewed annually by the Board of Trustees.
-18-
<PAGE>
Payments to Distributor, as well as payments to Service Organizations,
from a Fund are not permitted by the Plan to exceed .25% of the 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. The Fund's liability for any such expenses
carried forward shall terminate at the end of two years 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.
FUND EXPENSES
The Fund will pay all of its expenses other than those expressly
assumed by Advisor and Administrator. The principal expenses of the Fund are the
annual advisory fee payable to Advisor and distribution and shareholder
servicing expenses. Other expenses include: (1) amortization of deferred
organizational costs; (2) taxes, if any; (3) expenses for legal, auditing and
financial accounting services; (4) expense of preparing (including typesetting,
printing and mailing) reports, prospectuses and notices to existing
shareholders; (5) administrative fees; (6) custodian fees; (7) expense of
issuing and redeeming Fund shares; (8) the cost of registering 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 Fund.
PERFORMANCE CALCULATIONS
From time to time the Fund may advertise its "yield." 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.
From time to time the Fund may advertise its "total return." The total
return of the Fund is the average annual compounded rate of return from a
hypothetical investment in the Fund over one-, five- and ten-year periods or for
the life of the 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 Fund shares, including data from Lipper Analytical
Services, Inc., Morningstar, Wall Street Journal Score Card, Lehman Brothers
Index or other industry publications, business periodicals, rating services and
market indices. The Fund 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 Fund, provides portfolio
recordkeeping services and serves as the Fund's 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 the
Fund except as investment advisor. Coopers & Lybrand L.L.P., Boston,
Massachusetts, is Investment Company's independent accountants.
-19-
<PAGE>
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 Distributor at (800) 647-7327.
Organization, Capitalization and Voting. 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 issues shares divisible into an unlimited number of
series (or investment portfolios), each of which is a separate trust under
Massachusetts law. The Intermediate Fund is one such series.
Each Fund share represents an equal proportionate interest in the 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 belonging to the
Fund as may be declared by the Board of Trustees. Fund shares are fully paid and
nonassessable by Investment Company and have no preemptive rights.
Each 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 which affects only a particular investment portfolio, only
shareholders of that portfolio 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 the 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 the 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.
Investment Company does not issue share certificates for the Fund.
Transfer Agent sends Fund 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.
As of November 30, 1997, no single shareholder owned of record 25% or
more of the issued and outstanding shares of the Fund.
-20-
<PAGE>
SSgA FUNDS
One International Place
Boston, Massachusetts 02110
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
-21-
<PAGE>
SSgA FUNDS
SSgA Money Market Fund
SSgA US Government Money Market Fund
SSgA Tax Free Money Market Fund
SSgA S&P 500 Index Fund
SSgA Small Cap Fund
SSgA Matrix Equity Fund
SSgA Yield Plus Fund
SSgA Growth and Income Fund
SSgA Intermediate Fund
SSgA Active International Fund
SSgA Emerging Markets Fund
SSgA Bond Market Fund
SSgA Life Solutions Growth Fund
SSgA Life Solutions Balanced Fund
SSgA Life Solutions Income and Growth Fund
-22-
<PAGE>
Filed pursuant to Rule 485(b)
File Nos. 33-19229; 811-5430
SSgA FUNDS
One International Place
Boston, Massachusetts 02110
(800) 647-7327
ACTIVE INTERNATIONAL FUND
SSgA Funds is a registered, open-end management investment company with multiple
portfolios, each of which is commonly referred to as a mutual fund. This
Prospectus describes and offers shares of beneficial interest in one mutual
fund, the SSgA Active International Fund (the "Active International Fund" or the
"Fund"). The Active International Fund seeks to provide long-term capital growth
by investing primarily in securities of foreign issuers. The Fund's shares are
offered without sales commissions. However, the Fund pays certain distribution
expenses under its 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.
SHARES IN THE 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 sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Please read and retain this
document for future reference. Additional information about the SSgA Funds has
been filed with the Securities and Exchange Commission ("SEC") in Statements of
Additional Information ("SAI") dated December 24, 1997. The SAI is incorporated
herein by reference and is available without charge from Distributor at its
address noted below or by calling (800) 647-7327. The SEC also maintains a
website (www.sec.gov) that contains the SAI, material incorporated by reference
and other information regarding the SSgA Funds. You may also access the SSgA
Funds' website at www.ssgafunds.com.
<TABLE>
<S> <C> <C>
Investment Advisor, Custodian
Transfer Agent: Distributor: Administrator:
State Street Bank and Trust Russell Fund Distributors, Inc. Frank Russell Investment
Company One International Place Management Company
225 Franklin Street Boston, Massachusetts 02110 909 A Street
Boston, Massachusetts 02110 Tacoma, Washington 98402
</TABLE>
PROSPECTUS DATED December 24, 1997
-1-
<PAGE>
TABLE OF CONTENTS
Page
Fund Operating Expenses.................................................. 3
Financial Highlights..................................................... 4
SSgA Funds............................................................... 5
Manner of Offering....................................................... 5
Investment Objective, Policies and Restrictions.......................... 5
Risk Factors............................................................. 9
Portfolio Turnover....................................................... 10
Dividends and Distributions.............................................. 11
Taxes.................................................................... 12
Valuation of Fund Shares................................................. 13
Purchase of Fund Shares.................................................. 13
Redemption of Fund Shares................................................ 15
General Management....................................................... 17
Fund Expenses............................................................ 20
Performance Calculations................................................. 20
Additional Information................................................... 20
-2-
<PAGE>
FUND OPERATING EXPENSES AFTER FEE WAIVER
SSgA ACTIVE INTERNATIONAL FUND
The following table is intended to assist the investor in understanding the
various costs and expenses that an investor in the Active International Fund
will incur directly or indirectly. The examples should not be considered a
representation of past or future expenses. Actual expenses may be greater or
less than those shown. For additional information, see "General Management."
<TABLE>
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses:
- ---------------------------------
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
Annual Fund Operating Expenses:
- -------------------------------
(as a percentage of average daily net assets)
Advisory Fees (After Fee Waiver)(1) .35%
12b-1 Distribution Fees(1) .04
12b-1 Shareholder Servicing Fees(1) .03
Other Expenses(1) .58
---
Total Operating Expenses (After Fee Waiver)(1),(2) 1.00%
=====
Examples: 1 year 3 years 5 years 10 years
- -------- ------ ------- ------- --------
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:
$10 $32 $55 $122
=== === === ====
</TABLE>
(1) The Advisor voluntarily agrees to waive up to the full amount of its
Advisory fee of .75% of average daily net assets to the extent that total
expenses exceed 1.00% on an annual basis. The total operating expenses of
the Fund absent the fee waiver would be 1.40% of average daily net assets
on an annual basis. This agreement will remain in effect for the current
fiscal year.
(2) Investors purchasing 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.
Long-term shareholders of the Fund may pay more in Rule 12b-1 fees than the
economic equivalent of the maximum front-end sales charges permitted by the
National Association of Securities Dealers, Inc.
-3-
<PAGE>
FINANCIAL HIGHLIGHTS
SSgA ACTIVE INTERNATIONAL FUND
The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Fund's independent
accountants. The table includes selected data for a share outstanding throughout
each fiscal year or period ended August 31, and other performance information
derived from the financial statements. The table appears in the Fund's Annual
Report and should be read in conjunction with the Fund's financial statements
and related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand L.L.P., in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Distributor at (800) 647-7327.
<TABLE>
<CAPTION>
1997 1996 1995++
---- ---- ----
<S> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $ 10.96 $ 10.89 $ 10.00
----------- ---------- -----------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .10 .36 .03
Net realized and unrealized gain
(loss) on investments .03 .28 .86
---------- ---------- -----------
Total From Investment Operations .13 .64 .89
---------- ---------- -----------
LESS DISTRIBUTIONS:
Net investment income
(.18) (.57) --
Net realized gain on investments
(.06) -- --
---------- ---------- -----------
Total Distributions (.24) (.57) --
---------- ---------- -----------
NET ASSET VALUE, END OF YEAR $ 10.85 $ 10.96 $ 10.89
=========== ========== ===========
TOTAL RETURN (%) (a) 1.17 6.22 8.90
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
($000 omitted) 83,930 54,595 25,186
Ratios to average net assets (%)(b)
Operating expenses, net (b) 1.00 1.00 1.79
Operating expenses, gross (b) 1.40 1.47 2.56
Net investment income (b) 1.12 1.16 1.11
Portfolio turnover (%) (b) 48.29 22.02 7.17
Per share amount of expense
reductions ($ omitted) .0366 .1459 .0207
Average commission rate paid per
share of security ($ omitted) (c) .0030 .0021 N/A
</TABLE>
++ For the period March 7, 1995 (commencement of operations) to
August 31, 1995.
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended August 31, 1995 are annualized.
(c) In certain foreign markets, the relationship between the translated US
dollar price per share of security and commission paid per share of
security may vary from that of domestic markets.
-4-
<PAGE>
SSgA FUNDS
SSgA Funds ("Investment Company") is an open-end management investment
company that is organized as a Massachusetts business trust. In addition, each
series of the Investment Company is diversified as defined in the Investment
Company Act of 1940, as amended ("1940 Act"). As a "series" company, Investment
Company is authorized to issue an unlimited number of shares evidencing
beneficial interests in different investment portfolios. Through this
Prospectus, Investment Company offers shares in one such portfolio, the Active
International Fund. State Street Bank and Trust Company (the "Advisor" or "State
Street") serves as the investment advisor for the Fund.
MANNER OF OFFERING
Distribution and Eligible Investors. Shares of the Fund are offered
without a sales commission by Russell Fund Distributors, Inc. (the
"Distributor"), Investment Company's distributor, to US and foreign
institutional and retail investors that invest for their own account or in a
fiduciary or agency capacity. The Fund will incur distribution expenses under
its Rule 12b-1 plan. See "General Management -- Distribution Services and
Shareholder Servicing."
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
The Fund's nonfundamental investment objective is to provide long-term
capital growth by investing primarily in securities of foreign issuers. This
objective may be changed by the Fund's Board of Trustees without shareholder
approval, although shareholders will receive prior notice of any change to the
Fund's investment objective. There can be no assurance that the Fund will meet
its stated investment objective.
The 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. For additional investment policies, see "Investment Policies."
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, Portugal, 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 Fund will invest at least 65% of its total assets in equity
securities of foreign issuers. In addition to investment in equities, the 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 options on futures.
For investment restrictions on the use of these derivatives, please refer to the
investment policies section of this Prospectus. However, the Fund may invest in
other equity securities and may temporarily for defensive purposes, without
limitation, invest in certain short-term fixed income securities. Such
securities may be used to invest uncommitted cash balances or to maintain
liquidity to meet shareholder redemptions. See "Investment Policies -- Cash
Reserves."
Of the fixed-income instruments used by the 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." Please see the Statement of Additional
Information for a description of the securities ratings.
Investment Policies
The investment policies described below reflect the Fund's current
practices, are not fundamental and may be changed by the Board of Trustees of
Investment Company without shareholder approval. For more information on the
Fund's Investment Policies, see the Statement of Additional Information. To the
extent consistent with the Fund's
-5-
<PAGE>
investment objective and restrictions, the Fund may invest in the following
instruments and may use the following investment techniques:
US and International Equity Securities. The Fund may invest in common
and preferred equity securities publicly traded in the United States or in
foreign countries. The 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 under "Risk Factors -- Foreign Securities."
Foreign Currency. The 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 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 portfolio positions generally. The Fund is not
obligated to hedge its portfolio positions and will enter into such transactions
only to the extent, if any, deemed appropriate by Advisor. 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 Fund may also
purchase or sell listed or over-the-counter 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 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 Fund
will not speculate in foreign security or currency options or futures or related
options. Long hedges (buying foreign currency futures or options) and short
hedges (selling foreign currency futures or options) are a cost-effective way to
hedge (eliminate or limit) the risk of possible variations in the exchange rate
between various currencies.
The 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 may enter into forward
exchange contracts for hedging purposes to the extent the Fund holds foreign
currencies. The Fund will not enter into a forward contract with a term of more
than one year.
Emerging Markets. The Fund may invest in equity securities issued by
companies domiciled, or doing a substantial portion of their business, in
countries determined by the Fund's 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. 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.
Equity Swaps. Equity swap agreements are contracts between parties in
which one party agrees to make payments to the other party based on the change
in market value of a specified index or asset. In return, the other party agrees
to make payments to the first party based on the return of a different specified
index or asset. Although swap agreements entail the risk that a party will
default on its payment obligations, the portfolios will minimize this risk by
entering into agreements only with counterparties that the Advisor deems
creditworthy. Swap agreements also bear the risk that the portfolios will
-6-
<PAGE>
not be able to meet their obligation to the counterparty. This risk will be
mitigated by investing the portfolios in the specific asset for which it is
obligated to pay a return.
Lending Portfolio Securities. The Fund may lend portfolio securities
with a value of up to 33-1/3% of its total assets. For these purposes, total
assets shall include the value of all assets received as collateral for the
loan. Such loans may be terminated at any time. The 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, the 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, the 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. The 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, the 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 Advisor to be of good financial standing. In a
loan transaction, the Fund will also bear the risk of any decline in value of
securities acquired with cash collateral. The Fund will minimize this risk by
limiting the investment of cash collateral to high quality instruments of short
maturity.
Depository Receipts. The Fund may invest in securities of foreign
issuers in the form of American Depository Receipts ("ADRs"), European
Depository Receipts ("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 many foreign issuers are subject. For purposes of
the Fund's investment policies, the 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.
Repurchase Agreements. The 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 Fund receives
securities as collateral. Under a repurchase agreement, a Fund purchases
securities from a financial institution that agrees to repurchase the securities
at the Fund's original purchase price plus interest within a specified time
(normally one business day). The Fund will limit repurchase transactions to
those member banks of the Federal Reserve System and broker-dealers whose
creditworthiness Advisor considers satisfactory. Should the counterparty to a
transaction fail financially, the 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 the
Fund.
Reverse Repurchase Agreements. The Fund may enter into reverse
repurchase agreements under the circumstances described in "Investment
Restrictions." In substance, a reverse repurchase agreement is a borrowing for
which the Fund provides securities as collateral. Under a reverse repurchase
agreement, the Fund sells portfolio securities to a financial institution 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 at a
prescribed repurchase price equal to the amount of cash originally received plus
interest on such amount. The Fund retains the right to receive interest and
principal payments with respect to the securities while they are in the
possession of the financial institutions. Reverse repurchase agreements involve
the risk of default by the counterparty, which may adversely affect the Fund's
ability to reacquire the underlying securities.
Convertible Securities. The Fund 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
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value of the underlying stock rises, whereas it tends to decrease as the market
value of the underlying stock declines. Of the convertible securities used by
the 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." Please see the
Statement of Additional Information for a description of the securities ratings.
Cash Reserves. For the purpose of investing uncommitted cash balances
or to maintain liquidity to meet shareholder redemptions, the Fund may invest
temporarily and without limitation in high quality short-term fixed income
securities. 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.
Securities Warrants. The Fund may invest up to 5% of its net assets in
warrants of foreign or domestic issuers. Included in such amount, but not to
exceed 2% of the value of the Fund's assets, may be warrants that are not listed
on a securities exchange. A warrant typically is a long term option issued by a
corporation which generally gives the holder the privilege of buying a specified
number of shares of the underlying common stock of the issuer at a specified
exercise price at any time on or before an expiration date. Stock index warrants
entitle the holder to receive, upon exercise, an amount in cash determined by
reference to fluctuations in the level of a specified stock index. If the Fund
does not exercise or dispose of a warrant prior to its expiration, it will
expire worthless.
Foreign Government Securities. Foreign government securities which the
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.
Forward Commitments. The Fund 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 the Fund of a dollar
amount sufficient to make payment for the portfolio securities to be purchased
will be segregated on the Fund'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 the Fund to miss an advantageous price or
yield. The Fund bears the risk of price fluctuations during the period between
the trade and settlement dates. For additional discussion of the risks
associated with the use of foreign currency transactions, see "Risk Factors --
Foreign Currency."
Options on Securities and Securities Indices. The Fund may write and
purchase covered put and call options on securities in which it may directly
invest. Option transactions of the 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 Fund's total assets. Further, the 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 Fund's total assets.
The Fund may purchase or sell options on securities indices that are
comprised of securities in which it 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. Please refer to the section
entitled "Hedging Strategies and Related Investment Techniques" in the Statement
of Additional Information for further information.
Futures Contracts and Options on Futures. For hedging purposes,
including protecting the price or interest rate of a security the Fund intends
to buy, the 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.
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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. A stock index futures contract is a contract to buy
or sell specified units of a stock index at a specified date at a price agreed
upon when the contract is made. The value of a unit is based on the current
value of the stock index. 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. Upon entering into a
futures contract, the 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 the Fund will honor its futures commitment. 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, the 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. Please refer to the section entitled
"Hedging Strategies and Related Investment Techniques" in the Statement of
Additional Information for further information.
Purchase of Other Funds. To the extent permitted under the 1940 Act and
exemptive rules and orders thereunder, the Fund may seek to achieve its
investment objective by investing solely in the shares of another investment
company that has a substantially similar investment objective and policies.
Investment Restrictions
The Fund has fundamental investment restrictions, which may be changed
only with the approval of a majority of the Fund's shareholders as defined in
the 1940 Act. A more detailed discussion of the Fund's investment restrictions
and investment policies appears in the Statement of Additional Information.
Unless otherwise noted, the fundamental restrictions apply at the time an
investment is made. The 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 non-depository instruments issued by
European banks). 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 Fund's assets
taken at market value, less liabilities other than borrowings.
If at any time a 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 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 Fund
may pledge securities having a market value at the time of the
pledge not exceeding 33-1/3% of the value of the Fund's total
assets to secure permitted borrowings.
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RISK FACTORS
Foreign Securities. Investors should consider carefully the substantial
risks involved in securities of companies and governments of foreign nations.
There may be less publicly available information about foreign companies
comparable to the reports and ratings published regarding US companies. Foreign
companies are not generally subject to uniform accounting, auditing and
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to US companies. Many foreign markets have
substantially less volume than either the established domestic securities
exchanges or the over-the-counter markets. Securities of some foreign companies
are less liquid and more volatile than securities of comparable US companies.
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 and related
administrative uncertainties.
Foreign Currency. The 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 Fund endeavors 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.
Futures Contracts and Options on Futures. 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. Finally, the successful use of options and futures also depends on the
Advisor's ability to correctly predict price movements in the market involved in
a particular option or futures transaction. Please refer to the section "Hedging
Strategies and Related Investment Techniques - Risk Factors in Options, Futures,
Forward and Currency Transactions" in the Statement of Additional Information
for further information.
Emerging Markets. Investments in companies domiciled in emerging market
countries may be subject to additional risks. These risks include: (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 can have political systems which
can be expected to have less stability 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 such
securities and the currently low or nonexistent volume of trading can 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 Fund's securities will generally
be denominated in foreign currencies, the value of such securities to the Fund
will be affected by changes in currency exchange rates and in 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 Fund's
securities. In addition, some emerging market countries may have fixed or
managed currencies which are not free-floating against the US dollar. Further,
certain emerging market currencies may not be internationally traded. Certain of
these 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 Fund's
investment opportunities and may include restrictions on investment in
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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.
PORTFOLIO TURNOVER
The portfolio turnover rate cannot be predicted, but it is anticipated
that the Fund's annual turnover rate generally will not exceed 80%. A high
turnover rate (over 100%) will: (1) increase transaction expenses which will
adversely affect a Fund's performance; and (2) result in increased brokerage
commissions and other transaction costs, and the possibility of realized capital
gains. The Advisor's sell discipline for the Fund's investment in securities of
foreign issuers is based on the premise of a long-term investment horizon,
however, sudden changes in valuation levels arising from, for example, new
macroeconomic policies, political developments, and industry conditions could
change the assumed time horizon. Some countries impose restrictions on
repatriation of capital and/or dividends which would lengthen the Advisor's
assumed time horizon in those countries. Liquidity, volatility, and overall risk
of a position are other factors considered by the Advisor in determining the
appropriate investment horizon. Therefore, the Fund may dispose of securities
without regard to the time they have been held when such action, for defensive
or other purposes, appears advisable.
The Fund may effect portfolio transactions through State Street Brokerage
Services, Inc. an affiliate of the Advisor, when the Advisor determines that the
Fund will receive competitive execution, price and commissions.
DIVIDENDS AND DISTRIBUTIONS
The Board of Trustees intends to declare and pay dividends on shares of
the Fund annually from net investment income. The Board of Trustees intends to
declare distributions annually from net short-and long-term capital gains, if
any, generally in mid-October. It is intended that an additional distribution
may be declared and paid in December if required for the Fund 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 Fund and received by shareholders on December
31 of that year if the dividend is paid prior to February 1 of the following
year.
Income dividend and capital gain distributions will be paid 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 Fund mailings to an investor, the
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 Fund until
the investor notifies the SSgA Funds 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 Fund shortly
after a purchase of shares will reduce the per share net asset value of the Fund
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:
[bullet] Reinvestment Option--Income dividends and capital gains
distributions will be automatically reinvested in additional
shares of the Fund. If the investor does not indicate a choice
on the Application, this option will be automatically
assigned.
[bullet] Income-Earned Option--Capital gain distributions will be
automatically reinvested, but a check or wire will be sent for
each income dividend distribution.
[bullet] Cash Option--A check or wire will be sent for each income
dividend and capital gain distribution.
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[bullet] Direct Dividends Option--Dividends and capital gain
distribution will be automatically invested in another
identically registered SSgA Fund.
Distributions will be sent to a pre-designated bank by the Automatic
Clearing House ("ACH") on the payable date.
TAXES
The Fund intends to qualify as a regulated investment company ("RIC")
under Subchapter M of the Internal Revenue Code, as amended (the "Code"). As a
RIC, the Fund will not be subject to federal income taxes to the extent it
distributes its net investment income and net capital gain (long-term capital
gains in excess of short-term capital losses) to its shareholders. The Board
intends to distribute each year substantially all of the Fund's net investment
income and capital gain net income.
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 20% gains and 28% gains are taxable as 20% gains or 28%
gains regardless of the length of time a shareholder has held such shares and
whether paid in cash or additional shares.
Dividends and distributions may also be subject to state or local
taxes. Depending on the state tax rules pertaining to a shareholder, a portion
of the dividends paid by the Fund attributable to direct obligations of the US
Treasury and certain agencies may be exempt from state and local taxes.
The sale of 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 portfolios of a mutual fund). Any loss incurred on the sale or
exchange of Fund shares held for one year or more will be treated as a 20% loss
or a 28% loss to the extent of capital gain dividends received with respect to
such shares.
Shareholders will be notified after each calendar year of the amounts
of income dividends and net capital gains distributions and the percentage of
the Fund's income attributable to US Treasury and agency obligations. The 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 Fund with the shareholder's correct taxpayer
identification number or certification that the shareholder is not subject to
backup withholding.
Foreign Income Taxes. Investment income received by the Fund 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 the 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 the Fund in advance since the amount of the assets to be
invested within various countries is not known.
If the Fund invests 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 Fund. The Fund can elect
to mark-to-market its PFIC holdings in lieu of paying taxes on gains or
distributions therefrom. It is anticipated that any taxes on a Fund with respect
to investments in PFICs would be insignificant.
Foreign shareholders should consult with their tax advisors as to if
and how the federal income tax and its withholding requirements applies to them.
If more than 50% in value of a Fund's total assets at the close of any
taxable year consists of securities of foreign corporations, the Fund may file
an election with the Internal Revenue Service (the "Foreign Election") that
would permit shareholders to take a credit (or a deduction) for foreign income
taxes paid by the Fund. The Fund may be subject to certain holding period
requirements with respect to securities held in order to take advantage of the
credit. If the Foreign Election is made, shareholders would include in their
gross income both dividends received from the Fund and foreign income taxes paid
by the Fund. Shareholders of the Fund would be entitled to treat the foreign
income taxes withheld as a credit against their United States federal income
taxes, subject to the limitations set forth in the Internal Revenue Code with
respect to the foreign tax credit generally. Alternatively, shareholders could
treat the foreign income taxes withheld as a deduction from
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gross income in computing taxable income rather than as a tax credit. It is
anticipated that the Fund will qualify to make the Foreign Election; however,
the Fund cannot be certain that it will be eligible to make such an election or
that any particular shareholder will be eligible for the foreign tax credit.
The foregoing discussion is only a summary of certain federal income
tax issues generally affecting the Fund and its shareholders. Circumstances
among investors may vary and each investor is encouraged to discuss investment
in the Fund with the investor's tax advisor.
VALUATION OF FUND SHARES
Net Asset Value Per Share. The Fund determines 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. Net asset value per share is
computed by dividing the current value of the Fund's assets, less its
liabilities, by the number of shares of the Fund outstanding and rounding to the
nearest cent.
Valuation of Fund Securities. With the exceptions noted below, the Fund
values portfolio securities at market value. This generally means that 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 or
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.
Fixed income securities maturing within 60 days of the valuation date
are valued at amortized cost unless the Board determines that the amortized cost
method does not represent 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 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 a Fund
would receive if it sold the instrument.
The Fund values 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.
PURCHASE OF FUND SHARES
Minimum Initial and Subsequent Investments and Account Balance. The
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 the Fund (other than IRA
accounts) may be subject to redemption at the 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. The Fund reserves
the right to reject any purchase order. Investors purchasing Fund assets through
a pension or other participation plan should contact their plan administrator
for further information on purchases.
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Offering Dates and Times. Fund shares may be purchased on any business
day without a sales commission. All purchases must be made in US dollars.
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 to be effective on the date received. The
Fund reserves 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.
Order and Payment Procedures. There are several ways to invest in the
Fund. The Fund requires 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 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 may be withheld until the check or account
clears, which may take up to 15 calendar days.
Telephone Exchange Privilege. Subject to the Fund's minimum investment
requirement, investors may exchange a minimum of $100 of their 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 on the business day on which the
call is placed or upon written receipt of instructions in good form by the
Transfer Agent. Exchanges may be made over the phone if the registrations of the
two accounts are identical. If the shares of the 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 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.
Federal Funds Wire. An investor may make initial or subsequent
investments 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 Fund in which the investment is to be made and
the account number; and (c) the amount being wired.
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 Active International Fund
Account Number and Registration
-14-
<PAGE>
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 Fund 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 Fund's minimum initial requirement
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 Fund offers 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 Fund has been satisfied.
Third Party Transactions. Investors purchasing 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.
In Kind Exchange of Securities. The Transfer Agent may, at its
discretion, permit investors to purchase shares through the exchange of
securities they hold. Any securities exchanged must meet the investment
objective, policies and limitations of the Fund, must have a readily
ascertainable market value, must be liquid and must not be subject to
restrictions on resale. The market value of any securities exchanged, plus any
cash, must be at least $10 million. Shares purchased in exchange for securities
generally may not be redeemed or exchanged until the transfer has
settled--usually within 15 days following the purchase exchange.
The basis of the exchange will depend upon the relative net asset value
of the shares purchased and securities exchanged. Securities accepted by the
Fund will be valued in the same manner as the Fund values its assets. Any
interest earned on the securities following their delivery to the Transfer Agent
and prior to the exchange will be considered in valuing the securities. All
interest, dividends subscription or other rights attached to the securities
become the property of the Fund, along with the securities.
REDEMPTION OF FUND SHARES
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. Typically, 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.
Redemption requests must be received prior to 4:00 p.m. Eastern time in
order be effective on the date received. Shareholder servicing agents with
underlying shareholders in omnibus accounts who receive redemption requests by
4:00 p.m. Eastern time may transmit the request to the Transfer Agent by 9:00
a.m. Eastern time the next succeeding business day and receive the dividend as
of the day the redemption request was originally made by the underlying
shareholder.
Telephone Redemption. Shareholders may normally redeem 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 Fund and the Transfer Agent will employ reasonable procedures
to confirm that instructions communicated by telephone are properly authorized.
The 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
-15-
<PAGE>
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.
By Wire. Proceeds exceeding $1,000 may be sent via wire transfer to the
investor's pre-designated bank. Proceeds may be sent, depending on the Fund, on
the same or the next day. Although the Fund does 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. Requests
must be received prior to 4:00 p.m. The shares will be redeemed using that day's
closing price, and the proceeds will be wired the following business day.
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 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.
-16-
<PAGE>
<TABLE>
<CAPTION>
Seller Requirements for Written Requests
<S> <C>
Owner of individual, [bullet] 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 [bullet] Signature guarantee, if applicable (see above).
accounts
Owners of corporate or [bullet] Letter of instruction signed by authorized
association accounts person(s), stating capacity as indicated by the
corporate resolution;
[bullet] Corporate resolution, certified within the past 90
days; and
[bullet] Signature guarantee, if applicable (see above).
Owners or trustees of [bullet] Letter of instruction, signed by all trustees;
trust accounts [bullet] If the trustees are not named in the registration,
please provide a copy of the trust document certified
within the past 60 days; and
[bullet] Signature guarantee, if applicable (see above).
Joint tenancy shareholders [bullet] Letter of instruction signed by surviving tenant(s);
whose co-tenants are [bullet] Certified copy of the death certificate; and
deceased [bullet] Signature guarantee, if applicable (see above).
</TABLE>
Please contact the Customer Service Department at (800) 647-7327 for
questions and further instructions.
The Fund may pay any portion of the redemption amount in excess of
$250,000 by a distribution in kind of readily marketable securities from the
portfolio of the Fund in lieu of cash. Investors will incur brokerage charges on
the sale of these portfolio securities. The 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 Fund and has approved contracts with various financial organizations to
provide, among other services, day-to-day management required by the Fund.
Advisory Agreement. The Investment Company employs State Street to
furnish investment services to the Fund. State Street is one of the largest
providers of securities processing and recordkeeping services for US mutual
funds and pension funds. State Street Global Advisors is the investment
management business of State Street, a 200 year old pioneer and leader in the
world of financial services. State Street is a wholly owned subsidiary of State
Street Corporation, a publicly held bank holding company. State Street, with
over $370 billion (US) under management as of September 30, 1997, provides
complete global investment management services from offices in Atlanta, Boston,
Brussels, Copenhagen, Dubai, Hong Kong, London, Minneapolis, Montpellier,
Montreal, Munich, Paris, San Francisco, Sydney, Tokyo, and Toronto.
Advisor, subject to Board supervision, directs the investment of the
Fund in accordance with the Fund's investment objective, policies and
restrictions. Mr. Robert Rubano, Assistant Vice President, has been the
portfolio manager primarily responsible for investment decisions regarding the
Fund since its inception in March 1995. Mr. Rubano has been with State Street
since 1990 as a portfolio manager of active international funds. There are seven
other portfolio managers who work with Mr. Rubano in managing the Fund. For
these services, the Fund pays Advisor a fee, calculated daily and paid
-17-
<PAGE>
monthly, that on an annual basis is equal to .75% of the Fund's average daily
net assets. This fee is higher than the investment advisory fees paid by most
investment companies. However, the fee is comparable to that of other funds with
similar investment objectives.
The Glass-Steagall Act prohibits a depository state chartered bank such
as Advisor from engaging in the business of issuing, underwriting, selling or
distributing certain securities. The activities of Advisor in informing its
customers of the Fund, performing investment and redemption services and
providing custodian, transfer, shareholder servicing, dividend disbursing and
investment advisory services may raise issues under these provisions. Advisor
has been advised by its counsel that its activities in connection with the Fund
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 Advisor from continuing to perform all or a part of
the above services for its customers and/or the Funds. If Advisor were
prohibited from serving the 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 Fund may occur. It is not expected by 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 Investment Company portfolios 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 November 30, 1997,
State Street held of record less than 25% of the issued and outstanding shares
of Investment Company in connection with its discretionary accounts.
Consequently, State Street is not 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 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.
Administration Agreement. Frank Russell Investment Management Company
("Administrator") serves as administrator of the Fund. Administrator currently
serves as investment manager and administrator to 32 mutual funds with assets of
$11.3 billion as of October 31, 1997, and acts as administrator to 20 mutual
funds, including the Fund, with assets of $10.8 billion as of October 31, 1997.
Pursuant to the Administration Agreement with Investment Company,
Administrator will: (1) supervise all aspects of the Funds' operations; (2)
provide the Funds with administrative and clerical services, including the
maintenance of certain of the Funds' books and records; (3) arrange the periodic
updating of the Funds' prospectuses and any supplements thereto; (4) provide
proxy materials and reports to Fund shareholders and the Securities and Exchange
Commission; and (5) provide the 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 Active
International Fund pays Administrator a fee that on an annual basis is equal to
the following percentages of each Fund's average daily net assets: $0 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 a particular Fund is equal to
the percentage of average aggregate daily net assets that are attributable to
that Fund. Administrator will also receive reimbursement of expenses it incurs
in connection with establishing new investment portfolios. Further, the
administration fee paid by the Investment Company will be reduced by the sum of
certain distribution related expenses, up to certain maximum percentages, as
follows: (1) 10% from January 1, 1997 to December 31, 1997; 5% from January 1,
1998 to December 31, 1998; and (3) 0% from January 1, 1999 thereafter.
-18-
<PAGE>
Administrator also provides administrative services in connection with
the registration of shares of Investment Company 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, Distributor, a wholly
owned subsidiary of Administrator, serves as distributor for all Fund shares.
The Fund has 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 Fund's average annual net assets for distribution-related and shareholder
servicing expenses. Payments under the Plan will be made to Distributor to
finance activity which is intended to result in the sale and retention of Fund
shares including: (1) payments made to certain broker-dealers, investment
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 Fund shares, including
Distributor's overhead expenses for rent, office supplies, equipment, travel,
communication, compensation and benefits of sales personnel.
Under the Plan, the Fund may also enter into agreements ("Service
Agreements") with financial institutions, which may include Advisor ("Service
Organizations"), to provide shareholder servicing with respect to 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: answering inquiries regarding the Fund; assisting customers
in changing dividend options, account designations and addresses; performing
subaccounting for such customers; establishing and maintaining customer accounts
and records; processing purchase and redemption transactions; 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; arranging for bank wires transferring
customers' funds; and such other services as the customers may request in
connection with the Fund, to the extent permitted by applicable statute, rule or
regulation. Service Organizations may receive from the Fund, for shareholder
servicing, monthly fees at a rate that shall not exceed .20% per annum of the
average daily net asset value of the 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.
The Investment Company has entered into Service Agreements with the
Advisor and the following entities related to the Advisor: State Street
Brokerage Services, Inc., Metropolitan Division of Commercial Banking,
Retirement Investment Services Division and State Street Solutions. The purpose
of the Service Agreements is to obtain shareholder services for Fund shares
owned by clients of each of these entities. In return for these services, the
Investment Company pays each of the entities a fee. These agreements are
reviewed annually by the Board of Trustees.
Payments to the Distributor, as well as payments to Service
Organizations from the Fund are not permitted by the Plan to exceed .25% of the
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 Fund's liability for any
such expenses carried forward shall terminate at the end of two years 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.
-19-
<PAGE>
FUND EXPENSES
The Fund will pay all of their expenses other than those expressly
assumed by Advisor and Administrator. The principal expenses of the Fund are the
annual advisory fee payable to Advisor and distribution and shareholder
servicing expenses. Other expenses include: (1) amortization of deferred
organizational costs; (2) taxes, if any; (3) expenses for legal, auditing and
financial accounting services; (4) expense of preparing (including typesetting,
printing and mailing) reports, prospectuses and notices to existing
shareholders; (5) administrative fees; (6) custodian fees; (7) expense of
issuing and redeeming Fund shares; (8) the cost of registering 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 Fund.
PERFORMANCE CALCULATIONS
From time to time the Fund may advertise its total return. The total
return of a Fund refers to the average annual compounded rates of return from a
hypothetical investment in the Fund over one-, five- and ten-year periods or for
the life of the 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 Fund shares, including data from Morningstar, Lipper
Analytical Services, Inc., Wall Street Journal Score Card, MSCI EAFE Index, or
other industry publications, business periodicals, rating services and market
indices. The Fund may also advertise nonstandardized performance information
which is for periods in addition to those required to be presented.
Total return 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 Fund, provides portfolio
recordkeeping services and serves as the Fund's 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 the
Fund 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 an unaudited semiannual financial statement and an annual financial
statement audited by Investment Company's independent accountants. Shareholder
inquiries regarding the Prospectus, financial statements and shareholder reports
may be made by calling Distributor at (800) 647-7327.
Organization, Capitalization and Voting. 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 issues shares divisible into an unlimited number of
series (or funds), each of which is a separate trust under Massachusetts law.
The Active International Fund is one such series.
Fund shares represent an equal proportionate interest in the Fund, have
a par value of $.001 per share and are entitled to such relative rights and
preferences and dividends and distributions earned on the assets belonging to
the Fund as may be declared by the Board of Trustees. Fund shares are fully paid
and nonassessable by Investment Company and have no preemptive rights.
-20-
<PAGE>
Each 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 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 a Trustee may be removed at any time by a vote of
two-thirds of the 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.
Investment Company does not issue share certificates for the Fund.
Transfer Agent sends Fund 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.
As of November 30, 1997, no single shareholder owned of record 25% or
more of the issued and outstanding shares of the Fund.
-21-
<PAGE>
SSgA FUNDS
One International Place
Boston, Massachusetts 02110
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
-22-
<PAGE>
SSgA FUNDS
SSgA Money Market Fund
SSgA US Government Money Market Fund
SSgA Tax Free Money Market Fund
SSgA S&P 500 Index Fund
SSgA Small Cap Fund
SSgA Matrix Equity Fund
SSgA Yield Plus Fund
SSgA Growth and Income Fund
SSgA Intermediate Fund
SSgA Active International Fund
SSgA Emerging Markets Fund
SSgA Bond Market Fund
SSgA Life Solutions Growth Fund
SSgA Life Solutions Balanced Fund
SSgA Life Solutions Income and Growth Fund
-23-
<PAGE>
Filed pursuant to Rule 485(b)
File Nos. 33-19229; 811-5430
SSgA FUNDS
One International Place
Boston, Massachusetts 02110
(800) 647-7327
SMALL CAP FUND
SSgA Funds is a registered, open-end management investment company with
multiple portfolios, each of which is commonly referred to as a mutual fund.
This Prospectus describes and offers shares of beneficial interest in one such
mutual fund, the SSgA Small Cap Fund (the "Small Cap Fund" or the "Fund") The
Fund seeks to maximize total return through investment in equity securities;
under normal market conditions, at least 65% of total assets will be invested in
securities issued by smaller capitalized issuers. The Fund's shares are offered
without sales commissions. However, the Fund pays certain distribution expenses
under its 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.
SHARES IN THE FUND 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 RISKS INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Please read and retain this
document for future reference. Additional information about the SSgA Funds has
been filed with the Securities and Exchange Commission ("SEC") in Statements of
Additional Information ("SAI") dated December 24, 1997. The SAI is incorporated
herein by reference and is available without charge from Distributor at its
address noted below or by calling (800) 647-7327. The SEC also maintains a
website (www.sec.gov) that contains the SAI, material incorporated by reference
and other information regarding the SSgA Funds. You may also access the SSgA
Funds' website at www.ssgafunds.com.
<TABLE>
<CAPTION>
Investment Advisor, Custodian
and Transfer Agent: Distributor: Administrator:
<S> <C> <C>
State Street Bank and Trust Frank Russell Investment
Company Russell Fund Distributors, Inc. Management Company
225 Franklin Street One International Place 909 A Street
Boston, Massachusetts 02110 Boston, Massachusetts 02110 Tacoma, Washington 98402
</TABLE>
PROSPECTUS DATED December 24, 1997
<PAGE>
TABLE OF CONTENTS
Page
----
Fund Operating Expenses.............................................. 3
Financial Highlights................................................. 4
SSgA Funds........................................................... 5
Manner of Offering................................................... 5
Investment Objectives, Policies and Restrictions..................... 5
Certain Risk Factors................................................. 9
Portfolio Turnover................................................... 9
Dividends and Distributions.......................................... 9
Taxes................................................................ 10
Valuation of Fund Shares............................................. 10
Purchase of Fund Shares.............................................. 11
Redemption of Fund Shares............................................ 13
General Management................................................... 15
Fund Expenses........................................................ 17
Performance Calculations............................................. 17
Additional Information............................................... 17
-2-
<PAGE>
FUND OPERATING EXPENSES AFTER FEE REIMBURSEMENT
SSgA SMALL CAP FUND
The following table is intended to assist the investor in understanding the
various costs and expenses that an investor in the Small Cap Fund will incur
directly or indirectly. The examples should not be considered a representation
of past or future expenses. Actual expenses may be greater or less than those
shown. For additional information, see "General Management."
Shareholder Transaction Expenses:
- ---------------------------------
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
Annual Fund Operating Expenses:
- -------------------------------
(as a percentage of average daily net assets)
Advisory Fees .75%
12b-1 Distribution Fees .05
12b-1 Shareholder Servicing Fees .03
Other Expenses .22
---
Total Operating Expenses (After Fee Reimbursement)1 1.05%
=====
Examples: 1 year 3 years 5 years 10 years
- -------- ------ ------- ------- --------
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:
$11 $33 $58 $128
=== === === ====
- -------------------
1 Investors purchasing 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.
Long-term shareholders of the Fund may pay more in Rule 12b-1 fees that the
economic equivalent of the maximum front-end sales charges permitted by the
National Association of Securities Dealers, Inc.
-3-
<PAGE>
FINANCIAL HIGHLIGHTS
SSgA SMALL CAP FUND
The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Fund's independent
accountants. The table includes selected data for a share outstanding throughout
each fiscal year or period ended August 31, and other performance information
derived from the financial statements. The table appears in the Fund's Annual
Report and should be read in conjunction with the Fund's financial statements
and related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand L.L.P., in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Distributor at (800) 647-7327.
<TABLE>
<CAPTION>
1997 1996 1995+ 1994 1993 1992++
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $ 17.44 $ 14.42 $ 11.88 $ 12.24 $ 10.09 $ 10.00
--------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .03 .04 .13 .21 .22 .04
Net realized and unrealized
gain on investments 5.87 3.25 3.19 .24 2.14 .05
--------- --------- --------- --------- --------- ---------
Total From Investment Operations 5.90 3.29 3.32 .45 2.36 .09
--------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS:
Net investment income (.01) (.07) (.15) (.21) (.21) --
Net realized gain on investments -- (.20) (.58) (.60) -- --
In excess of net realized gain on
investments (1.22) -- (.05) -- -- --
--------- --------- --------- --------- --------- ---------
Total Distributions (1.23) (.27) (.78) (.81) (.21) --
--------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF YEAR $ 22.11 $ 17.44 $ 14.42 $ 11.88 $ 12.24 $ 10.09
========= ========= ========= ========= ========= =========
TOTAL RETURN (%)(a) 33.85 23.14 30.04 3.90 23.66 .90
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year ($000 149,808 55,208 23,301 25,716 34,815 9,392
omitted)
Ratios to average net assets (%)
Operating expenses, net (b) 1.00 1.00 .97 .30 .25 .25
Operating expenses, gross (b) 1.09 1.18 1.58 .81 1.18 1.71
Net investment income (b) .18 .26 .81 1.73 1.85 2.55
Portfolio turnover rate (%)(b) 143.79 76.85 192.88 44.86 81.14 4.59
Per share amount of expense
reductions ($ omitted) .0141 .0277 .0991 .0628 .1123 .0247
Average commission rate paid per
share of security ($ omitted) .0365 .0368 N/A N/A N/A N/A
</TABLE>
+ Prior to November 22, 1994, the Fund was passively managed as the S&P
Midcap Index Fund.
++ For the period July 1, 1992 (commencement of operations) to August 31,
1992.
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended August 31, 1992 are annualized.
-4-
<PAGE>
SSgA FUNDS
SSgA Funds ("Investment Company") is an open-end management investment
company that is organized as a Massachusetts business trust. In addition, each
series of the Investment Company is diversified as defined in the Investment
Company Act of 1940, as amended ("1940 Act"). As a "series" company, the
Investment Company is authorized to issue an unlimited number of shares
evidencing beneficial interest in different investment portfolios. Through this
Prospectus, the Investment Company offers shares in one such portfolio, the
Small Cap Fund. State Street Bank and Trust Company (the "Advisor" or "State
Street") serves as the investment advisor for the Fund.
MANNER OF OFFERING
Distribution and Eligible Investors. Shares of the Fund are offered
without a sales commission by Russell Fund Distributors, Inc. (the
"Distributor"), the Investment Company's distributor, to US and foreign
institutional and retail investors that invest for their own account or in a
fiduciary or agency capacity. The Fund will incur distribution expenses under
its Rule 12b-1 plan. See "General Management -- Distribution Services and
Shareholder Servicing."
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
The Fund's 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. This
objective may be changed by the Fund's Board of Trustees without shareholder
approval, although shareholders will receive prior notice of any change to the
Fund's investment objective. There can be no assurance that the Fund will meet
its investment objective.
Equity securities will be selected by the Fund on the basis of proprietary
analytical models of Advisor.
The Fund will invest primarily in a portfolio of smaller 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.
The Fund will measure its performance against the Russell 2000(R) Index.
Sector and industry weight are maintained at a similar level to that of the
Russell 2000 Index to avoid unintended exposure to factors such as the direction
of the economy, interest rates, energy prices and inflation. The Russell 2000
Index consists of the smallest 2,000 companies in the Russell 3000(R) Index,
representing approximately 11% 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 $874 million.
Under normal market conditions, the Fund will invest at least 65% of its
total assets in securities of smaller companies. However, the Fund may invest in
other equity securities and may temporarily for defensive purposes, without
limitation, in certain short-term investment grade debt securities. Such
securities may be used to invest uncommitted cash balances or to maintain
liquidity to meet shareholder redemptions. See "Investment Policies -- Cash
Reserves." For additional investment strategies, see "Investment Policies."
Investment Policies
- -------------------
The investment policies described below reflect the Fund's current
practices, are not fundamental and may be changed by the Board of Trustees of
Investment Company without shareholder approval. For more information on the
Fund's Investment Policies, see the Statement of Additional Information. To the
extent consistent with the Fund's investment objective and restrictions, the
Fund may invest in the following instruments and may use the following
investment techniques:
-5-
<PAGE>
US Government Securities. 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. The 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 Fund receives securities as
collateral. Under a repurchase agreement, a Fund purchases securities from a
financial institution that agrees to repurchase the securities at the Fund's
original purchase price plus interest within a specified time (normally one
business day). The Fund will limit repurchase transactions to those member banks
of the Federal Reserve System and broker-dealers whose creditworthiness Advisor
considers satisfactory. Should the counterparty to a transaction fail
financially, the 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 the Fund.
Reverse Repurchase Agreements. The Fund may enter into reverse repurchase
agreements under the circumstances described in "Investment Restrictions." In
substance, a reverse repurchase agreement is a borrowing for which the Fund
provides securities as collateral. Under a reverse repurchase agreement, the
Fund sells portfolio securities to a financial institution 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 at a prescribed repurchase
price equal to the amount of cash originally received plus interest on such
amount. The Fund retains the right to receive interest and principal payments
with respect to the securities while they are in the possession of the financial
institutions. Reverse repurchase agreements involve the risk of default by the
counterparty, which may adversely affect the Fund's ability to reacquire the
underlying securities.
Forward Commitments. The Fund 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 the Fund of a dollar
amount sufficient to make payment for the portfolio securities to be purchased
will be segregated on the Fund'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 the Fund to miss an advantageous price or
yield. The Fund bears the risk of price fluctuations during the period between
the trade and settlement dates.
When-Issued Transactions. The Fund may purchase securities on a
when-issued basis. In these transactions, a Fund purchases securities with
payment and delivery scheduled for a future time. Until settlement, the Fund
segregates cash and marketable securities equal in value to their when-issued
commitments. Between the trade and settlement dates, the 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 the Fund to miss a price or yield considered advantageous. The Fund will
engage in when-issued transactions only for the purpose of acquiring portfolio
securities consistent with its investment objective and policies and not for
investment leverage. The Fund will not invest more than 25% of its net assets in
when-issued securities.
Illiquid Securities. The Fund will not invest more than 15% of its net
assets in illiquid securities or securities that are not readily marketable,
including repurchase agreements and time deposits of more than seven days'
duration. The absence of a regular trading market for illiquid securities
imposes additional risks on investments in these securities. Illiquid securities
may be difficult to value and may often be disposed of only after considerable
expense and delay.
Variable Amount Master Demand Notes. 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.
Futures Contracts and Options on Futures. For hedging purposes, including
protecting the price or interest rate of securities that the Fund intends to
buy, the Fund may enter into futures contracts that relate to securities in
which they may directly invest and indices comprised of such securities and may
purchase and write call and put options on such contracts.
-6-
<PAGE>
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. A stock index futures contract is a contract to buy
or sell specified units of a stock index at a specified future date at a price
agreed upon when the contract is made. The value of a unit is based on the
current value of the contract index. Under such contracts no delivery of the
actual stocks 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. Upon entering into a futures
contract, a 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 the Fund will honor their 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, the 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. The Fund may write and
purchase covered put and call options on securities in which it may directly
invest. Option transactions of the 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 Fund's total assets. Further, the 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 Fund's total assets.
The Fund may purchase or sell options on securities indices that are
comprised of securities in which it 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.
Lending Portfolio Securities. The Fund may lend portfolio securities with
a value of up to 33-1/3% of its total assets. For these purposes, total assets
shall include the value of all assets received as collateral for the loan. Such
loans may be terminated at any time. The 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, the
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, the 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.
The 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, the 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 Advisor to be of good financial standing. In a loan transaction,
the Fund will also bear the risk of any decline in value of securities acquired
with cash collateral. The Fund will minimize this risk by limiting the
investment of cash collateral to high quality instruments of short maturity.
Cash Reserves. For the purpose of investing uncommitted cash balances or
to maintain liquidity to meet shareholder redemptions, the Fund may invest
temporarily and without limitation in high quality short-term fixed income
securities. 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.
Warrants. The Fund 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. The
Fund will not invest 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
Exchanges.
-7-
<PAGE>
Convertible Securities. The Fund 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.
Debt Securities. The Fund may also invest temporarily in investment grade
debt securities for defensive purposes. The Fund will primarily invest in equity
securities as defined under the Securities Exchange Act of 1934 (including
convertible debt securities). Other debt will typically represent less than 10%
of the Fund's total assets. Please see the Statement of Additional Information
for a description of securities ratings.
Purchase of Other Funds. To the extent permitted under the 1940 Act and
exemptive rules and orders thereunder, the Fund may seek to achieve its
investment objective by investing solely in the shares of another investment
company that has a substantially similar investment objective and policies.
Investment Restrictions
- -----------------------
The Fund has fundamental investment restrictions, which may be changed
only with the approval of a majority of the Fund's shareholders as defined in
the 1940 Act. A more detailed discussion of the Fund's investment restrictions
and investment policies appears in the Statement of Additional Information.
Unless otherwise noted, the fundamental restrictions apply at the time an
investment is made. The 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
non-depository instruments issued by European banks).
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 Fund's assets taken at market value,
less liabilities other than borrowings. If at any time a 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. The 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, the Fund
may pledge securities having a market value at the time of the
pledge not exceeding 33-1/3% of the value of the Fund's total
assets to secure permitted borrowings.
-8-
<PAGE>
CERTAIN RISK FACTORS
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.
PORTFOLIO TURNOVER
The portfolio turnover rate cannot be predicted, but it is anticipated
that the Fund's annual turnover rate generally will not exceed 200%. A high
turnover rate (over 100%) will: (1) increase transaction expenses which will
adversely affect a Fund's performance; and (2) result in increased brokerage
commissions and other transaction costs, and the possibility of realized capital
gains.
The Fund may effect portfolio transactions through State Street Brokerage
Services, Inc., an affiliate of the Advisor, when the Advisor determines that
the Fund will receive competitive execution, price and commissions.
DIVIDENDS AND DISTRIBUTIONS
The Board of Trustees intends to declare and pay dividends on shares of
the Fund annually from net investment income. The Board of Trustees intends to
declare distributions annually from net short- and long-term capital gains, if
any, generally in mid-October. It is intended that an additional distribution
may be declared and paid in December if required for the Fund 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 Fund and received by shareholders on December
31 of that year if the dividend is paid prior to February 1 of the following
year.
Income dividends and capital gains distributions will be paid 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 Fund mailings to an investor, the
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 Fund until
the investor notifies the SSgA Funds 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 Fund shortly after a
purchase of shares will reduce the per share net asset value of the Fund 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 dividends and capital gains distributions
will be automatically reinvested in additional shares of the Fund. If
the investor does not indicate a choice on the Application, this option
will be automatically 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.
-9-
<PAGE>
[ ] Direct Dividends Option--Dividends and capital gain distribution will
be automatically invested in another identically registered SSgA Fund.
Distributions will be sent to a pre-designated bank by the Automatic
Clearing House ("ACH") on the payable date.
TAXES
The Fund intends to qualify as a regulated investment company ("RIC")
under Subchapter M of the Internal Revenue Code, as amended (the "Code"). As a
RIC, the Fund will not be subject to federal income taxes to the extent it
distributes its net investment income and net capital gain (long-term capital
gains in excess of short-term capital losses) to its shareholders. The Board
intends to distribute each year substantially all of the Fund's net investment
income and capital gain net income.
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 20% gains and 28% gains are taxable as 20% gains or 28% gains regardless of
the length of time a shareholder has held such shares and whether paid in cash
or additional shares.
Dividends and distributions may also be subject to state or local taxes.
Depending on the state tax rules pertaining to a shareholder, a portion of the
dividends paid by a Fund attributable to direct obligations of the US Treasury
and certain agencies may be exempt from state and local taxes.
The sale of 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 portfolios of a mutual fund). Any loss incurred on the sale or
exchange of Fund shares held for one year or more will be treated as a 20% loss
or a 28% loss to the extent of capital gain dividends received with respect to
such shares.
Shareholders will be notified after each calendar year of the amounts of
income dividends and net capital gains distributions and the percentage of a
Fund's income attributable to US Treasury and agency obligations. The 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 Fund with the shareholder's correct taxpayer
identification number or certification that the shareholder is not subject to
backup withholding.
The foregoing discussion is only a summary of certain federal income tax
issues generally affecting the Fund and its shareholders. Circumstances among
investors may vary and each investor is encouraged to discuss investment in the
Fund with the investor's tax advisor.
VALUATION OF FUND SHARES
Net Asset Value Per Share. The Fund determines 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. Net asset value per share is
computed by dividing the current value of the Fund's assets, less its
liabilities, by the number of shares of the Fund outstanding and rounding to the
nearest cent.
Valuation of Fund Securities. With the exceptions noted below, the Fund
values portfolio securities at market value. This generally means that 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 sell price.
-10-
<PAGE>
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 or
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.
Securities maturing within 60 days of the valuation date are valued at
amortized cost unless the Board determines that the amortized cost method does
not represent market value. The amortized cost valuation method 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 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 a Fund would
receive if it sold the instrument.
The Fund values 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.
PURCHASE OF FUND SHARES
Minimum Initial and Subsequent Investments and Account Balance. The 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 the Fund (other than IRA
accounts) may be subject to redemption at the 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. The Fund reserves
the right to reject any purchase order. Investors purchasing Fund assets through
a pension or other participation plan should contact their plan administrator
for further information on purchases.
Offering Dates and Times. Fund shares may be purchased on any business day
without a sales commission. All purchases must be made in US dollars. 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 to be effective on the date received. The Fund
reserves 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.
Order and Payment Procedures. There are several ways to invest in the
Fund. The Fund requires 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 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:
-11-
<PAGE>
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 may be withheld until the check or account
clears, which may take up to 15 calendar days.
Telephone Exchange Privilege. Subject to the Fund's minimum investment
requirement, investors may exchange a minimum of $100 of their 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 on the business day on which the
call is placed or upon written receipt of instructions in good form by the
Transfer Agent. Exchanges may be made over the phone if the registrations of the
two accounts are identical. If the shares of the 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 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.
Federal Funds Wire. An investor may make initial or subsequent investments
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 Fund in which the
investment is to be made and the account number; and (c) the amount
being wired.
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 Small Cap Fund
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
Fund 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 Fund's minimum initial requirement 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 Fund offers 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 Fund has been satisfied.
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Third Party Transactions. Investors purchasing 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.
In Kind Exchange of Securities. The Transfer Agent may, at its discretion,
permit investors to purchase shares through the exchange of securities they
hold. Any securities exchanged must meet the investment objective, policies and
limitations of the Fund, must have a readily ascertainable market value, must be
liquid and must not be subject to restrictions on resale. The market value of
any securities exchanged, plus any cash, must be at least $10 million. Shares
purchased in exchange for securities generally may not be redeemed or exchanged
until the transfer has settled--usually within 15 days following the purchase
exchange.
The basis of the exchange will depend upon the relative net asset value of
the shares purchased and securities exchanged. Securities accepted by the Fund
will be valued in the same manner as the Fund values its assets. Any interest
earned on the securities following their delivery to the Transfer Agent and
prior to the exchange will be considered in valuing the securities. All
interest, dividends subscription or other rights attached to the securities
become the property of the Fund, along with the securities.
REDEMPTION OF FUND SHARES
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. Typically, 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.
Redemption requests must be received prior to 4:00 p.m. Eastern time in
order be effective on the date received. Shareholder servicing agents with
underlying shareholders in omnibus accounts who receive redemption requests by
4:00 p.m. Eastern time may transmit the request to the Transfer Agent by 9:00
a.m. Eastern time the next succeeding business day and receive the dividend as
of the day the redemption request was originally made by the underlying
shareholder.
Telephone Redemption. Shareholders may normally redeem 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 Fund and the Transfer Agent will employ reasonable procedures
to confirm that instructions communicated by telephone are properly authorized.
The 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.
By Wire. Proceeds exceeding $1,000 may be sent via wire transfer to the
investor's pre-designated bank. Proceeds may be sent, depending on the Fund, on
the same or the next day. Although the Fund does 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. Requests
must be received prior to 4:00 p.m. The shares will be redeemed using that day's
closing price, and the proceeds will be wired the following business day.
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 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:
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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.
<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
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 are Certified copy of the death certificate; and
deceased Signature guarantee, if applicable (see above).
</TABLE>
Please contact the Customer Service Department at (800) 647-7327 for
questions and further instructions.
The Fund may pay any portion of the redemption amount in excess of
$250,000 by a distribution in kind of readily marketable securities from the
portfolio of the Fund in lieu of cash. Investors will incur brokerage charges on
the sale of these portfolio securities. The 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.
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<PAGE>
GENERAL MANAGEMENT
The Board of Trustees supervises the management, activities and affairs of
the Fund and has approved contracts with various financial organizations to
provide, among other services, day-to-day management required by the Fund.
Advisory Agreement. The Investment Company employs State Street to furnish
investment services to the Fund. State Street is one of the largest providers of
securities processing and recordkeeping services for US mutual funds and pension
funds. State Street Global Advisors is the investment management business of
State Street, a 200 year old pioneer and leader in the world of financial
services. State Street is a wholly owned subsidiary of State Street Corporation,
a publicly held bank holding company. State Street, with over $370 billion (US)
under management as of September 30, 1997, provides complete global investment
management services from offices in Atlanta, Boston, Brussels, Copenhagen,
Dubai, Hong Kong, London, Minneapolis, Montpellier, Montreal, Munich, Paris, San
Francisco, Sydney, Tokyo, and Toronto.
Advisor, subject to Board supervision, directs the investment of the Fund
in accordance with the Fund's investment objective, policies and restrictions.
Mr. Jeffrey Adams, Vice President, has been the portfolio manager primarily
responsible for investment decisions regarding the Fund since December 1994. Mr.
Adams has been with State Street since 1990, as a portfolio manager for the past
three years, and as an account administrator for two years prior to that. There
are seven other portfolio managers who work with Mr. Adams in managing the Fund.
For these services, the Fund pays Advisor a fee, calculated daily and paid
monthly, that on an annual basis is equal to .75% of the Fund's average daily
net assets.
The Glass-Steagall Act prohibits a depository state chartered bank such as
Advisor from engaging in the business of issuing, underwriting, selling or
distributing certain securities. The activities of Advisor in informing its
customers of the Fund, performing investment and redemption services and
providing custodian, transfer, shareholder servicing, dividend disbursing and
investment advisory services may raise issues under these provisions. Advisor
has been advised by its counsel that its activities in connection with the Fund
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 Advisor from continuing to perform all or a part of
the above services for its customers and/or the Fund. If Advisor were prohibited
from serving the Fund 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 Fund may occur. It is not expected by 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 Investment Company portfolios 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 November 30, 1997,
State Street held of record less than 25% of the issued and outstanding shares
of Investment Company in connection with its discretionary accounts.
Consequently, State Street is not 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 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.
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Administration Agreement. Frank Russell Investment Management Company
("Administrator") serves as administrator of the Fund. Administrator currently
serves as investment manager and administrator to 32 mutual funds with assets of
$11.3 billion as of October 31, 1997, and acts as administrator to 20 mutual
funds, including the Fund, with assets of $10.8 billion as of October 31, 1997.
Pursuant to the Administration Agreement with Investment Company,
Administrator will: (1) supervise all aspects of the Fund's operations; (2)
provide the Fund with administrative and clerical services, including the
maintenance of certain of the Fund's books and records; (3) arrange the periodic
updating of the Fund's prospectuses and any supplements thereto; (4) provide
proxy materials and reports to Fund shareholders and the Securities and Exchange
Commission; and (5) provide the Fund 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 Fund
and Investment Company's other domestic investment portfolios pay Administrator
a combined fee that on an annual basis is equal to the following percentages of
their average aggregate daily net assets: $0 to and including $500 million --
.06%; over $500 million to and including $1 billion -- .05%; and over $1 billion
- -- .03%. The percentage of the fee paid by a particular Fund is equal to the
percentage of average aggregate daily net assets that are attributable to that
Fund. Administrator will also receive reimbursement of expenses it incurs in
connection with establishing new investment portfolios. Further, the
administration fee paid by the Investment Company will be reduced by the sum of
certain distribution related expenses, up to certain maximum percentages, as
follows: (1) 10% from January 1, 1997 to December 31, 1997; 5% from January 1,
1998 to December 31, 1998; and (3) 0% from January 1, 1999 thereafter.
Administrator also provides administrative services in connection with the
registration of shares of Investment Company 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, Distributor, a wholly owned
subsidiary of Administrator, serves as distributor for all Fund shares.
The Fund has 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 Fund's average annual net assets for distribution-related and shareholder
servicing expenses. Payments under the Plan will be made to Distributor to
finance activity which is intended to result in the sale and retention of Fund
shares including: (1) payments made to certain broker-dealers, investment
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 Fund shares, including
Distributor's overhead expenses for rent, office supplies, equipment, travel,
communication, compensation and benefits of sales personnel.
Under the Plan, the Fund may also enter into agreements ("Service
Agreements") with financial institutions, which may include Advisor ("Service
Organizations"), to provide shareholder servicing with respect to 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: answering inquiries regarding the Fund; assisting customers
in changing dividend options, account designations and addresses; performing
subaccounting for such customers; establishing and maintaining customer accounts
and records; processing purchase and redemption transactions; 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; arranging for bank wires transferring
customers' funds; and such other services as the customers may request in
connection with the Fund, to the extent permitted by applicable statute, rule or
regulation. Service Organizations may receive from the Fund, for shareholder
servicing, monthly fees at a rate that shall not exceed .20% per annum of the
average daily net asset value of the 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.
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The Investment Company has entered into Service Agreements with the
Advisor and the following entities related to the Advisor: State Street
Brokerage Services, Inc., Metropolitan Division of Commercial Banking,
Retirement Investment Services Division and State Street Solutions. The purpose
of the Service Agreements is to obtain shareholder services for Fund shares
owned by clients of each of these entities. In return for these services, the
Investment Company pays each of the entities a fee. These agreements are
reviewed annually by the Board of Trustees.
Payments to the Distributor, as well as payments to Service Organizations
from a Fund are not permitted by the Plan to exceed .25% of the 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 Fund's liability for any such expenses carried
forward shall terminate at the end of two years 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.
FUND EXPENSES
The Fund will pay all of its expenses other than those expressly assumed
by Advisor and Administrator. The principal expenses of the Fund is the annual
advisory fee payable to Advisor and distribution and shareholder servicing
expenses. Other expenses include: (1) amortization of deferred organizational
costs; (2) taxes, if any; (3) expenses for legal, auditing and financial
accounting services; (4) expense of preparing (including typesetting, printing
and mailing) reports, prospectuses and notices to existing shareholders; (5)
administrative fees; (6) custodian fees; (7) expense of issuing and redeeming
Fund shares; (8) the cost of registering 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 Fund.
PERFORMANCE CALCULATIONS
From time to time the Fund may advertise its total return. The total
return of a Fund refers to the average annual compounded rates of return from a
hypothetical investment in the Fund over one-, five- and ten-year periods or for
the life of the Fund (as stated in the advertisement), assuming the reinvestment
of all dividend and capital gain distributions.
Comparative performance information may be used from time to time in
advertising or marketing Fund shares, including data from Morningstar, Lipper
Analytical Services, Inc., Wall Street Journal Score Card, Russell 2000(R)
Index, or other industry publications, business periodicals, rating services and
market indices. The Fund may also advertise nonstandardized performance
information which is for periods in addition to those required to be presented.
Total return 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 Fund, provides portfolio
recordkeeping services and serves as the Fund's 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 the
Fund except as investment advisor. Coopers & Lybrand L.L.P., Boston,
Massachusetts, is Investment Company's independent accountants.
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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 Distributor at (800) 647-7327.
Organization, Capitalization and Voting. 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 issues shares divisible into an unlimited number of
series (or funds), each of which is a separate trust under Massachusetts law.
The Fund is one such series.
The Fund share represents an equal proportionate interest in the Fund, has
a par value of $.001 per share and is entitled to such relative rights and
preferences and dividends and distributions earned on the assets belonging to
the Fund as may be declared by the Board of Trustees. Fund shares are fully paid
and nonassessable by Investment Company and have no preemptive rights.
Each 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 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 a Trustee may be removed at any time by a vote of
two-thirds of the 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.
Investment Company does not issue share certificates for the Fund.
Transfer Agent sends shareholders of the Fund 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.
As of November 30, 1997, Boeing FLW1 owned of record 26% of the issued and
outstanding shares of the Fund and is therefore deemed to be a controlling
person for purposes of the 1940 Act. Such shares may be held pursuant to a
shareholder servicing arrangement in omnibus accounts for underlying
shareholders.
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SSgA FUNDS
One International Place
Boston, Massachusetts 02110
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
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SSgA FUNDS
SSgA Money Market Fund
SSgA US Government Money Market Fund
SSgA Tax Free Money Market Fund
SSgA S&P 500 Index Fund
SSgA Small Cap Fund
SSgA Matrix Equity Fund
SSgA Yield Plus Fund
SSgA Growth and Income Fund
SSgA Intermediate Fund
SSgA Active International Fund
SSgA Emerging Markets Fund
SSgA Bond Market Fund
SSgA Life Solutions Growth Fund
SSgA Life Solutions Balanced Fund
SSgA Life Solutions Income and Growth Fund
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Filed pursuant to Rule 485(b)
File Nos. 33-19229; 811-5430
THE SSgA FUNDS
One International Place
Boston, Massachusetts 02110
(800) 647-7327
INTERNATIONAL PACIFIC INDEX FUND
The SSgA Funds is a registered, open-end management investment company with
multiple portfolios, each of which is commonly referred to as a mutual fund.
This Prospectus describes and offers shares of beneficial interest in one mutual
fund, the SSgA International Pacific Index Fund (the "Pacific Index Fund" or the
"Fund"). The Pacific Index Fund seeks to replicate the total return of the
Morgan Stanley Capital International Pacific Index. The Fund's shares are
offered without sales commissions. However, the Fund pays certain distribution
expenses under its 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.
SHARES IN THE 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 sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Please read and retain this
document for future reference. Additional information about the SSgA Funds has
been filed with the Securities and Exchange Commission ("SEC") in Statements of
Additional Information ("SAI") dated December 24, 1997. The SAI is incorporated
herein by reference and is available without charge from Distributor at its
address noted below or by calling (800) 647-7327. The SEC also maintains a
website (www.sec.gov) that contains the SAI, material incorporated by reference
and other information regarding the SSgA Funds. You may also access the SSgA
Funds' website at www.ssgafunds.com.
<TABLE>
<CAPTION>
Investment Advisor, Custodian
and Transfer Agent: Distributor: Administrator:
<S> <C> <C>
State Street Bank and Trust Frank Russell Investment
Company Russell Fund Distributors, Inc. Management Company
225 Franklin Street One International Place 909 A Street
Boston, Massachusetts 02110 Boston, Massachusetts 02110 Tacoma, Washington 98402
</TABLE>
PROSPECTUS DATED December 24, 1997
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TABLE OF CONTENTS
Page
----
Fund Operating Expenses............................................... 3
The SSgA Fund......................................................... 4
Manner of Offering.................................................... 4
Investment Objective, Policies and Restrictions....................... 4
Risk Factors.......................................................... 8
Portfolio Turnover.................................................... 9
Dividends and Distributions........................................... 9
Taxes................................................................. 10
Valuation of Fund Shares.............................................. 11
Purchase of Fund Shares............................................... 11
Redemption of Fund Shares............................................. 13
General Management.................................................... 14
Fund Expenses......................................................... 16
Performance Calculations.............................................. 16
Additional Information................................................ 17
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FUND OPERATING EXPENSES AFTER FEE WAIVER
THE SSgA INTERNATIONAL PACIFIC INDEX FUND
The following table is intended to assist the investor in understanding the
various costs and expenses that an investor in the Pacific Index Fund will incur
directly or indirectly. The examples should not be considered a representation
of past or future expenses. Actual expenses may be greater or less than those
shown. For additional information, see "General Management."
Shareholder Transaction Expenses:
- ---------------------------------
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
Annual Fund Operating Expenses:
- -------------------------------
(as a percentage of average daily net assets)
Advisory Fees (After Fee Waiver)(1) .25%
12b-1 Distribution Fees(2), (3) .05
Other Expenses(1), (2) .54
---
Total Operating Expenses (After Fee Waiver)(1), (4) .84%
====
Examples: 1 year 3 years
- -------- ------ -------
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: $9 $27
== ===
(1) The Advisor has voluntarily agreed to waive one-half of its advisory fee.
The Administrator has voluntarily agreed to waive a portion of its fee for
the first three months after the Fund becomes operational. The gross
annual Advisory and Other Expenses before waivers would be .50%, and .55%
of average daily net assets, respectively. The total operating expenses of
the Fund absent fee waivers would be 1.10% of average daily net assets on
an annual basis. The Advisory and Administrative fee waivers will be in
effect for the current fiscal year.
(2) The ratios for "12b-1 fees" and "other expenses" are based on estimated
amounts for the current fiscal year with expected annual average net
assets of $50 million.
(3) Rule 12b-1 fees may include expenses paid for shareholder servicing
activities.
(4) Investors purchasing 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.
Long-term shareholders of the Fund may pay more in Rule 12b-1 fees than the
economic equivalent of the maximum front-end sales charges permitted by the
National Association of Securities Dealers, Inc.
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THE SSgA FUNDS
The SSgA Funds ("Investment Company") are an open-end management
investment company that is organized as a Massachusetts business trust. In
addition, each series of the Investment Company is diversified as defined in the
Investment Company Act of 1940, as amended ("1940 Act"). As a "series" company,
Investment Company is authorized to issue an unlimited number of shares
evidencing beneficial interests in different investment portfolios. Through this
Prospectus, Investment Company offers shares in one such portfolio, the SSgA
International Pacific Index Fund. State Street Bank and Trust Company ("Advisor"
or "State Street") serves as the investment advisor for the Fund.
MANNER OF OFFERING
Distribution and Eligible Investors. Shares of the Fund are offered
without a sales commission by Russell Fund Distributors, Inc. (the
"Distributor"), Investment Company's distributor, to US and foreign
institutional and retail investors that invest for their own account or in a
fiduciary or agency capacity. The Fund will incur distribution expenses under
its Rule 12b-1 plan. See "General Management -- Distribution Services and
Shareholder Servicing."
Minimum and Subsequent Investment. The Fund requires a minimum initial
investment of $1,000. The shareholder's investment in the Fund may be subject to
redemption at the Fund's discretion if the account balance is less than $500 as
a result of shareholder redemptions. The Fund reserves the right to reject any
purchase order.
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
The Fund's fundamental investment objective is to replicate the total
return of the Morgan Stanley Capital International Pacific Index (the "MSCI
Pacific Index"). This objective may be changed only with the approval of a
majority of the Fund's shareholders as defined by the 1940 Act. There can be no
assurance that the Fund will meet its investment objective.
The Fund will be substantially invested in the securities included in
its underlying index. However, the Fund may invest temporarily for defensive
purposes, without limitation, in certain short-term fixed income securities.
Such securities may be used to invest uncommitted cash balances or to maintain
liquidity to meet shareholder redemptions. See "Investment Policies -- Cash
Reserves."
The MSCI Pacific Index is a diversified, capitalization weighted index
of equity securities of companies located in Australia, Hong Kong, Japan, New
Zealand and Singapore. The MSCI Pacific Index is dominated by the Japanese stock
market, which represents approximately 90% of the market capitalization of the
Index. Stocks in the MSCI Pacific Index are selected to represent proportionally
each country and each major industrial sector within each country. Each stock in
the Index is weighted according to its market value as a percentage of the total
market value of all stocks in the Index. The inclusion of a stock in the Index
in no way implies that Morgan Stanley Capital International believes the stock
to be an attractive investment, nor is the Pacific Index Fund sponsored or
affiliated with Morgan Stanley Capital International.
The Pacific Index Fund intends to invest in substantially all of the
securities contained in the MSCI Pacific Index in proportion to their weightings
in the Index. It is anticipated that assets of the Fund will need to reach $50
million in order to invest in substantially all of the securities of the Index.
To the extent that all securities in the Index cannot be purchased, the Fund
will purchase a representative sample of the stocks listed in the Index in
proportion to their weightings.
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To the extent that the Pacific Index Fund seeks to replicate the MSCI
Pacific Index using such sampling techniques, a close correlation between the
Fund's performance and the performance of the Index is anticipated in both
rising and falling markets. The 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 Fund expenses. A correlation of 1.00 would represent perfect
correlation between portfolio and index performance. It is anticipated that the
correlation of the Fund's performance to that of the Index will increase as the
size of the Fund increases. The Fund's ability to achieve significant
correlation between Fund 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 Fund shares. Advisor will monitor correlation.
Should the Fund fail to achieve an appropriate level of correlation, Advisor
will report to the Board of Trustees, which will consider alternative
arrangements.
Investment Policies
The investment policies described below reflect the Fund's current
practices, are not fundamental and may be changed by the Board of Trustees of
Investment Company without shareholder approval. A more detailed discussion of
the Fund's investment policies appears in the Statement of Additional
Information. To the extent consistent with the Fund's investment objective and
restrictions, the Fund may invest in the following instruments and may use the
following investment techniques:
Management of an Index Fund. The 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 Fund utilizes a "passive" investment approach,
attempting to duplicate the investment performance of its benchmark index
through automated statistical analytic procedures.
US Government Securities. 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. The Fund may enter into repurchase agreements
with banks and other financial institutions, such as broker-dealers. Under a
repurchase agreement, a Fund purchases securities from a financial institution
that agrees to repurchase the securities at the Fund's original purchase price
plus interest within a specified time (normally one business day). The Fund will
limit repurchase transactions to those member banks of the Federal Reserve
System and broker-dealers whose creditworthiness Advisor considers satisfactory.
Should the counterparty to a transaction fail financially, the 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 the Fund.
Reverse Repurchase Agreements. The Fund may enter into reverse
repurchase agreements under the circumstances described in "Investment
Restrictions." Under a reverse repurchase agreement, the Fund sells portfolio
securities to a financial institution 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 at a prescribed repurchase price equal to the
amount of cash originally received plus interest on such amount. The Fund
retains the right to receive interest and principal payments with respect to the
securities while they are in the possession of the financial institutions.
Reverse repurchase agreements involve the risk of default by the counterparty,
which may adversely affect the Fund's ability to reacquire the underlying
securities.
Forward Commitments. The Fund may contract to purchase securities for a
fixed price at a future date beyond customary settlement time. When effecting
such transactions, cash or liquid high quality debt
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obligations held by the Fund of a dollar amount sufficient to make payment for
the portfolio securities to be purchased will be segregated on the Fund'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 the Fund to miss an advantageous price or yield. The Fund bears the risk
of price fluctuations during the period between the trade and settlement dates.
When-Issued Transactions. The Fund may purchase securities on a
when-issued basis. In these transactions, the Fund purchases securities with
payment and delivery scheduled for a future time. Until settlement, the Fund
segregates cash and marketable high quality debt securities equal in value to
their when-issued commitments. Between the trade and settlement dates, the 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 the Fund to miss a price or yield considered
advantageous. The Fund will engage in when-issued transactions only for the
purpose of acquiring portfolio securities consistent with its investment
objective and policies and not for investment leverage. The Fund will invest no
more than 25% of its net assets in when-issued securities.
Illiquid Securities. The Fund will invest no more than 15% of its net
assets in illiquid securities or securities that are not readily marketable,
including repurchase agreements and time deposits of more than seven days'
duration.
Variable Amount Master Demand Notes. 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.
Foreign Currency Transactions. The Fund may engage in foreign currency
transactions as described below. The US dollar value of assets held by the Fund
may be affected favorably or unfavorably by changes in foreign currency exchange
rates and exchange control regulations, and the Fund may incur costs in
connection with conversions between various currencies. The Fund 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 Fund may
purchase and write these contracts for the purpose of protecting against
declines in the dollar value of foreign securities they hold and against
increases in the dollar cost of foreign securities they plan 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 subject to
procedures and regulations applicable to other futures contracts. Forward
foreign currency exchange contracts and foreign currency futures contracts may
protect the 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
exchanges, in the over-the-counter market, and privately among major recognized
dealers in such options. The Fund may purchase and write these options for the
purpose of protecting against declines in the dollar value of foreign securities
they hold and against increases in the dollar cost of foreign securities they
plan 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 offset in whole or in part by writing calls
or purchasing puts on that
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foreign currency. However, certain currency rate fluctuations would cause the
option to expire without being exercised, and thereby cause the Fund to lose the
premium it paid and its transaction costs.
Futures Contracts and Options on Futures. For hedging purposes,
including protecting the price or interest rate of securities that the Fund
intends to buy, the 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. A stock index futures contract is a contract to buy
or sell specified units of a stock index at a specified future date at a price
agreed upon when the contract is made. The value of a unit is based on the
current value of the contract index. Under such contracts no delivery of the
actual stocks 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. Upon entering into a
futures contract, the 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 the Fund will honor their 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, the 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. The Fund may write and
purchase covered put and call options on securities in which it may directly
invest. Option transactions of the 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 Fund's total assets. Further, the 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 Fund's total assets.
The Fund may purchase or sell options on securities indices that are
comprised of securities in which it 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.
Lending Portfolio Securities. The Fund may lend portfolio securities
with a value of up to 33-1/3% of its total assets. For these purposes, total
assets shall include the value of all assets received as collateral for the
loan. Such loans may be terminated at any time. The 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, the Fund will receive a legally determined 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, the 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. The Fund will call
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loans to vote proxies if a material issue affecting the investment is to be
voted upon. Should the borrower of the securities fail financially, the 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 Advisor to be of
good financial standing. In a loan transaction, the Fund will also bear the risk
of any decline in value of securities acquired with cash collateral. The Fund
will minimize this risk by limiting the investment of cash collateral to high
quality instruments of short maturity.
Cash Reserves. For the purpose of investing uncommitted cash balances
or to maintain liquidity to meet shareholder redemptions, the Fund may invest
temporarily and without limitation in high quality short-term fixed income
securities. 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.
American Depository Receipts. The Fund may invest in American
Depository Receipts (ADRs), convertible bonds and warrants. Investment in each
of these instruments will not exceed 5% of the Fund's total net assets during
the coming year. For a discussion of the risks associated with the use of ADRs,
see "Risk Factors - Foreign Investments." See the Statement of Additional
Information for a more detailed discussion of these instruments.
Purchase of Other Funds. To the extent permitted under the 1940 Act and
exemptive rules and orders thereunder, the Fund may seek to achieve its
investment objective by investing solely in the shares of another investment
company that has a substantially similar investment objective and policies.
Investment Restrictions
The Fund has fundamental investment restrictions, which may be changed
only with the approval of a majority of the Fund's shareholders as defined in
the 1940 Act. A more detailed discussion of the Fund's investment restrictions
appears in the Statement of Additional Information. Unless otherwise noted, the
fundamental restrictions apply at the time an investment is made. The 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 non-depository instruments issued by
European banks). Concentration may occur as a result of
changes in the market value of portfolio securities, but may
not result from investment. Notwithstanding the foregoing
general restrictions, the Fund will concentrate in particular
industries to the extent the underlying indices concentrate in
those industries.
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 Fund's assets
taken at market value, less liabilities other than borrowings.
If at any time a 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 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 Fund
may pledge securities having a market value at the time of the
pledge not exceeding 33-1/3% of the value of the Fund's total
assets to secure permitted borrowings.
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RISK FACTORS
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, including: changes in currency rates;
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. ADRs are subject
to all of the above risks, except the imposition of exchange controls and
currency fluctuations during the settlement period.
PORTFOLIO TURNOVER
Ordinarily, securities will be sold from the Fund only to reflect
certain changes in its benchmark index (including mergers or changes in the
composition of the index) or to accommodate cash flows into and out of the Fund
while maintaining the similarity of the Fund to the benchmark index.
Accordingly, the turnover rate for the Fund is not expected to exceed 50%, a
generally lower turnover rate than for most other investment companies.
The Fund may effect portfolio transactions through State Street
Brokerage Services, Inc. an affiliate of the Advisor, when the Advisor
determines that the Fund will receive competitive execution, price and
commissions.
DIVIDENDS AND DISTRIBUTIONS
The Board of Trustees intends to declare and pay dividends on shares of
the Fund quarterly from net investment income. The Board of Trustees intends to
declare distributions annually from net short-and long-term capital gains, if
any, generally in mid-October. It is intended that an additional distribution
may be declared and paid in December if required for the Fund 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 Fund and received by shareholders on December
31 of that year if the dividend is paid prior to February 1 of the following
year.
Income dividend and capital gain distributions will be paid 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 Fund mailings to an investor, the
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 Fund until
the investor notifies the SSgA Funds in writing of the correct address and
request in writing that the election to receive dividends and other
distributions in cash be reinstated.
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Any dividend or capital gain distribution paid by the Fund shortly
after a purchase of shares will reduce the per share net asset value of the Fund
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:
[bullet] Reinvestment Option--Dividends and capital gains distributions
will be automatically reinvested in additional shares of the
Fund. If the investor does not indicate a choice on the
Application, this option will be automatically assigned.
[bullet] Income-Earned Option--Capital gain distributions will be
automatically reinvested, but a check or wire will be sent for
each dividend distribution.
[bullet] Cash Option--A check or wire will be sent for each dividend
and capital gain distribution.
[bullet] Direct Dividends Option--Dividends and capital gain
distribution will be automatically invested in another
identically registered SSgA Fund.
Distributions will be sent to a pre-designated bank by the Automatic
Clearing House ("ACH") on the payable date.
TAXES
The Fund intends to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code, as amended. As a regulated investment
company, the Fund will not be subject to federal income taxes to the extent it
distributes its net investment income and net capital gain (long-term capital
gains in excess of short-term capital losses) to its shareholders. The Board
intends to distribute each year substantially all of the Fund's net investment
income and capital gain net income.
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.
Dividends and distributions may also be subject to state or local
taxes. Depending on the state tax rules pertaining to a shareholder, a portion
of the dividends paid by the Fund attributable to direct obligations of the US
Treasury and certain agencies may be exempt from state and local taxes.
The sale of 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 portfolios of a mutual fund). Any loss incurred on the sale or
exchange of 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.
Shareholders will be notified after each calendar year of the amounts
of income dividends and net capital gains distributions and the percentage of
the Fund's income attributable to US Treasury and agency obligations. The Fund
is required to withhold a portion of all taxable dividends, distributions, and
redemption proceeds payable to any noncorporate shareholder that does not
provide the Fund with the shareholder's correct taxpayer identification number
or certification that the shareholder is not subject to backup withholding.
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Foreign Income Taxes. Investment income received by the Fund 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 the 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 the Fund in advance since the amount of the assets to be
invested within various countries is not known.
If the Fund invests 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 Fund. The Fund can elect
to mark-to-market its PFIC holdings in lieu of paying taxes on gains or
distributions therefrom. It is anticipated that any taxes on a Fund with respect
to investments in PFICs would be insignificant.
Foreign shareholders should consult with their tax advisors as to if
and how the federal income tax and its withholding requirements applies to them.
If more than 50% in value of a Fund's total assets at the close of any
taxable year consists of securities of foreign corporations, the Fund may file
an election with the Internal Revenue Service (the "Foreign Election") that
would permit shareholders to take a credit (or a deduction) for foreign income
taxes paid by the Fund. The Fund may be subject to certain holding period
requirements with respect to securities held in order to take advantage of this
credit. If the Foreign Election is made, shareholders would include in their
gross income both dividends received from the Fund and foreign income taxes paid
by the Fund. Shareholders of the Fund would be entitled to treat the foreign
income taxes withheld as a credit against their United States federal income
taxes, subject to the limitations set forth in the Internal Revenue Code with
respect to the foreign tax credit generally. Alternatively, shareholders could
treat the foreign income taxes withheld as a deduction from gross income in
computing taxable income rather than as a tax credit. It is anticipated that the
Fund will qualify to make the Foreign Election; however, the Fund cannot be
certain that it will be eligible to make such an election or that any particular
shareholder will be eligible for the foreign tax credit.
The foregoing discussion is only a summary of certain federal income
tax issues generally affecting the Fund and its shareholders. Circumstances
among investors may vary and each investor is encouraged to discuss investment
in the Fund with the investor's tax advisor.
VALUATION OF FUND SHARES
Net Asset Value Per Share. The Fund determines 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. Net asset value per share is
computed by dividing the current value of the Fund's assets, less its
liabilities, by the number of shares of the Fund outstanding and rounding to the
nearest cent.
Valuation of Fund Securities. With the exceptions noted below, the Fund
values portfolio securities at market value. This generally means that 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.
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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 or
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 the amortized
cost method does not represent 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 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 a Fund would receive if it sold the instrument.
The Fund values 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.
PURCHASE OF FUND SHARES
Minimum Initial Investment and Account Balance. The Fund requires a
minimum initial investment of $1,000. The minimum account balance is $500. The
Fund reserves the right to reject any purchase order.
Offering Dates and Times. Fund shares may be purchased on any business
day without a sales commission. All purchases must be made in US dollars.
Purchase orders in good form and payments for Fund shares must be received by
the Transfer Agent prior to 4:00 p.m. Eastern time to be effective on the date
received. The accompanying payment must be in federal funds or converted into
federal funds by the Transfer Agent before the purchase order can be accepted.
Purchase orders in good form are described below.
Order and Payment Procedures. There are several ways to invest in the
Fund. The Fund requires a purchase order in good form which consists of a
completed and signed Account Registration and Investment Instruction Form
(Application) for each new account regardless of the investment method. For
additional information, copies of forms or questions, call Transfer Agent at
(800) 647-7327, or write to Transfer Agent at: State Street Bank and Trust
Company, P.O. Box 8317, Boston, MA 02266-8317, Attention: SSgA International
Pacific Index Fund.
Federal Funds Wire. An investor may make initial or subsequent
investments by wiring federal funds to State Street Bank and Trust Company as
Transfer Agent by:
1. Telephoning State Street Bank and Trust Company at (800)
647-7327 and stating: (1) the investor's account registration
number, address and social security or tax identification
number; (2) the amount being wired; (3) the name of the wiring
bank; (4) the name and telephone number of the person at the
wiring bank to be contacted in connection with the order; and
(5) that the funds should be invested in SSgA International
Pacific Index Fund.
2. Instructing the wiring bank to wire federal funds to: State
Street Bank and Trust Company, Boston, MA (ABA #0110-00028),
Attention: SSgA International Pacific Index Fund, Mutual Funds
Service Division (DDA #9904-631-0). The wire instructions
should also include the name in which the account is
registered, the account number, and the name of the Fund in
which to be invested.
3. Completing the Application and forwarding it to Transfer Agent
at the above address.
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Mail. To purchase shares by mail, send a check or other negotiable bank
draft payable to: State Street Bank and Trust Company, P.O. Box 8317, Boston, MA
02266-8317, Attention: SSgA International Pacific Index Fund. Third party
checks, except those payable to an existing shareholder who is a natural person
(as opposed to a corporation or partnership) and checks drawn on credit card
accounts will not be accepted. Certified checks are not necessary, but checks
are accepted subject to collection at full face value in United States funds and
must be drawn in United States dollars on a United States bank. Normally, checks
and drafts are converted to federal funds within two business days following
receipt of the check or draft. Initial investments should be accompanied by a
completed Application, and subsequent investments are to be accompanied by the
investor's account number.
Third Party Transactions. Investors purchasing 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 to pay additional
fees by such intermediary. Investors should contact such intermediary for
information concerning what additional fees, if any, may be charged.
In-Kind Exchange of Securities. The Transfer Agent may, at its
discretion, permit investors to purchase shares through the exchange of
securities they hold. Any securities exchanged must meet the investment
objective, policies and limitations of the Fund, must have a readily
ascertainable market value, must be liquid and must not be subject to
restrictions on resale. The market value of any securities exchanged, plus any
cash, must be at least $1 million. Shares purchased in exchange for securities
generally may not be redeemed or exchanged until the transfer has settled --
usually within 15 days following the purchase by exchange.
The basis of the exchange will depend upon the relative net asset value
of the shares purchased and securities exchanged. Securities accepted by the
Fund will be valued in the same manner as the Fund values its assets. Any
interest earned on the securities following their delivery to the Transfer Agent
and prior to the exchange will be considered in valuing the securities. All
interest, dividends, subscription or other rights attached to the securities
become the property of the Fund, along with the securities.
Exchange Privilege. Subject to the Fund's minimum investment
requirement, investors may exchange their Fund shares without charge for shares
of any other investment portfolio offered by Investment Company. Shares are
exchanged on the basis of relative net asset value per share. Exchanges may be
made: (1) by telephone if the registrations of the two accounts are identical;
or (2) in writing addressed to State Street Bank and Trust Company, P.O. Box
8317, Boston, MA 02266-8317, Attention: SSgA International Pacific Index Fund.
If shares of a Fund were purchased by check, the shares must have been present
in an account for 10 days before an exchange is made. The exchange privilege
will only be available in states where the exchange may legally be made, and may
be modified or terminated by the Funds upon 60 days' notice to shareholders.
REDEMPTION OF FUND SHARES
Fund shares may be redeemed on any business day at the net asset value
next determined after the receipt of a redemption request in proper form as
described below. Payment 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. Although Investment Company does not currently charge a
fee for this service, Investment Company reserves the right to charge a fee for
the cost of wire-transferred redemptions of less than $1,000. Payment for
redemption of shares purchased by check may be withheld for up to 15 days after
the date of purchase to assure that such checks are honored.
-13-
<PAGE>
Redemption requests must be received prior to 4:00 p.m. Eastern time in
order be effective on the date received. Shareholder servicing agents with
underlying shareholders in omnibus accounts who receive redemption requests by
4:00 p.m. Eastern time may transmit the request to the Transfer Agent by 9:00
a.m. Eastern time the next succeeding business day and receive the dividend as
of the day the redemption request was originally made by the underlying
shareholder.
Expedited Redemption. Shareholders may normally redeem Fund shares by
telephoning State Street Bank and Trust Company between 9:00 a.m. and 4:00 p.m.
Eastern time at (800) 647-7327, Attention: SSgA International Pacific Index
Fund. Shareholders using the expedited redemption method must complete the
appropriate section on the Application. The Fund and the Transfer Agent will
employ reasonable procedures to confirm that instructions communicated by
telephone are properly authorized. The Fund and the Transfer Agent will not be
liable for executing telephone 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. 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. Redemption requests may be made in writing directly to State
Street Bank and Trust Company, P.O. Box 8317, Boston, MA 02266-8317, Attention:
SSgA International Pacific Index Fund. The redemption price will be the net
asset value next determined after receipt by State Street of all required
documents in good order. "Good order" means that the request must include the
following:
1. A letter of instruction or a stock assignment stating that the
shares are to be redeemed out of the SSgA International
Pacific Index Fund and designating specifically the dollar
amount to be redeemed signed by all owners of the shares in
the exact names in which they appear on the account, together
with a guarantee of the signature of each owner by a bank,
trust company or member of a recognized stock exchange; and
2. Such other supporting legal documents, if required by
applicable law or Transfer Agent, in the case of estates,
trusts, guardianships, custodianships, corporations and
pension and profit-sharing plans.
The Fund reserves the right to redeem the shares in any account with a
balance of less than $500 as a result of shareholder redemptions rather than
market value fluctuations. Before shares are redeemed to close an account, the
shareholder will be notified in writing and allowed 60 days to purchase
additional shares to meet the minimum account balance.
The Fund may pay any portion of the redemption amount in excess of
$250,000 by a distribution in kind of readily marketable securities from the
portfolio of the Fund in lieu of cash. Investors will incur brokerage charges on
the sale of these portfolio securities. The Fund reserves the right to suspend
the right of redemption or postpone the date of payment if emergency conditions,
as specified in the 1940 Act or determined by the Securities and Exchange
Commission, should exist.
GENERAL MANAGEMENT
The Board of Trustees supervises the management, activities and affairs
of the Fund and has approved contracts with various financial organizations to
provide, among other services, day-to-day management required by the Fund.
-14-
<PAGE>
Advisory Agreement. The Investment Company employs the Advisor to
furnish investment services to the 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 Corporation, a publicly held bank holding company. State Street, with
over $370 billion (US) under management as of September 30, 1997, provides
complete global investment management services from offices in the Atlanta,
Boston, Brussels, Copenhagen, Dubai, Hong Kong, London, Minneapolis,
Montpellier, Montreal, Munich, Paris, San Francisco, Sydney, Tokyo, and Toronto.
Advisor, subject to Board supervision, directs the investment of the
Fund in accordance with the Fund's investment objective, policies and
restrictions. The Fund's investment decisions are made by committee and no
person is primarily responsible for making recommendations to that committee.
For these services, the Fund pays Advisor a fee, calculated daily and paid
monthly, that on an annual basis is equal to .50% of the Fund's average daily
net assets.
The Glass-Steagall Act prohibits a depository state chartered bank such
as Advisor from engaging in the business of issuing, underwriting, selling or
distributing certain securities. The activities of Advisor in informing its
customers of the Fund, performing investment and redemption services and
providing custodian, transfer, shareholder servicing, dividend disbursing and
investment advisory services may raise issues under these provisions. Advisor
has been advised by its counsel that its activities in connection with the Fund
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 Advisor from continuing to perform all or a part of
the above services for its customers and/or the Funds. If Advisor were
prohibited from serving the 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 Fund may occur. It is not expected by 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 Investment Company portfolios 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 November 30, 1997,
State Street held of record less than 25% of the issued and outstanding shares
of Investment Company in connection with its discretionary accounts.
Consequently, State Street is not 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 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.
Administration Agreement. Frank Russell Investment Management Company
("Administrator") serves as administrator of the Fund. Administrator currently
serves as investment manager and administrator to 32 mutual funds with assets of
$11.3 billion as of October 31, 1997, and acts as administrator to 20 mutual
funds, including the Fund, with assets of $10.8 billion as of October 31, 1997.
Pursuant to the Administration Agreement with Investment Company,
Administrator will: (1) supervise all aspects of the Funds' operations; (2)
provide the Funds with administrative and clerical
-15-
<PAGE>
services, including the maintenance of certain of the Funds' books and records;
(3) arrange the periodic updating of the Funds' prospectuses and any supplements
thereto; (4) provide proxy materials and reports to Fund shareholders and the
Securities and Exchange Commission; and (5) provide the 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 Pacific Index Fund pays Administrator a fee that on an
annual basis is equal to the following percentages of each Fund's average daily
net assets: $0 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 a
particular Fund is equal to the percentage of average aggregate daily net assets
that are attributable to that Fund. Administrator will also receive
reimbursement of expenses it incurs in connection with establishing new
investment portfolios. Further, the administration fee paid by the Investment
Company will be reduced by the sum of certain distribution related expenses, up
to certain maximum percentages, as follows: (1) 10% from January 1, 1997 to
December 31, 1997; 5% from January 1, 1998 to December 31, 1998; and (3) 0% from
January 1, 1999 thereafter.
Administrator also provides administrative services in connection with
the registration of shares of Investment Company 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, the Distributor, a wholly
owned subsidiary of Administrator, serves as distributor for all Fund shares.
The Fund has 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 Fund's average annual net assets for distribution-related and shareholder
servicing expenses. Payments under the Plan will be made to Distributor to
finance activity which is intended to result in the sale and retention of Fund
shares including: (1) payments made to certain broker-dealers, investment
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 Fund shares, including
Distributor's overhead expenses for rent, office supplies, equipment, travel,
communication, compensation and benefits of sales personnel.
Under the Plan, the Fund may also enter into agreements ("Service
Agreements") with financial institutions, which may include Advisor ("Service
Organizations"), to provide shareholder servicing with respect to 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: answering inquiries regarding the Fund; assisting customers
in changing dividend options, account designations and addresses; performing
subaccounting for such customers; establishing and maintaining customer accounts
and records; processing purchase and redemption transactions; 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; arranging for bank wires transferring
customers' funds; and such other services as the customers may request in
connection with the Fund, to the extent permitted by applicable statute, rule or
regulation. Service Organizations may receive from the Fund, for shareholder
servicing, monthly fees at a rate that shall not exceed .20% per annum of the
average daily net
-16-
<PAGE>
asset value of the 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.
The Investment Company has entered into Service Agreements with the
Advisor and the following entities related to the Advisor: State Street
Brokerage Services, Inc., Metropolitan Division of Commercial Banking,
Retirement Investment Services Division and State Street Solutions. The purpose
of the Service Agreements is to obtain shareholder services for Fund shares
owned by clients of each of these entities. In return for these services, the
Investment Company pays each of the entities a fee. These agreements are
reviewed annually by the Board of Trustees.
Payments to the Distributor, as well as payments to Service
Organizations from the Fund are not permitted by the Plan to exceed .25% of the
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 Fund's liability for any
such expenses carried forward shall terminate at the end of two years 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.
FUND EXPENSES
The Fund will pay all of their expenses other than those expressly
assumed by Advisor and Administrator. The principal expenses of the Fund are the
annual advisory fee payable to Advisor and distribution and shareholder
servicing expenses. Other expenses include: (1) amortization of deferred
organizational costs; (2) taxes, if any; (3) expenses for legal, auditing and
financial accounting services; (4) expense of preparing (including typesetting,
printing and mailing) reports, prospectuses and notices to existing
shareholders; (5) administrative fees; (6) custodian fees; (7) expense of
issuing and redeeming Fund shares; (8) the cost of registering 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 Fund.
PERFORMANCE CALCULATIONS
From time to time the Fund may advertise its "total return." The total
return of a Fund refers to the average annual compounded rates of return from a
hypothetical investment in the Fund over one-, five- and ten-year periods or for
the life of the 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 Fund shares, including data from Lipper Analytical
Services, Inc., Wall Street Journal Score Card, S&P 500 Index, S&P Midcap Index,
MSCI Pacific Index or other industry publications, business periodicals, rating
services and market indices. The Fund may also advertise nonstandardized
performance information which is for periods in addition to those required to be
presented.
Total return and other performance figures are based on historical
earnings and are not indications of future performance.
-17-
<PAGE>
ADDITIONAL INFORMATION
Custodian, Transfer Agent and Independent Accountants. State Street
holds all portfolio securities and cash assets of the Fund, provides portfolio
recordkeeping services and serves as the Fund's 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 the
Fund 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 an unaudited semiannual financial statement and an annual financial
statement audited by Investment Company's independent accountants. Shareholder
inquiries regarding the Prospectus, financial statements and shareholder
balances may be made by calling Distributor at (800) 647-7327.
Organization, Capitalization and Voting. 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 issues shares divisible into an unlimited number of
series (or funds), each of which is a separate trust under Massachusetts law.
The Pacific Index Fund is one such series.
Fund shares represent an equal proportionate interest in the Fund, have
a par value of $.001 per share and are entitled to such relative rights and
preferences and dividends and distributions earned on the assets belonging to
the Fund as may be declared by the Board of Trustees. Fund shares are fully paid
and nonassessable by Investment Company and have no preemptive rights.
Each 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 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 a Trustee may be removed at any time by a vote of
two-thirds of the 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.
Investment Company does not issue share certificates for the Fund.
Transfer Agent sends Fund 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.
-18-
<PAGE>
THE SSgA FUNDS
One International Place
Boston, Massachusetts 02110
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
-19-
<PAGE>
Filed pursuant to Rule 485(b)
File Nos. 33-19229; 811-5430
SSgA FUNDS
One International Place
Boston, Massachusetts 02110
(800) 647-7327
BOND MARKET FUND
SSgA Funds is a registered, open-end management investment company with
multiple portfolios, each of which is commonly referred to as a mutual fund.
This Prospectus describes and offers shares of beneficial interest in one of the
funds, the SSgA Bond Market Fund (the "Bond Market Fund" or the "Fund"). The
Fund seeks 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 Fund intends to invest primarily in US Government and
high-grade corporate debt securities. The Fund's shares are offered without
sales commissions. However, the Fund pays certain distribution expenses under
its 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.
SHARES IN THE FUND 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 sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Please read and retain this
document for future reference. Additional information about the SSgA Funds has
been filed with the Securities and Exchange Commission ("SEC") in Statements of
Additional Information ("SAI") dated December 24, 1997. The SAI is incorporated
herein by reference and is available without charge from Distributor at its
address noted below or by calling (800) 647-7327. The SEC also maintains a
website (www.sec.gov) that contains the SAI, material incorporated by reference
and other information regarding the SSgA Funds. You may also access the SSgA
Funds' website at www.ssgafunds.com.
<TABLE>
<CAPTION>
Investment Advisor, Custodian
And Transfer Agent: Distributor: Administrator:
<S> <C> <C>
State Street Bank and Trust Company Frank Russell Investment Management
Russell Fund Distributors, Inc. Company
225 Franklin Street One International Place 909 A Street
Boston, Massachusetts 02110 Boston, Massachusetts 02110 Tacoma, Washington 98402
</TABLE>
PROSPECTUS DATED December 24, 1997
<PAGE>
TABLE OF CONTENTS
Page
----
Fund Operating Expenses.............................................. 3
Financial Highlights................................................. 4
SSgA Funds........................................................... 5
Manner of Offering................................................... 5
Investment Objective, Policies and Restrictions...................... 5
Certain Risk Factors................................................. 10
Portfolio Turnover .................................................. 11
Dividends and Distributions.......................................... 11
Taxes................................................................ 12
Valuation of Fund Shares............................................. 13
Purchase of Fund Shares.............................................. 13
Redemption of Fund Shares............................................ 15
General Management................................................... 17
Fund Expenses........................................................ 19
Performance Calculations............................................. 20
Additional Information............................................... 20
-2-
<PAGE>
FUND OPERATING EXPENSES AFTER FEE REIMBURSEMENTS
SSgA BOND MARKET FUND
The following table is intended to assist the investor in understanding the
costs and expenses that an investor in the Bond Market Fund will incur directly
or indirectly. The examples provided in the table should not be considered a
representation of past or future expenses. Actual expenses may be greater or
less than those shown. For additional information, see -- "General Management."
Shareholder Transaction Expenses:
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
Annual Fund Operating Expenses:
(as a percentage of average daily net assets)
Advisory Fees (After Fee Reimbursement)(1) .27%
12b-1 Distribution Fees(1) .04
12b-1 Shareholder Servicing Fees(1) .02
Other Expenses (1), (2) .17
---
Total Operating Expenses (After Fee Reimbursement)(1), (2) .50%
====
Examples: 1 year 3 years 5 years 10 years
- -------- ------ ------- ------- --------
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:
$5 $16 $28 $63
== === === ===
- -------------
1 The Advisor has agreed to reimburse the Fund for all expenses in excess of
.50% of average daily net assets on an annual basis. The gross annual
Advisory fee expense before reimbursement would be .30% of average daily
net assets. The total operating expense of the Fund absent reimbursement
would be .53% of average daily net assets on an annual basis. The
reimbursement agreement is will remain in effect for the current fiscal
year.
2 Investors purchasing 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. These fees would be in addition to any amounts
received by the financial intermediary under its Shareholder Servicing
Agreement with the Investment Company or Distributor. The Agreement
requires each financial intermediary to disclose to its clients any
compensation payable to it by the Investment Company or Distributor and
any other compensation payable by the client for various services provided
in connection with their accounts.
Long-term shareholders of the Fund may pay more in Rule 12b-1 fees than the
economic equivalent of the maximum front-end sales charges permitted by the
National Association of Securities Dealers, Inc.
-3-
<PAGE>
FINANCIAL HIGHLIGHTS
SSgA BOND MARKET FUND
The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Fund's independent
accountants. The table includes selected data for a share outstanding throughout
each fiscal year or period ended August 31, and other performance information
derived from the financial statements. The table appears in the Fund's Annual
Report and should be read in conjunction with the Fund's financial statements
and related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand L.L.P., in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Distributor at (800) 647-7327.
1997 1996++
---- ----
NET ASSET VALUE,
BEGINNING OF YEAR $ 9.63 $ 10.00
------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .53 .27
Net realized and unrealized gain (loss)
on investments .35 (.49)
------- -------
Total From Investment Operations .88 (.22)
------- -------
LESS DISTRIBUTIONS:
Net investment income (.54) (.15)
------- -------
NET ASSET VALUE, END OF YEAR $ 9.97 $ 9.63
======= =======
TOTAL RETURN (%)(a) 9.47 (2.19)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
($000 omitted) 87,670 29,015
Ratios to average net assets (%) (b):
Operating expenses, net (b) .50 .63
Operating expenses, gross (b) .74 .93
Net investment income (b) 6.05 5.66
Portfolio turnover (%) (b) 453.14 313.85
Per share amount of expense reduction
($ omitted) .0212 .0148
++ For the period February 7, 1996 (commencement of operations) to
August 31, 1996.
(a) Periods less than one year are not annualized.
(b) Annualized.
-4-
<PAGE>
SSgA FUNDS
SSgA Funds ("Investment Company") is an open-end management investment
company that is organized as a Massachusetts business trust. In addition, each
series of the Investment Company is diversified as defined in the Investment
Company Act of 1940, as amended ("1940 Act"). As a "series" company, Investment
Company is authorized to issue an unlimited number of shares evidencing
beneficial interests in different investment portfolios. Through this
Prospectus, Investment Company offers shares in one such portfolio, the Bond
Market Fund. State Street Bank and Trust Company (the "Advisor" or "State
Street") serves as the investment advisor for the Fund.
MANNER OF OFFERING
Distribution and Eligible Investors. Shares of the Fund are offered
without a sales commission by Russell Fund Distributors, Inc., Investment
Company's distributor (the "Distributor"), to US and foreign institutional and
retail investors which invest for their own account or in a fiduciary or agency
capacity. The Fund will incur distribution expenses under its Rule 12b-1 plan.
See "General Management -- Distribution Services and Shareholder Servicing
Arrangements."
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
The Fund's 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. This objective may be
changed by the Fund's Board of Trustees without shareholder approval, although
shareholders will receive prior notice of any change to the Fund's investment
objective. There can be no assurance that the Fund will meet its investment
objective.
Under normal market conditions, the Fund attempts to meet its objective by
investing at least 65% of its total assets in debt securities. The 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 securities; (8)
instruments of US and foreign banks, including Eurodollar Certificates of
Deposit ("ECDs"); Eurodollar Time Deposits ("ETDs") and Yankee Certificates of
Deposit ("YCDs"), 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 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 Fund may invest
in derivative securities, including futures and options, interest rate exchange
agreements and other swap agreements and collateralized mortgage obligations.
The Fund may invest in fixed-income securities to achieve its investment
objective. In periods of declining interest rates, the 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 Fund may tend to be lower. Also when interest rates are falling, the
inflow of new money to the Fund from the continuous sales of its shares will
likely be invested in portfolio instruments producing lower yields than the
balance of the Fund's portfolio, thereby reducing the yield of the Fund. In
periods of rising interest rates, the opposite can be true. The net asset value
of the 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 Fund limits its portfolio investments in corporate notes and bonds to
those that are rated investment-grade by a Nationally Recognized Statistical
Rating Organization ("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 (and securities of
comparable quality), which securities have speculative characteristics. Please
see the Statement of Additional Information for a description of the securities
ratings of debt instruments and commercial paper. If a security is downgraded
and is no longer investment-grade, the Fund may continue to hold the security if
the Advisor determines that such action is in the best interest of the Fund and
if the Fund would not, as a result thereby, have more than 5% of its assets
invested in noninvestment-grade securities.
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The 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, 1997 was 4.63 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 Moody's Investors Service, Standard
and Poor's Corporation or Fitch Investor's Service, in that order. All issues in
the LBAB Index have at least one year to maturity and an outstanding par value
of at least $100 million.
Investment Policies
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The investment policies described below reflect the Fund's current
practices, are not fundamental and may be changed by the Board of Trustees of
Investment Company without shareholder approval. For more information on the
Investment Policies, please see the Statement of Additional Information. To the
extent consistent with the Fund's investment objective and restrictions, the
Fund may invest in the following instruments and may use the following
investment techniques:
US Government Securities. 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, 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.
Fixed Income Securities. The Fund may invest in fixed-income securities to
achieve its investment objective. In periods of declining interest rates, the
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 Fund may tend to be lower. Also when
interest rates are falling, the inflow of new money to the Fund from the
continuous sales of its shares will likely be invested in portfolio instruments
producing lower yield than the balance of the Fund's portfolio, thereby reducing
the yield of the Fund. In periods of rising interest rates, the opposite can be
true. The net asset value of the 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.
Repurchase Agreements. The 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 Fund receives securities as
collateral. Under a repurchase agreement, a Fund purchases securities from a
financial institution that agrees to repurchase the securities at the Fund's
original purchase price plus interest within a specified time (normally one
business day). The Fund will limit repurchase transactions to those member banks
of the Federal Reserve System and broker-dealers whose creditworthiness Advisor
considers satisfactory. Should the counterparty to a transaction fail
financially, the 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 the Fund.
Reverse Repurchase Agreements. The Fund may enter into reverse repurchase
agreements under the circumstances described in "Investment Restrictions." In
substance, a reverse repurchase agreement is a borrowing for which the Fund
provides securities as collateral. Under a reverse repurchase agreement, the
Fund sells portfolio securities to a financial institution 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 at a prescribed repurchase
price equal to the amount of cash originally received plus interest on such
amount. The Fund retains the right to receive interest and principal payments
with respect to the securities while they are in the possession of the financial
institutions. Reverse repurchase agreements involve the risk of default by the
counterparty, which may adversely affect the Fund's ability to reacquire the
underlying securities.
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Forward Commitments. The Fund 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 the Fund of a dollar
amount sufficient to make payment for the portfolio securities to be purchased
will be segregated on the Fund'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 the Fund to miss an advantageous price or
yield. The Fund bears the risk of price fluctuations during the period between
the trade and settlement dates.
When-Issued Transactions. The Fund may purchase securities on a
when-issued basis. In these transactions, the Fund purchases securities with
payment and delivery scheduled for a future time. The Fund segregates cash and
marketable securities equal in value to its when-issued commitments. Between the
trade and settlement dates, the Fund bears the risk of any fluctuations in the
value of the securities. These transactions involve the additional risk that the
other party may fail to complete the transaction and cause the Fund to miss a
price or yield considered advantageous. The Fund will engage in when-issued
transactions only for the purpose of acquiring portfolio securities consistent
with its investment objective and policies and not for investment leverage. The
Fund will not invest more than 25% of net assets in when-issued securities.
Illiquid Securities. The Fund will not invest more than 15% of its net
assets in illiquid securities or securities that are not readily marketable,
including repurchase agreements and time deposits of more than seven days'
duration.
Variable Amount Master Demand Notes. 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 the
issuers and the 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. Asset-backed securities represent undivided
fractional interests in pools of instruments, such as consumer loans. 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, cash collateral account, collateralized investment account, subordinated
structures, 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 Fund has been exhausted, an early amortization event may be
declared. Principal and interest would be repaid to holders of the trust
certificates earlier than initially anticipated. If any required payments of
principal and interest are not made with respect to the underlying loans, the
Fund may experience loss or delay in receiving payment and a decrease in the
value of the security. Further details are set forth in the Statement of
Additional Information under "Investment Restrictions and Policies -- Investment
Policies."
Mortgage-Related Securities. The Fund may invest in fixed or floating rate
mortgage-related securities, including but not limited to, 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
Certificates ("Fannie Maes"). Mortgage 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.
Mortgage-Backed Security Rolls. The Fund may enter into "forward roll"
transactions with respect to mortgage-backed securities issued by GNMA, FNMA or
FHLMC. In a forward roll transaction, the Fund will sell a mortgage security to
a dealer 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. There are two primary risks
associated with the roll market for mortgage-backed securities. First, the value
and safety of the roll depends entirely upon the counterparty's ability to
redeliver the security at the termination of the roll. Therefore, the
counterparty to a roll must meet the same credit criteria as any existing
repurchase counterparty. Second, the security which is redelivered at the end of
the roll period must be substantially the same as the initial security, i.e., it
must have the same coupon, be issued by the same agency and be of the same type,
have the same original stated term to maturity, be priced to result in similar
market yields and must be "good delivery." Within these parameters, however, the
actual pools that are redelivered could be less desirable than those originally
rolled, especially with respect to prepayment characteristics.
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<PAGE>
Interest Rate Swaps. The Fund may enter into interest rate swap
transactions with respect to any security it is entitled to hold. Interest rate
swaps involve the exchange by the Fund with another party of their respective
rights to receive interest, e.g., an exchange of floating rate payments for
fixed rate payments. The Fund expects to enter into these transactions primarily
to preserve a return or spread on a particular investment or portion of its
portfolio or to protect against any increase in the price of securities it
anticipates purchasing at a later date. The Fund intends to use these
transactions as a hedge and not as a speculative investment.
Preferred Stocks. 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 fund provisions, as well as provisions that allow the
issuer to call or redeem the stock. The rights to payment of preferred stocks
are generally subordinate to rights associated with a corporation's debt
securities.
Zero Coupon Securities. 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. A floating rate security is a
security which provides for the adjustment of its interest rate whenever a
specified interest rate (such as a bank's designated prime lending rate)
changes. A variable rate security is a security which provides for the
adjustment of its interest rate on set dates (such as the last day of the month
or calendar quarter). Interest rates on these securities are ordinarily tied to,
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. 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, Eurodollar Time Deposits and Yankee
Certificates of Deposit. 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.
Foreign Currency Transactions. The Fund may engage in foreign currency
transactions as described below. The US dollar value of assets held by the Fund
may be affected favorably or unfavorably by changes in foreign currency exchange
rates and exchange control regulations, and the Fund may incur costs in
connection with conversions between various currencies. The Fund 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 Fund 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.
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<PAGE>
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 subject to procedures
and regulations applicable to other futures contracts. Forward foreign currency
exchange contracts and foreign currency futures contracts may protect the 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 Fund 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 the Fund to lose the premium it paid and its transaction costs.
Futures Contracts and Options on Futures. For hedging purposes, including
protecting the price or interest rate of a security the Fund intends to buy, the
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. With index futures, 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. Upon entering into a futures
contract, the Fund is required to deposit an initial margin with the futures
broker. The initial margin serves as a "good faith" deposit that the Fund will
honor its futures commitment. 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, the 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. The Fund may write and
purchase covered put and call options on securities in which it may directly
invest. Option transactions 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 Fund's total assets. Further, the 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 all such options outstanding would exceed
25% of the value of the Fund's total assets.
The Fund may purchase or sell options on securities indices that are
comprised of securities in which the Fund 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 price of
the index and the exercise price of the option.
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Lending Portfolio Securities. The Fund may lend portfolio securities with a
value of up to 33-1/3% of its total assets. For these purposes, total assets
shall include the value of all assets received as collateral for the loan. Such
loans may be terminated at any time. The 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 its securities, the
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, the 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.
The 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, the 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 Advisor to be of good financial standing. In a loan transaction,
the Fund will also bear the risk of any decline in value of securities acquired
with cash collateral. The Fund will minimize this risk by limiting the
investment of cash collateral to high quality instruments of short maturity.
Cash Reserves. For defensive purposes, the Fund may temporarily and
without limitation concentrate its portfolio in high quality short-term fixed
income securities. 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.
Purchase of Other Funds. To the extent permitted under the 1940 Act and
exemptive rules and orders thereunder, the Fund may seek to achieve its
investment objective by investing solely in the shares of another investment
company that has a substantially similar investment objective and policies.
Investment Restrictions
- -----------------------
The Fund has fundamental investment restrictions, which may be changed
only with the approval of a majority of the Fund's shareholders as defined in
the 1940 Act. A more detailed discussion of the Fund's investment restrictions
and investment policies appears in the Statement of Additional Information.
Unless otherwise noted, the fundamental restrictions apply at the time an
investment is made. The 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 non-depository instruments issued by
European banks). 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 Fund's assets
taken at market value, less liabilities other than borrowings.
If at any time the 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. The 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, the Fund
may pledge securities having a market value at the time of the
pledge not exceeding 33-1/3% of the value of the Fund's total
assets to secure permitted borrowings.
CERTAIN RISK FACTORS
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. An
incorrect correlation could result in a loss on both the hedged securities in a
Fund and the hedging vehicle so that the portfolio return might have been
greater had hedging not been attempted. Lack of a liquid market for any reason
may prevent a Fund from liquidating an unfavorable position and the Fund would
remain obligated to meet margin requirements until the position is closed. See
Risk Factors in Options, Futures, Forward and Currency Transactions in the
Statement of Additional Information.
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Foreign Investments. Investment in securities of non-US issuers involves
investment risks that are different from those of US issuers, including: changes
in currency rates, 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
securities of issuers located in those countries.
Forward Commitments. 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.
Asset-Backed Securities. 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 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-Backed Security Rolls. There are two primary risks associated
with the roll market for mortgage-backed securities. First, the value and safety
of the roll depends entirely upon the counterparty's ability to redeliver the
security at the termination of the roll. Therefore, the counterparty to a roll
must meet the same credit criteria as any existing repurchase counterparty.
Second, the security which is redelivered at the end of the roll period must be
substantially the same as the initial security, i.e., it must have the same
coupon, be issued by the same agency and be of the same type, have the same
original stated term to maturity, be priced to result in similar market yields
and must be "good delivery." Within these parameters, however, the actual pools
that are redelivered could be less desirable than those originally rolled,
especially with respect to prepayment characteristics.
PORTFOLIO TURNOVER
Because the Fund will actively trade to benefit from short-term yield
disparities among different issues of fixed-income securities, or otherwise to
increase its income, the Fund may be subject to a greater degree of portfolio
turnover than might be expected from investment companies which invest
substantially all of their assets on a long-term basis. However, this higher
than average turnover rate is not expected to materially affect the Fund's
performance. The portfolio turnover rate cannot be predicted, but it is
anticipated that the Fund's annual turnover rate generally will not exceed 350%
(excluding turnover of securities having a maturity of one year or less). A high
turnover rate (over 100%) will: (1) increase transaction expenses which will
adversely affect a Fund's performance; and (2) result in increased brokerage
commissions and other transaction costs, and the possibility of realized capital
gains.
DIVIDENDS AND DISTRIBUTIONS
The Board of Trustees intends to declare and pay dividends on shares of
the Fund quarterly from net investment income. The Board of Trustees intends to
declare distributions annually from net short- and long-term capital gains, if
any, generally in mid-October. It is intended that an additional distribution
may be declared and paid in December if required for the Fund 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 Fund and received by shareholders on December
31 of that year if the dividend is paid prior to February 1 of the following
year.
Income dividend and capital gain distributions will be paid 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 Fund mailings to an investor, the 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 Fund until the
investor notifies the SSgA Funds in writing of the correct address and request
in writing that the election to receive dividends and other distributions in
cash be reinstated.
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<PAGE>
Any dividend or capital gain distribution paid by the Fund shortly
after a purchase of shares will reduce the per share net asset value of the Fund
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 dividends and capital gains distributions
will be automatically reinvested in additional shares of the Fund. If the
investor does not indicate a choice on the Application, this option will
be automatically 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--Dividends and capital gain distribution will be
automatically invested in another identically registered SSgA Fund.
Distributions will be sent to a pre-designated bank by the Automatic
Clearing House ("ACH") on the payable date.
TAXES
The Fund intends to qualify as a regulated investment company ("RIC")
under Subchapter M of the Internal Revenue Code, as amended (the "Code"). As a
RIC, the Fund will not be subject to federal income taxes to the extent it
distributes its net investment income and net capital gain (long-term capital
gains in excess of short-term capital losses) to shareholders. The Board intends
to distribute each year substantially all of the Fund's net investment income
and capital gain net income.
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 20% gains and 28% gains are taxable as 20% gains or 28% gains regardless of
the length of time a shareholder has held such shares.
The Fund may purchase bonds at market discount (i.e., bonds with a
purchase price less than original issue price or adjusted issue price). If such
bonds are subsequently sold at a gain then a portion of that gain equal to the
amount of market discount, which should have been accrued through the sale date,
will be taxable to shareholders as ordinary income.
Dividends and distributions may also be subject to state or local taxes.
Depending on the state tax rules pertaining to a shareholder, a portion of the
dividends paid by the Fund attributable to direct obligations of the US Treasury
and certain agencies may be exempt from state and local taxes.
The sale of 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 portfolios of a mutual fund). Any loss incurred on sale or exchange of
Fund shares held for one year or more will be treated as a 20% loss or a 28%
loss to the extent of capital gain dividends received with respect to such
shares.
Shareholders will be notified after each calendar year of the amount of
income dividends and net capital gains distributed and the percentage of the
Fund's income attributable to US Treasury and agency obligations. The 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 Fund with the shareholder's correct taxpayer
identification number or certification that the shareholder is not subject to
backup withholding.
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The foregoing discussion is only a summary of certain federal income tax
issues generally affecting the Fund and its shareholders. Circumstances among
investors may vary and each investor is encouraged to discuss investment in the
Fund with the investor's tax advisor.
VALUATION OF FUND SHARES
Net Asset Value Per Share. The net asset value per share is calculated on
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. Net asset value per share is
computed by dividing the current value of the Fund's assets, less its
liabilities, by the number of shares of the Fund outstanding and rounding to the
nearest cent.
Valuation of Fund Securities. With the exceptions noted below, the Fund
values portfolio securities at market value. This generally means that 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 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.
Fixed income securities 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 or
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 the amortized cost
method does not represent 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 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
Fund would receive if it sold the instrument.
The Fund values 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.
PURCHASE OF FUND SHARES
Minimum Initial and Subsequent Investments and Account Balance. The 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 the Fund (other than IRA
accounts) may be subject to redemption at the 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. The Fund reserves
the right to reject any purchase order. Investors purchasing Fund assets through
a pension or other participation plan should contact their plan administrator
for further information on purchases.
Offering Dates and Times. Fund shares may be purchased on any business day
without a sales commission. All purchases must be made in US dollars. 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 to be effective on the date received. The Fund
reserves 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.
-13-
<PAGE>
Order and Payment Procedures. There are several ways to invest in the
Fund. The Fund requires 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 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 may be withheld until the check or account
clears, which may take up to 15 calendar days.
Telephone Exchange Privilege. Subject to the Fund's minimum investment
requirement, investors may exchange a minimum of $100 of their 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 on the business day on which the
call is placed or upon written receipt of instructions in good form by the
Transfer Agent. Exchanges may be made over the phone if the registrations of the
two accounts are identical. If the shares of the 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 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.
Federal Funds Wire. An investor may make initial or subsequent investments
by wiring federal funds to State Street Bank and Trust Company, 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 Fund in which the
investment is to be made and the account number; and (c) the amount
being wired.
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 Bond Market Fund
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.
-14-
<PAGE>
Systematic Investment Plan. Investors can make regular investments in the
Fund 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 Fund's minimum initial requirement 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 Fund offers 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 Fund has been satisfied.
Third Party Transactions. Investors purchasing 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.
In Kind Exchange of Securities. The Transfer Agent may, at its discretion,
permit investors to purchase shares through the exchange of securities they
hold. Any securities exchanged must meet the investment objective, policies and
limitations of the Fund, must have a readily ascertainable market value, must be
liquid and must not be subject to restrictions on resale. The market value of
any securities exchanged, plus any cash, must be at least $10 million. Shares
purchased in exchange for securities generally may not be redeemed or exchanged
until the transfer has settled--usually within 15 days following the purchase
exchange.
The basis of the exchange will depend upon the relative net asset value of
the shares purchased and securities exchanged. Securities accepted by the Fund
will be valued in the same manner as the Fund values its assets. Any interest
earned on the securities following their delivery to the Transfer Agent and
prior to the exchange will be considered in valuing the securities. All
interest, dividends subscription or other rights attached to the securities
become the property of the Fund, along with the securities.
REDEMPTION OF FUND SHARES
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. Typically, 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.
Redemption requests must be received prior to 4:00 p.m. Eastern time in
order be effective on the date received. Shareholder servicing agents with
underlying shareholders in omnibus accounts who receive redemption requests by
4:00 p.m. Eastern time may transmit the request to the Transfer Agent by 9:00
a.m. Eastern time the next succeeding business day and receive the dividend as
of the day the redemption request was originally made by the underlying
shareholder.
Telephone Redemption. Shareholders may normally redeem 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 Fund and the Transfer Agent will employ reasonable procedures
to confirm that instructions communicated by telephone are properly authorized.
The 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.
-15-
<PAGE>
By Wire. Proceeds exceeding $1,000 may be sent via wire transfer to the
investor's pre-designated bank. Proceeds may be sent, depending on the Fund, on
the same or the next day. Although the Fund does 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. Requests
must be received prior to 4:00 p.m. The shares will be redeemed using that day's
closing price, and the proceeds will be wired the following business day.
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 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.
-16-
<PAGE>
<TABLE>
<CAPTION>
Seller Requirements for Written Requests
<S> <C>
Owner of individual, joint, sole Letter of instruction, signed by all persons authorized to sign
proprietorship, UGMA/UTMA (custodial accounts for the account stating general titles/capacity, exactly as the
for minors) or general partner accounts account is registered; and
Signature guarantee, if applicable (see above).
Owners of corporate or association accounts Letter of instruction signed by authorized 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 trust accounts Letter of instruction, signed by all trustees;
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 whose co-tenants Letter of instruction signed by surviving tenant(s);
are deceased Certified copy of the death certificate; and
Signature guarantee, if applicable (see above).
</TABLE>
Please contact the Customer Service Department at (800) 647-7327 for
questions and further instructions.
The Fund may pay any portion of the redemption amount in excess of
$250,000 by a distribution in kind of readily marketable securities from the
portfolio of the Fund in lieu of cash. Investors will incur brokerage charges on
the sale of these portfolio securities. The 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 Fund and has approved contracts with various financial organizations to
provide, among other services, day-to-day management required by the Fund.
Advisory Agreement. Investment Company employs State Street to furnish
investment services to the Fund. State Street is one of the largest providers of
securities processing and recordkeeping services for US mutual funds and pension
funds. State Street Global Advisors is the investment management business of
State Street, a 200 year old pioneer and leader in the world of financial
services. State Street is a wholly owned subsidiary of State Street Corporation,
a publicly held bank holding company. State Street, with over $370 billion (US)
under management as of September 30, 1997, provides complete global investment
management services from offices in Atlanta, Boston, Brussels, Copenhagen,
Dubai, Hong Kong, London, Minneapolis, Montpellier, Montreal, Munich, Paris, San
Francisco, Sydney, Tokyo, and Toronto.
Advisor, subject to Board supervision, directs the investment of the Fund
in accordance with the Fund's investment objective, policies and restrictions.
The individual primarily responsible for investment decisions regarding the Fund
is John P. Kirby, Assistant Vice President. Mr. Kirby has been with State Street
since 1995. Prior to joining State Street, Mr. Kirby was an account manager with
Lowell, Blake & Associates. Prior to that, Mr. Kirby was a portfolio manager at
One Federal Asset Management a Shawmut Bank subsidiary, and at Cambridge Port
Savings as an asset/liability risk specialist. There are eight other portfolio
managers who work with Mr. Kirby in managing the Fund. For these services, the
Fund pays Advisor a fee, calculated daily and paid monthly, equal to .30%
annually of the Fund's average daily net assets.
-17-
<PAGE>
The Glass-Steagall Act prohibits a depository state chartered bank such as
Advisor from engaging in the business of issuing, underwriting, selling or
distributing certain securities. The activities of Advisor in informing its
customers of the Fund, performing investment and redemption services and
providing custodian, transfer, shareholder servicing, dividend disbursing and
investment advisory services may raise issues under these provisions. Advisor
has been advised by its counsel that its activities in connection with the Fund
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 Advisor from continuing to perform all or a part of
the above services for its customers and/or the Fund. If Advisor were prohibited
from serving the Fund 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 Fund may occur. It is not expected by 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 Investment Company portfolios as short-term cash sweep investments.
Shares purchased for all discretionary accounts are held of record by State
Street, who retains voting control of them. As of November 30, 1997, State
Street held of record less than 25% of the issued and outstanding shares of
Investment Company in connection with its discretionary accounts. Consequently,
State Street is not 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 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.
Administration Agreement. Frank Russell Investment Management Company
("Administrator") serves as administrator of the Fund. Administrator currently
serves as investment manager and administrator to 32 mutual funds with assets of
$11.3 billion as of October 31, 1997, and acts as administrator to 20 mutual
funds, including the Fund, with assets of $10.8 billion as of October 31, 1997.
Pursuant to the Administration Agreement with Investment Company,
Administrator will: (1) supervise all aspects of the Fund's operations; (2)
provide the Fund with administrative and clerical services, including the
maintenance of certain of the Fund's books and records; (3) arrange the periodic
updating of the Fund's prospectuses and any supplements thereto; (4) provide
proxy materials and reports to Fund shareholders and the Securities and Exchange
Commission; and (5) provide the Fund 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 Bond
Market Fund and Investment Company's other domestic portfolios pay Administrator
a combined fee that on an annual basis is equal to the following percentages of
their average aggregate daily net assets: (1) $0 up to $500 million -- .06%; (2)
over $500 million to $1 billion -- .05%; and (3) over $1 billion -- .03%. The
percentage of the fee paid by the Bond Market Fund is equal to the percentage of
average aggregate daily net assets that are attributable to the Fund.
Administrator will also receive reimbursement of expenses it incurs in
connection with establishing new investment portfolios. Further, the
administration fee paid by the Investment Company will be reduced by the sum of
certain distribution related expenses, up to certain maximum percentages, as
follows: (1) 10% from January 1, 1997 to December 31, 1997; 5% from January 1,
1998 to December 31, 1998; and (3) 0% from January 1, 1999 thereafter.
Administrator also provides administrative services in connection with the
registration of shares of Investment Company 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.
-18-
<PAGE>
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. Pursuant to the
Distribution Agreement with Investment Company, Distributor, a wholly owned
subsidiary of Administrator, serves as distributor for all Fund shares.
The Fund has 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 Fund's average annual net assets for distribution-related and shareholder
servicing expenses. Payments under the Plan will be made to Distributor to
finance activity which is intended to result in the sale and retention of Fund
shares including: (1) payments made to certain broker-dealers, investment
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 Fund shares, including
Distributor's overhead expenses for rent, office supplies, equipment, travel,
communication, compensation and benefits of sales personnel.
Under the Plan, the Fund may also enter into agreements ("Service
Agreements") with financial institutions, which may include Advisor ("Service
Organizations"), to provide shareholder servicing with respect to 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: answering inquiries regarding the Fund; assisting customers
in changing dividend options, account designations and addresses; performing
subaccounting for such customers; establishing and maintaining customer accounts
and records; processing purchase and redemption transactions; 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; arranging for bank wires transferring
customers' funds; and such other services as the customers may request in
connection with the Fund, to the extent permitted by applicable statute, rule or
regulation. Service Organizations may receive from the Fund, for shareholder
servicing, monthly fees at a rate that shall not exceed .20% per annum of the
average daily net asset value of Fund 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.
The Investment Company has entered into Service Agreements with the
Advisor and the following entities related to the Advisor: State Street
Brokerage Services, Inc., Metropolitan Division of Commercial Banking,
Retirement Investment Services Division and State Street Solutions. The purpose
of the Service Agreements is to obtain shareholder services for Fund shares
owned by clients of each of these entities. In return for these services, the
Investment Company pays each of the entities a fee. These agreements are
reviewed annually by the Board of Trustees.
Payments to Distributor, as well as payments to Service Organizations, are
not permitted by the Plan to exceed .25% of the 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. The Fund's liability for any such expenses carried forward
shall terminate at the end of two years 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.
FUND EXPENSES
The Fund will pay all of its expenses other than those expressly assumed
by Advisor and Administrator. The principal expenses of the Fund are the annual
advisory fee payable to Advisor and distribution and shareholder servicing
expenses. Other expenses include: (1) amortization of deferred organizational
costs; (2) taxes, if any; (3) expenses for legal, auditing and financial
accounting services; (4) expense of preparing (including typesetting, printing
and mailing) reports, prospectuses and notices to existing shareholders; (5)
administrative fees; (6) custodian fees; (7) expense of issuing and redeeming
Fund shares; (8) the cost of registering 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 Fund.
-19-
<PAGE>
PERFORMANCE CALCULATIONS
The Fund may from time to time advertise its yield. 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.
From time to time the Fund may advertise its "total return." The total
return of the Fund is the average annual compounded rate of return from a
hypothetical investment in the Fund over one-, five- and ten-year periods or for
the life of the 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 Fund shares, including data from Lipper Analytical
Services, Inc., Morningstar, Wall Street Journal Score Card, Lehman Brothers
Index or other industry publications, business periodicals, rating services and
market indices. The Fund may also advertise nonstandardized performance
information which is for periods in addition to those required to be presented.
Quoted yields, total 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 Fund, provides portfolio
recordkeeping services and serves as the Fund's 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 the
Fund 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 or shareholder balances
may be made by calling Distributor at (800) 647-7327.
Organization, Capitalization and Voting. 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 issues shares divisible into an unlimited number of
series (or funds), each of which is a separate trust under Massachusetts law.
The Bond Market Fund is one such series.
Each Fund share represents an equal proportionate interest in the Fund,
has a par value of $.001 per share and is entitled to such relative rights and
preferences and dividends and distributions earned on Fund assets as may be
declared by the Board of Trustees. Shares of the Fund are fully paid and
nonassessable by Investment Company and have no preemptive rights.
-20-
<PAGE>
Each 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 which affects only a particular investment portfolio, 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
the 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 the 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.
Investment Company does not issue share certificates for the Fund.
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.
As of November 30, 1997, no single shareholder owned of record 25% or more
of the issued and outstanding shares of the Fund.
-21-
<PAGE>
SSgA FUNDS
One International Place
Boston, Massachusetts 02110
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
-22-
<PAGE>
SSgA FUNDS
SSgA Money Market Fund
SSgA US Government Money Market Fund
SSgA Tax Free Money Market Fund
SSgA S&P 500 Index Fund
SSgA Small Cap Fund
SSgA Matrix Equity Fund
SSgA Yield Plus Fund
SSgA Growth and Income Fund
SSgA Intermediate Fund
SSgA Active International Fund
SSgA Emerging Markets Fund
SSgA Bond Market Fund
SSgA Life Solutions Growth Fund
SSgA Life Solutions Balanced Fund
SSgA Life Solutions Income and Growth Fund
<PAGE>
Filed pursuant to Rule 485(b)
File Nos. 33-19229; 811-5430
THE SSgA FUNDS
One International Place
Boston, Massachusetts 02110
(800) 647-7327
US TREASURY OBLIGATIONS FUND
The SSgA Funds is a series registered, open-end management investment company
with multiple portfolios, each of which is commonly referred to as a mutual
fund. This Prospectus describes and offers shares of beneficial interest in one
such mutual fund, the SSgA US Treasury Obligations Fund (the "Treasury
Obligations Fund" or the "Fund"). The Fund seeks 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 only in
obligations that are issued by the US Treasury or guaranteed as to principal and
interest by the full faith and credit of the US Government. The Fund intends to
meet its investment objective by investing only in US Treasury bills, notes and
bonds. Dividends paid by the Fund are exempt from taxation by most state
governments. The Fund's shares are offered without sales commissions. However,
the Fund pays certain distribution expenses under its 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 FUND ARE NEITHER INSURED NOR GUARANTEED BY THE US GOVERNMENT.
THERE IS NO ASSURANCE THAT THE FUND WILL MAINTAIN A STABLE NET ASSET VALUE OF
$1.00 PER SHARE.
SHARES IN THE FUND 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 RISK INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Please read and retain this
document for future reference. Additional information about the SSgA Funds has
been filed with the Securities and Exchange Commission ("SEC") in Statements of
Additional Information ("SAI") dated December 24, 1997. The SAI is incorporated
herein by reference and is available without charge from Distributor at its
address noted below or by calling (800) 647-7327. The SEC also maintains a
website (www.sec.gov) that contains the SAI, material incorporated by reference
and other information regarding the SSgA Funds. You may also access the SSgA
Funds' website at www.ssgafunds.com.
<TABLE>
<CAPTION>
Investment Advisor, Custodian
and Transfer Agent: Distributor: Administrator:
<S> <C> <C>
State Street Bank and Trust Frank Russell Investment
Company Russell Fund Distributors, Inc. Management Company
225 Franklin Street One International Place 909 A Street
Boston, Massachusetts 02110 Boston, Massachusetts 02110 Tacoma, Washington 98402
</TABLE>
PROSPECTUS DATED December 24, 1997
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<PAGE>
TABLE OF CONTENTS
Page
----
Fund Operating Expenses.................................................. 3
The SSgA Funds........................................................... 4
Manner of Offering....................................................... 4
Investment Objective, Policies and Restrictions.......................... 4
Portfolio Maturity....................................................... 5
Portfolio Turnover....................................................... 6
Dividends and Distributions.............................................. 6
Taxes.................................................................... 7
Valuation of Fund Shares................................................. 7
Purchase of Fund Shares.................................................. 7
Redemption of Fund Shares................................................ 9
General Management.......................................................10
Fund Expenses............................................................12
Performance Calculations.................................................13
Additional Information...................................................13
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<PAGE>
FUND OPERATING EXPENSES AFTER FEE WAIVER AND REIMBURSEMENT
THE SSgA US TREASURY OBLIGATIONS FUND
The following table is intended to assist the investor in understanding the
costs and expenses that an investor in the Treasury Obligations Fund will incur
directly or indirectly. The examples should not be considered a representation
of past or future expenses. Actual expenses may be greater or less than those
shown. For additional information, see "General Management."
Shareholder Transaction Expenses:
- ---------------------------------
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
Annual Fund Operating Expenses:
- -------------------------------
(as a percentage of average daily net assets)
Advisory Fees (After Fee Reimbursement)(1) .11%
12b-1 Fees(1), (2), (3) .04
Other Expenses:(1), (2) .05
---
Total Operating Expenses (After Fee Waiver And
Reimbursement)(1), (4) .20%
====
Examples: 1 year 3 years
-------- ------ -------
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: $2 $6
== ==
(1) Advisor has voluntarily agreed to reimburse the Fund for all expenses in
excess of .20% of average daily net assets on an annual basis.
Additionally, the Administrator has voluntarily agreed to waive a portion
of its fees for the first three months after the Fund becomes operational.
The gross annual Advisory and Other Expenses before waivers and
reimbursement would be .25% and .11% of average daily net assets,
respectively. The total operating expenses of the Fund absent fee waivers
and reimbursement would be .40% of average daily net assets on an annual
basis. The Advisory fee reimbursement and Administrative fee waiver will
be in effect for the current fiscal year.
(2) The ratio for "other expenses" is based on estimated amounts for the
current fiscal year, with expected annual average net assets of $500
million.
(3) Rule 12b-1 fees may include expenses paid for shareholder servicing
activities.
(4) Investors purchasing 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-
<PAGE>
THE SSgA FUNDS
The SSgA Funds ("Investment Company") are a registered open-end
management investment company that is organized as a Massachusetts business
trust. In addition, each series of the Investment Company is diversified as
defined in the Investment Company Act of 1940, as amended ("1940 Act"). As a
"series" company, Investment Company is authorized to issue an unlimited number
of shares evidencing beneficial interests in a variety of investment portfolios.
Through this Prospectus, Investment Company offers shares in one such portfolio,
the Treasury Obligations Fund. State Street Bank and Trust Company ("Advisor" or
"State Street") serves as the investment advisor for the Fund.
MANNER OF OFFERING
Distribution and Eligible Investors. Shares of the Fund are offered
without a sales commission by Russell Fund Distributors, Inc. (the
"Distributor"), Investment Company's distributor, to US and foreign
institutional and retail investors that invest for their own account or in a
fiduciary or agency capacity. The Fund will incur distribution expenses under
the Investment Company's Rule 12b-1 plan. See "General Management --
Distribution Services and Shareholder Servicing."
Minimum and Subsequent Investment. The Fund requires a minimum initial
investment of $100,000. A shareholder's investment in the Fund may be subject to
redemption at the Fund's discretion if the account balance is less than
$100,000. The Fund reserves the right to reject any purchase order.
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
The Treasury Obligations Fund's 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 only in obligations that are issued by the US Treasury or
guaranteed as to principal and interest by the full faith and credit of the US
Government. This investment objective may be changed only with the approval of a
majority of the Fund's shareholders as defined by the 1940 Act. There can be no
assurance that the Fund will meet its investment objective.
The Treasury Obligations Fund's investment policy is to invest only in
US Treasury bills, notes and bonds (which are direct obligations of the US
Government). Dividends paid by the Fund are exempt from taxation by most state
governments. See "Taxes."
Investment Policies
The investment policies described below reflect the Fund's current
practices, are not fundamental and may be changed by the Board of Trustees of
Investment Company without shareholder approval. To the extent consistent with
the Fund's fundamental investment objective and restrictions, the Fund may
invest in the following instruments and may use the following investment
techniques:
US Government Securities. 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.
When-Issued Transactions. The Fund may purchase securities on a
when-issued or delayed delivery basis. In these transactions, the Fund purchases
securities with payment and delivery scheduled for a future time. Until
settlement,
-4-
<PAGE>
the Fund segregates cash and marketable high quality debt securities equal in
value to its when-issued commitments. Between the trade and settlement dates,
the 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 the Fund to miss a price or yield considered
advantageous. The Fund will engage in when-issued transactions only for the
purpose of acquiring portfolio securities consistent with its investment
objective and policies and not for investment leverage. The Fund will invest no
more than 25% of its net assets in when-issued securities.
Lending Portfolio Securities. The Fund may lend portfolio securities
with a value of up to 33-1/3% of its total assets. For these purposes, total
assets shall include the value of all assets received as collateral for the
loan. Such loans may be terminated at any time. The 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, the 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, the 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. The 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, the 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 Advisor to be of good financial standing. In a
loan transaction, the Fund will also bear the risk of any decline in value of
securities acquired with cash collateral. The Fund will minimize this risk by
limiting the investment of cash collateral to high quality instruments of short
maturity.
Purchase of Other Funds. To the extent permitted under the 1940 Act and
exemptive rules and orders thereunder, the Fund may seek to achieve its
investment objective by investing solely in the shares of another investment
company that has a substantially similar investment objective and policies.
Investment Restrictions
The Fund has fundamental investment restrictions, which may be changed
only with the approval of a majority of the Fund's shareholders as defined in
the 1940 Act. A more detailed discussion of the Fund's 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. The Fund may not:
1. Borrow money, 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
Fund's assets taken at market value, less liabilities other
than borrowings. If at any time the 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. The Fund will not
purchase additional investments if borrowed funds (including
reverse repurchase agreements) exceed 5% of total assets.
2. Pledge, mortgage, or hypothecate its assets. However, the Fund
may pledge securities having a market value at the time of the
pledge not exceeding 33-1/3% of the value of the Fund's total
assets to secure permitted borrowings.
PORTFOLIO MATURITY
The Fund must limit investments to securities with remaining maturities
of 397 days or less (as calculated in accordance with Rule 2a-7 of the 1940 Act)
and must maintain a dollar-weighted average maturity of 90 days or less. The
Fund normally holds portfolio instruments to maturity, but may dispose of them
prior to maturity if Advisor finds it advantageous or necessary.
-5-
<PAGE>
PORTFOLIO TURNOVER
The Fund will normally hold portfolio instruments to maturity, but may
dispose of them prior to maturity if Advisor finds it advantageous or necessary.
Investing in short-term money market instruments will result in high portfolio
turnover. Since the cost of these transactions is small, high turnover is not
expected to adversely affect net asset value or yield of the Fund.
DIVIDENDS AND DISTRIBUTIONS
The Board of Trustees intends to declare dividends on shares of the
Fund from net investment income daily and have them payable as of the last
business day of each month. Distributions will be made at least annually from
net short- and long-term capital gains, if any. In most instances, distributions
will be declared and paid in mid-October with additional distributions declared
and paid in December, if required, for the Fund to avoid imposition of a 4%
federal excise tax on undistributed capital gains. The Fund does not expect any
material long-term capital gains or losses.
Dividends declared in October, November or December and payable to
shareholders of record in such months will be deemed to have been paid by the
Fund and received by shareholders on December 31 of that year if the dividend is
paid prior to February 1 of the following year.
Income dividend and capital gain distributions will be paid 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 Fund mailings to an investor, the
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 Fund until
the investor notifies the SSgA Funds 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 Fund shortly
after a purchase of shares will reduce the per share net asset value of the Fund
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:
[bullet] Reinvestment Option--Dividends and capital gains distributions
will be automatically reinvested in additional shares of the
Fund. If the investor does not indicate a choice on the
Application, this option will be automatically assigned.
[bullet] Income-Earned Option--Capital gain distributions will be
automatically reinvested, but a check or wire will be sent for
each dividend distribution.
[bullet] Cash Option--A check or wire will be sent for each dividend
and capital gain distribution.
[bullet] Direct Dividends Option--Dividends and capital gain
distribution will be automatically invested in another
identically registered SSgA Fund.
The Transfer Agent will wire dividends (if that option is elected) to a
pre-designated bank on the first business day of the following month in which
the dividend is payable.
-6-
<PAGE>
TAXES
The Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, as amended. As a regulated investment
company, the Fund will not be subject to federal income taxes to the extent it
distributes its net investment income and net capital gain (long-term capital
gains in excess of short-term capital losses) to its shareholders. The Board
intends to distribute each year substantially all of the Fund's net investment
income and capital gain net income.
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.
Under federal law, the income derived from obligations issued by the US
Government and certain of its agencies or instrumentalities is exempt from state
income taxes.
Shareholders will be notified after each calendar year of the amount of
income dividends and net capital gains distributed and the percentage of the
Fund's income attributable to US Treasury and agency obligations. The 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 Fund with the shareholder's correct taxpayer
identification number or certification that the shareholder is not subject to
backup withholding.
The foregoing discussion is only a summary of certain federal income
tax issues generally affecting the Fund and its shareholders. Circumstances
among investors may vary and each investor is encouraged to discuss investment
in the Fund with the investor's tax advisor.
VALUATION OF FUND SHARES
Net Asset Value Per Share. The Fund will determine 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 is one on which the New York Stock Exchange and
the Boston Federal Reserve are open for business. Net asset value per share is
computed by dividing the current value of the Fund's assets, less its
liabilities, by the number of shares of the Fund outstanding and rounding to the
nearest cent.
Valuation of Fund Securities. The Fund seeks to maintain a $1.00 per
share net asset value and, accordingly, uses the amortized cost valuation
procedure to value its 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 FUND SHARES
Minimum Initial Investment and Account Balance. The Fund requires a
minimum initial investment and account balance of $100,000. The Fund reserves
the right to reject any purchase order.
Offering Dates and Times. Fund shares may be purchased on any business
day without a sales commission. All purchases must be made in US dollars.
Payments for Fund shares must be received by the Transfer Agent, and the
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<PAGE>
accompanying payment must be in federal funds or converted into federal funds by
the Transfer Agent before the purchase order can be accepted. Shares of the Fund
purchased by orders which are accepted: (1) prior to Noon Eastern time will earn
the dividend declared on the date of purchase; and (2) on or after Noon Eastern
time will earn the dividend determined on the next day.
Order and Payment Procedures. There are several ways to invest in the
Fund. The Fund requires a purchase order in good form which consists of a
completed and signed Application Form ("Application") for each new account
regardless of the investment method. For additional information, copies of forms
or questions, call Transfer Agent at (800) 647-7327, or write to Transfer Agent
at: State Street Bank and Trust Company, P.O. Box 8317, Boston, MA 02266-8317
Attention: SSgA US Treasury Obligations Fund.
Federal Fund Wire. In order to assure timely processing of purchase
orders, the Investment Company strongly recommends that investors purchase
shares by wiring federal funds to State Street Bank and Trust Company as
Transfer Agent. An investor using this purchase method should:
1. Telephone State Street Bank and Trust Company at (800)
647-7327 and provide: (1) the investor's account registration
number, address and social security or tax identification
number; (2) the amount being wired; (3) the name of the wiring
bank; (4) the name and telephone number of the person at the
wiring bank to be contacted in connection with the order; and
(5) that the funds should be invested in SSgA US Treasury
Obligations Fund.
2. Instruct the wiring bank to wire federal funds to: State
Street Bank and Trust Company, Boston, MA, (ABA #0110-00028)
Attention: SSgA US Treasury Obligations Fund, Mutual Funds
Service Division (DDA #9904-631-0). The wire instructions
should also include the name in which the account is
registered, the account number, and the name of the Fund in
which to be invested.
3. Complete the Application and forward it to Transfer Agent at
the above address.
Orders transmitted via this purchase method will be credited when
federal funds are received by State Street Bank and Trust Company, even though
the investor's Application may not arrive until later. However, an investor will
not be permitted to redeem shares from the account until a completed Application
is on file.
Mail. To purchase shares by mail, send a check or other negotiable bank
draft payable to: State Street Bank and Trust Company, P.O. Box 8317, Boston, MA
02266-8317, Attention: SSgA US Treasury Obligations Fund. Third party checks,
except those payable to an existing shareholder who is a natural person (as
opposed to a corporation or partnership) and checks drawn on credit card
accounts will not be accepted. Certified checks are not necessary; however, all
checks are accepted subject to collection at full face value in United States
funds and must be drawn in United States dollars on a United States bank.
Normally, checks and drafts are converted to federal funds within two business
days following receipt of the check or draft. Initial investments should be
accompanied by a completed Application, and subsequent investments are to be
accompanied by the investor's account number.
Third Party Transactions. Investors purchasing 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 such
intermediary to pay additional fees. Investors should contact such intermediary
for information concerning what additional fees, if any, may be charged.
"In-Kind" Exchange of Securities. The Transfer Agent may, at its
discretion, permit investors to purchase shares through the exchange of
securities they hold. Any securities exchanged must meet the investment
objective, policies and limitations of the Fund, must have a readily
ascertainable market value, must be liquid and must not be subject to
restrictions on resale. The market value of any securities exchanged, plus any
cash, must be at least $1 million. Shares purchased in exchange for securities
generally may not be redeemed or exchanged until the transfer has settled --
usually within 15 days following the purchase by exchange.
-8-
<PAGE>
The basis of the exchange will depend upon the relative net asset value
of the shares purchased and securities exchanged. Securities accepted by the
Fund will be valued in the same manner as the Fund values its assets. Any
interest earned on the securities following their delivery to the Transfer Agent
and prior to the exchange will be considered in valuing the securities. All
interest, dividends, subscription or other rights attached to the securities
become the property of the Fund, along with the securities.
Exchange Privilege. Subject to the Fund's minimum investment
requirement, investors may exchange their Fund shares without charge for shares
of any other investment portfolio offered by Investment Company. Shares are
exchanged on the basis of relative net asset value per share on the business day
on which the call is placed or upon written receipt of instructions in good form
by the Transfer Agent. Exchanges may be made: (1) by telephone if the
registrations of the two accounts are identical; or (2) in writing addressed to
State Street Bank and Trust Company, P.O. Box 8317, Boston, MA 02266-8317,
Attention: SSgA US Treasury Obligations Fund. If shares of the Fund were
purchased by check, the shares must have been present in an account for 10 days
before an exchange is made. The exchange privilege will only be available in
states where the exchange may legally be made, and may be modified or terminated
by the Fund upon 60 days' notice to shareholders.
REDEMPTION OF FUND SHARES
Fund shares may be redeemed on any business day at the net asset value
next determined after the receipt of a redemption request in proper form as
described below. Payment 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. Although Investment Company does not currently charge a
fee for this service, Investment Company reserves the right to charge a fee for
the cost of wire-transferred redemptions of less than $1,000. Payment for
redemption of shares purchased by check may be withheld for up to 15 days after
the date of purchase to assure that such checks are honored. An investor will
not be permitted to redeem shares from the account until a completed Application
is on file. Shareholders who redeem shares of the Fund pursuant to a request
received by State Street Bank and Trust Company prior to Noon Eastern time will
not be entitled to that day's dividend with respect to the shares redeemed.
Redemption requests must be received prior to 4:00 p.m. Eastern time in
order be effective on the date received. Shareholder servicing agents with
underlying shareholders in omnibus accounts who receive redemption requests by
4:00 p.m. Eastern time may transmit the request to the Transfer Agent by 9:00
a.m. Eastern time the next succeeding business day and receive the dividend as
of the day the redemption request was originally made by the underlying
shareholder.
Expedited Redemption. Shareholders may normally redeem Fund shares by
telephoning State Street Bank and Trust Company between 9:00 a.m. and 4:00 p.m.
Eastern time at (800) 647-7327, Attention: SSgA US Treasury Obligations Fund.
Shareholders using the expedited redemption method must complete the appropriate
section on the Application. The Fund and the Transfer Agent will employ
reasonable procedures to confirm that instructions communicated by telephone are
properly authorized. The Fund and the Transfer Agent will not be liable for
executing telephone 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. 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. Redemption requests may be made in writing directly to State
Street Bank and Trust Company, P.O. Box 8317, Boston, MA 02266-8317, Attention:
SSgA US Treasury Obligations Fund. The redemption price will be the net asset
value next determined after receipt by State Street of all required documents in
good order. "Good order" means that the request must include the following:
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<PAGE>
1. A letter of instruction or a stock assignment stating that the
shares are to be redeemed out of the SSgA US Treasury
Obligations and designating specifically the dollar amount to
be redeemed signed by all owners of the shares in the exact
names in which they appear on the account, together with a
guarantee of the signature of each owner by a bank, trust
company or member of a recognized stock exchange; and
2. Such other supporting legal documents, if required by
applicable law or Transfer Agent, in the case of estates,
trusts, guardianships, custodianships, corporations and
pension and profit-sharing plans.
The Fund reserves the right to redeem the shares in any account with a
balance of less than $100,000 as a result of shareholder redemptions rather than
market value fluctuations. Before shares are redeemed to close an account, the
shareholder will be notified in writing and allowed 60 days to purchase
additional shares to meet the minimum account balance.
The Fund may pay any portion of the redemption amount in excess of
$250,000 by a distribution in kind of readily marketable securities from the
portfolio of the Fund in lieu of cash. Investors will incur brokerage charges on
the sale of these portfolio securities. The Fund reserves the right to suspend
the right of redemption or postpone the date of payment if emergency conditions,
as specified in the 1940 Act or determined by the Securities and Exchange
Commission, should exist.
GENERAL MANAGEMENT
The Board of Trustees supervises the Fund's management, activities and
affairs and has approved contracts with various financial organizations to
provide, among other services, day-to-day management required by the Fund.
Advisory Agreement. Investment Company employs State Street to furnish
the Fund's investment services. 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 Corporation, a
publicly held bank holding company. State Street, with over $370 billion (US)
under management as of September 30, 1997, provides complete global investment
management services from offices in Atlanta, Boston, Brussels, Copenhagen,
Dubai, Hong Kong, London, Minneapolis, Montpellier, Montreal, Munich, Paris, San
Francisco, Sydney, Tokyo, and Toronto.
Advisor, subject to Board supervision, directs the Fund's investments
in accordance with the Fund's investment objective, policies and restrictions.
For these services, the Fund pays Advisor a fee, calculated daily and paid
monthly, that on an annual basis is equal to .25% of the Fund's average daily
net assets.
The Glass-Steagall Act prohibits a depository state chartered bank such
as Advisor from engaging in the business of issuing, underwriting, selling or
distributing certain securities. The activities of Advisor in informing its
customers of the Fund, performing investment and redemption services and
providing custodian, transfer, shareholder servicing, dividend disbursing and
investment advisory services may raise issues under these provisions. Advisor
has been advised by its counsel that its activities in connection with the Fund
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 Advisor from continuing to perform all or a part of
the above services for its customers and/or the Fund. If Advisor were prohibited
from serving the Fund 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 Fund may occur. Advisor does not expect 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.
-10-
<PAGE>
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 Investment Company portfolios 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 November 30, 1997,
State Street held of record less than 25% of the issued and outstanding shares
of Investment Company in connection with its discretionary accounts.
Consequently, State Street is not 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 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.
Administration Agreement. Frank Russell Investment Management Company
("Administrator") serves as administrator of the Fund. Administrator currently
serves as investment manager and administrator to 32 mutual funds with assets of
$11.3 billion as of October 31, 1997, and acts as administrator to 20 mutual
funds, including the Fund, with assets of $10.8 billion as of October 31, 1997.
Pursuant to the Administration Agreement with Investment Company,
Administrator will: (1) supervise all aspects of the Fund's operations; (2)
provide the Fund with administrative and clerical services, including the
maintenance of certain of the Fund's books and records; (3) arrange the periodic
updating of the Fund's prospectus and any supplements thereto; (4) provide proxy
materials and reports to Fund shareholders and the Securities and Exchange
Commission; and (5) provide the Fund 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 Fund
and Investment Company's other domestic investment portfolios pay Administrator
a combined fee that on an annual basis is equal to the following percentages of
their average aggregate daily net assets: (1) $0 to and including $500 million
- -- .06%; (2) over $500 million to and including $1 billion -- .05%; and (3) over
$1 billion -- .03%. The percentage of the fee paid by the Fund is equal to the
percentage of average aggregate daily net assets attributable to the Fund.
Administrator will also receive reimbursement of expenses it incurs in
connection with establishing new investment portfolios. Further, the
administration fee paid by the Investment Company will be reduced by the sum of
certain distribution related expenses, up to certain maximum percentages, as
follows: (1) 10% from January 1, 1997 to December 31, 1997; 5% from January 1,
1998 to December 31, 1998; and (3) 0% from January 1, 1999 thereafter.
Administrator also provides administrative services in connection with
the registration of shares of Investment Company 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, the Distributor, a wholly
owned subsidiary of Administrator, serves as distributor for all Fund shares.
The Fund has 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 each Fund's 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 Fund shares including: (1) payments made to certain broker-
-11-
<PAGE>
dealers, investment 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 Fund
shares, including Distributor's overhead expenses for rent, office supplies,
equipment, travel, communication, compensation and benefits of sales personnel.
Under the Plan, the Fund may also enter into agreements ("Service
Agreements") with financial institutions, which may include Advisor ("Service
Organizations"), to provide shareholder servicing with respect to 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: answering inquiries regarding the Fund; assisting customers
in changing dividend options, account designations and addresses; performing
subaccounting for such customers; establishing and maintaining customer accounts
and records; processing purchase and redemption transactions; 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; arranging for bank wires transferring
customers' funds; and such other services as the customers may request in
connection with the Fund, to the extent permitted by applicable statute, rule or
regulation. Service Organizations may receive from the Fund, for shareholder
servicing, a monthly fee at a rate that shall not exceed .10% per annum of the
average daily net asset value of the 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.
The Investment Company has entered into Service Agreements with the
Advisor and the following entities related to the Advisor: State Street
Brokerage Services, Inc., Metropolitan Division of Commercial Banking,
Retirement Investment Services Division and State Street Solutions. The purpose
of the Service Agreements is to obtain shareholder services for Fund shares
owned by clients of each of these entities. In return for these services, the
Investment Company pays each of the entities a fee. These agreements are
reviewed annually by the Board of Trustees.
Payments to Distributor, as well as payments to Service Organizations
from the Fund, will not be permitted by the Plan to exceed .25% of the 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. The Fund's liability for any such
expenses carried forward would terminate at the end of two years following the
year in which the expenditure was incurred. Service Organizations would be
responsible for prompt transmission of purchase and redemption orders and may
charge fees for their services.
FUND EXPENSES
The Fund will pay all of its expenses other than those expressly
assumed by Advisor and Administrator. The principal Fund expenses are the annual
advisory fee payable to Advisor and distribution and shareholder servicing
expenses. Other expenses include: (1) amortization of deferred organizational
costs; (2) taxes, if any; (3) expenses for legal, auditing and financial
accounting services; (4) expense of preparing (including typesetting, printing
and mailing) reports, prospectuses and notices to existing shareholders; (5)
administrative fees; (6) custodian fees; (7) expense of issuing and redeeming
Fund shares; (8) the cost of registering 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 Fund.
PERFORMANCE CALCULATIONS
From time to time the Fund may advertise its yield and effective yield.
The yield of the Fund refers to the income generated by an investment in the
Fund over a seven-day period (which period will be stated in the
-12-
<PAGE>
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 the 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 Fund 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.
From time to time, the Fund may advertise its total return. The Fund's
total return is the average annual compounded rate of return from a hypothetical
investment in the Fund over one-, five- and ten-year periods or for the life of
the Fund (as stated in the advertisement), assuming the reinvestment of all
dividends and capital gains distributions.
Comparative performance information may be used from time to time in
advertising or marketing Fund shares, including data from Lipper Analytical
Services, Inc., IBC/Donoghue's Money Fund Report, the Bank Rate Monitor, Wall
Street Journal Score Card or other industry publications, business periodicals,
rating services and market indices. The Fund may also advertise nonstandardized
performance information which is for periods in addition to those required to be
presented.
Quoted yields, total 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
Bank and Trust Company holds all portfolio securities and cash assets of the
Fund, provides portfolio recordkeeping services and serves as the Fund's
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 Fund
supervision and management 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 Distributor at (800) 647-7327.
Organization, Capitalization and Voting. 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 issues shares divisible into an unlimited number of
series (or funds), each of which is a separate trust under Massachusetts law.
The Treasury Obligations Fund is one such series.
Fund shares represents an equal proportionate interest in a the Fund,
have a par value of $.001 per share and are entitled to such relative rights and
preferences and dividends and distributions earned on assets of the Fund as may
be declared by the Board of Trustees. Fund shares are fully paid and
nonassessable by Investment Company and have no preemptive rights.
Each 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
-13-
<PAGE>
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.
Investment Company does not issue share certificates for Fund shares.
Transfer Agent sends monthly statements to Fund shareholders. Each statement
also sets forth the balance of shares held in the account and describes any
activity in the account during the period covered by the statement.
-14-
<PAGE>
SSgA FUNDS
One International Place
Boston, Massachusetts 02110
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
-15-
<PAGE>
Filed pursuant to Rule 485(b)
File Nos. 33-19229; 811-5430
SSgA FUNDS
One International Place
Boston, Massachusetts 02110
(800) 647-7327
TAX FREE MONEY MARKET FUND
SSgA Funds is a registered, open-end management investment company with multiple
portfolios, each of which is commonly referred to as a mutual fund. This
Prospectus describes and offers shares of beneficial interest in one such mutual
fund, the SSgA Tax Free Money Market Fund (the "Tax Free Fund" or the "Fund").
The Tax Free Fund seeks to maximize current income, exempt from federal income
taxes, to the extent consistent with the preservation of capital and liquidity
and the maintenance of a stable $1.00 per share net asset value. The Fund's
shares are offered without sales commissions. However, the Fund pays certain
distribution expenses under its 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 TAX FREE FUND ARE NEITHER INSURED NOR GUARANTEED BY THE US
GOVERNMENT. THERE IS NO ASSURANCE THAT THE FUND WILL MAINTAIN A STABLE NET ASSET
VALUE OF $1.00 PER SHARE.
SHARES IN THE FUND 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 sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Please read and retain this
document for future reference. Additional information about the SSgA Funds has
been filed with the Securities and Exchange Commission ("SEC") in Statements of
Additional Information ("SAI") dated December 24, 1997. The SAI is incorporated
herein by reference and is available without charge from Distributor at its
address noted below or by calling (800) 647-7327. The SEC also maintains a
website (www.sec.gov) that contains the SAI, material incorporated by reference
and other information regarding the SSgA Funds. You may also access the SSgA
Funds' website at www.ssgafunds.com.
<TABLE>
<CAPTION>
Investment Advisor, Custodian
and Transfer Agent: Distributor: Administrator:
<S> <C> <C>
State Street Bank and Trust Frank Russell Investment
Company Russell Fund Distributors, Inc. Management Company
225 Franklin Street One International Place 909 A Street
Boston, Massachusetts 02110 Boston, Massachusetts 02110 Tacoma, Washington 98402
</TABLE>
PROSPECTUS DATED December 24, 1997
-1-
<PAGE>
TABLE OF CONTENTS
Page
----
Fund Operating Expenses.....................................................3
Financial Highlights........................................................4
SSgA Funds..................................................................5
Manner of Offering..........................................................5
Investment Objective, Policies and Restrictions.............................5
Portfolio Maturity .........................................................9
Dividends and Distributions.................................................9
Taxes......................................................................10
Valuation of Fund Shares...................................................10
Purchase of Fund Shares....................................................11
Redemption of Fund Shares..................................................14
General Management.........................................................15
Fund Expenses..............................................................17
Performance Calculations...................................................17
Additional Information.....................................................17
-2-
<PAGE>
FUND OPERATING EXPENSES
SSgA TAX FREE MONEY MARKET FUND
The following table is intended to assist the investor in understanding the
various costs and expenses that an investor in shares of the Tax Free Fund will
incur directly or indirectly. The examples should not be considered a
representation of past or future expenses. Actual expenses may be greater or
less than those shown. For additional information, see "General Management."
<TABLE>
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses:
- ---------------------------------
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
Annual Fund Operating Expenses:
- -------------------------------
(as a percentage of average daily net assets)
Advisory Fees .25%
12b-1 Distribution Fees .14
12b-1 Shareholder Servicing Fees .04
Other Expenses .15
---
Total Operating Expenses(1) .58%
====
Examples: 1 year 3 years 5 years 10 years
- -------- ------ ------- ------- --------
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: $6 $19 $32 $73
== === === ===
</TABLE>
(1) Investors purchasing 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-
<PAGE>
FINANCIAL HIGHLIGHTS
SSgA TAX FREE MONEY MARKET FUND
The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Fund's independent
accountants. The table includes selected data for a share outstanding throughout
each fiscal year or period ended August 31, and other performance information
derived from the financial statements. The table appears in the Fund's Annual
Report and should be read in conjunction with the Fund's financial statements
and related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand L.L.P., in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Distributor at (800) 647-7327.
<TABLE>
1997 1996 1995++
---- ---- ----
<S> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $ 1.0000 $ 1.0000 $ 1.0000
---------- ---------- ----------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .0295 .0302 .0251
LESS DISTRIBUTIONS:
Net investment income (.0295) (.0302) (.0251)
---------- ---------- ----------
NET ASSET VALUE, END OF YEAR $ 1.0000 $ 1.0000 $ 1.0000
========== ========== ==========
TOTAL RETURN (%)(a) 2.99 3.07 2.54
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
($000 omitted) 163,502 45,061 42,607
Ratios to average net assets (%)(b):
Operating expenses, net .58 .57 .59
Operating expenses, gross .58 .57 .60
Net investment income 2.98 3.01 3.40
Per share amount of expense reductions
($ omitted) -- -- .0001
</TABLE>
++ For the period December 1, 1994 (commencement of operations) to August 31,
1995.
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended August 31, 1995 are annualized.
-4-
<PAGE>
SSgA FUNDS
SSgA Funds ("Investment Company") is an open-end management investment
company that is organized as a Massachusetts business trust. In addition, each
series of the Investment Company is diversified as defined in the Investment
Company Act of 1940, as amended ("1940 Act"). As a "series" company, Investment
Company is authorized to issue an unlimited number of shares evidencing
beneficial interests in different investment portfolios. Through this
Prospectus, Investment Company offers shares in one such portfolio, the Tax Free
Fund. State Street Bank and Trust Company ("Advisor" or "State Street") serves
as the investment advisor for the Fund.
MANNER OF OFFERING
Distribution and Eligible Investors. Shares of the Fund are offered
without a sales commission by Russell Fund Distributors, Inc. (the
"Distributor"), Investment Company's distributor, to US and foreign
institutional and retail investors which invest for their own account or in a
fiduciary or agency capacity. The Fund will incur distribution expenses under
its Rule 12b-1 plan. See "General Management -- Distribution Services and
Shareholder Servicing."
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
The Fund's fundamental investment objective is to seek to maximize
current income, exempt from federal income taxes, to the extent consistent with
the preservation of capital and liquidity, and the maintenance of a stable $1.00
per share net asset value. This objective may be changed only with the approval
of a majority of the Fund's shareholders as defined by the 1940 Act. There can
be no assurance that the Fund will meet its investment objective.
The Fund has a fundamental policy of investing at least 80% of its net
assets in federal tax exempt, high quality and short-term municipal securities
of all types under normal market conditions. These securities are issued by
states, municipalities and their political subdivisions and agencies and certain
territories and possessions of the United States. Investments may include
general obligation bonds and notes, revenue bonds and notes, commercial paper,
private placements, tender option bonds, private activity bonds, industrial
development bonds and municipal lease contracts. Securities purchased may bear
fixed, variable or floating rates of interest or may be zero coupon securities.
The Fund may buy or sell securities on a when-issued or forward commitment
basis.
The Fund may invest not more than 20% of its assets in federally
taxable money market instruments including securities issued by or guaranteed as
to principal and interest by the US government or its agencies or
instrumentalities, certificates of deposit, commercial paper and repurchase
agreements.
The Fund will invest in securities with remaining maturities of 397
days or less (as computed according to Rule 2a-7 of the 1940 Act) and will
maintain a dollar-weighted average maturity of 90 days or less. The Fund will
limit its portfolio investments to investment grade securities which at the time
of acquisition the Advisor determines present minimal credit risk and which: (1)
are rated in the highest category by at 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 Portfolio's Advisor in accordance with procedures established
by the Board of Trustees. See the Appendix in the Statement of Additional
Information for a description of a NRSRO.
Investment Policies
The investment policies described below reflect the Fund's current
practices, are not fundamental and may be changed by the Board of Trustees of
Investment Company without shareholder approval. For more information about the
Fund's Investment Policies, please see the Statement of Additional Information.
To the extent consistent with the Fund's fundamental investment objective and
restrictions, the Fund may invest in the following instruments and may use the
following investment techniques:
Municipal Securities. The Fund may purchase municipal securities issued
by or on behalf of public authorities to obtain funds to be used for various
public purposes, including general purpose financing for state and local
governments,
-5-
<PAGE>
refunding outstanding obligations, and financings for specific projects or
public facilities. General obligations are backed by the full faith and credit
of the issuer. These securities include tax anticipation notes, bond
anticipation notes and general obligation bonds. Revenue obligations are backed
by the revenues generated from a specific project or facility and include
project revenue bonds, such as private activity and industrial development
bonds. Private activity and industrial development bonds are dependent on the
ability of the facility's user to meet its financial obligations and the value
of any real or personal property pledged as security for such payment. Private
activity and industrial development bonds, although issued by industrial
development authorities, may be backed only by the assets of the
non-governmental users. Municipal notes are short-term instruments which are
issued and sold in anticipation of a bond sale, collection of taxes or receipt
of other revenues.
Some municipal securities are insured by private insurance companies,
while others may be supported by letters of credit furnished by domestic or
foreign banks. In determining the credit quality of insured or letter of credit
backed securities, the Advisor reviews the financial condition and
creditworthiness of such parties including insurance companies, banks and
corporations.
Municipal obligations involve possible risks, including being affected
by economic, business and political developments and being subject to provisions
of litigation, bankruptcy and other laws affecting the rights and remedies of
creditors. Future laws may be effected extending the time for payment of
principal and/or interest, or limiting the rights of municipalities to levy
taxes. For instance, legislative proposals are introduced from time to time to
restrict or eliminate the federal income tax exemption for municipal obligations
interest. If such legislation is adopted, the Board of Trustees will reevaluate
the fund's investment objective and may submit possible changes in the structure
of the Fund to its shareholders.
Variable and Floating Rate Securities. A floating rate security
provides for the automatic adjustment of its interest rate whenever a specified
interest rate changes. The coupon rate on variable rate securities is reset by a
remarketing agent on a periodic basis ranging from once a day to twice a year.
The agent sets the new rate at a level such that, in the judgment of the agent,
the security could be resold in the secondary market at par. 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 rate securities.
Tax-exempt floating rate and variable rate demand notes and bonds
ordinarily have stated maturities in excess of 13 months, but often permit the
holder to demand payment of principal at any time, or at specified intervals not
exceeding 13 months, in each case upon not more than 30 days' notice. For the
purpose of determining the remaining maturity of certain variable or floating
rate obligations, the Fund may look to the later of the period remaining until
the net readjustment of the interest rate or the period remaining until the
principal amount can be recovered through demand.
Zero Coupon Securities. 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. Because zero coupon bonds do
not pay current income, their prices can be very volatile when interest rates
change.
Municipal Leases. The Fund may purchase participation interests in
municipal obligations, including municipal lease/purchase agreements. Municipal
leases are an undivided interest in a portion of an obligation in the form of a
lease or installment purchase issued by a state or local government to acquire
equipment or facilities. These instruments may have fixed, floating or variable
rates of interest, with remaining maturities of 13 months or less. Municipal
leases may be backed by an irrevocable letter of credit or guarantee of a bank,
or the payment obligation otherwise may be collateralized by US Government
securities. Certain participation interests may permit the Fund to demand
payment on not more than seven days' notice, for all or any part of the Fund's
interest, plus accrued interest.
Municipal leases frequently have special risks not normally associated
with general obligation or revenue bonds. Some leases or contracts include
"non-appropriation" clauses, which provide that the governmental issuer has no
obligation to make future payments under the lease or contract unless money is
appropriated for such purpose by the appropriate legislative body on a yearly or
other periodic basis. To reduce these risks, the Fund will only purchase
municipal leases
-6-
<PAGE>
subject to a non-appropriation clause when the payment of principal and accrued
interest is backed by a letter of credit or guarantee of a bank.
Whether a municipal lease agreement will be considered illiquid for the
purpose of the Fund's restriction on investments in illiquid securities will be
determined by officers of the Investment Company in accordance with procedures
established by the Board of Trustees.
Tender Option Bonds. A tender option is a municipal obligation
(generally held pursuant to a custodial arrangement) having a relatively long
maturity and bearing interest at a fixed rate substantially higher than
prevailing short-term tax exempt rates, that has been coupled with the agreement
of a third party, such as a bank, broker-dealer or other financial institution,
pursuant to which such institution grants the security holders the option, at
periodic intervals, to tender their securities to the institution and receive
the face value thereof. As consideration for providing the option, the financial
institution receives periodic fees equal to the difference between the municipal
obligation's fixed coupon rate and the rate, as determined by a remarketing or
similar agent at or near the commencement of such period, that would cause the
securities, coupled with the tender option, to trade at par on the date of such
determination. Thus, after payment of this fee, the security holder effectively
holds a demand obligation that bears interest at the prevailing short-term tax
exempt rate. Subject to applicable regulatory requirements, the Fund may buy
tender option bonds if the agreement gives the Fund the right to tender the bond
to its sponsor no less frequently than once every 397 days. The Advisor will
consider on an ongoing basis the creditworthiness of the issuer of the
underlying obligation, any custodian and the third party provider of the tender
option. In certain instances and for certain tender option bonds, the option may
be terminable in the event of a default in payment of principal or interest on
the underlying municipal obligation and for other reasons.
Standby Commitments. The Fund's investments may include standby
commitments, which are rights to resell municipal securities at specified
periods prior to their maturity dates to the seller or to some third party at an
agreed upon price or yield. Standby commitments may involve certain expenses and
risks, including the inability of the issuer of the commitment to pay for the
securities at the time the commitment is exercised, non-marketability of the
commitment, and difference between the duration of the commitment and the
maturity of the underlying security. The Fund will limit standby commitment
transactions to institutions which the Advisor believes present minimal credit
risk.
Forward Commitments. The Fund 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 the Fund of a dollar
amount sufficient to make payment for the portfolio securities to be purchased
will be segregated on the Fund'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 the Fund to miss an advantageous price or
yield. The Fund bears the risk of price fluctuations during the period between
the trade and settlement dates.
When-Issued Transactions. The Fund may purchase securities on a
when-issued basis. In these transactions, the Fund purchases securities with
payment and delivery scheduled for a future time. Until settlement, the Fund
segregates cash and marketable securities equal in value to its when-issued
commitments. Between the trade and settlement dates, the Fund bears the risk of
any fluctuations in the value of the securities. These transactions involve the
additional risk that the other party may fail to complete the transaction and
cause the Fund to miss a price or yield considered advantageous. The Fund will
engage in when-issued transactions only for the purpose of acquiring portfolio
securities consistent with its investment objective and policies and not for
investment leverage. The Fund will not invest more than 25% of net assets in
when-issued securities.
Repurchase Agreements. The 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 Fund receives
securities as collateral. Under a repurchase agreement, a Fund purchases
securities from a financial institution that agrees to repurchase the securities
at the Fund's original purchase price plus interest within a specified time
(normally one business day). The Fund will limit repurchase transactions to
those member banks of the Federal Reserve System and broker-dealers whose
creditworthiness Advisor considers satisfactory. Should the counterparty to a
transaction fail financially, the 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 the
Fund.
Reverse Repurchase Agreements. The Fund may enter into reverse
repurchase agreements under the circumstances described in "Investment
Restrictions." In substance, a reverse repurchase agreement is a borrowing for
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<PAGE>
which the Fund provides securities as collateral. Under a reverse repurchase
agreement, the Fund sells portfolio securities to a financial institution 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 at a
prescribed repurchase price equal to the amount of cash originally received plus
interest on such amount. The Fund retains the right to receive interest and
principal payments with respect to the securities while they are in the
possession of the financial institutions. Reverse repurchase agreements involve
the risk of default by the counterparty, which may adversely affect the Fund's
ability to reacquire the underlying securities.
Illiquid Securities. The Fund will not invest more than 10% of its net
assets in illiquid securities or securities that are not readily marketable.
These securities include repurchase agreements and time deposits of more than
seven days' duration and participation interests (including municipal leases),
floating and variable rate demand obligations and tender option bonds as to
which the Fund cannot exercise a demand feature in seven or fewer days and for
which there is no secondary market.
US Government Securities. 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, 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.
Commercial Paper. Tax exempt commercial paper is a short-term
obligation with a stated maturity of 365 days or less. It is typically issued to
finance seasonal working capital needs or as short-term financing in
anticipation of longer term financing. Each instrument may be backed only by the
credit of the issuer or may be backed by some form of credit enhancement,
typically in the form of a guarantee by a commercial bank. Commercial paper
backed by guarantees of foreign banks may involve additional risk due to the
difficulty of obtaining and enforcing judgments against such banks and the
generally less restrictive regulations to which such banks are subject. The Fund
will only invest in commercial paper rated at the time of purchase not less than
Prime-1 by Moody's Investors Service, Inc., A-1 by Standard & Poor's Rating
Group or F-1 by Fitch's Investor Service.
Lending Portfolio Securities. The Fund may lend portfolio securities
with a value of up to 33-1/3% of its total assets. For these purposes, total
assets shall include the value of all assets received as collateral for the
loan. Such loans may be terminated at any time. The 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, the 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, the 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. The 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, the 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 Advisor to be of good financial standing. In a
loan transaction, the Fund will also bear the risk of any decline in value of
securities acquired with cash collateral. The Fund will minimize this risk by
limiting the investment of cash collateral to high quality instruments of short
maturity.
Purchase of Other Funds. To the extent permitted under the 1940 Act and
exemptive rules and orders thereunder, the Fund may seek to achieve its
investment objective by investing solely in the shares of another investment
company that has a substantially similar investment objective and policies.
Investment Restrictions
The Fund has fundamental investment restrictions, which may be changed
only with the approval of a majority of the Fund's shareholders as defined in
the 1940 Act. A more detailed discussion of the Fund's investment restrictions
and investment policies appears in the Statement of Additional Information.
Unless otherwise noted, the fundamental restrictions apply at the time an
investment is made. The Fund may not:
1. Invest 25% or more of the value of its total assets in
securities of issuers located in any one state or group of
public agencies primarily engaged in any one industry (such as
power generation) (other than the US Government, its agencies
or instrumentalities and non-depository instruments issued by
European banks).
-8-
<PAGE>
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 Fund's assets
taken at market value, less liabilities other than borrowings.
If at any time the 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. The 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, the Fund
may pledge securities having a market value at the time of the
pledge not exceeding 33-1/3% of the value of the Fund's total
assets to secure permitted borrowings.
PORTFOLIO MATURITY
The Fund must limit investments to securities with remaining maturities
of 397 days or less (as calculated in accordance with Rule 2a-7) and must
maintain a dollar-weighted average maturity of 90 days or less.
The Fund normally will hold portfolio instruments to maturity, but may
dispose of them prior to maturity if Advisor finds it advantageous or necessary.
Investing in short term money market instruments will result in high portfolio
turnover. Since the cost of these transactions is small, high turnover is not
expected to adversely affect net asset value or yield of the Fund.
DIVIDENDS AND DISTRIBUTIONS
The Board of Trustees intends to declare dividends on shares of the
Fund from net investment income daily and have them payable as of the last
business day of each month. Distributions will be made at least annually from
net short- and long-term capital gains, if any. In most instances, distributions
will be declared and paid in mid-October with additional distributions declared
and paid in December, if required, for the Fund to avoid imposition of a 4%
federal excise tax on undistributed capital gains. The Fund does not expect any
material long-term capital gains or losses.
Dividends declared in October, November or December and payable to
shareholders of record in such months will be deemed to have been paid by the
Fund and received by shareholders on December 31 of that year if the dividend is
paid prior to February 1 of the following year.
Income dividend and capital gain distributions will be paid 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 Fund mailings to an investor, the
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 Fund until
the investor notifies the SSgA Funds in writing of the correct address and
request in writing that the election to receive dividends and other
distributions in cash be reinstated.
Distribution Option. Investors can choose from four different
distribution options as indicated on the account Application:
[bullet] Reinvestment Option--Dividends and capital gains distributions
will be automatically reinvested in additional shares of the
Fund. If the investor does not indicate a choice on the
Application, this option will be automatically assigned.
[bullet] Income-Earned Option--Capital gain distributions will be
automatically reinvested, but a check or wire will be sent for
each dividend distribution.
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<PAGE>
[bullet] Cash Option--A check or wire will be sent for each dividend
and capital gain distribution.
[bullet] Direct Dividends Option--Dividends and capital gain
distribution will be automatically invested in another
identically registered SSgA Fund.
The Transfer Agent will wire dividends (if that option is elected) to a
pre-designated bank on the first business day of the following month in which
the dividend is payable.
TAXES
The Fund intends to qualify as a regulated investment company ("RIC")
under Subchapter M of the Internal Revenue Code, as amended (the "Code"). As a
RIC, the Fund will not be subject to federal income taxes to the extent it
distributes its net investment income and net capital gain (long-term capital
gains in excess of short-term capital losses) to shareholders. The Board intends
to distribute each year substantially all of the Fund's net investment income
and capital gain net income. In addition, the Fund intends to continue to
qualify to pay "exempt-interest" dividends, which requires, among other things,
that at the close of each quarter of its taxable year at least 50% of the value
of its total assets must consist of municipal securities.
Distributions by the Fund that are designated by it as "exempt-interest
dividends" generally may be excluded from the shareholder's gross income.
Dividends from taxable 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 20% gains and 28% gains are taxable as 20% gains or 28% gains regardless of
the length of time a shareholder has held such shares and whether paid in cash
or additional shares.
The Fund may purchase certain private activity securities whose interest
is subject to the federal alternative minimum tax for individuals. If the Fund
purchases such securities, investors who are subject to the alternative minimum
tax will be required to report a legally determined portion of the Fund's
dividends as a tax preference item in determining their federal tax.
Dividends and distributions may also be subject to state or local
taxes. Depending on the state tax rules pertaining to a shareholder, a portion
of the dividends paid by the Fund attributable to direct obligations of the US
Treasury and certain agencies may be exempt from state and local taxes.
Although the sale or exchange of Fund shares is a taxable event, no
gain or loss is anticipated because the Fund seeks to maintain a stable $1.00
per share net asset value.
Shareholders will be notified after each calendar year of the amount of
income dividends and net capital gains distributed. Shareholders of the Fund
will also be advised of the percentage, if any, of the dividends by the Fund
that are exempt from federal income tax and the portion, if any, of those
dividends that is a tax preference item for purposes of the alternative minimum
tax. The 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 Fund with the shareholder's
correct taxpayer identification number or certification that the shareholder is
not subject to backup withholding.
The foregoing discussion is only a summary of certain federal income
tax issues generally affecting the Fund and its shareholders. Circumstances
among investors may vary and each investor is encouraged to discuss investment
in the Fund with the investor's tax advisor.
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<PAGE>
VALUATION OF FUND SHARES
Net Asset Value Per Share. Net asset value per share for each class of
shares of the Fund is computed by adding the value of all securities and other
assets of the Fund, deducting accrued liabilities allocated to the class,
dividing by the number of shares outstanding in the class and rounding to the
nearest cent. The 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 is
one on which the New York Stock Exchange and Boston Federal Reserve are open for
business.
Valuation of Fund Securities. The Fund seeks to maintain a $1.00 per
share net asset value and, accordingly, uses the amortized cost valuation
procedure to value its 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 FUND SHARES
Minimum Initial and Subsequent Investments and Account Balance. The
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 the Fund (other than IRA
accounts) may be subject to redemption at the 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. The Fund reserves
the right to reject any purchase order. Investors purchasing Fund assets through
a pension or other participation plan should contact their plan administrator
for further information on purchases.
Offering Dates and Times. Fund shares may be purchased on any business
day without a sales commission. All purchases must be made in US dollars and in
Federal funds (or converted to Federal funds). Purchase orders which are
accepted: (1) prior to 12:00 noon Eastern time will earn the dividend declared
on the date of purchase; and (2) at or after 12:00 noon Eastern time will earn
the dividend determined on the next day. The Fund reserves 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.
Order and Payment Procedures. There are several ways to invest in the
Fund. The Fund requires 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 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
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<PAGE>
by check or periodic account investment, payment for redemptions may be withheld
until the check or account clears, which may take up to 15 calendar days.
Telephone Exchange Privilege. Subject to the Fund's minimum investment
requirement, investors may exchange a minimum of $100 of their 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 on the business day on which the
call is placed or upon written receipt of instructions in good form by the
Transfer Agent. Exchanges may be made over the phone if the registrations of the
two accounts are identical. If the shares of the 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 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.
Federal Funds Wire. An investor may make initial or subsequent
investments 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 Fund in which the investment is to be made and
the account number; and (c) the amount being wired.
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 Tax Free Fund
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 Fund 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 Fund's minimum initial requirement
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 Fund offers 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 Fund has been satisfied.
Third Party Transactions. Investors purchasing 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.
In Kind Exchange of Securities. The Transfer Agent may, at its
discretion, permit investors to purchase shares through the exchange of
securities they hold. Any securities exchanged must meet the investment
objective, policies and limitations of the Fund, must have a readily
ascertainable market value, must be liquid and must not be subject to
restrictions on resale. The market value of any securities exchanged, plus any
cash, must be at least $10 million. Shares purchased in exchange for securities
generally may not be redeemed or exchanged until the transfer has
settled--usually within 15 days following the purchase exchange.
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<PAGE>
The basis of the exchange will depend upon the relative net asset value
of the shares purchased and securities exchanged. Securities accepted by the
Fund will be valued in the same manner as the Fund values its assets. Any
interest earned on the securities following their delivery to the Transfer Agent
and prior to the exchange will be considered in valuing the securities. All
interest, dividends subscription or other rights attached to the securities
become the property of the Fund, along with the securities.
REDEMPTION OF FUND SHARES
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. Typically, 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. A dividend will be paid on shares redeemed if the redemption
request is received by State Street after 12:00 noon Eastern time. Redemption
requests received before 12:00 noon Eastern time will not be entitled to that
day's dividend.
Redemption requests must be received prior to 4:00 p.m. Eastern time in
order be effective on the date received. Shareholder servicing agents with
underlying shareholders in omnibus accounts who receive redemption requests by
4:00 p.m. Eastern time may transmit the request to the Transfer Agent by 9:00
a.m. Eastern time the next succeeding business day and receive the dividend as
of the day the redemption request was originally made by the underlying
shareholder.
Checkwriting Service. If investors have authorized the check writing
feature on the Application and have completed the signature card, they may
redeem shares in their account, provided that the appropriate signatures are on
the check. The minimum check amount is $500. There is a one-time service charge
of $5 per Fund to establish this feature, and investors may write an unlimited
number of checks provided that the account minimum of $1,000 per Fund is
maintained.
Telephone Redemption. Shareholders may normally redeem 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 Fund and the Transfer Agent will employ reasonable procedures
to confirm that instructions communicated by telephone are properly authorized.
The 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.
By Wire. Proceeds exceeding $1,000 may be sent via wire transfer to the
investor's pre-designated bank. Proceeds may be sent, depending on the Fund, on
the same or the next day. Although the Fund does 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. Requests
received prior to 12:00 noon Eastern time will have proceeds wired the same day.
Requests received after 12:00 noon Eastern time will have the shares redeemed
that day and the proceeds will be wired the following business day.
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 Fund Shares"). The shareholder may need to
include additional
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<PAGE>
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.
<TABLE>
<CAPTION>
Seller Requirements for Written Requests
<S> <C>
Owner of individual, joint, sole [bullet] Letter of instruction, signed by all persons
proprietorship, UGMA/UTMA authorized to sign for the account stating
(custodial accounts for general titles/capacity, exactly as the
minors) or general partner account is registered; and
accounts [bullet] Signature guarantee, if applicable (see above).
Owners of corporate or [bullet] Letter of instruction signed by authorized
association accounts person(s), stating capacity as indicated by the
corporate resolution;
[bullet] Corporate resolution, certified within the past 90
days; and
[bullet] Signature guarantee, if applicable (see above).
Owners or trustees of [bullet] Letter of instruction, signed by all trustees;
trust accounts [bullet] If the trustees are not named in the registration,
please provide a copy of the trust document certified
within the past 60 days; and
[bullet] Signature guarantee, if applicable (see above).
Joint tenancy shareholders [bullet] Letter of instruction signed by surviving tenant(s);
whose co-tenants are [bullet] Certified copy of the death certificate; and
deceased [bullet] Signature guarantee, if applicable (see above).
</TABLE>
Please contact the Customer Service Department at (800) 647-7327 for
questions and further instructions.
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<PAGE>
The Fund may pay any portion of the redemption amount in excess of
$250,000 by a distribution in kind of readily marketable securities from the
portfolio of the Fund in lieu of cash. Investors will incur brokerage charges on
the sale of these portfolio securities. The Fund reserves 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 Fund and has approved contracts with various financial organizations to
provide, among other services, day-to-day management required by the Fund.
Advisory Agreement. Investment Company employs State Street to furnish
investment services to the Fund. State Street is one of the largest providers of
securities processing and record keeping services for US mutual funds and
pension funds. State Street Global Advisors is the investment management
business of State Street, a 200 year old pioneer and leader in the world of
financial services. State Street is a wholly owned subsidiary of State Street
Corporation, a publicly held bank holding company. State Street, with over $370
billion (US) under management as of September 30, 1997, provides complete global
investment management services from offices in Atlanta, Boston, Brussels,
Copenhagen, Dubai, Hong Kong, London, Minneapolis, Montpellier, Montreal,
Munich, Paris, San Francisco, Sydney, Tokyo, and Toronto.
Advisor, subject to Board supervision, directs the investment of the
Fund in accordance with the Fund's investment objective, policies and
restrictions. For these services, the Fund pays Advisor a fee, calculated daily
and paid monthly, equal to .25% annually of the Fund's average daily net assets.
The Glass-Steagall Act prohibits a depository state chartered bank such
as Advisor from engaging in the business of issuing, underwriting, selling or
distributing certain securities. The activities of Advisor in informing its
customers of the Fund, performing investment and redemption services and
providing custodian, transfer, shareholder servicing, dividend disbursing and
investment advisory services may raise issues under these provisions. Advisor
has been advised by its counsel that its activities in connection with the Fund
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 Advisor from continuing to perform all or a part of
the above services for its customers and/or the Fund. If Advisor were prohibited
from serving the Fund 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 Fund may occur. It is not expected by 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 Investment Company portfolios 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 November 30, 1997,
State Street held of record less than 25% of the issued and outstanding shares
of Investment Company in connection with its discretionary accounts.
Consequently, State Street is not 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 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.
Administration Agreement. Frank Russell Investment Management Company
("Administrator") serves as administrator of the Fund. Administrator currently
serves as investment manager and administrator to 32 mutual funds with
-15-
<PAGE>
assets of $11.3 billion as of October 31, 1997, and acts as administrator to 20
mutual funds, including the Fund, with assets of $10.8 billion as of October 31,
1997.
Pursuant to the Administration Agreement with Investment Company,
Administrator will: (1) supervise all aspects of the Fund's operations; (2)
provide the Fund with administrative and clerical services, including the
maintenance of certain of the Fund's books and records; (3) arrange the periodic
updating of the Fund's prospectuses and any supplements thereto; (4) provide
proxy materials and reports to Fund shareholders and the Securities and Exchange
Commission; and (5) provide the Fund 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 Fund
and Investment Company's other domestic investment portfolios pay Administrator
a combined fee that on an annual basis is equal to the following percentages of
their average aggregate daily net assets: (1) $0 to and including $500 million
- -- .06%; (2) over $500 million to and including $1 billion -- .05%; and (3) over
$1 billion -- .03%. The percentage of the fee paid by the Tax Free Fund is equal
to the percentage of average aggregate daily net assets that are attributable to
the Fund. Administrator will also receive reimbursement of expenses it incurs in
connection with establishing new investment portfolios. Further, the
administration fee paid by the Investment Company will be reduced by the sum of
certain distribution related expenses, up to certain maximum percentages, as
follows: (1) 10% from January 1, 1997 to December 31, 1997; 5% from January 1,
1998 to December 31, 1998; and (3) 0% from January 1, 1999 thereafter.
Administrator also provides administrative services in connection with
the registration of shares of Investment Company 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, the Distributor, a wholly
owned subsidiary of Administrator, serves as distributor for all Fund shares.
The Fund has 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 net asset value of shares of the Fund for distribution-related and
shareholder servicing expenses. Payments under the Plan will be made to
Distributor to finance activity which is intended to result in the sale and
retention of Fund shares including: (1) payments made to certain broker-dealers,
investment 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 Fund shares,
including Distributor's overhead expenses for rent, office supplies, equipment,
travel, communication, compensation and benefits of sales personnel.
Under the Plan, the Fund may also enter into agreements ("Service
Agreements") with financial institutions, which may include Advisor ("Service
Organizations"), to provide shareholder servicing with respect to shares of the
Fund 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: answering inquiries regarding the Fund; assisting
customers in changing dividend options, account designations and addresses;
performing subaccounting for such customers; establishing and maintaining
customer accounts and records; processing purchase and redemption transactions;
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; arranging for
bank wires transferring customers' funds; and such other services as the
customers may request in connection with the Fund, to the extent permitted by
applicable statute, rule or regulation. Service Organizations may receive from
the Fund, for shareholder servicing, monthly fees at a rate that shall not
exceed .20% per annum of the average daily net asset value of the 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.
-16-
<PAGE>
The Investment Company has entered into Service Agreements with the
Advisor and the following entities related to the Advisor: State Street
Brokerage Services, Inc., Metropolitan Division of Commercial Banking,
Retirement Investment Services Division and State Street Solutions. The purpose
of the Service Agreements is to obtain shareholder services for Fund shares
owned by clients of each of these entities. In return for these services, the
Investment Company pays each of the entities a fee. These agreements are
reviewed annually by the Board of Trustees.
Payments to Distributor, as well as payments to Service Organizations,
are not permitted by the Plan to exceed .25% per year of the average net asset
value of the Fund's shares. 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. The Fund's liability for any such expenses
carried forward shall terminate at the end of two years 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.
FUND EXPENSES
The Fund will pay all of its expenses other than those expressly
assumed by Advisor and Administrator. The principal expenses of the Fund are the
annual advisory fee payable to Advisor and distribution and shareholder
servicing expenses. Other expenses include: (1) amortization of deferred
organizational costs; (2) taxes, if any; (3) expenses for legal, auditing and
financial accounting services; (4) expense of preparing (including typesetting,
printing and mailing) reports, prospectuses and notices to existing
shareholders; (5) administrative fees; (6) custodian fees; (7) expense of
issuing and redeeming Fund shares; (8) the cost of registering 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 Fund. Where any of these
other expenses are attributable to a particular class of shares, they will be
borne by the beneficial owners of such shares.
PERFORMANCE CALCULATIONS
From time to time the Fund may advertise its yield, effective yield and
tax-equivalent yield. The yield of the Fund refers to the income generated by an
investment in the Fund 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 each Fund is assumed to be reinvested. The effective
yield will be slightly higher than the yield prescribed by the Securities and
Exchange Commission because of the compounding effect of this assumed
reinvestment. The tax-equivalent yield shows the level of taxable yield needed
to produce an after-tax equivalent to the Fund's tax-free yield. This is done by
increasing the Fund's yield by the amount necessary to reflect the payment of
federal income tax (and state income tax, if applicable) at a stated tax rate.
From time to time, the Fund may also report yield, effective yield and
tax-equivalent 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.
The Fund may also advertise its total return. The total return of the
Fund is the average annual compounded rate of return from a hypothetical
investment in the Fund over one-, five- and ten-year periods or for the life of
the Fund (as stated in the advertisement), assuming the reinvestment of all
dividends and capital gains distributions.
Comparative performance information may be used from time to time in
advertising or marketing Fund shares, including data from Standard & Poor's,
Lipper Analytical Services, Inc., Donoghue's Money Fund Report, Wall Street
-17-
<PAGE>
Journal Score Card or other industry publications, business periodicals, rating
services and market indices. The Fund 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 Fund, provides portfolio
recordkeeping services and serves as the Fund's 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 the
Fund 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 Distributor at (800) 647-7327.
Organization, Capitalization and Voting. 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 issues shares divisible into an unlimited
number of series (or funds), each of which is a separate trust under
Massachusetts law. The Tax Free Fund is one such series. Shares of the Fund are
entitled to such relative rights and preferences and dividends and distributions
earned on assets of the Fund as may be declared by the Board of Trustees. Fund
shares are fully paid and nonassessable by Investment Company and have no
preemptive rights.
Each 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 which 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 the
Investment Company shares or by 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 the
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.
Investment Company does not issue share certificates for the Fund.
Transfer Agent sends monthly shareholders statements, confirming all investments
in or redemptions from their accounts. Each statement also sets forth the
balance of shares held in the account.
As of November 30, 1997, Lazard Freres & Company LLC, in omnibus
accounts as shareholder servicing agent, owned of record 61% of the issued and
outstanding shares of the Fund and is therefore deemed to be a controlling
person for purposes of the 1940 Act. Such shares may be held pursuant to a
shareholder servicing arrangement in omnibus accounts for underlying
shareholders.
-18-
<PAGE>
SSgA FUNDS
One International Place
Boston, Massachusetts 02110
(617) 654-6089
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
-19-
<PAGE>
SSgA FUNDS
SSgA Money Market Fund
SSgA US Government Money Market Fund
SSgA Tax Free Money Market Fund
SSgA S&P 500 Index Fund
SSgA Small Cap Fund
SSgA Matrix Equity Fund
SSgA Yield Plus Fund
SSgA Growth and Income Fund
SSgA Intermediate Fund
SSgA Active International Fund
SSgA Emerging Markets Fund
SSgA Bond Market Fund
SSgA Life Solutions Growth Fund
SSgA Life Solutions Balanced Fund
SSgA Life Solutions Income and Growth Fund
-20-
<PAGE>
Filed pursuant to Rule 485(b)
File Nos. 33-19229; 811-5430
SSgA FUNDS
One International Place
Boston, Massachusetts 02110
(800) 647-7327
TAX FREE MONEY MARKET FUND
Class B Shares
The SSgA Funds is a registered, open-end management investment company with
multiple portfolios, each of which is commonly referred to as a mutual fund.
This Prospectus describes and offers Class B shares of beneficial interest in
one such series, the SSgA Tax Free Money Market Fund (the "Tax Free Fund" or the
"Fund"). Shares may not be purchased by individuals directly, but must be
purchased through a financial institution which is permitted by contract with
the Fund to offer the shares. This Prospectus should be read together with any
materials provided by such institution. The Tax Free Fund seeks to maximize
current income, exempt from federal income taxes, to the extent consistent with
the preservation of capital and liquidity and the maintenance of a stable $1.00
per share net asset value. The Fund's shares are offered without sales
commissions. However, the Fund pays certain distribution expenses under its 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 TAX FREE FUND ARE NEITHER INSURED NOR GUARANTEED BY THE US
GOVERNMENT. THERE IS NO ASSURANCE THAT THE FUND WILL MAINTAIN A STABLE NET ASSET
VALUE OF $1.00 PER SHARE.
SHARES IN THE FUND 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 sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Please read and retain this
document for future reference. Additional information about the SSgA Funds has
been filed with the Securities and Exchange Commission ("SEC") in Statements of
Additional Information ("SAI") dated December 24, 1997. The SAI is incorporated
herein by reference and is available without charge from Distributor at its
address noted below or by calling (800) 647-7327. The SEC also maintains a
website (www.sec.gov) that contains the SAI, material incorporated by reference
and other information regarding the SSgA Funds. You may also access the SSgA
Funds' website at www.ssgafunds.com.
<TABLE>
<CAPTION>
Investment Advisor, Custodian
and Transfer Agent: Distributor: Administrator:
<S> <C> <C>
State Street Bank and Trust Frank Russell Investment
Company Russell Fund Distributors, Inc. Management Company
225 Franklin Street One International Place 909 A Street
Boston, Massachusetts 02110 Boston, Massachusetts 02110 Tacoma, Washington 98402
</TABLE>
PROSPECTUS DATED December 24, 1997
-1-
<PAGE>
TABLE OF CONTENTS
Page
----
Summary.................................................................3
Fund Operating Expenses.................................................4
Financial Highlights....................................................5
The SSgA Funds..........................................................6
Manner of Offering......................................................6
Investment Objective, Policies and Restrictions.........................6
Portfolio Maturity ....................................................10
Dividends and Distributions............................................11
Taxes .................................................................11
Valuation of Fund Shares...............................................12
Purchase of Fund Shares................................................13
Redemption of Fund Shares..............................................13
General Management.....................................................14
Fund Expenses..........................................................16
Performance Calculations...............................................17
Additional Information.................................................17
-2-
<PAGE>
SUMMARY
The following summary is qualified in its entirety by reference to the
more detailed information included elsewhere in the Prospectus.
Investment Objective. The Fund's investment objective is to maximize current
income, exempt from federal income taxes, to the extent consistent with the
preservation of capital and liquidity and the maintenance of a stable $1.00 per
share net asset value. To accomplish this goal, the Fund invests primarily in
high quality short-term municipal obligations.
Dividends. Dividends from net investment income are declared daily and paid
monthly. Net capital gains, if any, are distributed annually.
Potential Investors. The Fund is designed to be an economical and efficient
means for retail investors to participate in professionally managed portfolios
of money market instruments. In this Prospectus, Class B shares of the Fund are
offered to customers of certain financial institutions ("Service Organizations")
who act as record holders of the shares and provide services to their customers
who invest in the Fund.
Purchases and Redemptions. Because shares of the Fund are offered through
Service Organizations, to purchase and redeem shares potential investors should
contact their Service Organizations for information regarding purchase and
redemption procedures. Shares may be purchased or redeemed at the net asset
value next determined after receipt of the order.
Investment Advisors. State Street Bank and Trust Company serves as investment
advisor to the Fund in return for a fee equal to .25% annually of each Fund's
average daily net assets.
Certain Class Information. The shares of the Fund are divided into three
classes: Class A, Class B and Class C. Class A shares are designed for
institutional investors. Class B shares are offered through Service
Organizations that provide certain account administration services. Class C
shares are offered through Service Organizations that provide certain account
administration and shareholder liaison services. Each class of shares of the
Fund is entitled to the same rights and privileges as all other classes of
shares of the Fund, provided however, that each class bears the expenses related
to its distribution and shareholder servicing arrangements and certain other
expenses attributable to the class. Annual distribution and shareholder
servicing expenses for Class A, Class B and Class C shares are equal to
approximately ____%, ____% and ____%, respectively, of the average daily net
asset value of the shares of the class. Total operating expenses for Class A,
Class B and Class C shares are equal to approximately ____%, ____% and ____%,
respectively, of the average daily net asset value of the shares of the class.
-3-
<PAGE>
FUND OPERATING EXPENSES
SSgA TAX FREE MONEY MARKET FUND
The following table is intended to assist the investor in understanding the
various costs and expenses that an investor in shares of the Tax Free Fund will
incur directly or indirectly. The examples should not be considered a
representation of past or future expenses. Actual expenses may be greater or
less than those shown. For additional information, see "General Management."
Shareholder Transaction Expenses:
- ---------------------------------
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
Annual Fund Operating Expenses:
- -------------------------------
(as a percentage of average daily net assets)
Advisory Fees .25%
12b-1 Distribution Fees .14
12b-1 Shareholder Servicing Fees .04
Other Expenses .15
---
Total Operating Expenses(1) .58%
===
Examples: 1 year 3 years 5 years 10 years
- -------- ------ ------- ------- --------
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: $6 $19 $32 $73
== === === ===
- -------------
(1) Investors purchasing 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.
-4-
<PAGE>
FINANCIAL HIGHLIGHTS
SSgA TAX FREE MONEY MARKET FUND
The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Fund's independent
accountants. The table includes selected data for a share outstanding throughout
each fiscal year or period ended August 31, and other performance information
derived from the financial statements. The table appears in the Fund's Annual
Report and should be read in conjunction with the Fund's financial statements
and related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand L.L.P., in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Distributor at (800) 647-7327.
<TABLE>
<CAPTION>
1997 1996 1995++
---- ---- ----
<S> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $ 1.0000 $ 1.0000 $ 1.0000
---------- ---------- ----------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .0295 .0302 .0251
LESS DISTRIBUTIONS:
Net investment income (.0295) (.0302) (.0251)
---------- ---------- ----------
NET ASSET VALUE, END OF YEAR $ 1.0000 $ 1.0000 $ 1.0000
========== ========== ==========
TOTAL RETURN (%)(a) 2.99 3.07 2.54
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
($000 omitted) 163,502 45,061 42,607
Ratios to average net assets (%)(b):
Operating expenses, net .58 .57 .59
Operating expenses, gross .58 .57 .60
Net investment income 2.98 3.01 3.40
Per share amount of expense reductions
($ omitted) -- -- .0001
</TABLE>
- -----------------
++ For the period December 1, 1994 (commencement of operations) to
August 31, 1995.
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended August 31, 1995 are annualized.
-5-
<PAGE>
THE SSgA FUNDS
The SSgA Funds ("Investment Company") are an open-end management
investment company that is organized as a Massachusetts business trust. In
addition, each series of the Investment Company is diversified as defined in the
Investment Company Act of 1940, as amended ("1940 Act"). As a "series" company,
Investment Company is authorized to issue an unlimited number of shares
evidencing beneficial interests in different investment portfolios. Through this
Prospectus, Investment Company offers Class B shares in one such portfolio, the
Tax Free Fund. State Street Bank and Trust Company ("Advisor" or "State Street")
serves as the investment advisor for the Fund.
MANNER OF OFFERING
The Fund is designed to be an economical and efficient means for retail
investors to participate in professionally managed portfolios of money market
instruments. Class B shares of the Fund are offered to customers of certain
financial institutions ("Service Organizations") that act as record holders of
shares and provide services to their customers who invest in the Fund. Each
Service Organization may set a minimum initial investment for its customers and
may redeem all shares in an investor's account if the value of these shares
falls below a predetermined amount.
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
The Fund's fundamental investment objective is to seek to maximize
current income, exempt from federal income taxes, to the extent consistent with
the preservation of capital and liquidity, and the maintenance of a stable $1.00
per share net asset value. This objective may be changed only with the approval
of a majority of the Fund's shareholders as defined by the 1940 Act. There can
be no assurance that the Fund will meet its investment objective.
The Fund has a fundamental policy of investing at least 80% of its net
assets in federal tax exempt, high quality and short-term municipal securities
of all types under normal market conditions. These securities are issued by
states, municipalities and their political subdivisions and agencies and certain
territories and possessions of the United States. Investments may include
general obligation bonds and notes, revenue bonds and notes, commercial paper,
private placements, tender option bonds, private activity bonds, industrial
development bonds and municipal lease contracts. Securities purchased may bear
fixed, variable or floating rates of interest or may be zero coupon securities.
The Fund may buy or sell securities on a when-issued or forward commitment
basis.
The Fund may invest not more than 20% of its assets in federally
taxable money market instruments including securities issued by or guaranteed as
to principal and interest by the US government or its agencies or
instrumentalities, certificates of deposit, commercial paper and repurchase
agreements.
The Fund will invest in securities with remaining maturities of 397
days or less (as computed according to Rule 2a-7) and will maintain a
dollar-weighted average maturity of 90 days or less. The Fund will limit its
portfolio investments to investment grade securities which at the time of
acquisition the Advisor determines present minimal credit risk and which: (1)
are rated in the highest category by least two nationally recognized statistical
rating organizations ("NRSRO"); (2) by one NRSRO, if only one rating services
has rated the security; or (3) if unrated, are of comparable quality, as
determined by the Portfolio's Advisor in accordance with procedures established
by the Board of Trustees. See the Appendix in the Statement of Additional
Information for a description of a NRSRO.
Investment Policies
The investment policies described below reflect the Fund's current
practices, are not fundamental and may be changed by the Board of Trustees of
Investment Company without shareholder approval. To the extent consistent with
the Fund's fundamental investment objective and restrictions, the Fund may
invest in the following instruments and may use the following investment
techniques:
-6-
<PAGE>
Municipal Securities. The Fund may purchase municipal securities issued
by or on behalf of public authorities to obtain funds to be used for various
public purposes, including general purpose financing for state and local
governments, refunding outstanding obligations, and financing for specific
projects or public facilities. General obligations are backed by the full faith
and credit of the issuer. These securities include tax anticipation notes, bond
anticipation notes and general obligation bonds. Revenue obligations are backed
by the revenues generated from a specific project or facility and include
project revenue bonds, such as private activity and industrial development
bonds. Private activity and industrial development bonds are dependent on the
ability of the facility's user to meet its financial obligations and the value
of any real or personal property pledged as security for such payment. Private
activity and industrial development bonds, although issued by industrial
development authorities, may be backed only by the assets of the
non-governmental users. Municipal notes are short-term instruments which are
issued and sold in anticipation of a bond sale, collection of taxes or receipt
of other revenues.
Some municipal securities are insured by private insurance companies,
while others may be supported by letters of credit furnished by domestic or
foreign banks. In determining the credit quality of insured or letter of credit
backed securities, the Advisor reviews the financial condition and
creditworthiness of such parties including insurance companies, banks and
corporations.
Municipal obligations involve possible risks, including being affected
by economic, business and political developments and being subject to provisions
of litigation, bankruptcy and other laws affecting the rights and remedies of
creditors. Future laws may be effected extending the time for payment of
principal and/or interest, or limiting the rights of municipalities to levy
taxes. For instance, legislative proposals are introduced from time to time to
restrict or eliminate the federal income tax exemption for municipal obligations
interest. If such legislation is adopted, the Board of Trustees will reevaluate
the fund's investment objective and may submit possible changes in the structure
of the Fund to its shareholders.
Variable and Floating Rate Securities. A floating rate security
provides for the automatic adjustment of its interest rate whenever a specified
interest rate changes. The coupon rate on variable rate securities is reset by a
remarketing agent on a periodic basis ranging from once a day to twice a year.
The agent sets the new rate at a level such that, in the judgment of the agent,
the security could be resold in the secondary market at par. 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 rate securities.
Tax-exempt floating rate and variable rate demand notes and bonds
ordinarily have stated maturities in excess of 13 months, but often permit the
holder to demand payment of principal at any time, or at specified intervals not
exceeding 13 months, in each case upon not more than 30 days' notice. For the
purpose of determining the remaining maturity of certain variable or floating
rate obligations, the Fund may look to the later of the period remaining until
the net readjustment of the interest rate or the period remaining until the
principal amount can be recovered through demand.
Zero Coupon Securities. 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. Because zero coupon bonds do
not pay current income, their prices can be very volatile when interest rates
change.
Municipal Leases. The Fund may purchase participation interests in
municipal obligations, including municipal lease/purchase agreements. Municipal
leases are an undivided interest in a portion of an obligation in the form of a
lease or installment purchase issued by a state or local government to acquire
equipment or facilities. These instruments may have fixed, floating or variable
rates of interest, with remaining maturities of 13 months or less. Municipal
leases may be backed by an irrevocable letter of credit or guarantee of a bank,
or the payment
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obligation otherwise may be collateralized by US Government securities. Certain
participation interests may permit the Fund to demand payment on not more than
seven days' notice, for all or any part of the Fund's interest, plus accrued
interest.
Municipal leases frequently have special risks not normally associated
with general obligation or revenue bonds. Some leases or contracts include
"non-appropriation" clauses, which provide that the governmental issuer has no
obligation to make future payments under the lease or contract unless money is
appropriated for such purpose by the appropriate legislative body on a yearly or
other periodic basis. To reduce these risks, the Fund will only purchase
municipal leases subject to a non-appropriation clause when the payment of
principal and accrued interest is backed by a letter of credit or guarantee of a
bank.
Whether a municipal lease agreement will be considered illiquid for the
purpose of the Fund's restriction on investments in illiquid securities will be
determined by officers of the Investment Company in accordance with procedures
established by the Board of Trustees.
Tender Option Bonds. A tender option is a municipal obligation
(generally held pursuant to a custodial arrangement) having a relatively long
maturity and bearing interest at a fixed rate substantially higher than
prevailing short-term tax exempt rates, that has been coupled with the agreement
of a third party, such as a bank, broker-dealer or other financial institution,
pursuant to which such institution grants the security holders the option, at
periodic intervals, to tender their securities to the institution and receive
the face value thereof. As consideration for providing the option, the financial
institution receives periodic fees equal to the difference between the municipal
obligation's fixed coupon rate and the rate, as determined by a remarketing or
similar agent at or near the commencement of such period, that would cause the
securities, coupled with the tender option, to trade at par on the date of such
determination. Thus, after payment of this fee, the security holder effectively
holds a demand obligation that bears interest at the prevailing short-term tax
exempt rate. Subject to applicable regulatory requirements, the Fund may buy
tender option bonds if the agreement gives the Fund the right to tender the bond
to its sponsor no less frequently than once every 397 days. The Advisor will
consider on an ongoing basis the creditworthiness of the issuer of the
underlying obligation, any custodian and the third party provider of the tender
option. In certain instances and for certain tender option bonds, the option may
be terminable in the event of a default in payment of principal or interest on
the underlying municipal obligation and for other reasons.
Standby Commitments. The Fund's investments may include standby
commitments, which are rights to resell municipal securities at specified
periods prior to their maturity dates to the seller or to some third party at an
agreed upon price or yield. Standby commitments may involve certain expenses and
risks, including the inability of the issuer of the commitment to pay for the
securities at the time the commitment is exercised, non-marketability of the
commitment, and difference between the duration of the commitment and the
maturity of the underlying security. The Fund will limit standby commitment
transactions to institutions which the Advisor believes present minimal credit
risk.
Forward Commitments. The Fund may contract to purchase securities for a
fixed price at a future date beyond customary settlement time. When effecting
such transactions, cash or liquid high quality debt obligations held by the Fund
of a dollar amount sufficient to make payment for the portfolio securities to be
purchased will be segregated on the Fund'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 the Fund to miss an
advantageous price or yield. The Fund bears the risk of price fluctuations
during the period between the trade and settlement dates.
When-Issued Transactions. The Fund may purchase securities on a
when-issued basis. In these transactions, the Fund purchases securities with
payment and delivery scheduled for a future time. Until settlement, the Fund
segregates cash and marketable high quality debt securities equal in value to
its when-issued commitments. Between the trade and settlement dates, the Fund
bears the risk of any fluctuations in the value of the securities. These
transactions involve the additional risk that the other party may fail to
complete the transaction and cause the Fund to miss a price or yield considered
advantageous. The Fund will engage in when-issued transactions only for
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the purpose of acquiring portfolio securities consistent with its investment
objective and policies and not for investment leverage. The Fund will not invest
more than 25% of net assets in when-issued securities.
Repurchase Agreements. The Fund may enter into repurchase agreements
with banks and other financial institutions, such as broker-dealers. Under a
repurchase agreement, a Fund purchases securities from a financial institution
that agrees to repurchase the securities at the Fund's original purchase price
plus interest within a specified time (normally one business day). The Fund will
limit repurchase transactions to those member banks of the Federal Reserve
System and broker-dealers whose creditworthiness Advisor considers satisfactory.
Should the counterparty to a transaction fail financially, the 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 the Fund.
Reverse Repurchase Agreements. The Fund may enter into reverse
repurchase agreements under the circumstances described in "Investment
Restrictions." Under a reverse repurchase agreement, the Fund sells portfolio
securities to a financial institution 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 at a prescribed repurchase price equal to the
amount of cash originally received plus interest on such amount. The Fund
retains the right to receive interest and principal payments with respect to the
securities while they are in the possession of the financial institutions.
Reverse repurchase agreements involve the risk of default by the counterparty,
which may adversely affect the Fund's ability to reacquire the underlying
securities.
Illiquid Securities. The Fund will not invest more than 10% of its net
assets in illiquid securities or securities that are not readily marketable.
These securities include repurchase agreements and time deposits of more than
seven days' duration and participation interests (including municipal leases),
floating and variable rate demand obligations and tender option bonds as to
which the Fund cannot exercise a demand feature in seven or fewer days and for
which there is no secondary market.
US Government Securities. 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, 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.
Commercial Paper. Tax exempt commercial paper is a short-term
obligation with a stated maturity of 365 days or less. It is typically issued to
finance seasonal working capital needs or as short-term financing in
anticipation of longer term financing. Each instrument may be backed only by the
credit of the issuer or may be backed by some form of credit enhancement,
typically in the form of a guarantee by a commercial bank. Commercial paper
backed by guarantees of foreign banks may involve additional risk due to the
difficulty of obtaining and enforcing judgments against such banks and the
generally less restrictive regulations to which such banks are subject. The Fund
will only invest in commercial paper rated at the time of purchase not less than
Prime-1 by Moody's Investors Service, Inc., A-1 by Standard & Poor's Rating
Group or F-1 by Fitch's Investor Service.
Lending Portfolio Securities. The Fund may lend portfolio securities
with a value of up to 33-1/3% of its total assets. For these purposes, total
assets shall include the value of all assets received as collateral for the
loan. Such loans may be terminated at any time. The 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, the 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, the 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. The 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, the 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 Advisor to
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be of good financial standing. In a loan transaction, the Fund will also bear
the risk of any decline in value of securities acquired with cash collateral.
The Fund will minimize this risk by limiting the investment of cash collateral
to high quality instruments of short maturity.
Purchase of Other Funds. To the extent permitted under the 1940 Act and
exemptive rules and orders thereunder, the Fund may seek to achieve its
investment objective by investing solely in the shares of another investment
company that has a substantially similar investment objective and policies.
Investment Restrictions
The Fund has fundamental investment restrictions, which may be changed
only with the approval of a majority of the Fund's shareholders as defined in
the 1940 Act. A more detailed discussion of the Fund's investment restrictions
and investment policies appears in the Statement of Additional Information.
Unless otherwise noted, the fundamental restrictions apply at the time an
investment is made. The Fund may not:
1. Invest 25% or more of the value of its total assets in
securities of issuers located in any one state or group of
public agencies primarily engaged in any one industry (such as
power generation) (other than the US Government, its agencies
or instrumentalities and non-depository instruments issued by
European banks). 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 Fund's assets
taken at market value, less liabilities other than borrowings.
If at any time the 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. The 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, the Fund
may pledge securities having a market value at the time of the
pledge not exceeding 33-1/3% of the value of the Fund's total
assets to secure permitted borrowings.
PORTFOLIO MATURITY
The Fund must limit investments to securities with remaining maturities
of 397 days or less (as calculated in accordance with Rule 2a-7) and must
maintain a dollar-weighted average maturity of 90 days or less.
The Fund normally will hold portfolio instruments to maturity, but may
dispose of them prior to maturity if Advisor finds it advantageous or necessary.
Investing in short term money market instruments will result in high portfolio
turnover. Since the cost of these transactions is small, high turnover is not
expected to adversely affect net asset value or yield of the Fund.
DIVIDENDS AND DISTRIBUTIONS
The Board of Trustees intends to declare dividends on shares of the
Fund from net investment income daily and have them payable as of the last
business day of each month. Distributions will be made at least annually from
net short- and long-term capital gains, if any. In most instances, distributions
will be declared and paid in mid-October with additional distributions declared
and paid in December, if required, for the Fund to avoid imposition of a 4%
federal excise tax on undistributed capital gains. The Fund does not expect any
material long-term capital gains or losses.
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Dividends declared in October, November or December and payable to
shareholders of record in such months will be deemed to have been paid by the
Fund and received by shareholders on December 31 of that year if the dividend is
paid prior to February 1 of the following year.
Income dividend and capital gain distributions will be paid 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 Fund mailings to an investor, the
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 Fund until
the investor notifies the SSgA Funds 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 Fund shortly
after a purchase of shares will reduce the per share net asset value of the Fund
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:
[bullet] Reinvestment Option--Dividends and capital gains distributions
will be automatically reinvested in additional shares of the
Fund. If the investor does not indicate a choice on the
Application, this option will be automatically assigned.
[bullet] Income-Earned Option--Capital gain distributions will be
automatically reinvested, but a check or wire will be sent for
each dividend distribution.
[bullet] Cash Option--A check or wire will be sent for each dividend
and capital gain distribution.
[bullet] Direct Dividends Option--Dividends and capital gain
distribution will be automatically invested in another
identically registered SSgA Fund.
The Transfer Agent will wire dividends (if that option is elected) to a
pre-designated bank on the first business day of the following month in which
the dividend is payable.
TAXES
The Fund intends to qualify as a regulated investment company ("RIC")
under Subchapter M of the Internal Revenue Code, as amended (the "Code"). As a
RIC, the Fund will not be subject to federal income taxes to the extent it
distributes its net investment income and net capital gain (long-term capital
gains in excess of short-term capital losses) to shareholders. The Board intends
to distribute each year substantially all of the Fund's net investment income
and capital gain net income. In addition, the Fund intends to continue to
qualify to pay "exempt-interest" dividends, which requires, among other things,
that at the close of each quarter of its taxable year at least 50% of the value
of its total assets must consist of municipal securities.
Distributions by the Fund that are designated by it as "exempt-interest
dividends" generally may be excluded from the shareholder's gross income.
Dividends from taxable 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.
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The Fund may purchase certain private activity securities whose
interest is subject to the federal alternative minimum tax for individuals. If
the Fund purchases such securities, investors who are subject to the alternative
minimum tax will be required to report a portion of the Fund's dividends as a
tax preference item in determining their federal tax.
Dividends and distributions may also be subject to state or local
taxes. Depending on the state tax rules pertaining to a shareholder, a portion
of the dividends paid by the Fund attributable to direct obligations of the US
Treasury and certain agencies may be exempt from state and local taxes.
Although the sale or exchange of Fund shares is a taxable event, no
gain or loss is anticipated because the Fund seeks to maintain a stable $1.00
per share net asset value.
Shareholders will be notified after each calendar year of the amount of
income dividends and net capital gains distributed. Shareholders of the Fund
will also be advised of the percentage, if any, of the dividends by the Fund
that are exempt from federal income tax and the portion, if any, of those
dividends that is a tax preference item for purposes of the alternative minimum
tax. The 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 Fund with the shareholder's
correct taxpayer identification number or certification that the shareholder is
not subject to backup withholding.
The foregoing discussion is only a summary of certain federal income
tax issues generally affecting the Fund and its shareholders. Circumstances
among investors may vary and each investor is encouraged to discuss investment
in the Fund with the investor's tax advisor.
VALUATION OF FUND SHARES
Net Asset Value Per Share. Net asset value per share for each class of
shares of the Fund is computed by adding the value of all securities and other
assets of the Fund, deducting accrued liabilities allocated to the class,
dividing by the number of shares outstanding in the class and rounding to the
nearest cent. The 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 is
one on which the New York Stock Exchange and Boston Federal Reserve are open for
business.
Valuation of Fund Securities. The Fund seeks to maintain a $1.00 per
share net asset value and, accordingly, uses the amortized cost valuation
procedure to value its 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 FUND SHARES
Shares are offered through Service Organizations, who act as record
holders of the shares and provide services to their customers who invest in
shares. To purchase shares, investors should contact a Service Organization and
follow its procedures for the purchase of shares. Beneficial ownership of shares
will be recorded by Service Organizations and reflected in account statements
provided to their customers.
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Offering Dates and Times. Fund shares may be purchased on any business
day. All purchases must be made in US dollars. Purchase orders and payments for
Fund shares must be received by the Transfer Agent prior to 4:00 p.m. Eastern
time to be effective on the date received. The accompanying payment must be in
federal funds or converted into federal funds by the Transfer Agent before the
purchase order can be accepted. Purchase orders in good form are described
below. Purchase orders which are accepted: (1) prior to 12:00 noon Eastern time
will earn the dividend declared on the date of purchase; and (2) at or after
12:00 noon Eastern time will earn the dividend determined on the next day.
Order and Payment Procedures. On behalf of their customers, Service
Organizations may purchase shares by wiring federal funds to State Street as
Transfer Agent by:
1. Telephoning State Street at (800) 647-7327 and providing: (1)
the Service Organization's account registration number,
address and tax identification number; (2) the name of the
Fund to be invested in; (3) the amount being wired; (4) the
name of the wiring bank; and (5) the name and telephone number
of the person at the wiring bank to be contacted in connection
with the order.
2. Instructing the wiring bank to wire federal funds to: State
Street Bank and Trust Company, Boston, MA (ABA #0110-00028),
Attention: SSgA Tax Free Money Market Fund, Mutual Funds
Service Division (DDA #9904-631-0). The wire instructions
should also include the name the account is registered in, the
account number and the name of the Fund to be invested in.
The Fund reserves the right to reject any order.
Service Organizations may charge investors fees for certain services.
Investors should contact their Service Organization for information concerning
what additional fees, if any, may be charged.
Exchange Privilege. An investor's Service Organization may permit
shares of the Fund to be exchanged for shares of certain other investment
portfolios. Shares are exchanged on the basis of relative net asset value per
share. Investors should contact their Service Organizations for information
regarding exchange options and procedures and fees imposed in connection with
exchanges.
REDEMPTION OF FUND SHARES
Investors may redeem all or part of their shares in accordance with
instructions and limitations pertaining to their account at a Service
Organization. These procedures will vary according to the type of account and
the Service Organization involved, and investors should consult their account
managers in this regard. It is the responsibility of the Service Organizations
to transmit redemption orders to the Transfer Agent and credit their customers'
accounts with the redemption proceeds on a timely basis.
On behalf of their customers, Service Organizations may redeem Fund
shares on any business day at the net asset value next determined after the
receipt of a redemption request. Payment for redemption orders will be wired in
federal funds to the Service Organization's account at a domestic commercial
bank that is a member of the Federal Reserve System. The Fund reserves the right
to suspend redemptions or postpone the date of payment if emergency conditions,
as specified in the 1940 Act or determined by the Securities and Exchange
Commission, should exist.
A dividend will be paid on shares redeemed if the redemption request is
received by State Street after 12:00 noon Eastern time. Redemption requests
received before 12:00 noon Eastern time will not be entitled to that day's
dividend.
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GENERAL MANAGEMENT
The Board of Trustees supervises the management, activities and affairs
of the Fund and has approved contracts with various financial organizations to
provide, among other services, day-to-day management required by the Fund.
Advisory Agreement. Investment Company employs State Street to furnish
investment services to the 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 Corporation, a
publicly held bank holding company. State Street, with over $370 billion (US)
under management as of September 30, 1997, provides complete global investment
management services from offices in Atlanta, Boston, Brussels, Copenhagen,
Dubai, Hong Kong, London, Minneapolis, Montpellier, Montreal, Munich, Paris, San
Francisco, Sydney, Tokyo, and Toronto.
Advisor, subject to Board supervision, directs the investment of the
Fund in accordance with the Fund's investment objective, policies and
restrictions. For these services, the Fund pays Advisor a fee, calculated daily
and paid monthly, equal to .25% annually of the Fund's average daily net assets.
The Glass-Steagall Act prohibits a depository state chartered bank such
as Advisor from engaging in the business of issuing, underwriting, selling or
distributing certain securities. The activities of Advisor in informing its
customers of the Fund, performing investment and redemption services and
providing custodian, transfer, shareholder servicing, dividend disbursing and
investment advisory services may raise issues under these provisions. Advisor
has been advised by its counsel that its activities in connection with the Fund
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 Advisor from continuing to perform all or a part of
the above services for its customers and/or the Fund. If Advisor were prohibited
from serving the Fund 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 Fund may occur. It is not expected by 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 Investment Company portfolios 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 November 30, 1997,
State Street held of record less than 25% of the issued and outstanding shares
of Investment Company in connection with its discretionary accounts.
Consequently, State Street is not 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 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.
Administration Agreement. Frank Russell Investment Management Company
("Administrator") serves as administrator of the Fund. Administrator currently
serves as investment manager and administrator to 32 mutual funds with assets of
$11.3 billion as of October 31, 1997, and acts as administrator to 20 mutual
funds, including the Fund, with assets of $10.8 billion as of October 31, 1997.
Pursuant to the Administration Agreement with Investment Company,
Administrator will: (1) supervise all aspects of the Fund's operations; (2)
provide the Fund with administrative and clerical services, including the
maintenance of certain
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of the Fund's books and records; (3) arrange the periodic updating of the Fund's
prospectuses and any supplements thereto; (4) provide proxy materials and
reports to Fund shareholders and the Securities and Exchange Commission; and (5)
provide the Fund 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 Fund and Investment Company's other
domestic investment portfolios pay Administrator a combined fee that on an
annual basis is equal to the following percentages of their average aggregate
daily net assets: (1) $0 to and including $500 million -- .06%; (2) over $500
million to and including $1 billion -- .05%; and (3) over $1 billion -- .03%.
The percentage of the fee paid by the Tax Free Fund is equal to the percentage
of average aggregate daily net assets that are attributable to the Fund.
Administrator will also receive reimbursement of expenses it incurs in
connection with establishing new investment portfolios. Further, the
administration fee paid by the Investment Company will be reduced by the sum of
certain distribution related expenses, up to certain maximum percentages, as
follows: (1) 10% from January 1, 1997 to December 31, 1997; 5% from January 1,
1998 to December 31, 1998; and (3) 0% from January 1, 1999 thereafter.
Administrator also provides administrative services in connection with
the registration of shares of Investment Company 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 Administrator,
serves as distributor for all Fund shares.
The Fund has adopted a distribution plan pursuant to Rule 12b-1 (the
"Plan") under the 1940 Act for the Class B shares. 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 .35% of the net asset value of Class B shares of the Fund for
distribution-related and shareholder servicing expenses. Payments under the Plan
will be made to Distributor to finance activity which is intended to result in
the sale and retention of Fund shares including: (1) payments made to certain
broker-dealers, investment 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 Fund shares, including Distributor's overhead expenses for rent, office
supplies, equipment, travel, communication, compensation and benefits of sales
personnel.
Under the Plan, the Fund may also enter into agreements ("Service
Agreements") with financial institutions, which may include Advisor ("Service
Organizations"), to provide distribution and shareholder servicing with respect
to Class B shares of the Fund 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: processing customer
purchase and redemption requests; answering inquiries regarding the Fund;
assisting customers in changing dividend options, account designations and
addresses; performing subaccounting for such customers; establishing and
maintaining customer accounts and records; processing purchase and redemption
transactions; 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; arranging
for bank wires transferring customers' funds; transmitting proxy statements,
annual and semi-annual reports, prospectuses and other communications from the
Fund to customers; and such other services as the customers may request in
connection with the Fund, to the extent permitted by applicable statute, rule or
regulation. Service Organizations may receive from the Fund, for shareholder
servicing, monthly fees at a rate that shall not exceed .25% per annum of the
average
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daily net asset value of the Fund's Class B shares owned by or for shareholders
with whom the Service Organization has a servicing relationship.
Payments to Distributor, as well as payments to Service Organizations,
are not permitted by the Plan to exceed .35% per year of the average net asset
value of the Fund's Class B shares. Any payments that are required to be made by
the Distribution Agreement and any Service Agreement but could not be made
because of the limitation may be carried forward and paid in subsequent years so
long as the Plan is in effect. The Fund's liability for any such expenses may be
carried forward indefinitely. Service Organizations will be responsible for
prompt transmission of purchase and redemption orders and may charge fees for
their services. 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.
FUND EXPENSES
The Fund will pay all of its expenses other than those expressly
assumed by Advisor and Administrator. The principal expenses of the Fund are the
annual advisory fee payable to Advisor and distribution and shareholder
servicing expenses. Other expenses include: (1) amortization of deferred
organizational costs; (2) taxes, if any; (3) expenses for legal, auditing and
financial accounting services; (4) expense of preparing (including typesetting,
printing and mailing) reports, prospectuses and notices to existing
shareholders; (5) administrative fees; (6) custodian fees; (7) expense of
issuing and redeeming Fund shares; (8) the cost of registering 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 Fund. Where any of these
other expenses are attributable to a particular class of shares, they will be
borne by the beneficial owners of such shares.
PERFORMANCE CALCULATIONS
From time to time the Fund may advertise its yield, effective yield and
tax-equivalent yield of its Class B shares. The yield of the Fund refers to the
income generated by an investment in Class B shares of the Fund 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 each Fund
is assumed to be reinvested. The effective yield will be slightly higher than
the yield prescribed by the Securities and Exchange Commission because of the
compounding effect of this assumed reinvestment. The tax-equivalent yield shows
the level of taxable yield needed to produce an after-tax equivalent to the
Fund's tax-free yield. This is done by increasing the Fund's yield by the amount
necessary to reflect the payment of federal income tax (and state income tax, if
applicable) at a stated tax rate.
From time to time, the Fund may also report yield, effective yield and
tax-equivalent 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.
The Fund may also advertise the total return of its Class B shares. The
total return of the Fund is the average annual compounded rate of return from a
hypothetical investment in the Funds' Class B shares over one-, five- and
ten-year periods or for the life of the Fund (as stated in the advertisement),
assuming the reinvestment of all dividends and capital gains distributions.
-16-
<PAGE>
Comparative performance information may be used from time to time in
advertising or marketing Fund shares, including data from Lipper Analytical
Services, Inc., Morningstar, Inc., Donoghue's Money Fund Report, Wall Street
Journal Score Card or other industry publications, business periodicals, rating
services and market indices. The Fund 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 Fund, provides portfolio
recordkeeping services and serves as the Fund's 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 the
Fund 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. Potential
investors who wish to obtain more information about the Fund should contact a
Service Organization. Inquiries from Service Organizations regarding the
Prospectus and financial statements may be made by calling Transfer Agent at
(800) 647-7327.
Organization, Capitalization and Voting. 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 issues shares divisible into an unlimited
number of series (or funds), each of which is a separate trust under
Massachusetts law. The Tax Free Fund is one such series. Shares of the Fund are
entitled to such relative rights and preferences and dividends and distributions
earned on assets of the Fund as may be declared by the Board of Trustees. Each
class of shares of the Fund has identical rights and privileges as all other
shares of the Fund and participates equally in the dividends and distributions
of the Fund. Fund shares are fully paid and nonassessable by Investment Company
and have no preemptive rights.
Investment Company is authorized to subdivide each series into two or
more classes of shares. Currently, shares of the Tax Free Fund are divided into
Class A, Class B and Class C. Each class of shares of the Fund is entitled to
the same rights and privileges as all other classes of the Fund, provided
however, that each class bears the expenses related to its distribution and
shareholder servicing arrangements, as well as other expenses attributable to
the class and unrelated to managing the Fund's portfolio securities. As
described above, Investment Company has adopted a plan of distribution under
Rule 12b-1 for Class B shares. Similar plans have been adopted for Class A and
Class C shares. However, total payments under those plans are limited to .25%
and .60% annually of the average net asset value of the Class A and Class C
shares, respectively of the Fund. As a result of these plan and other class
expenses, the yield on Class B and Class C shares will be approximately .25% and
.50% lower, respectively, than the yield on Class A shares.
Each 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 which 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. Further, any matter that affects only the holders of a particular
class of shares may be voted on only by such shareholders. Each class of shares
votes separately with respect to any Rule 12b-1 plan applicable to such class.
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 the 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 the
holders of not less than 10% of the shares then outstanding. A vacancy on
-17-
<PAGE>
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.
Investment Company does not issue share certificates for the Fund.
Transfer Agent sends monthly shareholders statements, confirming all investments
in or redemptions from their accounts. Each statement also sets forth the
balance of shares held in the account.
-18-
<PAGE>
SSgA FUNDS
One International Place
Boston, Massachusetts 02110
(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
-19-
<PAGE>
Filed pursuant to Rule 485(b)
File Nos. 33-19229; 811-5430
THE SSgA FUNDS
One International Place
Boston, Massachusetts 02110
(800) 647-7327
TAX FREE MONEY MARKET FUND
Class C shares
The SSgA Funds is a registered, open-end management investment company
with multiple portfolios, each of which is commonly referred to as a mutual
fund. This Prospectus describes and offers Class C shares of beneficial interest
in one such mutual fund, the SSgA Tax Free Money Market Fund (the "Tax Free
Fund" or the "Fund"). Shares may not be purchased by individuals directly, but
must be purchased through a financial institution which is permitted by contract
with the Fund to offer the shares. This Prospectus should be read together with
any materials provided by such institution. The Tax Free Fund seeks to maximize
current income, exempt from federal income taxes, to the extent consistent with
the preservation of capital and liquidity and the maintenance of a stable $1.00
per share net asset value. The Fund's shares are offered without sales
commissions. However, the Fund pays certain distribution expenses under its 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 TAX FREE FUND ARE NEITHER INSURED NOR GUARANTEED BY
THE US GOVERNMENT. THERE IS NO ASSURANCE THAT THE FUND WILL MAINTAIN A STABLE
NET ASSET VALUE OF $1.00 PER SHARE.
SHARES IN THE FUND 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 sets forth concisely the information about the Fund
that a prospective investor ought to know before investing. Please read and
retain this document for future reference. Additional information about the SSgA
Funds has been filed with the Securities and Exchange Commission ("SEC") in
Statements of Additional Information ("SAI") dated December 24, 1997. The SAI is
incorporated herein by reference and is available without charge from
Distributor at its address noted below or by calling (800) 647-7327. The SEC
also maintains a website (www.sec.gov) that contains the SAI, material
incorporated by reference and other information regarding the SSgA Funds. You
may also access the SSgA Funds' website at www.ssgafunds.com.
<TABLE>
<CAPTION>
Investment Advisor, Custodian
and Transfer Agent: Distributor: Administrator:
<S> <C> <C>
State Street Bank and Trust Frank Russell Investment
Company Russell Fund Distributors, Inc. Management Company
225 Franklin Street One International Place 909 A Street
Boston, Massachusetts 02110 Boston, Massachusetts 02110 Tacoma, Washington 98402
</TABLE>
PROSPECTUS DATED December 24, 1997
-1-
<PAGE>
TABLE OF CONTENTS
Page
----
Summary....................................................................3
Fund Operating Expenses....................................................4
Financial Highlights.......................................................5
The SSgA Funds.............................................................6
Manner of Offering.........................................................6
Investment Objective, Policies and Restrictions............................6
Portfolio Maturity .......................................................10
Dividends and Distributions...............................................11
Taxes ....................................................................11
Valuation of Fund Shares..................................................12
Purchase of Fund Shares...................................................13
Redemption of Fund Shares.................................................13
General Management........................................................14
Fund Expenses.............................................................16
Performance Calculations..................................................17
Additional Information....................................................17
-2-
<PAGE>
SUMMARY
The following summary is qualified in its entirety by reference to the
more detailed information included elsewhere in the Prospectus.
Investment Objective. The Fund's investment objective is to maximize current
income, exempt from federal income taxes, to the extent consistent with the
preservation of capital and liquidity and the maintenance of a stable $1.00 per
share net asset value. To accomplish this goal, the Fund invests primarily in
high quality short-term municipal obligations.
Dividends. Dividends from net investment income are declared daily and paid
monthly. Net capital gains, if any, are distributed annually.
Potential Investors. The Fund is designed to be an economical and efficient
means for retail investors to participate in professionally managed portfolios
of money market instruments. In this Prospectus, Class C shares of the Fund are
offered to customers of certain financial institutions ("Service Organizations")
who act as record holders of the shares and provide services to their customers
who invest in the Fund.
Purchases and Redemptions. Because shares of the Fund are offered through
Service Organizations, to purchase and redeem shares potential investors should
contact their Service Organizations for information regarding purchase and
redemption procedures. Shares may be purchased or redeemed at the net asset
value next determined after receipt of the order.
Investment Advisors. State Street Bank and Trust Company serves as investment
advisor to the Fund in return for a fee equal to .25% annually of each Fund's
average daily net assets.
Certain Class Information. The shares of the Fund are divided into three
classes: Class A, Class B and Class C. Class A shares are designed for
institutional investors. Class B shares are offered through Service
Organizations that provide certain account administration services. Class C
shares are offered through Service Organizations that provide certain account
administration and shareholder liaison services. Each class of shares of the
Fund is entitled to the same rights and privileges as all other classes of
shares of the Fund, provided however, that each class bears the expenses related
to its distribution and shareholder servicing arrangements and certain other
expenses attributable to the class. Annual distribution and shareholder
servicing expenses for Class A, Class B and Class C shares are equal to
approximately ____%, ____% and ____%, respectively, of the average daily net
asset value of the shares of the class. Total operating expenses for Class A,
Class B, and Class C shares are equal to approximately ____%, ____%, and ____%,
respectively, of the average daily net asset value of the shares of the class.
-3-
<PAGE>
FUND OPERATING EXPENSES
SSgA TAX FREE MONEY MARKET FUND
The following table is intended to assist the investor in understanding the
various costs and expenses that an investor in shares of the Tax Free Fund will
incur directly or indirectly. The examples should not be considered a
representation of past or future expenses. Actual expenses may be greater or
less than those shown. For additional information, see "General Management."
Shareholder Transaction Expenses:
- ---------------------------------
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
Annual Fund Operating Expenses:
- -------------------------------
(as a percentage of average daily net assets)
Advisory Fees .25%
12b-1 Distribution Fees .14
12b-1 Shareholder Servicing Fees .04
Other Expenses .15
---
Total Operating Expenses(1) .58%
===
Examples: 1 year 3 years 5 years 10 years
- -------- ------ ------- ------- --------
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: $6 $19 $32 $73
== === === ===
(1) Investors purchasing 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.
-4-
<PAGE>
FINANCIAL HIGHLIGHTS
SSgA TAX FREE MONEY MARKET FUND
The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Fund's independent
accountants. The table includes selected data for a share outstanding throughout
each fiscal year or period ended August 31, and other performance information
derived from the financial statements. The table appears in the Fund's Annual
Report and should be read in conjunction with the Fund's financial statements
and related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand L.L.P., in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Distributor at (800) 647-7327.
<TABLE>
<CAPTION>
1997 1996 1995++
---- ---- ----
<S> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $ 1.0000 $ 1.0000 $ 1.0000
---------- ---------- ----------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .0295 .0302 .0251
LESS DISTRIBUTIONS:
Net investment income (.0295) (.0302) (.0251)
---------- ---------- ----------
NET ASSET VALUE, END OF YEAR $ 1.0000 $ 1.0000 $ 1.0000
========== ========== ==========
TOTAL RETURN (%)(a) 2.99 3.07 2.54
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
($000 omitted) 163,502 45,061 42,607
Ratios to average net assets (%)(b):
Operating expenses, net .58 .57 .59
Operating expenses, gross .58 .57 .60
Net investment income 2.98 3.01 3.40
Per share amount of expense reductions
($ omitted) -- -- .0001
</TABLE>
++ For the period December 1, 1994 (commencement of operations) to
August 31, 1995.
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended August 31, 1995 are annualized.
-5-
<PAGE>
THE SSgA FUNDS
The SSgA Funds ("Investment Company") are an open-end management
investment company that is organized as a Massachusetts business trust. In
addition, each series of the Investment Company is diversified as defined in the
Investment Company Act of 1940, as amended ("1940 Act"). As a "series" company,
Investment Company is authorized to issue an unlimited number of shares
evidencing beneficial interests in different investment portfolios. Through this
Prospectus, Investment Company offers Class C shares in one such portfolio, the
Tax Free Fund. State Street Bank and Trust Company ("Advisor" or "State Street")
serves as the investment advisor to the Fund.
MANNER OF OFFERING
The Fund is designed to be an economical and efficient means for retail
investors to participate in professionally managed portfolios of money market
instruments. Class C shares of the Fund are offered to customers of certain
financial institutions ("Service Organizations") that act as record holders of
shares and provide services to their customers who invest in the Fund. Each
Service Organization may set a minimum initial investment for its customers and
may redeem all shares in an investor's account if the value of these shares
falls below a predetermined amount.
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
The Fund's fundamental investment objective is to seek to maximize
current income, exempt from federal income taxes, to the extent consistent with
the preservation of capital and liquidity, and the maintenance of a stable $1.00
per share net asset value. This objective may be changed only with the approval
of a majority of the Fund's shareholders as defined by the 1940 Act. There can
be no assurance that the Fund will meet its investment objective.
The Fund has a fundamental policy of investing at least 80% of its net
assets in federal tax exempt, high quality and short-term municipal securities
of all types under normal market conditions. These securities are issued by
states, municipalities and their political subdivisions and agencies and certain
territories and possessions of the United States. Investments may include
general obligation bonds and notes, revenue bonds and notes, commercial paper,
private placements, tender option bonds, private activity bonds, industrial
development bonds and municipal lease contracts. Securities purchased may bear
fixed, variable or floating rates of interest or may be zero coupon securities.
The Fund may buy or sell securities on a when-issued or forward commitment
basis.
The Fund may invest not more than 20% of its assets in federally
taxable money market instruments including securities issued by or guaranteed as
to principal and interest by the US government or its agencies or
instrumentalities, certificates of deposit, commercial paper and repurchase
agreements.
The Fund will invest in securities with remaining maturities of 397
days or less (as computed according to Rule 2a-7) and will maintain a
dollar-weighted average maturity of 90 days or less. The Fund will limit its
portfolio investments to investment grade securities which at the time of
acquisition the Advisor determines present minimal credit risk and which: (1)
are rated in the highest category by least two nationally recognized statistical
rating organizations ("NRSRO"); (2) by one NRSRO, if only one rating services
has rated the security; or (3) if unrated, are of comparable quality, as
determined by the Portfolio's Advisor in accordance with procedures established
by the Board of Trustees. See the Appendix in the Statement of Additional
Information for a description of a NRSRO.
Investment Policies
The investment policies described below reflect the Fund's current
practices, are not fundamental and may be changed by the Board of Trustees of
Investment Company without shareholder approval. To the extent consistent with
the Fund's fundamental investment objective and restrictions, the Fund may
invest in the following instruments and may use the following investment
techniques:
-6-
<PAGE>
Municipal Securities. The Fund may purchase municipal securities issued
by or on behalf of public authorities to obtain funds to be used for various
public purposes, including general purpose financing for state and local
governments, refunding outstanding obligations, and financings for specific
projects or public facilities. General obligations are backed by the full faith
and credit of the issuer. These securities include tax anticipation notes, bond
anticipation notes and general obligation bonds. Revenue obligations are backed
by the revenues generated from a specific project or facility and include
project revenue bonds, such as private activity and industrial development
bonds. Private activity and industrial development bonds are dependent on the
ability of the facility's user to meet its financial obligations and the value
of any real or personal property pledged as security for such payment. Private
activity and industrial development bonds, although issued by industrial
development authorities, may be backed only by the assets of the
non-governmental users. Municipal notes are short-term instruments which are
issued and sold in anticipation of a bond sale, collection of taxes or receipt
of other revenues.
Some municipal securities are insured by private insurance companies,
while others may be supported by letters of credit furnished by domestic or
foreign banks. In determining the credit quality of insured or letter of credit
backed securities, the Advisor reviews the financial condition and
creditworthiness of such parties including insurance companies, banks and
corporations.
Municipal obligations involve possible risks, including being affected
by economic, business and political developments and being subject to provisions
of litigation, bankruptcy and other laws affecting the rights and remedies of
creditors. Future laws may be effected extending the time for payment of
principal and/or interest, or limiting the rights of municipalities to levy
taxes. For instance, legislative proposals are introduced from time to time to
restrict or eliminate the federal income tax exemption for municipal obligations
interest. If such legislation is adopted, the Board of Trustees will reevaluate
the fund's investment objective and may submit possible changes in the structure
of the Fund to its shareholders.
Variable and Floating Rate Securities. A floating rate security
provides for the automatic adjustment of its interest rate whenever a specified
interest rate changes. The coupon rate on variable rate securities is reset by a
remarketing agent on a periodic basis ranging from once a day to twice a year.
The agent sets the new rate at a level such that, in the judgment of the agent,
the security could be resold in the secondary market at par. 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 rate securities.
Tax-exempt floating rate and variable rate demand notes and bonds
ordinarily have stated maturities in excess of 13 months, but often permit the
holder to demand payment of principal at any time, or at specified intervals not
exceeding 13 months, in each case upon not more than 30 days' notice. For the
purpose of determining the remaining maturity of certain variable or floating
rate obligations, the Fund may look to the later of the period remaining until
the net readjustment of the interest rate or the period remaining until the
principal amount can be recovered through demand.
Zero Coupon Securities. 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. Because zero coupon bonds do
not pay current income, their prices can be very volatile when interest rates
change.
Municipal Leases. The Fund may purchase participation interests in
municipal obligations, including municipal lease/purchase agreements. Municipal
leases are an undivided interest in a portion of an obligation in the form of a
lease or installment purchase issued by a state or local government to acquire
equipment or facilities. These instruments may have fixed, floating or variable
rates of interest, with remaining maturities of 13 months or less. Municipal
leases may be backed by an irrevocable letter of credit or guarantee of a bank,
or the payment
-7-
<PAGE>
obligation otherwise may be collateralized by US Government securities. Certain
participation interests may permit the Fund to demand payment on not more than
seven days' notice, for all or any part of the Fund's interest, plus accrued
interest.
Municipal leases frequently have special risks not normally associated
with general obligation or revenue bonds. Some leases or contracts include
"non-appropriation" clauses, which provide that the governmental issuer has no
obligation to make future payments under the lease or contract unless money is
appropriated for such purpose by the appropriate legislative body on a yearly or
other periodic basis. To reduce these risks, the Fund will only purchase
municipal leases subject to a non-appropriation clause when the payment of
principal and accrued interest is backed by a letter of credit or guarantee of a
bank.
Whether a municipal lease agreement will be considered illiquid for the
purpose of the Fund's restriction on investments in illiquid securities will be
determined by officers of the Investment Company in accordance with procedures
established by the Board of Trustees.
Tender Option Bonds. A tender option is a municipal obligation
(generally held pursuant to a custodial arrangement) having a relatively long
maturity and bearing interest at a fixed rate substantially higher than
prevailing short-term tax exempt rates, that has been coupled with the agreement
of a third party, such as a bank, broker-dealer or other financial institution,
pursuant to which such institution grants the security holders the option, at
periodic intervals, to tender their securities to the institution and receive
the face value thereof. As consideration for providing the option, the financial
institution receives periodic fees equal to the difference between the municipal
obligation's fixed coupon rate and the rate, as determined by a remarketing or
similar agent at or near the commencement of such period, that would cause the
securities, coupled with the tender option, to trade at par on the date of such
determination. Thus, after payment of this fee, the security holder effectively
holds a demand obligation that bears interest at the prevailing short-term tax
exempt rate. Subject to applicable regulatory requirements, the Fund may buy
tender option bonds if the agreement gives the Fund the right to tender the bond
to its sponsor no less frequently than once every 397 days. The Advisor will
consider on an ongoing basis the creditworthiness of the issuer of the
underlying obligation, any custodian and the third party provider of the tender
option. In certain instances and for certain tender option bonds, the option may
be terminable in the event of a default in payment of principal or interest on
the underlying municipal obligation and for other reasons.
Standby Commitments. The Fund's investments may include standby
commitments, which are rights to resell municipal securities at specified
periods prior to their maturity dates to the seller or to some third party at an
agreed upon price or yield. Standby commitments may involve certain expenses and
risks, including the inability of the issuer of the commitment to pay for the
securities at the time the commitment is exercised, non-marketability of the
commitment, and difference between the duration of the commitment and the
maturity of the underlying security. The Fund will limit standby commitment
transactions to institutions which the Advisor believes present minimal credit
risk.
Forward Commitments. The Fund may contract to purchase securities for a
fixed price at a future date beyond customary settlement time. When effecting
such transactions, cash or liquid high quality debt obligations held by the Fund
of a dollar amount sufficient to make payment for the portfolio securities to be
purchased will be segregated on the Fund'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 the Fund to miss an
advantageous price or yield. The Fund bears the risk of price fluctuations
during the period between the trade and settlement dates.
When-Issued Transactions. The Fund may purchase securities on a
when-issued basis. In these transactions, the Fund purchases securities with
payment and delivery scheduled for a future time. Until settlement, the Fund
segregates cash and marketable high quality debt securities equal in value to
its when-issued commitments. Between the trade and settlement dates, the Fund
bears the risk of any fluctuations in the value of the securities. These
transactions involve the additional risk that the other party may fail to
complete the transaction and cause the Fund to miss a price or yield considered
advantageous. The Fund will engage in when-issued transactions only for
-8-
<PAGE>
the purpose of acquiring portfolio securities consistent with its investment
objective and policies and not for investment leverage. The Fund will not invest
more than 25% of net assets in when-issued securities.
Repurchase Agreements. The Fund may enter into repurchase agreements
with banks and other financial institutions, such as broker-dealers. Under a
repurchase agreement, a Fund purchases securities from a financial institution
that agrees to repurchase the securities at the Fund's original purchase price
plus interest within a specified time (normally one business day). The Fund will
limit repurchase transactions to those member banks of the Federal Reserve
System and broker-dealers whose creditworthiness Advisor considers satisfactory.
Should the counterparty to a transaction fail financially, the 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 the Fund.
Reverse Repurchase Agreements. The Fund may enter into reverse
repurchase agreements under the circumstances described in "Investment
Restrictions." Under a reverse repurchase agreement, the Fund sells portfolio
securities to a financial institution 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 at a prescribed repurchase price equal to the
amount of cash originally received plus interest on such amount. The Fund
retains the right to receive interest and principal payments with respect to the
securities while they are in the possession of the financial institutions.
Reverse repurchase agreements involve the risk of default by the counterparty,
which may adversely affect the Fund's ability to reacquire the underlying
securities.
Illiquid Securities. The Fund will not invest more than 10% of its net
assets in illiquid securities or securities that are not readily marketable.
These securities include repurchase agreements and time deposits of more than
seven days' duration and participation interests (including municipal leases),
floating and variable rate demand obligations and tender option bonds as to
which the Fund cannot exercise a demand feature in seven or fewer days and for
which there is no secondary market.
US Government Securities. 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, 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.
Commercial Paper. Tax exempt commercial paper is a short-term
obligation with a stated maturity of 365 days or less. It is typically issued to
finance seasonal working capital needs or as short-term financing in
anticipation of longer term financing. Each instrument may be backed only by the
credit of the issuer or may be backed by some form of credit enhancement,
typically in the form of a guarantee by a commercial bank. Commercial paper
backed by guarantees of foreign banks may involve additional risk due to the
difficulty of obtaining and enforcing judgments against such banks and the
generally less restrictive regulations to which such banks are subject. The Fund
will only invest in commercial paper rated at the time of purchase not less than
Prime-1 by Moody's Investors Service, Inc., A-1 by Standard & Poor's Rating
Group or F-1 by Fitch's Investor Service.
Lending Portfolio Securities. The Fund may lend portfolio securities
with a value of up to 33-1/3% of its total assets. For these services, total
assets shall include the value of all assets received as collateral for the
loan. Such loans may be terminated at any time. The 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, the 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, the 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. The 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, the 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 Advisor to
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be of good financial standing. In a loan transaction, the Fund will also bear
the risk of any decline in value of securities acquired with cash collateral.
The Fund will minimize this risk by limiting the investment of cash collateral
to high quality instruments of short maturity.
Purchase of Other Funds. To the extent permitted under the 1940 Act and
exemptive rules and orders thereunder, the Fund may seek to achieve its
investment objective by investing solely in the shares of another investment
company that has a substantially similar investment objective and policies.
Investment Restrictions
The Fund has fundamental investment restrictions, which may be changed
only with the approval of a majority of the Fund's shareholders as defined in
the 1940 Act. A more detailed discussion of the Fund's investment restrictions
and investment policies appears in the Statement of Additional Information.
Unless otherwise noted, the fundamental restrictions apply at the time an
investment is made. The Fund may not:
1. Invest 25% or more of the value of its total assets in
securities of issuers located in any one state or group of
public agencies primarily engaged in any one industry (such as
power generation) (other than the US Government, its agencies
or instrumentalities and non-depository instruments issued by
European banks). 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 Fund's assets
taken at market value, less liabilities other than borrowings.
If at any time the 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. The 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, the Fund
may pledge securities having a market value at the time of the
pledge not exceeding 33-1/3% of the value of the Fund's total
assets to secure permitted borrowings.
PORTFOLIO MATURITY
The Fund must limit investments to securities with remaining maturities
of 397 days or less (as calculated in accordance with Rule 2a-7) and must
maintain a dollar-weighted average maturity of 90 days or less.
The Fund normally will hold portfolio instruments to maturity, but may
dispose of them prior to maturity if Advisor finds it advantageous or necessary.
Investing in short term money market instruments will result in high portfolio
turnover. Since the cost of these transactions is small, high turnover is not
expected to adversely affect net asset value or yield of the Fund.
DIVIDENDS AND DISTRIBUTIONS
The Board of Trustees intends to declare dividends on shares of the
Fund from net investment income daily and have them payable as of the last
business day of each month. Distributions will be made at least annually from
net short- and long-term capital gains, if any. In most instances, distributions
will be declared and paid in mid-October with additional distributions declared
and paid in December, if required, for the Fund to avoid imposition of a 4%
federal excise tax on undistributed capital gains. The Fund does not expect any
material long-term capital gains or losses.
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Dividends declared in October, November or December and payable to
shareholders of record in such months will be deemed to have been paid by the
Fund and received by shareholders on December 31 of that year if the dividend is
paid prior to February 1 of the following year.
Income dividend and capital gain distributions will be paid 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 Fund mailings to an investor, the
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 Fund until
the investor notifies the SSgA Funds 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 Fund shortly
after a purchase of shares will reduce the per share net asset value of the Fund
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:
[bullet] Reinvestment Option--Dividends and capital gains distributions
will be automatically reinvested in additional shares of the
Fund. If the investor does not indicate a choice on the
Application, this option will be automatically assigned.
[bullet] Income-Earned Option--Capital gain distributions will be
automatically reinvested, but a check or wire will be sent for
each dividend distribution.
[bullet] Cash Option--A check or wire will be sent for each dividend
and capital gain distribution.
[bullet] Direct Dividends Option--Dividends and capital gain
distribution will be automatically invested in another
identically registered SSgA Fund.
The Transfer Agent will wire dividends (if that option is elected) to a
pre-designated bank on the first business day of the following month in which
the dividend is payable.
TAXES
The Fund intends to qualify as a regulated investment company ("RIC")
under Subchapter M of the Internal Revenue Code, as amended (the "Code"). As a
RIC, the Fund will not be subject to federal income taxes to the extent it
distributes its net investment income and net capital gain (long-term capital
gains in excess of short-term capital losses) to shareholders. The Board intends
to distribute each year substantially all of the Fund's net investment income
and capital gain net income. In addition, the Fund intends to continue to
qualify to pay "exempt-interest" dividends, which requires, among other things,
that at the close of each quarter of its taxable year at least 50% of the value
of its total assets must consist of municipal securities.
Distributions by the Fund that are designated by it as "exempt-interest
dividends" generally may be excluded from the shareholder's gross income.
Dividends from taxable 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.
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The Fund may purchase certain private activity securities whose
interest is subject to the federal alternative minimum tax for individuals. If
the Fund purchases such securities, investors who are subject to the alternative
minimum tax will be required to report a portion of the Fund's dividends as a
tax preference item in determining their federal tax.
Dividends and distributions may also be subject to state or local
taxes. Depending on the state tax rules pertaining to a shareholder, a portion
of the dividends paid by the Fund attributable to direct obligations of the US
Treasury and certain agencies may be exempt from state and local taxes.
Although the sale or exchange of Fund shares is a taxable event, no
gain or loss is anticipated because the Fund seeks to maintain a stable $1.00
per share net asset value.
Shareholders will be notified after each calendar year of the amount of
income dividends and net capital gains distributed. Shareholders of the Fund
will also be advised of the percentage, if any, of the dividends by the Fund
that are exempt from federal income tax and the portion, if any, of those
dividends that is a tax preference item for purposes of the alternative minimum
tax. The 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 Fund with the shareholder's
correct taxpayer identification number or certification that the shareholder is
not subject to backup withholding.
The foregoing discussion is only a summary of certain federal income
tax issues generally affecting the Fund and its shareholders. Circumstances
among investors may vary and each investor is encouraged to discuss investment
in the Fund with the investor's tax advisor.
VALUATION OF FUND SHARES
Net Asset Value Per Share. Net asset value per share for each class of
shares of the Fund is computed by adding the value of all securities and other
assets of the Fund, deducting accrued liabilities allocated to the class,
dividing by the number of shares outstanding in the class and rounding to the
nearest cent. The 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 is
one on which the New York Stock Exchange and Boston Federal Reserve are open for
business.
Valuation of Fund Securities. The Fund seeks to maintain a $1.00 per
share net asset value and, accordingly, uses the amortized cost valuation
procedure to value its 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 FUND SHARES
Shares are offered through Service Organizations, who act as record
holders of the shares and provide services to their customers who invest in
shares. To purchase shares, investors should contact a Service Organization and
follow its procedures for the purchase of shares. Beneficial ownership of shares
will be recorded by Service Organizations and reflected in account statements
provided to their customers.
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Offering Dates and Times. Fund shares may be purchased on any business
day. All purchases must be made in US dollars. Purchase orders and payments for
Fund shares must be received by the Transfer Agent prior to 4:00 p.m. Eastern
time to be effective on the date received. The accompanying payment must be in
federal funds or converted into federal funds by the Transfer Agent before the
purchase order can be accepted. Purchase orders in good form are described
below. Purchase orders which are accepted: (1) prior to 12:00 noon Eastern time
will earn the dividend declared on the date of purchase; and (2) at or after
12:00 noon Eastern time will earn the dividend determined on the next day.
Order and Payment Procedures. On behalf of their customers, Service
Organizations may purchase shares by wiring federal funds to State Street as
Transfer Agent by:
1. Telephoning State Street at (800) 647-7327 and providing: (1)
the Service Organization's account registration number,
address and tax identification number; (2) the name of the
Fund to be invested in; (3) the amount being wired; (4) the
name of the wiring bank; and (5) the name and telephone number
of the person at the wiring bank to be contacted in connection
with the order.
2. Instructing the wiring bank to wire federal funds to: State
Street Bank and Trust Company, Boston, MA (ABA #0110-00028),
Attention: SSgA Tax Free Money Market Fund, Mutual Funds
Service Division (DDA #9904-631-0). The wire instructions
should also include the name the account is registered in, the
account number and the name of the Fund to be invested in.
The Fund reserves the right to reject any order.
Service Organizations may charge investors fees for certain services.
Investors should contact their Service Organization for information concerning
what additional fees, if any, may be charged.
Exchange Privilege. An investor's Service Organization may permit
shares of the Fund to be exchanged for shares of certain other investment
portfolios. Shares are exchanged on the basis of relative net asset value per
share. Investors should contact their Service Organizations for information
regarding exchange options and procedures and fees imposed in connection with
exchanges.
REDEMPTION OF FUND SHARES
Investors may redeem all or part of their shares in accordance with
instructions and limitations pertaining to their account at a Service
Organization. These procedures will vary according to the type of account and
the Service Organization involved, and investors should consult their account
managers in this regard. It is the responsibility of the Service Organizations
to transmit redemption orders to the Transfer Agent and credit their customers'
accounts with the redemption proceeds on a timely basis.
On behalf of their customers, Service Organizations may redeem Fund
shares on any business day at the net asset value next determined after the
receipt of a redemption request. Payment for redemption orders will be wired in
federal funds to the Service Organization's account at a domestic commercial
bank that is a member of the Federal Reserve System. The Fund reserves the right
to suspend redemptions or postpone the date of payment if emergency conditions,
as specified in the 1940 Act or determined by the Securities and Exchange
Commission, should exist.
A dividend will be paid on shares redeemed if the redemption request is
received by State Street after 12:00 noon Eastern time. Redemption requests
received before 12:00 noon Eastern time will not be entitled to that day's
dividend.
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GENERAL MANAGEMENT
The Board of Trustees supervises the management, activities and affairs
of the Fund and has approved contracts with various financial organizations to
provide, among other services, day-to-day management required by the Fund.
Advisory Agreement. Investment Company employs State Street to furnish
investment services to the 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 Corporation, a
publicly held bank holding company. State Street, with over $370 billion (US)
under management as of September 30, 1997, provides complete global investment
management services from offices in Atlanta, Boston, Brussels, Copenhagen,
Dubai, Hong Kong, London, Minneapolis, Montpellier, Montreal, Munich, Paris, San
Francisco, Sydney, Tokyo, and Toronto.
Advisor, subject to Board supervision, directs the investment of the
Fund in accordance with the Fund's investment objective, policies and
restrictions. For these services, the Fund pays Advisor a fee, calculated daily
and paid monthly, equal to .25% annually of the Fund's average daily net assets.
The Glass-Steagall Act prohibits a depository state chartered bank such
as Advisor from engaging in the business of issuing, underwriting, selling or
distributing certain securities. The activities of Advisor in informing its
customers of the Fund, performing investment and redemption services and
providing custodian, transfer, shareholder servicing, dividend disbursing and
investment advisory services may raise issues under these provisions. Advisor
has been advised by its counsel that its activities in connection with the Fund
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 Advisor from continuing to perform all or a part of
the above services for its customers and/or the Fund. If Advisor were prohibited
from serving the Fund 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 Fund may occur. It is not expected by 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 Investment Company portfolios 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 November 30, 1997,
State Street held of record less than 25% of the issued and outstanding shares
of Investment Company in connection with its discretionary accounts.
Consequently, State Street is not 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 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.
Administration Agreement. Frank Russell Investment Management Company
("Administrator") serves as administrator of the Fund. Administrator currently
serves as investment manager and administrator to 32 mutual funds with assets of
$11.3 billion as of October 31, 1997, and acts as administrator to 20 mutual
funds, including the Fund, with assets of $10.8 billion as of October 31, 1997.
Pursuant to the Administration Agreement with Investment Company,
Administrator will: (1) supervise all aspects of the Fund's operations; (2)
provide the Fund with administrative and clerical services, including the
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maintenance of certain of the Fund's books and records; (3) arrange the periodic
updating of the Fund's prospectuses and any supplements thereto; (4) provide
proxy materials and reports to Fund shareholders and the Securities and Exchange
Commission; and (5) provide the Fund 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 Fund
and Investment Company's other domestic investment portfolios pay Administrator
a combined fee that on an annual basis is equal to the following percentages of
their average aggregate daily net assets: (1) $0 to and including $500 million
- -- .06%; (2) over $500 million to and including $1 billion -- .05%; and (3) over
$1 billion -- .03%. The percentage of the fee paid by the Tax Free Fund is equal
to the percentage of average aggregate daily net assets that are attributable to
the Fund. Administrator will also receive reimbursement of expenses it incurs in
connection with establishing new investment portfolios. Further, the
administration fee paid by the Investment Company will be reduced by the sum of
certain distribution related expenses, up to certain maximum percentages, as
follows: (1) 10% from January 1, 1997 to December 31, 1997; 5% from January 1,
1998 to December 31, 1998; and (3) 0% from January 1, 1999 thereafter.
Administrator also provides administrative services in connection with
the registration of shares of Investment Company 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 Administrator,
serves as distributor for all Fund shares.
The Fund has adopted a distribution plan pursuant to Rule 12b-1 (the
"Plan") under the 1940 Act for the Class C shares. 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 .60% of the net asset value of Class C shares of the Fund for
distribution-related and shareholder servicing expenses. Payments under the Plan
will be made to Distributor to finance activity which is intended to result in
the sale and retention of Fund shares including: (1) payments made to certain
broker-dealers, investment 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 Fund shares, including Distributor's overhead expenses for rent, office
supplies, equipment, travel, communication, compensation and benefits of sales
personnel.
Under the Plan, the Fund may also enter into agreements ("Service
Agreements") with financial institutions, which may include Advisor ("Service
Organizations"), to provide distribution and shareholder servicing with respect
to Class C shares of the Fund 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: processing customer
purchase and redemption requests; answering inquiries regarding the Fund;
assisting customers in changing dividend options, account designations and
addresses; performing subaccounting for such customers; establishing and
maintaining customer accounts and records; processing purchase and redemption
transactions; 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; arranging
for bank wires transferring customers' funds; transmitting proxy statements,
annual and semi-annual reports, prospectuses and other communications from the
Fund to customers; and such other services as the customers may request in
connection with the Fund, to the extent permitted by applicable statute, rule or
regulation. Service Organizations may receive from the Fund, for shareholder
servicing, monthly fees at a rate that shall not exceed .50% per annum of the
average daily net asset value of the Fund's Class C shares owned by or for
shareholders with whom the Service Organization has a servicing relationship.
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Payments to Distributor, as well as payments to Service Organizations,
are not permitted by the Plan to exceed .60% per year of the average net asset
value of the Fund's Class C shares. Any payments that are required to be made by
the Distribution Agreement and any Service Agreement but could not be made
because of the limitation may be carried forward and paid in subsequent years so
long as the Plan is in effect. The Fund's liability for any such expenses may be
carried forward indefinitely. Service Organizations will be responsible for
prompt transmission of purchase and redemption orders and may charge fees for
their services. 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.
FUND EXPENSES
The Fund will pay all of its expenses other than those expressly
assumed by Advisor and Administrator. The principal expenses of the Fund are the
annual advisory fee payable to Advisor and distribution and shareholder
servicing expenses. Other expenses include: (1) amortization of deferred
organizational costs; (2) taxes, if any; (3) expenses for legal, auditing and
financial accounting services; (4) expense of preparing (including typesetting,
printing and mailing) reports, prospectuses and notices to existing
shareholders; (5) administrative fees; (6) custodian fees; (7) expense of
issuing and redeeming Fund shares; (8) the cost of registering 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 Fund. Where any of these
other expenses are attributable to a particular class of shares, they will be
borne by the beneficial owners of such shares.
PERFORMANCE CALCULATIONS
From time to time the Fund may advertise its yield, effective yield and
tax-equivalent yield of its Class C shares. The yield of the Fund refers to the
income generated by an investment in Class C shares of the Fund 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 each Fund
is assumed to be reinvested. The effective yield will be slightly higher than
the yield prescribed by the Securities and Exchange Commission because of the
compounding effect of this assumed reinvestment. The tax-equivalent yield shows
the level of taxable yield needed to produce an after-tax equivalent to the
Fund's tax-free yield. This is done by increasing the Fund's yield by the amount
necessary to reflect the payment of federal income tax (and state income tax, if
applicable) at a stated tax rate.
From time to time, the Fund may also report yield, effective yield and
tax-equivalent 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.
The Fund may also advertise the total return of its Class C shares. The
total return of the Fund is the average annual compounded rate of return from a
hypothetical investment in the Funds' Class C shares over one-, five- and
ten-year periods or for the life of the Fund (as stated in the advertisement),
assuming the reinvestment of all dividends and capital gains distributions.
Comparative performance information may be used from time to time in
advertising or marketing Fund shares, including data from Lipper Analytical
Services, Inc., Morningstar, Inc., Donoghue's Money Fund Report, Wall Street
Journal Score Card or other industry publications, business periodicals, rating
services and market
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indices. The Fund 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 Fund, provides portfolio
recordkeeping services and serves as the Fund's 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 the
Fund 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. Potential
investors who wish to obtain more information about the Fund should contact a
Service Organization. Inquiries from Service Organizations regarding the
Prospectus and financial statements may be made by calling Transfer Agent at
(800) 647-7327.
Organization, Capitalization and Voting. 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 issues shares divisible into an unlimited
number of series (or funds), each of which is a separate trust under
Massachusetts law. The Tax Free Fund is one such series. Shares of the Fund are
entitled to such relative rights and preferences and dividends and distributions
earned on assets of the Fund as may be declared by the Board of Trustees. Each
class of shares of the Fund has identical rights and privileges as all other
shares of the Fund and participates equally in the dividends and distributions
of the Fund. Fund shares are fully paid and nonassessable by Investment Company
and have no preemptive rights.
Investment Company is authorized to subdivide each series into two or
more classes of shares. Currently, shares of the Tax Free Fund are divided into
Class A, Class B and Class C. Each class of shares of the Fund is entitled to
the same rights and privileges as all other classes of the Fund, provided
however, that each class bears the expenses related to its distribution and
shareholder servicing arrangements, as well as other expenses attributable to
the class and unrelated to managing the Fund's portfolio securities. As
described above, Investment Company has adopted a plan of distribution under
Rule 12b-1 for Class C shares. Similar plans have been adopted for Class A and
Class B shares. However, total payments under those plans are limited to .25%
and .35% annually of the average net asset value of the Class A and Class B
shares, respectively of the Fund. As a result of these plan and other class
expenses, the yield on Class B and Class C shares will be approximately .25% and
.50% lower, respectively, than the yield on Class A shares.
Each 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 which 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. Further, any matter that affects only the holders of a particular
class of shares may be voted on only by such shareholders. Each class of shares
votes separately with respect to any Rule 12b-1 plan applicable to such class.
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 the 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 the
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.
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Investment Company does not issue share certificates for the Fund.
Transfer Agent sends monthly shareholders statements, confirming all investments
in or redemptions from their accounts. Each statement also sets forth the
balance of shares held in the account.
As of _________________, 1997, ______________________________________
owned of record _____% of the issued and outstanding shares of the Fund and is
therefore deemed to be a controlling person for purposes of the 1940 Act.
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<PAGE>
THE SSgA FUNDS
One International Place
Boston, Massachusetts 02110
(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
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<PAGE>
Filed pursuant to Rule 485(b)
File Nos. 33-19229; 811-5430
SSgA FUNDS
One International Place
Boston, Massachusetts 02110
(800) 647-7327
REAL ESTATE EQUITY FUND
The SSgA Funds is a registered, open-end management investment company with
multiple portfolios, each of which is commonly referred to as a mutual fund.
This Prospectus describes and offers shares of beneficial interest in one mutual
fund, the SSgA Real Estate Equity Fund (the "Real Estate Equity Fund" or the
"Fund"). The Real Estate Equity Fund seeks to provide income and capital growth
by investing principally in publicly traded securities of real estate companies.
The Fund's shares are offered without sales commissions. However, the Fund pays
certain distribution expenses under its 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.
SHARES IN THE 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 sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Please read and retain this
document for future reference. Additional information about the SSgA Funds has
been filed with the Securities and Exchange Commission ("SEC") in Statements of
Additional Information ("SAI") dated December 24, 1997. The SAI is incorporated
herein by reference and is available without charge from Distributor at its
address noted below or by calling (800) 647-7327. The SEC also maintains a
website (www.sec.gov) that contains the SAI, material incorporated by reference
and other information regarding the SSgA Funds. You may also access the SSgA
Funds' website at www.ssgafunds.com.
<TABLE>
<CAPTION>
Investment Advisor, Custodian
and Transfer Agent: Distributor: Administrator:
<S> <C> <C>
State Street Bank and Trust Frank Russell Investment
Company Russell Fund Distributors, Inc. Management Company
225 Franklin Street One International Place 909 A Street
Boston, Massachusetts 02110 Boston, Massachusetts 02110 Tacoma, Washington 98402
</TABLE>
PROSPECTUS DATED December 24, 1997
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<PAGE>
TABLE OF CONTENTS
Page
----
Fund Operating Expenses................................................ 3
The SSgA Funds......................................................... 4
Manner of Offering..................................................... 4
Investment Objective, Policies and Restrictions........................ 4
Risk Factors........................................................... 8
Portfolio Turnover..................................................... 8
Dividends and Distributions............................................ 8
Taxes.................................................................. 9
Valuation of Fund Shares............................................... 10
Purchase of Fund Shares................................................ 10
Redemption of Fund Shares.............................................. 11
General Management..................................................... 12
Fund Expenses.......................................................... 14
Performance Calculations............................................... 15
Additional Information................................................. 15
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<PAGE>
FUND OPERATING EXPENSES AFTER FEE WAIVERS
THE SSgA REAL ESTATE EQUITY FUND
The purpose of the following table is to assist the investor in understanding
the various costs and expenses that an investor in the Real Estate Equity Fund
will incur directly or indirectly. The examples should not be considered a
representation of past or future expenses. Actual expenses may be greater or
less than those shown. For additional information, see "General Management."
Shareholder Transaction Expenses:
- ---------------------------------
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
Annual Fund Operating Expenses:
- -------------------------------
(as a percentage of average daily net assets)
Advisory Fees(1) .40%
12b-1 Fees(2), (3) .05
Other Expenses(1), (4) .55
---
Total Operating Expenses After Fee Waivers(1), (4) 1.00%
=====
Examples: 1 year 3 years
-------- ------ -------
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: $ 10 $ 32
===== ====
(1) The Advisor voluntarily agrees to waive up to the full amount of its
Advisory fee of .65% to the extent that total expenses exceed 1.00% on an
annual basis. Additionally, the Administrator has agreed to waive a
portion of its fee for the first three months after the Fund becomes
operational. The gross annual Advisory and Other Expenses before waivers
would be .65%, and .56% of average daily net assets, respectively. The
total operating expenses of the Fund absent fee waivers would be 1.26% of
average daily net assets on an annual basis. The Advisory fee waiver will
be in effect for the current fiscal year.
(2) The ratios for "12b-1 fees" and "other expenses" are based on estimated
amounts for the current fiscal year with expected annual average net
assets of $20 million. In no event will 12b-1 fees exceed .25%.
(3) Rule 12b-1 fees may include expenses paid for shareholder servicing
activities.
(4) Investors purchasing 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.
Long-term shareholders of the Fund may pay more in Rule 12b-1 fees than the
economic equivalent of the maximum front-end sales charges permitted by the
National Association of Securities Dealers, Inc.
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<PAGE>
THE SSgA FUNDS
The SSgA Funds ("Investment Company") are an open-end management
investment company that is organized as a Massachusetts business trust. In
addition, each series of the Investment Company is diversified as defined in the
Investment Company Act of 1940, as amended ("1940 Act"). As a "series" company,
Investment Company is authorized to issue an unlimited number of shares
evidencing beneficial interests in different investment portfolios. Through this
Prospectus, Investment Company offers shares in one such portfolio, the Real
Estate Equity Fund. State Street Bank and Trust Company ("Advisor" or "State
Street") serves as the investment advisor for the Fund.
MANNER OF OFFERING
Distribution and Eligible Investors. Shares of the Fund are offered
without a sales commission by Russell Fund Distributors, Inc. (the
"Distributor"), Investment Company's distributor, to US and foreign
institutional and retail investors that invest for their own account or in a
fiduciary or agency capacity. The Fund will incur distribution expenses under
its Rule 12b-1 plan. See "General Management -- Distribution Services and
Shareholder Servicing Arrangements."
Minimum and Subsequent Investment. The Fund requires a minimum initial
investment of $1,000. The shareholder's investment in the Fund may be subject to
redemption at the Fund's discretion if the account balance is less than $500 as
a result of shareholder redemptions. The Fund reserves the right to reject any
purchase order.
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
The Fund's investment objective is to provide income and capital growth
by investing principally in publicly traded securities of real estate companies.
This objective may be changed without shareholder approval. Shareholders would,
however receive at least 60 days' prior notice of any change to the Fund's
investment objective. There can be no assurance that the Fund will meet its
stated investment objective.
Investment Policies
Under normal market conditions, the Advisor will invest at least 65% of
the Fund's total assets in equity interests in Real Estate Investment Trust
("REIT") securities contained in the NAREIT Total Return Index (the "NAREIT
Index"). The Fund will attempt to obtain a return which approximates that of the
NAREIT Index. The Advisor will create similar security weightings as the NAREIT
Index, by selecting individual security positions, giving consideration to
overall position within the Fund, the liquidity of each holding at the time of
acquisition, the cash position at the time of the transaction, and shareholder
activity in the Fund. Because the Fund will concentrate 25% or more of its total
assets in the real estate and real estate related industries, the Fund will be
subject to the risks associated with the direct ownership of real estate. For a
detailed discussion, please see "Risk Factors--Real Estate Investments."
In addition to the equity securities of REITs contained in the NAREIT
Index, the Fund may invest up to 35% of its total assets in equity securities
not contained in the NAREIT Index, including other domestic equity securities,
fixed-income instruments, cash, cash equivalents, futures and options, and
special situations. See "Investment Policies". The Fund may temporarily for
defensive purposes, without limitation, invest in certain short-term fixed
income securities. Such securities may be used to invest uncommitted cash
balances or to maintain liquidity to meet shareholder redemptions. See
"Investment Policies -- Cash Reserves."
The NAREIT Index. The National Association of Real Estate Investment
Trusts ("NAREIT") is a not for profit trade organization representing the REIT
industry. NAREIT was created in 1960 to serve as the official source of
information for the REIT industry. Membership is comprised of publicly and
privately held REITs and professionals in related fields. The NAREIT Index is
comprised of individual publicly traded REITs. The NAREIT Index is published
monthly by NAREIT and received by members of the NAREIT organization.
Although the number is expected to fluctuate as REITs are added to the
Index or converted to equity securities, there are currently 175 REITs in the
NAREIT Index. REITs are included in the NAREIT Index in the month in which they
become
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<PAGE>
public. All of the data is based upon the last closing price of the month for
all tax-qualified REITs listed on the New York Stock Exchange, the American
Stock Exchange and the NASDAQ National Market System. The data is market
weighted. Newly issued shares by existing REITs are added to the total shares
outstanding figure in the month that the shares are issued. Only common shares
issued by the REIT are included in the index. The total return calculation is
based upon the weighting at the beginning of the period. Only those REITs listed
for the entire period are used in the total return calculation. Dividends are
included in the month based upon their payment date. Liquidating dividends,
whether full or partial, are treated as income. This has the effect of
negatively biasing the price appreciation component of the index but results in
accurate realized income and total return numbers.
US Equity Securities. The Fund may invest in common and preferred
equity securities publicly traded in the United States. Common stocks represent
an ownership interest in a corporation. This ownership interest often gives the
Fund the right to vote on measures affecting the company's organization and
operations. Although common stocks have a history of long-term growth in value,
their prices tend to fluctuate in the short term, particularly those of smaller
companies.
Real Estate Investment Trusts. Equity REITs are defined as REITs with
75% or greater of their gross invested book assets invested directly or
indirectly in the equity ownership of real estate, and their value depends upon
that of the underlying properties. Mortgage REITs are defined as REITs with 75%
or more of their gross invested book assets invested directly or indirectly in
mortgages. Mortgage trusts make construction, development or long-term mortgage
loans, and are sensitive to the credit quality of the borrower. Hybrid REITs are
defined as not meeting the equity or mortgage tests. The value of real estate
investment trusts is also affected by management skill, cash flow, and tax and
regulatory requirements. Investments in equity and mortgage REITs are subject to
different risk factors. See "Risk Factors."
Real Estate-Related Industries. In addition to real estate investment
trusts, real estate industry companies may include: brokers or real estate
developers; and companies with substantial real estate holdings, such as paper
and lumber producers and hotel and entertainment companies.
US Government Securities. 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.
Lending Portfolio Securities. The Fund may lend portfolio securities
with a value of up to 33-1/3% of its total assets. For these purposes, total
assets shall include the value of all assets received as collateral for the
loan. Such loans may be terminated at any time. The 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, the 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, the 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. The 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, the 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 Advisor to be of good financial standing. In a
loan transaction, the Fund will also bear the risk of any decline in value of
securities acquired with cash collateral. The Fund will minimize this risk by
limiting the investment of cash collateral to high quality instruments of short
maturity.
Cash Reserves. For the purpose of investing uncommitted cash balances
or to maintain liquidity to meet shareholder redemptions, the Fund may invest
temporarily and without limitation in high quality short-term fixed income
securities. 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.
Securities Warrants. The Fund may invest up to 5% of its net assets in
warrants of foreign or domestic issuers. Included in such amount, but not to
exceed 2% of the value of the Fund's total net assets, may be warrants that are
not listed on a securities exchange. A warrant typically is a long term option
issued by a corporation which generally gives the holder the privilege of buying
a specified number of shares of the underlying common stock of the issuer at a
specified exercise price
-5-
<PAGE>
at any time on or before an expiration date. Stock index warrants entitle the
holder to receive, upon exercise, an amount in cash determined by reference to
fluctuations in the level of a specified stock index. If the Fund does not
exercise or dispose of a warrant prior to its expiration, it will expire
worthless.
Repurchase Agreements. The Fund may enter into repurchase agreements
with banks and other financial institutions, such as broker-dealers. Under a
repurchase agreement, a Fund purchases securities from a financial institution
that agrees to repurchase the securities at the Fund's original purchase price
plus interest within a specified time (normally one business day). The Fund will
limit repurchase transactions to those member banks of the Federal Reserve
System and broker-dealers whose creditworthiness Advisor considers satisfactory.
Should the counterparty to a transaction fail financially, the 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 the Fund.
Reverse Repurchase Agreements. The Fund may enter into reverse
repurchase agreements under the circumstances described in "Investment
Restrictions." Under a reverse repurchase agreement, the Fund sells portfolio
securities to a financial institution 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 at a prescribed repurchase price equal to the
amount of cash originally received plus interest on such amount. The Fund
retains the right to receive interest and principal payments with respect to the
securities while they are in the possession of the financial institutions.
Reverse repurchase agreements involve the risk of default by the counterparty,
which may adversely affect the Fund's ability to reacquire the underlying
securities.
Illiquid Securities. The Fund will not invest more than 15% of its net
assets in illiquid securities or securities that are not readily marketable,
including repurchase agreements and time deposits of more than seven days'
duration. The absence of a regular trading market for illiquid securities
imposes additional risks on investments in these securities. Illiquid securities
may be difficult to value and may often be disposed of only after considerable
expense and delay.
Special Situations. The Fund may invest up to _____% of its net assets
in special situations involving real estate, including investments involving
joint ventures, real estate mortgage loans, and private placements, provided
that in no case will the Fund hold fee title in real estate.
Options on Securities and Securities Indices. The Fund may write and
purchase covered put and call options on securities in which it may directly
invest. Option transactions of the 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 Fund's total net assets. Further, the 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 Fund's total assets.
The Fund may purchase or sell options on securities indices that are
comprised of securities in which it 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.
Futures Contracts and Options on Futures. For hedging purposes,
including protecting the price or interest rate of a security the Fund intends
to buy, the 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. A stock index futures contract is a contract to buy
or sell specified units of a stock index at a specified date at a price agreed
upon when the contract is made. The value of a unit is based on the current
value of the stock index. 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.
-6-
<PAGE>
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. Upon entering into a
futures contract, the 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 the Fund will honor its futures commitment. 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, the 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.
Purchase of Other Funds. To the extent permitted under the 1940 Act and
exemptive rules and orders thereunder, the Fund may seek to achieve its
investment objective by investing solely in the shares of another investment
company that has substantially similar investment objectives and policies.
Investment Restrictions
The Fund has fundamental investment restrictions, which may be changed
only with the approval of a majority of the Fund's shareholders as defined in
the 1940 Act. A more detailed discussion of the Fund's investment restrictions
and investment policies appears in the Statement of Additional Information.
Unless otherwise noted, the investment restrictions apply at the time an
investment is made. The 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, except that
the Fund may invest 25% or more of its total assets in real
estate-related industries described under "Investment Policies").
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 Fund's assets taken at market value,
less liabilities other than borrowings. If at any time a 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 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 Fund may
pledge securities having a market value at the time of the pledge
not exceeding 33-1/3% of the value of the Fund's total assets to
secure permitted borrowings.
RISK FACTORS
Futures Contracts and Options on Futures. 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. 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.
Real Estate Investments. Real estate investments are sensitive to
conditions affecting the real estate industry, including declines in the value
of real estate, risks related to general and local economic conditions,
overbuilding and increased competition, increases in property taxes and
operating expenses, changes in neighborhood values, the appeal of properties to
tenants, rental income issues and increases in interest rates. In addition,
equity real estate investment trusts may
-7-
<PAGE>
be affected by changes in the value of the underlying property owned by the
trust, while mortgage real estate investment trusts may be affected by the
quality of any credit extended. Moreover, the underlying portfolios of equity
and mortgage real estate trusts may not be diversified, and are therefore
subject to the risk of financing a single or a limited number of projects. Such
trusts are also dependent upon management skills and are subject to heavy cash
flow dependence, defaults by borrowers, self-liquidation and the possibility of
failing to qualify for tax-free pass-through of income under the Internal
Revenue Code and to maintain exemption from the 1940 Act. The value of
securities of companies which service the real estate industry may also be
affected by these risks.
PORTFOLIO TURNOVER
The portfolio turnover rate cannot be predicted, but it is anticipated
that the Fund's annual turnover rate generally will not exceed 50%. A high
turnover rate (over 100%) will: (1) increase transaction expenses which will
adversely affect a Fund's performance; and (2) result in increased brokerage
commissions and other transaction costs, and the possibility of realized capital
gains.
The Fund may effect portfolio transactions through State Street
Brokerage Services, Inc. an affiliate of the Advisor, when the Advisor
determines that the Fund will receive competitive execution, price and
commissions.
DIVIDENDS AND DISTRIBUTIONS
The Board of Trustees intends to declare and pay dividends on shares of
the Fund annually from net investment income. The Board of Trustees intends to
declare distributions annually from net short- and long-term capital gains, if
any, generally in mid-October. It is intended that an additional distribution
may be declared and paid in December if required for the Fund 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 Fund and received by shareholders on December
31 of that year if the dividend is paid prior to February 1 of the following
year.
Income dividend and capital gain distributions will be paid 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 Fund mailings to an investor, the
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 Fund until
the investor notifies the SSgA Funds 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 Fund shortly
after a purchase of shares will reduce the per share net asset value of the Fund
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:
[bullet] Reinvestment Option--Dividends and capital gains distributions
will be automatically reinvested in additional shares of the
Fund. If the investor does not indicate a choice on the
Application, this option will be automatically assigned.
[bullet] Income-Earned Option--Capital gain distributions will be
automatically reinvested, but a check or wire will be sent for
each dividend distribution.
[bullet] Cash Option--A check or wire will be sent for each dividend
and capital gain distribution.
[bullet] Direct Dividends Option--Dividends and capital gain
distribution will be automatically invested in another
identically registered SSgA Fund.
Distributions will be sent to a pre-designated bank by the Automatic
Clearing House ("ACH") on the payable date.
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<PAGE>
TAXES
The distributions received by the Fund from its investments may, for
federal income tax purposes, consist of ordinary income, long-term capital
gains, or a return of capital. The characterization of these distributions to
the Fund may, in turn, affect the tax treatment of the Fund's distributions to
its shareholders. Statements as to the tax status of each shareholder's
dividends and distributions are mailed annually by the Fund. Shareholders may
wish to consult their tax advisors about any state and local taxes that may
apply to payments received and, in particular, to determine whether dividends
paid by the Fund that represent interest derived from the US Government
securities are exempt from any applicable state or local income taxes.
The Fund intends to qualify as a regulated investment company ("RIC")
under Subchapter M of the Internal Revenue Code, as amended (the "Code"). As a
RIC, the Fund will not be subject to federal income taxes to the extent it
distributes its net investment income and net capital gains (long-term capital
gains in excess of short-term capital losses) to its shareholders. The Board
intends to distribute each year substantially all of the Fund's net investment
income and capital gain net income.
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.
Dividends and distributions may also be subject to state or local
taxes. Depending on the state tax rules pertaining to a shareholder, a portion
of the dividends paid by the Fund attributable to direct obligations of the US
Treasury and certain agencies may be exempt from state and local taxes.
The sale of 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 portfolios of a mutual fund). Any loss incurred on the sale or
exchange of 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.
Shareholders will be notified after each calendar year of the amounts
of income dividends and net capital gains distributions and the percentage of
the Fund's income attributable to US Treasury and agency obligations. The 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 Fund with the shareholder's correct taxpayer
identification number or certification that the shareholder is not subject to
backup withholding.
The foregoing discussion is only a summary of certain federal income
tax issues generally affecting the Fund and its shareholders. Circumstances
among investors may vary and each investor is encouraged to discuss investment
in the Fund with the investor's tax advisor.
VALUATION OF FUND SHARES
Net Asset Value Per Share. The Fund determines 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. Net asset value per share is
computed by dividing the current value of the Fund's assets, less its
liabilities, by the number of shares of the Fund outstanding and rounding to the
nearest cent.
Valuation of Fund Securities. With the exceptions noted below, the Fund
values portfolio securities at market value. This generally means that 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.
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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.
Debt obligation securities maturing within 60 days of the valuation
date are valued at amortized cost unless the Board determines that the amortized
cost method does not represent 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 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 a Fund would receive if it sold the instrument.
The Fund values 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.
PURCHASE OF FUND SHARES
Minimum Initial Investment and Account Balance. The Fund requires a
minimum initial investment of $1,000. The minimum account balance is $500. The
Fund reserves the right to reject any purchase order.
Offering Dates and Times. Fund shares may be purchased on any business
day without a sales commission. All purchases must be made in US dollars.
Purchase orders in good form and payments for Fund shares must be received by
the Transfer Agent prior to 4:00 p.m. Eastern time to be effective on the date
received. The accompanying payment must be in federal funds or converted into
federal funds by the Transfer Agent before the purchase order can be accepted.
Purchase orders in good form are described below.
Order and Payment Procedures. There are several ways to invest in the
Fund. The Fund requires a purchase order in good form which consists of a
completed and signed Account Registration and Investment Instruction Form (the
"Application") for each new account regardless of the investment method. For
additional information, copies of Applications or questions, call Transfer Agent
at (800) 647-7327, or write to Transfer Agent at: State Street Bank and Trust
Company, P.O. Box 8317, Boston, MA 02266-8317, Attention: SSgA Real Estate
Equity Fund.
Federal Funds Wire. An investor purchase initial or subsequent shares
by wiring federal funds to State Street Bank and Trust Company as Transfer Agent
by:
1. Telephoning State Street Bank and Trust Company at (800) 647-7327
and stating: (1) the investor's account registration number,
address and social security or tax identification number; (2) the
amount being wired; (3) the name of the wiring bank; (4) the name
and telephone number of the person at the wiring bank to be
contacted in connection with the order; and (5) that the funds
should be invested in the SSgA Real Estate Equity Fund.
2. Instructing the wiring bank to wire federal funds to: State
Street Bank and Trust Company, Boston, MA (ABA #0110-00028),
Attention: SSgA Real Estate Equity Fund, Mutual Funds Service
Division (DDA #9904-631-0). The wire instructions should also
include the name in which the account is registered, the account
number, and the name of the Fund in which to be invested.
3. Completing the Application and forwarding it to Transfer Agent
at the above address.
Mail. To purchase shares by mail, send a check or other negotiable bank
draft payable to: State Street Bank and Trust Company, P.O. Box 8317, Boston, MA
02266-8317, Attention: SSgA Real Estate Equity Fund. Third party checks, except
those payable to an existing shareholder who is a natural person (as opposed to
a corporation or partnership) and checks drawn on credit card accounts will not
be accepted. Certified checks are not necessary, but checks are accepted subject
to collection at full face value in United States funds and must be drawn in
United States dollars on a United States bank. Normally, checks and drafts are
converted to federal funds within two business days following receipt of the
check or draft.
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Initial investments should be accompanied by a completed Application, and
subsequent investments are to be accompanied by the investor's account number.
In-Kind Exchange of Securities. The Transfer Agent may, at its
discretion, permit investors to purchase shares through the exchange of
securities they hold. Any securities exchanged must meet the investment
objective, policies and limitations of the Fund, must have a readily
ascertainable market value, must be liquid and must not be subject to
restrictions on resale. The market value of any securities exchanged, plus any
cash, must be at least $10 million. Shares purchased in exchange for securities
generally may not be redeemed or exchanged until the transfer has settled --
usually within 15 days following the purchase by exchange.
The basis of the exchange will depend upon the relative net asset value
of the shares purchased and securities exchanged. Securities accepted by the
Fund will be valued in the same manner as the Fund values its assets. Any
interest earned on the securities following their delivery to the Transfer Agent
and prior to the exchange will be considered in valuing the securities. All
interest, dividends, subscription or other rights attached to the securities
become the property of the Fund, along with the securities.
Exchange Privilege. Subject to the Fund's minimum investment
requirement, investors may exchange their Fund shares without charge for shares
of any other investment portfolio offered by Investment Company. Shares are
exchanged on the basis of relative net asset value per share. Exchanges may be
made: (1) by telephone if the registrations of the two accounts are identical;
or (2) in writing addressed to State Street Bank and Trust Company, P.O. Box
8317, Boston, MA 02266-8317, Attention: SSgA Series Real Estate Equity Fund. If
shares of a Fund were purchased by check, the shares must have been present in
an account for 10 days before an exchange is made. The exchange privilege will
only be available in states where the exchange may legally be made, and may be
modified or terminated by the Funds upon 60 days' notice to shareholders.
REDEMPTION OF FUND SHARES
Fund shares may be redeemed on any business day at the net asset value
next determined after the receipt of a redemption request in proper form as
described below. Payment 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. Although Investment Company does not currently charge a
fee for this service, Investment Company reserves the right to charge a fee for
the cost of wire-transferred redemptions of less than $1,000. Payment for
redemption of shares purchased by check may be withheld for up to 15 days after
the date of purchase to assure that such checks are honored.
Redemption requests must be received prior to 4:00 p.m. Eastern time in
order be effective on the date received. Shareholder servicing agents with
underlying shareholders in omnibus accounts who receive redemption requests by
4:00 p.m. Eastern time may transmit the request to the Transfer Agent by 9:00
a.m. Eastern time the next succeeding business day and receive the dividend as
of the day the redemption request was originally made by the underlying
shareholder.
Expedited Redemption. Shareholders may normally redeem Fund shares by
telephoning State Street Bank and Trust Company between 9:00 a.m. and 4:00 p.m.
Eastern time at (800) 647-7327, Attention: SSgA Real Estate Equity Fund.
Shareholders using the expedited redemption method must complete the appropriate
section on the Application. The Fund and the Transfer Agent will employ
reasonable procedures to confirm that instructions communicated by telephone are
properly authorized. The Fund and the Transfer Agent will not be liable for
executing telephone 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. 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. Redemption requests may be made in writing directly to State
Street Bank and Trust Company, P.O. Box 8317, Boston, MA 02266-8317, Attention:
SSgA Real Estate Equity Fund. The redemption price will be the net asset value
next
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determined after receipt by State Street of all required documents in good
order. Good order means that the request must include the following:
1. A letter of instruction or a stock assignment stating the Fund or
Funds out of which the shares are to be redeemed and designating
specifically the dollar amount to be redeemed signed by all
owners of the shares in the exact names in which they appear on
the account, together with a guarantee of the signature of each
owner by a bank, trust company or member of a recognized stock
exchange; and
2. Such other supporting legal documents, if required by applicable
law or Transfer Agent, in the case of estates, trusts,
guardianships, custodianships, corporations and pension and
profit-sharing plans.
The Fund reserves the right to redeem the shares in any account with a
balance of less than $500 as a result of shareholder redemptions rather than
market value fluctuations. Before shares are redeemed to close an account, the
shareholder will be notified in writing and allowed 60 days to purchase
additional shares to meet the minimum account balance.
The Fund may pay any portion of the redemption amount in excess of
$250,000 by a distribution in-kind of readily marketable securities from the
portfolio of the Fund in lieu of cash. Investors will incur brokerage charges on
the sale of these portfolio securities. The Fund reserves the right to suspend
the right of redemption or postpone the date of payment if emergency conditions,
as specified in the 1940 Act or determined by the Securities and Exchange
Commission, should exist.
GENERAL MANAGEMENT
The Board of Trustees supervises the management, activities and affairs
of the Fund and has approved contracts with various financial organizations to
provide, among other services, day-to-day management required by the Fund.
Advisory Agreement. The Investment Company employs State Street to
furnish investment services to the 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 Corporation, a publicly held bank holding company. State Street, with
over $370 billion (US) under management as of September 30, 1997, provides
complete global investment management services from offices in Atlanta, Boston,
Brussels, Copenhagen, Dubai, Hong Kong, London, Minneapolis, Montpellier,
Montreal, Munich, Paris, San Francisco, Sydney, Tokyo, and Toronto.
Advisor, subject to Board supervision, directs the investment of the
Fund in accordance with the Fund's investment objective, policies and
restrictions. Investment decisions regarding the Fund are made by committee, and
no person is primarily responsible for making recommendations to that committee.
For these services, the Fund pays Advisor a fee, calculated daily and paid
monthly, that on an annual basis is equal to .65% of the Fund's average daily
net assets.
The Glass-Steagall Act prohibits a depository state chartered bank such
as Advisor from engaging in the business of issuing, underwriting, selling or
distributing certain securities. The activities of Advisor in informing its
customers of the Fund, performing investment and redemption services and
providing custodian, transfer, shareholder servicing, dividend disbursing and
investment advisory services may raise issues under these provisions. Advisor
has been advised by its counsel that its activities in connection with the Fund
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 Advisor from continuing to perform all or a part of
the above services for its customers and/or the Funds. If Advisor were
prohibited from serving the 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 Fund may occur. It is not expected by 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.
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<PAGE>
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 Investment Company portfolios 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 November 30, 1997,
State Street held of record less than 25% of the issued and outstanding shares
of Investment Company in connection with its discretionary accounts.
Consequently, State Street is not 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 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.
Administration Agreement. Frank Russell Investment Management Company
("Administrator") serves as administrator of the Fund. Administrator currently
serves as investment manager and administrator to 32 mutual funds with assets of
$11.3 billion as of October 31, 1997, and acts as administrator to 20 mutual
funds, including the Fund, with assets of $10.8 billion as of October 31, 1997.
Pursuant to the Administration Agreement with the Investment Company,
the Administrator will: (1) supervise all aspects of the Funds' operations; (2)
provide the Funds with administrative and clerical services, including the
maintenance of certain of the Funds' books and records; (3) arrange the periodic
updating of the Funds' prospectuses and any supplements thereto; (4) provide
proxy materials and reports to Fund shareholders and the Securities and Exchange
Commission; and (5) provide the 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 Real
Estate Equity Fund pays Administrator a fee that on an annual basis is equal to
the following percentages of each Fund's average daily net assets: $0 to and
including $500 million -- .06%; over $500 million to and including $1 billion --
.05%; and over $1 billion -- .03%. The percentage of the fee paid by a
particular Fund is equal to the percentage of average aggregate daily net assets
that are attributable to that Fund. Administrator will also receive
reimbursement of expenses it incurs in connection with establishing new
investment portfolios. Further, the administration fee paid by the Investment
Company will be reduced by the sum of certain distribution related expenses, up
to certain maximum percentages, as follows: (1) 10% from January 1, 1997 to
December 31, 1997; 5% from January 1, 1998 to December 31, 1998; and (3) 0% from
January 1, 1999 thereafter.
Administrator also provides administrative services in connection with
the registration of shares of Investment Company 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, the Distributor, a wholly
owned subsidiary of Administrator, serves as distributor for all Fund shares.
The Fund has 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 Fund's annual average net assets for distribution-related and shareholder
servicing expenses. Payments under the Plan will be made to Distributor to
finance activity which is intended to result in the sale and retention of Fund
shares including: (1) payments made to certain broker-dealers, investment
advisors and other third-party intermediaries; (2) the costs of prospectuses,
reports to shareholders and sales literature; (3) advertising; and (4) expenses
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<PAGE>
incurred in connection with the promotion and sale of Fund shares, including
Distributor's overhead expenses for rent, office supplies, equipment, travel,
communication, compensation and benefits of sales personnel.
Under the Plan, the Fund may also enter into agreements ("Service
Agreements") with financial institutions, which may include Advisor ("Service
Organizations"), to provide shareholder servicing with respect to 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: answering inquiries regarding the Fund; assisting customers
in changing dividend options, account designations and addresses; performing
subaccounting for such customers; establishing and maintaining customer accounts
and records; processing purchase and redemption transactions; 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; arranging for bank wires transferring
customers' funds; and such other services as the customers may request in
connection with the Fund, to the extent permitted by applicable statute, rule or
regulation. Service Organizations may receive from the Fund, for shareholder
servicing, monthly fees at a rate that shall not exceed .20% per annum of the
average daily net asset value of the 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.
The Investment Company has entered into Service Agreements with the
Advisor and the following entities related to the Advisor: State Street
Brokerage Services, Inc., Metropolitan Division of Commercial Banking,
Retirement Investment Services Division and State Street Solutions. The purpose
of the Service Agreements is to obtain shareholder services for Fund shares
owned by clients of each of these entities. In return for these services, the
Investment Company pays each of the entities a fee. These agreements are
reviewed annually by the Board of Trustees.
Payments to the Distributor, as well as payments to Service
Organizations from the Fund are not permitted by the Plan to exceed .25% of the
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 Fund's liability for any
such expenses carried forward shall terminate at the end of two years 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.
FUND EXPENSES
The Fund will pay all of its expenses other than those expressly
assumed by the Advisor and the Administrator. The principal expenses of the Fund
are the annual advisory fee payable to Advisor and distribution and shareholder
servicing expenses. Other expenses include: (1) amortization of deferred
organizational costs; (2) taxes, if any; (3) expenses for legal, auditing and
financial accounting services; (4) expense of preparing (including typesetting,
printing and mailing) reports, prospectuses and notices to existing
shareholders; (5) administrative fees; (6) custodian fees; (7) expense of
issuing and redeeming Fund shares; (8) the cost of registering 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 Fund.
PERFORMANCE CALCULATIONS
The Fund may from time to time advertise its yield. Yield, which is
based on historical earnings and is not intended to indicate future performance,
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 period. 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,
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<PAGE>
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.
From time to time the Fund may advertise its total return. The total
return of a Fund refers to the average annual compounded rates of return from a
hypothetical investment in the Fund over one-, five- and ten-year periods or for
the life of the Fund (as stated in the advertisement), assuming the reinvestment
of all dividend and capital gains distributions and includes all recurring fees
that are charged to all shareholder accounts.
Comparative performance information may be used from time to time in
advertising or marketing Fund shares, including data from Lipper Analytical
Services, Inc., Wall Street Journal Score Card, Lipper Real Estate Funds
Average, the Consumer Price Index, or other industry publications, business
periodicals, rating services and market indices. The Fund 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 Fund, provides portfolio
recordkeeping services and serves as the Fund's 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 the
Fund 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 an unaudited semiannual financial statement and an annual financial
statement audited by Investment Company's independent accountants. Shareholder
inquiries regarding the Prospectus, financial statements and shareholder
balances may be made by calling Distributor at (800) 647-7327.
Organization, Capitalization and Voting. 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 issues shares divisible into an unlimited number of
series (or funds), each of which is a separate trust under Massachusetts law.
The Real Estate Equity Fund is one such series.
Fund shares represent an equal proportionate interest in the Fund, have
a par value of $.001 per share and are entitled to such relative rights and
preferences and dividends and distributions earned on the assets belonging to
the Fund as may be declared by the Board of Trustees. Fund shares are fully paid
and nonassessable by Investment Company and have no preemptive rights.
Each 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 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 a Trustee may be removed at any time by a vote of
two-thirds of the 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.
Investment Company does not issue share certificates for the Fund.
Transfer Agent sends Fund 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.
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SSgA FUNDS
One International Place
Boston, Massachusetts 02110
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
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<PAGE>
Filed pursuant to Rule 485(b)
File Nos. 33-19229; 811-5430
SSgA FUNDS
One International Place
Boston, Massachusetts 02110
(800) 647-7327
STATEMENT OF ADDITIONAL INFORMATION
MONEY MARKET FUNDS
CLASS A SHARES
December 24, 1997
SSgA Funds ("Investment Company") is a registered open-end investment
company organized as a Massachusetts business trust offering shares of
beneficial interest in separate investment portfolios, including those listed
below, each of which is referred to as a "Fund" (collectively, the "Funds"). In
addition, each series of the Investment Company is diversified as defined under
the Investment Company Act of 1940, as amended (the "1940 Act").
SSgA Money Market Fund ("Money Market Fund")
SSgA US Government Money Market Fund ("Government Money Market Fund")
This Statement of Additional Information supplements or describes in
greater detail the Investment Company and the Funds noted above as contained in
the Funds' Prospectuses relating to Class A shares, dated December 24, 1997.
This Statement is not a Prospectus and should be read in conjunction with the
Funds' Prospectus, which may be obtained by telephoning or writing Investment
Company at the number or address shown above.
1
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TABLE OF CONTENTS
Page
----
Structure and Governance................................................ 3
Organization and Business History.............................. 3
Shareholder Meetings........................................... 4
Controlling Shareholders....................................... 4
Principal Shareholders......................................... 4
Trustees and Officers.......................................... 5
Operation of Investment Company......................................... 6
Service Providers ............................................ 6
Advisor ...................................................... 7
Administrator.................................................. 7
Distributor.................................................... 7
Custodian and Transfer Agent................................... 7
Independent Accountants........................................ 8
Distribution Plan ............................................ 8
Federal Law Affecting State Street............................. 9
Valuation of Fund Shares....................................... 9
Brokerage Practices............................................ 10
Yield and Total Return Quotations.............................. 11
Investments............................................................. 12
Investment Restrictions........................................ 12
Investment Policies............................................ 13
Taxes ............................................................... 17
Financial Statements.................................................... 18
Appendix: Description of Securities Ratings............................ 19
2
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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 Money Market and US Government Money Market Funds are two such
investment portfolios. The Trustees may create additional Funds at any time
without shareholder approval.
As of the date of this Statement of Additional Information, Investment
Company is comprised of the following investment portfolios, each of which
commenced operations on the date set forth opposite the portfolio's name:
SSgA Money Market Fund May 2, 1988
SSgA US Government Money Market Fund March 1, 1991
SSgA Matrix Equity Fund May 4, 1992
SSgA Small Cap Fund July 1, 1992
SSgA Yield Plus Fund November 9, 1992
SSgA S&P 500 Index Fund December 30, 1992
SSgA Growth and Income Fund September 1, 1993
SSgA Intermediate Fund September 1, 1993
SSgA US Treasury Money Market Fund December 1, 1993
SSgA Prime Money Market Fund February 22, 1994
SSgA Emerging Markets Fund March 1, 1994
SSgA Tax Free Money Market Fund December 1, 1994
SSgA Active International Fund March 7, 1995
SSgA Bond Market Fund February 7, 1996
SSgA Life Solutions Balanced Fund June 2, 1997
SSgA Life Solutions Growth Fund June 2, 1997
SSgA Life Solutions Income and Growth Fund June 2, 1997
SSgA Real Estate Equity Fund *
SSgA US Treasury Obligations Fund *
SSgA International Pacific Index Fund *
----------
*As of the date of this Statement of Additional Information, these
portfolios have not commenced operations.
Prospectuses for these investment portfolios may be obtained by calling
Investment Company's distributor, Russell Fund Distributors, Inc., at (800)
647-7327, or at its Internet Web Site at www.ssgafunds.com.
Investment Company is authorized to divide shares of any series into two
or more classes of shares. The shares of each 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 Fund may have
separate voting rights or no voting rights. Each class of shares of a Fund is
entitled to the same rights and privileges as all other classes of that Fund,
except that each class bears the 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 Fund's
portfolio securities. Shares of the Money Market, US Government Money Market and
Tax Free Money Market Funds are divided into Classes A, B and C.
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 Fund, must be approved by the holders of a majority
3
<PAGE>
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 Fund may be held personally
liable for the obligations of a 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 Fund shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The Master Trust Agreement
also provides that the Fund shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the 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 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 November 30, 1997, State Street held beneficially and of
record 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 November 30, 1997, the following
shareholders owned of record 5% or more of the issued and outstanding shares of
Class A of each Fund:
Money Market Fund
[bullet] Lazard Freres & Company LLC, 30 Rockefeller Plaza 57th Floor,
New York, NY 02112--8%.
Government Money Market Fund
[bullet] Government of Singapore, Q5MA, State Street Bank and Trust
Company, One Newport Avenue, North Quincy, MA 02171 -- 6%;
[bullet] Government of Singapore, Q5ME, State Street Bank and Trust
Company, One Newport Avenue, North Quincy, MA 02171 -- 20%;
[bullet] State Street Bank and Trust Company, Newport Office Park, 108
Myrtle Street AH3, North Quincy, MA 02171 -- 13%; and
[bullet] State Street Bank and Trust Company, Newport Office Park, 108
Myrtle Street AH3, North Quincy, MA 02171 -- 9%.
4
<PAGE>
Such shares may be held pursuant to a shareholder servicing arrangement in
omnibus accounts for underlying shareholders.
The Trustees and officers of Investment Company, as a group, own less than
1% of Investment Company's voting securities.
Trustees and Officers. The Board of Trustees is responsible for overseeing
generally the operation of the Funds. The 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 Funds' operations.
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. Investment Company's officers and employees are paid by
Administrator or its affiliates.
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. Trustee, President and Chief Executive Officer, Russell Insurance
Funds. Director, Chief Executive Officer and Chairman of the Board, Russell Fund
Distributors, Inc. Trustee, President and Chief Executive Officer, Frank Russell
Investment Company (investment company); Director, Chief Executive Officer and
Chairman of the Board, Frank Russell Investment Management Company; Director,
Chief Executive Officer and President, Frank Russell Trust Company; Director and
Chairman, Frank Russell Investment Company Public Limited Company; November 1995
to February 1997, Director, Frank Russell Company; Director and Chairman of the
Board, Frank Russell Company (Delaware); Director, Frank Russell Company; March
1989 to June 1993, Director, Frank Russell Company, Director of Frank Russell
Investments (Ireland) Limited; Director and Chairman, Frank Russell Investment
Company Public Limited Company. Until September 1994, Director and President,
The Laurel Funds, Inc. (investment company).
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 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. 350 Park Avenue, 15th Floor,
New York, NY 10022. Partner, Squire, Sanders & Dempsey (law firm). From 1994 to
1997, Partner, Brown, Rudnick, Freed & Gesmer (law firm). From 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. 1990 to 1992, President, Champions Group Resources--Business
Management and Employee Benefits Consulting; 1990, Senior Vice President,
Employee
5
<PAGE>
Benefits Division, Cigna Corporation (providing and insuring group life, health
and disability employee benefit products and services); from 1986 to 1990,
Senior Vice President, EQUICOR-Equitable HCA Corporation (providing and insuring
group life, health and disability employee benefit products and services).
*Bruce D. Taber, Trustee. Born 4/25/43. 26 Round Top Road, Boxford, MA
01921. Consultant, Computer Simulation, General Electric Industrial Control
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. Treasurer and Chief Accounting Officer, Russell
Insurance Funds (investment company); Director of Finance and Operations, Frank
Russell Trust Company; Director, Fund Administration and Operations of Frank
Russell Investment Management Company and Russell Fund Distributors, Inc.;
Treasurer and Chief Accounting Office, Frank Russell Investment Company
(investment company); March 1993 to January 1996, Vice President, Operations,
Funds Management, J.P. Morgan; December 1985 to March 1993, Senior Vice
President, Operations, Frank Russell Investment Company, The Laurel Funds, Inc.
and The Seven Seas Series Fund (investment companies); Director of Operations,
Frank Russell Investment Management Company and Frank Russell Trust Company;
Director, Russell Fund Distributors, Inc.
Total Annual Compensation
Trustee from Investment Company
--------------------------------------------------------
Lynn L. Anderson $0
William L. Marshall $55,500
Steven J. Mastrovich $55,500
Patrick J. Riley $55,500
Richard D. Shirk $55,500
Bruce D. Taber $55,500
Henry W. Todd $55,500
OPERATION OF INVESTMENT COMPANY
Service Providers. Most of the Funds' necessary day-to-day operations are
performed by separate business organizations under contract to Investment
Company. The principal service providers are:
<TABLE>
<S> <C>
Investment Advisor, Custodian
and Transfer Agent: State Street Bank and Trust Company
Administrator: Frank Russell Investment Management Company
6
<PAGE>
Distributor: Russell Fund Distributors, Inc.
Independent Accountants: Coopers & Lybrand L.L.P.
</TABLE>
Advisor. State Street Bank and Trust Company ("State Street" or "Advisor")
serves as the 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 Corporation, a publicly held bank
holding company. State Street's mailing address is 225 Franklin Street, Boston,
MA 02110.
Under the Advisory Agreement, Advisor directs the Funds' investments in
accordance with their investment objectives, policies and limitations. For these
services, the Funds pay a fee to Advisor at the rates stated in the Prospectus.
The Money Market Fund accrued expenses to Advisor of $10,638,528 in fiscal 1997,
$8,559,529 in fiscal 1996 and $6,981,114 in fiscal 1995. The Government Money
Market Fund accrued expenses to Advisor of $2,091,160 in fiscal 1997, $1,546,062
in fiscal 1996 and $970,313 in fiscal 1995.
The Advisory Agreement will continue from year to year provided that a
majority of the Trustees who are not interested persons of the Funds and either
a majority of all Trustees or a majority of the shareholders of each Fund
approve its continuance. The Agreement may be terminated by Advisor or a Fund
without penalty upon sixty days' notice and will terminate automatically upon
its assignment.
Administrator. Frank Russell Investment Management Company
("Administrator") serves as the Funds' administrator, pursuant to an
Administration Agreement dated April 12, 1988. A description of the services
provided under the Administration Agreement and the basis for computing fees for
such services is provided in the Funds' Prospectuses. The Money Market Fund
accrued expenses to Administrator of $1,245,280 in fiscal 1997, $996,454 in
fiscal 1996 and $827,164 in fiscal 1995. The Government Money Market Fund
accrued expenses to Administrator of $244,335 in fiscal 1997, $179,304 in fiscal
1996 and $113,825 in fiscal 1995.
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 Funds 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 any Fund 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, Winston-Salem, New
York City, Toronto, London, Tokyo, Sydney, Paris, Zurich and Auckland, and have
approximately 1,200 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 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 One International Place, Boston,
MA 02110.
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
Custodian services, State Street is paid an annual fee in accordance with the
following: custody services--a fee payable monthly on a pro rata basis, based on
the following percentages of average daily net assets of each 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 domestic Investment 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; 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. For
Transfer and Dividend
7
<PAGE>
Disbursing Agent services, State Street is paid the following annual account
services fees: $9.00 open account fee; $1.50 closed account fee; fund minimum
per portfolio for one to four portfolios--$36,000, five to six
portfolios--$24,000, and over six portfolios $18,000. Portfolio fees are
allocated to each fund based on the average net asset value of each fund and are
billable on a monthly basis at the rate of 1/12 of the annual fee. State Street
will apply a $5.00 fee to each telephone transaction (purchase or redemption),
which is applied against the monthly billing. State Street is reimbursed by each
Fund 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 Funds may, directly or indirectly, bear distribution and shareholder
servicing expenses. The Rule provides that the Funds may pay for such expenses
only pursuant to a plan adopted in accordance with the Rule. Accordingly, the
Funds have adopted a distribution plan (the "Plan") for the Funds' Class A
shares, which is described in the Funds' Prospectus.
The Plan provides that each Fund may spend annually, directly or
indirectly, up to 0.25% of the average net asset value of its Class A shares 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 approval of the holders of Class A shares 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 Funds accrued expenses in the following amounts to Russell Fund
Distributors, Inc., as Distributor, for the fiscal years ended August 31:
1997 1996 1995
---- ---- ----
Money Market Fund $1,580,068 $817,506 $326,928
Government Money
Market Fund 287,158 106,509 87,798
For fiscal 1997, these amounts are reflective of the following individual
payments:
Government
Money Market Money Market
Advertising $ 119,915 $ 28,260
Printing of Prospectuses 51,730 17,464
Compensation to Dealers 226,633 --
Compensation to Sales Personnel 437,479 85,224
Other* 744,311 156,210
---------- --------
$1,580,068 $287,158
========== ========
* Other expenses may include such items as compensation for travel, conferences
and seminars for staff, subscriptions, office charges and professional fees.
8
<PAGE>
Under the Plan, the Funds may also enter into agreements ("Service
Agreements") with financial institutions, which may include Advisor ("Service
Organizations"), to provide shareholder servicing with respect to Fund shares
held by or for the customers of the Service Organizations. Such arrangements are
more fully described in the Funds' Prospectus under "Distribution Services and
Shareholder Servicing."
Similar plans have been adopted for Class B and Class C shares of the
Money Market and Government Money Market Funds. However, annual payments under
these plans are limited to .35% and .60% of the net asset value of the Class B
and Class C shares of the Funds, respectively.
The Funds' Class A shares accrued expenses in the following amounts to
Advisor, under a Service Agreement pursuant to Rule 12b-1, for fiscal year ended
August 31:
1997 1996 1995
---- ---- ----
Money Market Fund $1,551,176 $1,268,824 $1,198,500
Government Money
Market Fund 719,992 241,584 127,241
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 certain 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 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 Fund Shares. Net asset value per share for the Class A shares
of the Government Fund is calculated twice each business day, as of 12:00 noon
Eastern time and as of the close of the regular trading session on the New York
Stock Exchange (currently 4:00 p.m. Eastern time). Net asset value per share for
the Class A Shares of the Money Market Fund is calculated 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 both the Boston Federal Reserve
and the New York Stock Exchange are open for business.
It is the policy of the Funds to use their best efforts to maintain a
constant price per share of $1.00, although there can be no assurance that the
$1.00 net asset value per share will be maintained. In accordance with this
effort and pursuant to Rule 2a-7 under the 1940 Act, the Funds use the amortized
cost valuation method to value their portfolio instruments. 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 a Fund would receive if it sold the instrument.
For example, in periods of declining interest rates, the daily yield on
Fund shares computed by dividing the annualized daily income on each Fund's
portfolio by the net asset value based upon the amortized cost valuation
technique 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 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.
The Trustees have established procedures reasonably designed to stabilize
the Funds' price per share at $1.00. These procedures include: (1) the
determination of the deviation from $1.00, if any, of each Fund's net asset
value using market values; (2) periodic review by the Trustees of the amount of
and the methods used to calculate the deviation; and (3) maintenance of records
of such determination. The Trustees will promptly consider what action, if any,
should be taken if such deviation exceeds 1/2 of one percent.
9
<PAGE>
Brokerage Practices. All portfolio transactions are placed on behalf of
the Funds by Advisor. 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 Funds. 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 Funds and/or Advisor (or its
affiliates). Advisor is authorized to cause the Funds 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 Funds 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 Advisor's performance of its
responsibilities in connection with the placement of portfolio transactions on
behalf of the Funds and review the prices paid by the Funds over representative
periods of time to determine if such prices are reasonable in relation to the
benefits provided to the Funds. Certain services received by Advisor
attributable to a particular Fund transaction may benefit one or more other
accounts for which Advisor exercises investment discretion, or a Fund 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.
During the fiscal year ended August 31, 1997, the 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 the Funds' ten largest
brokers or dealers by dollar amounts of securities executed or commissions
received on behalf of the Funds. The value of broker-dealer securities held as
of August 31, 1997, is as follows:
<TABLE>
<CAPTION>
Government Money Market
Money Market Fund Fund
($000) ($000)
------------------------- -------------------------
<S> <C> <C>
Investment Technology Group, Inc. (a) 0 0
Morgan Stanley & Co. (a) 0 0
Broadcort Capital (a) 0 0
Merrill Lynch, Pierce, Fenner, Inc. 139,575 0
State Street Brokerage Services, Inc. (a) 0 0
Bear, Stearns Securities (a) 0 0
National Financial Services (a) 0 0
Nomura Securities International (a) 0 0
Barclays Dezoete Wedd (a) 0 0
Instinet (a) 0 0
Prebon (b) 0 0
Swiss Bank Corp. (b) 14,998 0
Lumis & Co. (b) 0 0
10
<PAGE>
HSBC Securities (b) 0 0
Goldman Sachs & Co. (b) 0 0
UBS Securities, Inc. (b) 0 0
Aubrey G. Lanston & Co. (b) 0 0
Lehman Brothers Inc. (b) 0 0
Donaldson, Lufkin & Jenrette (b) 0 0
</TABLE>
- ---------------------
(a) Broker commissions only
(b) Broker principal transactions only
Yield and Total Return Quotations. The 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-, five- and ten-year periods (or life of the funds 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-, 5- and 10-year periods
at the end of the year or period
The calculation assumes that all dividends and distributions of each Fund
are reinvested at the price calculated in the manner described 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 current annualized yield of the 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
The following are the current and effective yields for the Funds for the
seven-day period ended August 31, 1997:
Money Market Fund
-----------------
Current Yield 5.25%
Effective Yield 5.39%
Government Fund
---------------
Current Yield 5.19%
Effective Yield 5.33%
11
<PAGE>
The yields quoted are not indicative of future results. Yields will depend
on the type, quality, maturity, and interest rate of money market instruments
held by the Funds.
INVESTMENTS
The fundamental investment objective of each Fund is set forth in its
Prospectus. In addition to that investment objective, each Fund also has certain
"fundamental" investment restrictions, which may be changed only with the
approval of a majority of the shareholders of the Fund, and certain
nonfundamental investment restrictions and policies, which may be changed by the
Funds without shareholder approval.
Investment Restrictions
Each Fund is subject to the following fundamental investment restrictions.
Unless otherwise noted, these restrictions apply on a Fund-by-Fund basis at the
time an investment is made. A Fund will 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 and instrumentalities and non-deposit instruments issued by
European banks). Concentration may occur as a result of changes in the market
value of portfolio securities, but may not result from investment. US banks and
certain domestic branches of foreign banks are not considered a single industry
for purposes of this restriction.
(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 Fund's assets
taken at market value, less liabilities other than borrowings. If at any time a
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 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 Fund may pledge
securities having a market value at the time of the pledge not exceeding 33-1/3%
of the value of the Fund's 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), if immediately after and as a result of such investment the
current market value of the Fund's holdings in the securities of such issuer
exceeds 5% of the value of the Fund's assets.
(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 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 the Fund's total
assets.
(6) Purchase or sell commodities or commodity futures contracts.
(7) Purchase or sell real estate or real estate mortgage loans; provided,
however, that (i) the Government Money Market Fund may purchase or sell
government guaranteed real estate mortgage loans; and (ii) the Funds may invest
in securities secured by real estate or interests therein or issued by companies
which invest in real estate or interests therein.
12
<PAGE>
(8) Engage in the business of underwriting securities issued by others,
except that a Fund 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.
(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.
(12) Purchase from or sell portfolio securities to its officers or
directors or other interested persons (as defined in the 1940 Act) of the Funds,
including their investment advisors and affiliates, except as permitted by the
1940 Act and exemptive rules or orders thereunder.
(13) Invest in securities issued by other investment companies except in
connection with a merger, consolidation, acquisition of assets, or other
reorganization approved by the Funds' shareholders.
(14) Invest in securities of any issuer which, together with its
predecessor, has been in operation for less than three years if, as a result,
more than 5% of the Fund's total assets would be invested in such securities.
(15) 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.
(16) Purchase interests in oil, gas or other mineral exploration or
development programs.
(17) Make investments for the purpose of gaining control of an issuer's
management.
(18) Purchase the securities of any issuer if the Investment Company's
officers, Directors, Advisor or any of their affiliates beneficially own more
than one-half of 1% of the securities of such issuer or together own
beneficially more than 5% of the securities of such issuer.
Investment Policies
Except as otherwise indicated, each Fund may invest in the following
instruments:
US Government Obligations. The types of US Government obligations in which
the Funds may at times invest include: (1) A variety of US Treasury obligations
(including Treasury Inflation-Protection securities, described below), which
differ only in their interest rates, maturities and times of issuance and which,
with respect to the Money Market and Government Money Market Funds, have
remaining maturities or hard put dates of one year or less; 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 Valley Authority, 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 Funds may purchase US Government obligations on a forward commitment
basis.
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Treasury Inflation-Protection Securities. The Fund may invest in
Inflation-Protection Securities ("IPS"), 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.
Repurchase Agreements. The Funds may enter into repurchase agreements with
certain financial institutions. Under repurchase agreements, these parties sell
US Treasury bills, notes and bonds 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 each 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 Funds in being invested fully while retaining
"overnight" flexibility in pursuit of investments of a longer-term nature. The
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 the Advisor.
Reverse Repurchase Agreements. The 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. The Funds
retain 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.
Forward Commitments. Each Fund may contract to purchase securities for a
fixed price at a future date beyond customary settlement time consistent with
the Fund's ability to manage its investment portfolio, maintain a stable net
asset value and meet redemption requests. A Fund 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 Fund of a dollar amount sufficient to make
payment for the portfolio securities to be purchased will be segregated on the
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. 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.
Each Fund will make commitments to purchase when-issued securities only
with the intention of actually acquiring the securities, but a Fund 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 each 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
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securities declines, additional cash or securities will be segregated on the
Fund's records on a daily basis so that the market value of the account will
equal the amount of such commitments by the Fund. No 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
each Fund 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 when interest rates decline and decrease in value
when interest rates rise. Therefore, if in order to achieve higher interest
income a 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 Fund's net asset value.
When payment for when-issued securities is due, each 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 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 (Money Market Fund only). The Money Market
Fund 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 Funds' investment
restriction relating to investments in illiquid securities.
Variable and Floating Rate Securities. The 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 Fund 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 a 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 Securities. 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
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("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
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 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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Zero Coupon Securities. 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.
Because the Funds accrue taxable income from zero coupon securities
without receiving regular interest payments in cash, each 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 Fund.
Investing in these securities might also force the Fund 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.
TAXES
Each Fund intends 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, each Fund will not be liable for federal income
taxes on taxable net investment income and net capital gain (long-term capital
gains in excess of short-term capital losses) that it distributes to its
shareholders, provided that the Fund distributes annually to its shareholders at
least 90% of its net investment income and net short-term capital gain for the
taxable year ("Distribution Requirement"). For a Fund to qualify as a RIC it
must abide by all of the following requirements: (1) at least 90% of the Fund's
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) at the close of each quarter of the Fund's 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 Fund and that does
not represent more than 10% of the outstanding voting securities of such issuer;
and (3) at the close of each quarter of the Fund's 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.
Each Fund 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 its ordinary income for that year; (2) 98% of its
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 Fund subsequent to December 31 but prior to February 1
of the following year.
If a shareholder receives a distribution taxable as a 20% gain or a 28%
gain with respect to shares of a 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 a 20% loss or a 28% loss to the extent
of the respective capital gain distribution.
As of August 31, 1997, the Money Market Fund had a net tax basis capital
loss carryforward of $2,714,108, which may be applied against any realized net
taxable gains of each succeeding year until the expiration date of August 31,
2003.
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State and Local Taxes. Depending upon the extent of each Fund's activities
in states and localities in which its offices are maintained, its agents or
independent contractors are located or it is otherwise deemed to be conducting
business, the Fund 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 Funds and their shareholders. Circumstances among
investors may vary and each investor is encouraged to discuss investment in the
Funds with the investor's tax advisor.
FINANCIAL STATEMENTS
The 1997 fiscal year-end financial statements of Investment Company,
consisting of the Money Market and Government Money Market Funds, including
notes to the financial statements and financial highlights and the Report of
Independent Accountants are included in the Funds' Annual Report to
Shareholders. Copies of these reports accompany this Statement of Additional
Information and are incorporated herein by reference.
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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.
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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.
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:
[bullet] 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:
[bullet] Leading market positions in well-established
industries.
[bullet] High rates of return on funds employed.
[bullet] Conservative capitalization structure with moderate
reliance on debt and ample asset protection.
[bullet] Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
[bullet] Well-established access to a range of financial
markets and assured sources of alternate liquidity.
[bullet] 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.
[bullet] 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.
[bullet] 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.
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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.
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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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Filed pursuant to Rule 485(b)
File Nos. 33-19229; 811-5430
SSgA FUNDS
One International Place
Boston, Massachusetts 02110
(800) 647-7327
STATEMENT OF ADDITIONAL INFORMATION
MONEY MARKET FUNDS
CLASS B SHARES
December 24, 1997
SSgA Funds ("Investment Company") is a registered open-end investment
company organized as a Massachusetts business trust offering shares of
beneficial interest in separate investment portfolios, including those listed
below, each of which is referred to as a "Fund." In addition, each series of the
Investment Company is diversified as defined under the Investment Company Act of
1940, as amended (the "1940 Act").
SSgA Money Market Fund ("Money Market Fund")
SSgA US Government Money Market Fund ("Government Money Market Fund")
This Statement of Additional Information supplements or describes in
greater detail the Investment Company and the Funds noted above as contained in
the Funds' Prospectus for Class B shares dated December 24, 1997. This Statement
is not a Prospectus and should be read in conjunction with the Funds' Prospectus
for Class B shares, which may be obtained by telephoning or writing Investment
Company at the number or address shown above.
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TABLE OF CONTENTS
Page
----
Structure and Governance................................................. 3
Organization and Business History............................... 3
Shareholder Meetings............................................ 4
Controlling Shareholders........................................ 4
Principal Shareholders.......................................... 4
Trustees and Officers........................................... 5
Operation of Investment Company.......................................... 6
Service Providers ............................................. 6
Advisor ....................................................... 7
Administrator................................................... 7
Distributor..................................................... 7
Custodian and Transfer Agent.................................... 7
Independent Accountants......................................... 8
Distribution Plan ............................................. 8
Federal Law Affecting State Street.............................. 9
Valuation of Fund Shares........................................ 9
Brokerage Practices............................................. 10
Yield and Total Return Quotations............................... 11
Investments.............................................................. 12
Investment Restrictions......................................... 12
Investment Policies............................................. 13
Taxes ................................................................ 17
Financial Statements..................................................... 18
Appendix: Description of Securities Ratings............................. 19
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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 Money Market and US Government Money Market Funds are two such
investment portfolios. The Trustees may create additional Funds at any time
without shareholder approval.
As of the date of this Statement of Additional Information, Investment
Company is comprised of the following investment portfolios, each of which
commenced operations on the date set forth opposite the portfolio's name:
SSgA Money Market Fund May 2, 1988
SSgA US Government Money Market Fund March 1, 1991
SSgA Matrix Equity Fund May 4, 1992
SSgA Small Cap Fund July 1, 1992
SSgA Yield Plus Fund November 9, 1992
SSgA S&P 500 Index Fund December 30, 1992
SSgA Growth and Income Fund September 1, 1993
SSgA Intermediate Fund September 1, 1993
SSgA US Treasury Money Market Fund December 1, 1993
SSgA Prime Money Market Fund February 22, 1994
SSgA Emerging Markets Fund March 1, 1994
SSgA Tax Free Money Market Fund December 1, 1994
SSgA Active International Fund March 7, 1995
SSgA Bond Market Fund February 7, 1996
SSgA Life Solutions Balanced Fund June 2, 1997
SSgA Life Solutions Growth Fund June 2, 1997
SSgA Life Solutions Income and Growth Fund June 2, 1997
SSgA Real Estate Equity Fund *
SSgA US Treasury Obligations Fund *
SSgA International Pacific Index Fund *
----------
*As of the date of this Statement of Additional Information, these
portfolios have not commenced operations.
Prospectuses for these investment portfolios may be obtained by calling
Investment Company's distributor, Russell Fund Distributors, Inc., at (800)
647-7327, or at its Internet Web Site at www.ssgafunds.com.
Investment Company is authorized to divide shares of any series into two
or more classes of shares. The shares of each 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 Fund may have
separate voting rights or no voting rights. Each class of shares of a Fund is
entitled to the same rights and privileges as all other classes of that Fund,
except that each class bears the 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 Fund's
portfolio securities. Shares of the Money Market, US Government Money Market and
Tax Free Money Market Funds are divided into Classes A, B and C.
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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 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 Fund may be held personally
liable for the obligations of a 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 Fund shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The Master Trust Agreement
also provides that the Fund shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the 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 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 November 30, 1997, State Street held beneficially and of
record 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 the date of this Statement of Additional
Information, Administrator is the sole shareholder of the issued and outstanding
shares of Class B of each Fund.
The Trustees and officers of Investment Company, as a group, own less than
1% of Investment Company's voting securities.
Trustees and Officers. The Board of Trustees is responsible for overseeing
generally the operation of the Funds. The 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 Funds' operations.
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. Investment Company's officers and employees are paid by
Administrator or its affiliates.
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
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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. Trustee, President and Chief Executive Officer, Russell Insurance Funds
(investment company). Director, Chief Executive Officer and Chairman of the
Board, Russell Fund Distributors, Inc. Trustee, President and Chief Executive
Officer, Frank Russell Investment Company (investment company); Director, Chief
Executive Officer and Chairman of the Board, Frank Russell Investment Management
Company; Director, Chief Executive Officer and President, Frank Russell Trust
Company; Director and Chairman, Frank Russell Investment Company Public Limited
Company; November 1995 to February 1997, Director, Frank Russell Company;
Director and Chairman of the Board, Frank Russell Company (Delaware); Director,
Frank Russell Company; March 1989 to June 1993, Director, Frank Russell Company,
Director of Frank Russell Investments (Ireland) Limited; Director and Chairman,
Frank Russell Investment Company Public Limited Company. Until September 1994,
Director and President, The Laurel Funds, Inc. (investment company).
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 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. 350 Park Avenue, 15th Floor,
New York, NY 10022. Partner, Squire, Sanders & Dempsey (law firm). From 1994 to
1997, Partner, Brown, Rudnick, Freed & Gesmer (law firm). From 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. 1990 to 1992, President, Champions Group Resources--Business
Management and Employee Benefits Consulting; 1990, Senior Vice President,
Employee Benefits Division, Cigna Corporation (providing and insuring group
life, health and disability employee benefit products and services); from 1986
to 1990, Senior Vice President, EQUICOR-Equitable HCA Corporation (providing and
insuring group life, health and disability employee benefit products and
services).
*Bruce D. Taber, Trustee. Born 4/25/43. 26 Round Top Road, Boxford, MA
01921. Consultant, Computer Simulation, General Electric Industrial Control
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.
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George W. Weber, Senior Vice President, Fund Treasurer and Principal
Accounting Officer. Born 6/3/51. Treasurer and Chief Accounting Officer, Russell
Insurance Funds (investment company); Director of Finance and Operations, Frank
Russell Trust Company; Director, Fund Administration and Operations of Frank
Russell Investment Management Company and Russell Fund Distributors, Inc.;
Treasurer and Chief Accounting Office, Frank Russell Investment Company
(investment company); March 1993 to January 1996, Vice President, Operations,
Funds Management, J.P. Morgan; December 1985 to March 1993, Senior Vice
President, Operations, Frank Russell Investment Company, The Laurel Funds, Inc.
and The Seven Seas Series Fund (investment companies); Director of Operations,
Frank Russell Investment Management Company and Frank Russell Trust Company;
Director, Russell Fund Distributors, Inc.
Total Annual Compensation
Trustee from Investment Company
--------------------------------------------------------
Lynn L. Anderson $0
William L. Marshall $55,500
Steven J. Mastrovich $55,500
Patrick J. Riley $55,500
Richard D. Shirk $55,500
Bruce D. Taber $55,500
Henry W. Todd $55,500
OPERATION OF INVESTMENT COMPANY
Service Providers. Most of the Funds' 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.
Advisor. State Street Bank and Trust Company ("State Street" or "Advisor")
serves as the Funds' investment advisor pursuant to an Advisory Agreement dated
April 12, 1988. State Street Bank and Trust Company is a wholly owned subsidiary
of State Street Corporation, a publicly held bank holding company. State
Street's address is 225 Franklin Street, Boston, MA 02110.
Under the Advisory Agreement, Advisor directs the Funds' investments in
accordance with their investment objectives, policies and limitations. For these
services, the Funds pay a fee to Advisor at the rates stated in the Prospectus.
The Money Market Fund accrued expenses to Advisor of $10,638,528 in fiscal 1997,
$8,559,529 in fiscal 1996 and $6,981,114 in fiscal 1995. The Government Money
Market Fund accrued expenses to Advisor of $2,091,160 in fiscal 1997, $1,546,062
in fiscal 1996 and $970,313 in fiscal 1995.
The Advisory Agreement will continue from year to year provided that a
majority of the Trustees who are not interested persons of the Funds and either
a majority of all Trustees or a majority of the shareholders of each Fund
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approve its continuance. The Agreement may be terminated by Advisor or a Fund
without penalty upon sixty days' notice and will terminate automatically upon
its assignment.
Administrator. Frank Russell Investment Management Company
("Administrator") serves as the Funds' administrator, pursuant to an
Administration Agreement dated April 12, 1988. A description of the services
provided under the Administration Agreement and the basis for computing fees for
such services is provided in the Funds' Prospectuses. The Money Market Fund
accrued expenses to Administrator of $1,245,280 in fiscal 1997, $996,454 in
fiscal 1996 and $827,164 in fiscal 1995. The Government Money Market Fund
accrued expenses to Administrator of $244,335 in fiscal 1997, $179,304 in fiscal
1996 and $113,825 in fiscal 1995.
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 Funds 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 any Fund 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, Winston-Salem, New
York City, Toronto, London, Tokyo, Sydney, Paris, Zurich and Auckland, and have
approximately 1,200 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 Fund shares pursuant to a Distribution Agreement dated April 12,
1988. Distributor is a wholly owned subsidiary of Administrator. Distributor's
mailing address is One International Place, Boston, MA 02110.
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
Custodian services, State Street is paid an annual fee in accordance with the
following: custody services--a fee payable monthly on a pro rata basis, based on
the following percentages of average daily net assets of each 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 domestic Investment 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; 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. For
Transfer and Dividend Disbursing Agent services, State Street is paid the
following annual account services fees: $9.00 open account fee; $1.50 closed
account fee; fund minimum per portfolio for one to four portfolios--$36,000,
five to six portfolios--$24,000, and over six portfolios $18,000. Portfolio fees
are allocated to each fund based on the average net asset value of each fund and
are billable on a monthly basis at the rate of 1/12 of the annual fee. State
Street will apply a $5.00 fee to each telephone transaction (purchase or
redemption), which is applied against the monthly billing. State Street is
reimbursed by each Fund 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 Funds may, directly or indirectly, bear distribution and
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shareholder servicing expenses. The Rule provides that the Funds may pay for
such expenses only pursuant to a plan adopted in accordance with the Rule.
Accordingly, the Funds have adopted a distribution plan (the "Plan") for the
Funds' Class B shares, which is described in the Funds' Prospectus.
The Plan provides that each Fund may spend annually, directly or
indirectly, up to 0.35% of the average net asset value of its Class B shares 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 approval of the holders of Class B shares 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 Funds accrued expenses in the following amounts to Russell Fund
Distributors, Inc., as Distributor, for the fiscal years ended August 31:
1997 1996 1995
---- ---- ----
Money Market Fund $1,580,068 $817,506 $326,928
Government Money
Market Fund 287,158 106,509 87,798
For fiscal 1997, these amounts are reflective of the following individual
payments:
Government
Money Market Money Market
------------ ------------
Advertising $ 119,915 $ 28,260
Printing of Prospectuses 51,730 17,464
Compensation to Dealers 226,633 --
Compensation to Sales Personnel 437,479 85,224
Other* 744,311 156,210
---------- --------
$1,580,068 $287,158
========== ========
* 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 Funds may also enter into agreements ("Service
Agreements") with financial institutions, which may include Advisor ("Service
Organizations"), to provide distribution and shareholder servicing services with
respect to Fund shares held by or for the customers of the Service
Organizations. Such arrangements are more fully described in the Funds'
Prospectus under "Distribution Services and Shareholder Servicing Arrangements."
Similar plans have been adopted for the Funds' Class A and Class C shares.
However, annual payments under these plans are limited to .25% and .60% of the
net asset value of the Class A and Class C shares of the Funds, respectively.
The Funds accrued expenses in the following amounts to Advisor, under a
Service Agreement pursuant to Rule 12b-1, for fiscal year ended August 31:
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1997 1996 1995
---- ---- ----
Money Market Fund $1,551,176 $1,268,824 $1,198,500
Government Money
Market Fund 719,992 241,584 127,241
The Funds commenced offering Class B shares on the date of this Statement
of Additional Information. The foregoing expenses were incurred with respect to
what are now classified as Class A shares.
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 certain 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 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 Fund Shares. Net asset value per share for the Class B shares
of the Government Fund is calculated twice each business day, as of 12:00 noon
Eastern time and as of the close of the regular trading session on the New York
Stock Exchange (currently 4:00 p.m. Eastern time). Net asset value per share for
the Class B Shares of the Money Market Fund is calculated 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 both the Boston Federal Reserve
and the New York Stock Exchange are open for business.
It is the policy of the Funds to use their best efforts to maintain a
constant price per share of $1.00, although there can be no assurance that the
$1.00 net asset value per share will be maintained. In accordance with this
effort and pursuant to Rule 2a-7 under the 1940 Act, the Funds use the amortized
cost valuation method to value their portfolio instruments. 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 a Fund would receive if it sold the instrument.
For example, in periods of declining interest rates, the daily yield on
Fund shares computed by dividing the annualized daily income on each Fund's
portfolio by the net asset value based upon the amortized cost valuation
technique 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 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.
The Trustees have established procedures reasonably designed to stabilize
the Funds' price per share at $1.00. These procedures include: (1) the
determination of the deviation from $1.00, if any, of each Fund's net asset
value using market values; (2) periodic review by the Trustees of the amount of
and the methods used to calculate the deviation; and (3) maintenance of records
of such determination. The Trustees will promptly consider what action, if any,
should be taken if such deviation exceeds 1/2 of one percent.
Brokerage Practices. All portfolio transactions are placed on behalf of
the Funds by Advisor. There is generally no stated commission in 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 on 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
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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 Funds. 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 Funds and/or Advisor (or its
affiliates). Advisor is authorized to cause the Funds 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 Funds 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 Advisor's performance of its
responsibilities in connection with the placement of portfolio transactions on
behalf of the Funds and review the prices paid by the Funds over representative
periods of time to determine if such prices are reasonable in relation to the
benefits provided to the Funds. Certain services received by Advisor
attributable to a particular Fund transaction may benefit one or more other
accounts for which Advisor exercises investment discretion, or a Fund 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.
During the fiscal year ended August 31, 1997, the 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 the Funds' ten largest
brokers or dealers by dollar amounts of securities executed or commissions
received on behalf of the Funds. The value of broker-dealer securities held as
of August 31, 1997, is as follows:
<TABLE>
<CAPTION>
Government Money Market
Money Market Fund Fund
($000) ($000)
------------------------------- ---------------------------
<S> <C> <C>
Investment Technology Group, Inc. (a) 0 0
Morgan Stanley & Co. (a) 0 0
Broadcort Capital (a) 0 0
Merrill Lynch, Pierce, Fenner, Inc. 139,575 0
State Street Brokerage Services, Inc. (a) 0 0
Bear, Stearns Securities (a) 0 0
National Financial Services (a) 0 0
Nomura Securities International (a) 0 0
Barclays Dezoete Wedd (a) 0 0
Instinet (a) 0 0
Prebon (b) 0 0
Swiss Bank Corp. (b) 14,998 0
Lumis & Co. (b) 0 0
HSBC Securities (b) 0 0
Goldman Sachs & Co. (b) 0 0
UBS Securities, Inc. (b) 0 0
Aubrey G. Lanston & Co. (b) 0 0
Lehman Brothers Inc. (b) 0 0
Donaldson, Lufkin & Jenrette (b) 0 0
</TABLE>
- ---------------------
(a) Broker commissions only
(b) Broker principal transactions only
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Yield and Total Return Quotations. The 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, five and ten year periods (or life of the funds 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-, 5- and 10-year periods
at the end of the year or period.
The calculation assumes that all dividends and distributions of each Fund
are reinvested at the price calculated in the manner described in the Prospectus
on the dividend dates during the period, and includes all recurring and
nonrecurring fees that are charged to all shareholder accounts.
Total returns and other performance figures are based on historical
earnings and are not indicative of future performance.
The current annualized yield of the 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
The following are the current and effective yields for the Funds for the
seven-day period ended August 31, 1997:
Money Market Fund
-----------------
Current Yield 5.25%
Effective Yield 5.39%
Government Fund
---------------
Current Yield 5.19%
Effective Yield 5.33%
The above yields relate to a period prior to the division of Fund shares
into multiple classes and do not reflect the distribution and shareholder
servicing expenses of Class B shares. Had such expenses been incurred, the
yields would have been approximately .25% lower.
The yields quoted are not indicative of future results. Yields will depend
on the type, quality, maturity, and interest rate of money market instruments
held by the Funds.
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INVESTMENTS
The fundamental investment objective of each Fund is set forth in its
Prospectus. In addition to that investment objective, each Fund also has certain
"fundamental" investment restrictions, which may be changed only with the
approval of a majority of the shareholders of the Fund, and certain
nonfundamental investment restrictions and policies, which may be changed by the
Funds without shareholder approval.
Investment Restrictions
Each Fund is subject to the following fundamental investment restrictions.
Unless otherwise noted, these restrictions apply on a Fund-by-Fund basis at the
time an investment is made. A Fund will 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 and instrumentalities and non-depository instruments issued by
European banks). Concentration may occur as a result of changes in the market
value of portfolio securities, but may not result from investment. US banks and
certain domestic branches of foreign banks are not considered a single industry
for purposes of this restriction.
(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 Fund's assets
taken at market value, less liabilities other than borrowings. If at any time a
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 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 Fund may pledge
securities having a market value at the time of the pledge not exceeding 33-1/3%
of the value of the Fund's 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), if immediately after and as a result of such investment the
current market value of the Fund's holdings in the securities of such issuer
exceeds 5% of the value of the Fund's assets.
(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 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 the Fund's total
assets.
(6) Purchase or sell commodities or commodity futures contracts.
(7) Purchase or sell real estate or real estate mortgage loans; provided,
however, that (i) the Government Money Market Fund may purchase or sell
government guaranteed real estate mortgage loans; and (ii) the 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 a Fund 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.
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(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.
(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.
(12) Purchase from or sell portfolio securities to its officers or
directors or other interested persons (as defined in the 1940 Act) of the Funds,
including their investment advisors and affiliates, except as permitted by the
1940 Act and exemptive rules or orders thereunder.
(13) Invest in securities issued by other investment companies except in
connection with a merger, consolidation, acquisition of assets, or other
reorganization approved by the Funds' shareholders.
(14) Invest in securities of any issuer which, together with its
predecessor, has been in operation for less than three years if, as a result,
more than 5% of the Fund's total assets would be invested in such securities.
(15) 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.
(16) Purchase interests in oil, gas or other mineral exploration or
development programs.
(17) Make investments for the purpose of gaining control of an issuer's
management.
(18) Purchase the securities of any issuer if the Investment Company's
officers, Directors, Advisor or any of their affiliates beneficially own more
than one-half of 1% of the securities of such issuer or together own
beneficially more than 5% of the securities of such issuer.
Investment Policies
Except as otherwise indicated, each Fund may invest in the following
instruments:
US Government Obligations. The types of US Government obligations in which
the Funds may at times invest include: (1) A variety of US Treasury obligations
(including Treasury Inflation-Protection Securities, described below), which
differ only in their interest rates, maturities and times of issuance and which,
with respect to the Money Market and Government Money Market Funds, have
remaining maturities or hard put dates of one year or less; 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 Valley Authority, 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 Funds may purchase US Government obligations on a forward commitment
basis.
Treasury Inflation-Protection Securities. The Fund may invest in
Inflation-Protection Securities ("IPS"), 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
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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.
Repurchase Agreements. The Funds may enter into repurchase agreements with
certain financial institutions. Under repurchase agreements, these parties sell
US Treasury bills, notes and bonds 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 each 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 Funds in being invested fully while retaining
"overnight" flexibility in pursuit of investments of a longer-term nature. The
Funds will limit repurchase transactions to those member banks of the Federal
Reserve System and broker-dealers whose creditworthiness is found satisfactory
by Advisor.
Reverse Repurchase Agreements. The 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 banks 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. The Funds retain 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.
Forward Commitments. Each Fund may contract to purchase securities for a
fixed price at a future date beyond customary settlement time consistent with
the Fund's ability to manage its investment portfolio, maintain a stable net
asset value and meet redemption requests. A Fund 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 Fund of a dollar amount sufficient to make
payment for the portfolio securities to be purchased will be segregated on the
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. 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.
Each Fund will make commitments to purchase when-issued securities only
with the intention of actually acquiring the securities, but a Fund 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 each 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 Fund's records on a daily basis so that the market value of
the account will equal the amount of such commitments by the Fund. No fund will
invest more than 25% of its net assets in when-issued securities.
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Securities purchased on a when-issued basis and the securities held by
each Fund 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 when interest rates decline and decrease in value
when interest rates rise. Therefore, if in order to achieve higher interest
income a 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 Fund's net asset value.
When payment for when-issued securities is due, each 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 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 (Money Market Fund only). The Money Market
Fund 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 Fund's investment
restriction relating to investments in illiquid securities.
Variable and Floating Rate Securities. The 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 Fund 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 the 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 Securities. 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 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.
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(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 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.
Zero Coupon Securities. 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 above Funds accrue taxable income from zero coupon securities
without receiving regular interest payments in cash, each 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 Fund.
Investing in these securities might also force the Fund 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.
TAXES
Each Fund intends 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, each Fund 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 Fund distributes annually to its shareholders at least 90% of
its net investment income and net short-term capital gain for the taxable year
("Distribution Requirement"). For a Fund to qualify as a RIC it must abide by
all of the following requirements: (1) at least 90% of the Fund's 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 Fund's 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
Fund's 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 Fund 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 Fund's
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.
Each Fund 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 its ordinary income for that year; (2) 98% of its
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 Fund subsequent to December 31 but prior to February 1
of the following year.
If a shareholder receives a distribution taxable as a 20% gain or a 28%
gain with respect to shares of a 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 a 20% loss or a 28% loss to the extent
of the respective capital gain distribution.
As of August 31, 1996, the Money Market Fund and the Government Money
Market Fund had a net tax basis capital loss carryforward of $3,411,808 and
$37,963, respectively, which may be applied against any realized net taxable
gains of each succeeding year until the expiration date of August 31, 2003.
State and Local Taxes. Depending upon the extent of each Fund's activities
in states and localities in which its offices are maintained, its agents or
independent contractors are located or it is otherwise deemed to be conducting
business, the Fund may be subject to the tax laws of such states or localities.
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The foregoing discussion is only a summary of certain federal income tax
issues generally affecting the Funds and their shareholders. Circumstances among
investors may vary and each investor is encouraged to discuss investment in the
Funds with the investor's tax advisor.
FINANCIAL STATEMENTS
The 1997 fiscal year-end financial statements of Investment Company,
consisting of the Money Market and Government Money Market Funds, including
notes to the financial statements and financial highlights and the Report of
Independent Accountants are included in the Funds' Annual Report to
Shareholders. Copies of these reports accompany this Statement of Additional
Information and are incorporated herein by reference.
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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.
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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.
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:
[bullet] 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:
[bullet] Leading market positions in well-established
industries.
[bullet] High rates of return on funds employed.
[bullet] Conservative capitalization structure with moderate
reliance on debt and ample asset protection.
[bullet] Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
[bullet] Well-established access to a range of financial
markets and assured sources of alternate liquidity.
[bullet] 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.
[bullet] 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.
[bullet] 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.
20
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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.
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
21
<PAGE>
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.
22
<PAGE>
Filed pursuant to Rule 485(b)
File Nos. 33-19229; 811-5430
SSgA FUNDS
One International Place
Boston, Massachusetts 02110
(800) 647-7327
STATEMENT OF ADDITIONAL INFORMATION
MONEY MARKET FUNDS
CLASS C SHARES
December 24, 1997
SSgA Funds ("Investment Company") is a registered open-end investment
company organized as a Massachusetts business trust offering shares of
beneficial interest in separate investment portfolios, including those listed
below, each of which is referred to as a "Fund." In addition, each series of the
Investment Company is diversified as defined under the Investment Company Act of
1940, as amended (the "1940 Act").
SSgA Money Market Fund ("Money Market Fund")
SSgA US Government Money Market Fund ("Government Money Market Fund")
This Statement of Additional Information supplements or describes in
greater detail the Investment Company and the Funds noted above as contained in
the Funds' Prospectus for Class C shares dated December 24, 1997. This Statement
is not a Prospectus and should be read in conjunction with the Funds' Prospectus
for Class C shares, which may be obtained by telephoning or writing Investment
Company at the number or address shown above.
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TABLE OF CONTENTS
Page
----
Structure and Governance.................................................. 3
Organization and Business History................................ 3
Shareholder Meetings............................................. 4
Controlling Shareholders......................................... 4
Principal Shareholders........................................... 4
Trustees and Officers............................................ 5
Operation of Investment Company........................................... 6
Service Providers................................................ 6
Advisor ........................................................ 7
Administrator.................................................... 7
Distributor...................................................... 7
Custodian and Transfer Agent..................................... 7
Independent Accountants.......................................... 8
Distribution Plan .............................................. 8
Federal Law Affecting State Street............................... 9
Valuation of Fund Shares......................................... 9
Brokerage Practices.............................................. 10
Yield and Total Return Quotations................................ 11
Investments............................................................... 12
Investment Restrictions.......................................... 12
Investment Policies.............................................. 13
Taxes ................................................................. 17
Financial Statements...................................................... 18
Appendix: Description of Securities Ratings.............................. 19
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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 Money Market and US Government Money Market Funds are two such
investment portfolios. The Trustees may create additional Funds at any time
without shareholder approval.
As of the date of this Statement of Additional Information, Investment
Company is comprised of the following investment portfolios, each of which
commenced operations on the date set forth opposite the portfolio's name:
SSgA Money Market Fund May 2, 1988
SSgA US Government Money Market Fund March 1, 1991
SSgA Matrix Equity Fund May 4, 1992
SSgA Small Cap Fund July 1, 1992
SSgA Yield Plus Fund November 9, 1992
SSgA S&P 500 Index Fund December 30, 1992
SSgA Growth and Income Fund September 1, 1993
SSgA Intermediate Fund September 1, 1993
SSgA US Treasury Money Market Fund December 1, 1993
SSgA Prime Money Market Fund February 22, 1994
SSgA Emerging Markets Fund March 1, 1994
SSgA Tax Free Money Market Fund December 1, 1994
SSgA Active International Fund March 7, 1995
SSgA Bond Market Fund February 7, 1996
SSgA Life Solutions Balanced Fund June 2, 1997
SSgA Life Solutions Growth Fund June 2, 1997
SSgA Life Solutions Income and Growth Fund June 2, 1997
SSgA Real Estate Equity Fund *
SSgA US Treasury Obligations Fund *
SSgA International Pacific Index Fund *
----------
*As of the date of this Statement of Additional Information, these
portfolios have not commenced operations.
Prospectuses for these investment portfolios may be obtained by calling
Investment Company's distributor, Russell Fund Distributors, Inc., at (800)
647-7327, or at its Internet Web Site at www.ssgafunds.com.
Investment Company is authorized to divide shares of any series into two
or more classes of shares. The shares of each 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 Fund may have
separate voting rights or no voting rights. Each class of shares of a Fund is
entitled to the same rights and privileges as all other classes of that Fund,
except that each class bears the 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 Fund's
portfolio securities. Shares of the Money Market, US Government Money Market and
Tax Free Money Market Funds are divided into Classes A, B and C.
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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 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 Fund may be held personally
liable for the obligations of a 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 Fund shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The Master Trust Agreement
also provides that the Fund shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the 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 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 November 30, 1997, State Street held beneficially and of
record 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 the date of this Statement of Additional
Information, Administrator is the sole shareholder of the issued and outstanding
shares of Class C of each Fund.
The Trustees and officers of Investment Company, as a group, own less than
1% of Investment Company's voting securities.
Trustees and Officers. The Board of Trustees is responsible for overseeing
generally the operation of the Funds. The 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 Funds' operations.
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. Investment Company's officers and employees are paid by
Administrator or its affiliates.
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
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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. Trustee, President and Chief Executive Officer, Russell Insurance Funds
(investment company). Director, Chief Executive Officer and Chairman of the
Board, Russell Fund Distributors, Inc. Trustee, President and Chief Executive
Officer, Frank Russell Investment Company (investment company); Director, Chief
Executive Officer and Chairman of the Board, Frank Russell Investment Management
Company; Director, Chief Executive Officer and President, Frank Russell Trust
Company; Director and Chairman, Frank Russell Investment Company Public Limited
Company; November 1995 to February 1997, Director, Frank Russell Company;
Director and Chairman of the Board, Frank Russell Company (Delaware); Director,
Frank Russell Company; March 1989 to June 1993, Director, Frank Russell Company,
Director of Frank Russell Investments (Ireland) Limited; Director and Chairman,
Frank Russell Investment Company Public Limited Company. Until September 1994,
Director and President, The Laurel Funds, Inc. (investment company).
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 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. 350 Park Avenue, 15th Floor,
New York, NY 10022. Partner, Squire, Sanders & Dempsey (law firm). From 1994 to
1997, Partner, Brown, Rudnick, Freed & Gesmer (law firm). From 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. 1990 to 1992, President, Champions Group Resources--Business
Management and Employee Benefits Consulting; 1990, Senior Vice President,
Employee Benefits Division, Cigna Corporation (providing and insuring group
life, health and disability employee benefit products and services); from 1986
to 1990, Senior Vice President, EQUICOR-Equitable HCA Corporation (providing and
insuring group life, health and disability employee benefit products and
services).
*Bruce D. Taber, Trustee. Born 4/25/43. 26 Round Top Road, Boxford, MA
01921. Consultant, Computer Simulation, General Electric Industrial Control
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.
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George W. Weber, Senior Vice President, Fund Treasurer and Principal
Accounting Officer. Born 6/3/51. Treasurer and Chief Accounting Officer, Russell
Insurance Funds (investment company); Director of Finance and Operations, Frank
Russell Trust Company; Director, Fund Administration and Operations of Frank
Russell Investment Management Company and Russell Fund Distributors, Inc.;
Treasurer and Chief Accounting Office, Frank Russell Investment Company
(investment company); March 1993 to January 1996, Vice President, Operations,
Funds Management, J.P. Morgan; December 1985 to March 1993, Senior Vice
President, Operations, Frank Russell Investment Company, The Laurel Funds, Inc.
and The Seven Seas Series Fund (investment companies); Director of Operations,
Frank Russell Investment Management Company and Frank Russell Trust Company;
Director, Russell Fund Distributors, Inc.
Total Annual Compensation
Trustee from Investment Company
--------------------------------------------------------
Lynn L. Anderson $0
William L. Marshall $55,500
Steven J. Mastrovich $55,500
Patrick J. Riley $55,500
Richard D. Shirk $55,500
Bruce D. Taber $55,500
Henry W. Todd $55,500
OPERATION OF INVESTMENT COMPANY
Service Providers. Most of the Funds' 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.
Advisor. State Street Bank and Trust Company ("State Street" or "Advisor")
serves as the Funds' investment advisor pursuant to an Advisory Agreement dated
April 12, 1988. State Street Bank and Trust Company is a wholly owned subsidiary
of State Street Corporation, a publicly held bank holding company. State
Street's address is 225 Franklin Street, Boston, MA 02110.
Under the Advisory Agreement, Advisor directs the Funds' investments in
accordance with their investment objectives, policies and limitations. For these
services, the Funds pay a fee to Advisor at the rates stated in the Prospectus.
The Money Market Fund accrued expenses to Advisor of $10,638,528 in fiscal 1997,
$8,559,529 in fiscal 1996 and $6,981,114 in fiscal 1995. The Government Money
Market Fund accrued expenses to Advisor of $2,091,160 in fiscal 1997, $1,546,062
in fiscal 1996 and $970,313 in fiscal 1995.
The Advisory Agreement will continue from year to year provided that a
majority of the Trustees who are not interested persons of the Funds and either
a majority of all Trustees or a majority of the shareholders of each Fund
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approve its continuance. The Agreement may be terminated by Advisor or a Fund
without penalty upon sixty days' notice and will terminate automatically upon
its assignment.
Administrator. Frank Russell Investment Management Company
("Administrator") serves as the Funds' administrator, pursuant to an
Administration Agreement dated April 12, 1988. A description of the services
provided under the Administration Agreement and the basis for computing fees for
such services is provided in the Funds' Prospectuses. The Money Market Fund
accrued expenses to Administrator of $1,245,280 in fiscal 1997, $996,454 in
fiscal 1996 and $827,164 in fiscal 1995. The Government Money Market Fund
accrued expenses to Administrator of $244,335 in fiscal 1997, $179,304 in fiscal
1996 and $113,825 in fiscal 1995.
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 Funds 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 any Fund 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, Winston-Salem, New
York City, Toronto, London, Tokyo, Sydney, Paris, Zurich and Auckland, and have
approximately 1,200 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 Fund shares pursuant to a Distribution Agreement dated April 12,
1988. Distributor is a wholly owned subsidiary of Administrator. Distributor's
mailing address is One International Place, Boston, MA 02110.
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
Custodoian services, State Street is paid an annual fee in accordance with the
following: custody services--a fee payable monthly on a pro rata basis, based on
the following percentages of average daily net assets of each 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 domestic Investment 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. For
Transfer and Dividend Disbursing Agent services, State Street is paid the
following annual account services fees: $9.00 open account fee; $1.50 closed
account fee; fund minimum per portfolio for one to four portfolios--$36,000,
five to six portfolios--$24,000, and over six portfolios $18,000. Portfolio fees
are allocated to each fund based on the average net asset value of each fund and
are billable on a monthly basis at the rate of 1/12 of the annual fee. State
Street will apply a $5.00 fee to each telephone transaction (purchase or
redemption), which is applied against the monthly billing. State Street is
reimbursed by each Fund 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.
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Distribution Plan. Under the 1940 Act, the Securities and Exchange
Commission has adopted Rule 12b-1, which regulates the circumstances under which
the Funds may, directly or indirectly, bear distribution and shareholder
servicing expenses. The Rule provides that the Funds may pay for such expenses
only pursuant to a plan adopted in accordance with the Rule. Accordingly, the
Funds have adopted a distribution plan (the "Plan") for the Funds' Class C
shares, which is described in the Funds' Prospectus.
The Plan provides that each Fund may spend annually, directly or
indirectly, up to 0.60% of the average net asset value of its Class C shares 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 approval of the holders of Class C shares 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 Funds accrued expenses in the following amounts to Russell Fund
Distributors, Inc., as Distributor, for the fiscal years ended August 31:
1997 1996 1995
---- ---- ----
Money Market Fund $1,580,068 $817,506 $326,928
Government Money
Market Fund 287,158 106,509 87,798
For fiscal 1997, these amounts are reflective of the following individual
payments:
Government
Money Market Money Market
------------ ------------
Advertising $ 119,915 $ 28,260
Printing of Prospectuses 51,730 17,464
Compensation to Dealers 226,633 --
Compensation to Sales Personnel 437,479 85,224
Other* 744,311 156,210
---------- --------
$1,580,068 $287,158
========== ========
* 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 Funds may also enter into agreements ("Service
Agreements") with financial institutions, which may include Advisor ("Service
Organizations"), to provide distribution and shareholder servicing services with
respect to Fund shares held by or for the customers of the Service
Organizations. Such arrangements are more fully described in the Funds'
Prospectus under "Distribution Services and Shareholder Servicing Arrangements."
Similar plans have been adopted for the Funds' Class A and Class B shares.
However, annual payments under these plans are limited to .25% and .35% of the
net asset value of the Class A and Class B shares of the Funds, respectively.
The Funds accrued expenses in the following amounts to Advisor, under a
Service Agreement pursuant to Rule 12b-1, for fiscal year ended August 31:
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1997 1996 1995
---- ---- ----
Money Market Fund $1,551,176 $1,268,824 $1,198,500
Government Money
Market Fund 719,992 241,584 127,241
The Funds commenced offering Class C shares on the date of this Statement
of Additional Information. The foregoing expenses were incurred with respect to
what are now classified as Class A shares.
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 certain 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 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 Fund Shares. Net asset value per share for the Class C shares
of the Government Fund is calculated twice each business day, as of 12:00 noon
Eastern time and as of the close of the regular trading session on the New York
Stock Exchange (currently 4:00 p.m. Eastern time). Net asset value per share for
the Class C shares of the Money Market Fund is calculated as of the close of the
regular trading session in the New York Stock Exchange (currently 4:00 p.m.
Eastern time) A business day is one on which both the Boston Federal Reserve and
the New York Stock Exchange are open for business.
It is the policy of the Funds to use their best efforts to maintain a
constant price per share of $1.00, although there can be no assurance that the
$1.00 net asset value per share will be maintained. In accordance with this
effort and pursuant to Rule 2a-7 under the 1940 Act, the Funds use the amortized
cost valuation method to value their portfolio instruments. 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 a Fund would receive if it sold the instrument.
For example, in periods of declining interest rates, the daily yield on
Fund shares computed by dividing the annualized daily income on each Fund's
portfolio by the net asset value based upon the amortized cost valuation
technique 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 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.
The Trustees have established procedures reasonably designed to stabilize
the Funds' price per share at $1.00. These procedures include: (1) the
determination of the deviation from $1.00, if any, of each Fund's net asset
value using market values; (2) periodic review by the Trustees of the amount of
and the methods used to calculate the deviation; and (3) maintenance of records
of such determination. The Trustees will promptly consider what action, if any,
should be taken if such deviation exceeds 1/2 of one percent.
Brokerage Practices. All portfolio transactions are placed on behalf of
the Funds by Advisor. 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
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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 Funds. 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 Funds and/or Advisor (or its
affiliates). Advisor is authorized to cause the Funds 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 Funds 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 Advisor's performance of its
responsibilities in connection with the placement of portfolio transactions on
behalf of the Funds and review the prices paid by the Funds over representative
periods of time to determine if such prices are reasonable in relation to the
benefits provided to the Funds. Certain services received by Advisor
attributable to a particular Fund transaction may benefit one or more other
accounts for which Advisor exercises investment discretion, or a Fund 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.
During the fiscal year ended August 31, 1997, the 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 the Funds' ten largest
brokers or dealers by dollar amounts of securities executed or commissions
received on behalf of the Funds. The value of broker-dealer securities held as
of August 31, 1997, is as follows:
<TABLE>
<CAPTION>
Government Money Market
Money Market Fund Fund
($000) ($000)
------------------------------- ---------------------------
<S> <C> <C>
Investment Technology Group, Inc. (a) 0 0
Morgan Stanley & Co. (a) 0 0
Broadcort Capital (a) 0 0
Merrill Lynch, Pierce, Fenner, Inc. 139,575 0
State Street Brokerage Services, Inc. (a) 0 0
Bear, Stearns Securities (a) 0 0
National Financial Services (a) 0 0
Nomura Securities International (a) 0 0
Barclays Dezoete Wedd (a) 0 0
Instinet (a) 0 0
Prebon (b) 0 0
Swiss Bank Corp. (b) 14,998 0
Lumis & Co. (b) 0 0
HSBC Securities (b) 0 0
Goldman Sachs & Co. (b) 0 0
UBS Securities, Inc. (b) 0 0
Aubrey G. Lanston & Co. (b) 0 0
Lehman Brothers Inc. (b) 0 0
Donaldson, Lufkin & Jenrette (b) 0 0
</TABLE>
- ---------------------
(a) Broker commissions only
(b) Broker principal transactions only
-10-
<PAGE>
Yield and Total Return Quotations. The 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, five and ten year periods (or life of the funds 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-, 5- and 10-year periods
at the end of the year or period.
The calculation assumes that all dividends and distributions of each Fund
are reinvested at the price calculated in the manner described in the Prospectus
on the dividend dates during the period, and includes all recurring and
nonrecurring fees that are charged to all shareholder accounts.
Total returns and other performance figures are based on historical
earnings and are not indicative of future performance.
The current annualized yield of the 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
The following are the current and effective yields for the Funds for the
seven-day period ended August 31, 1997:
Money Market Fund
-----------------
Current Yield 5.25%
Effective Yield 5.39%
Government Fund
---------------
Current Yield 5.19%
Effective Yield 5.33%
The above yields relate to a period prior to the division of Fund shares
into multiple classes and do not reflect the distribution and shareholder
servicing expenses of Class C shares. Had such expenses been incurred, the
yields would have been approximately .50% lower.
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<PAGE>
The yields quoted are not indicative of future results. Yields will depend
on the type, quality, maturity, and interest rate of money market instruments
held by the Funds.
INVESTMENTS
The fundamental investment objective of each Fund is set forth in its
Prospectus. In addition to that investment objective, each Fund also has certain
"fundamental" investment restrictions, which may be changed only with the
approval of a majority of the shareholders of the Fund, and certain
nonfundamental investment restrictions and policies, which may be changed by the
Funds without shareholder approval.
Investment Restrictions
Each Fund is subject to the following fundamental investment restrictions.
Unless otherwise noted, these restrictions apply on a Fund-by-Fund basis at the
time an investment is made. A Fund will 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 and instrumentalities and non-depository instruments issued by
European banks). Concentration may occur as a result of changes in the market
value of portfolio securities, but may not result from investment. US banks and
certain domestic branches of foreign banks are not considered a single industry
for purposes of this restriction.
(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 Fund's assets
taken at market value, less liabilities other than borrowings. If at any time a
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 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 Fund may pledge
securities having a market value at the time of the pledge not exceeding 33-1/3%
of the value of the Fund's 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), if immediately after and as a result of such investment the
current market value of the Fund's holdings in the securities of such issuer
exceeds 5% of the value of the Fund's assets.
(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 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 the Fund's total
assets.
(6) Purchase or sell commodities or commodity futures contracts.
(7) Purchase or sell real estate or real estate mortgage loans; provided,
however, that (i) the Government Money Market Fund may purchase or sell
government guaranteed real estate mortgage loans; and (ii) the Funds may invest
in securities secured by real estate or interests therein or issued by companies
which invest in real estate or interests therein.
-12-
<PAGE>
(8) Engage in the business of underwriting securities issued by others,
except that a Fund 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.
(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.
(12) Purchase from or sell portfolio securities to its officers or
directors or other interested persons (as defined in the 1940 Act) of the Funds,
including their investment advisors and affiliates, except as permitted by the
1940 Act and exemptive rules or orders thereunder.
(13) Invest in securities issued by other investment companies except in
connection with a merger, consolidation, acquisition of assets, or other
reorganization approved by the Funds' shareholders.
(14) Invest in securities of any issuer which, together with its
predecessor, has been in operation for less than three years if, as a result,
more than 5% of the Fund's total assets would be invested in such securities.
(15) 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.
(16) Purchase interests in oil, gas or other mineral exploration or
development programs.
(17) Make investments for the purpose of gaining control of an issuer's
management.
(18) Purchase the securities of any issuer if the Investment Company's
officers, Directors, Advisor or any of their affiliates beneficially own more
than one-half of 1% of the securities of such issuer or together own
beneficially more than 5% of the securities of such issuer.
Investment Policies
Except as otherwise indicated, each Fund may invest in the following
instruments:
US Government Obligations. The types of US Government obligations in which
the Funds may at times invest include: (1) A variety of US Treasury obligations
(including Treasury Inflation-Protection Securities, described below), which
differ only in their interest rates, maturities and times of issuance and which,
with respect to the Money Market and Government Money Market Funds, have
remaining maturities or hard put dates of one year or less; 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 Valley Authority, 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 Funds may purchase US Government obligations on a forward commitment
basis.
-13-
<PAGE>
Treasury Inflation-Protection Securities. The Fund may invest in
Inflation-Protection Securities ("IPS"), 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.
Repurchase Agreements. The Funds may enter into repurchase agreements with
certain financial institutions. Under repurchase agreements, these parties sell
US Treasury bills, notes and bonds 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 each 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 Funds in being invested fully while retaining
"overnight" flexibility in pursuit of investments of a longer-term nature. The
Funds will limit repurchase transactions to those member banks of the Federal
Reserve System and broker-dealers whose creditworthiness is found satisfactory
by Advisor.
Reverse Repurchase Agreements. The 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 banks 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. The Funds retain 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.
Forward Commitments. Each Fund may contract to purchase securities for a
fixed price at a future date beyond customary settlement time consistent with
the Fund's ability to manage its investment portfolio, maintain a stable net
asset value and meet redemption requests. A Fund 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 Fund of a dollar amount sufficient to make
payment for the portfolio securities to be purchased will be segregated on the
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. 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.
Each Fund will make commitments to purchase when-issued securities only
with the intention of actually acquiring the securities, but a Fund 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 each 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
-14-
<PAGE>
securities declines, additional cash or securities will be segregated on the
Fund's records on a daily basis so that the market value of the account will
equal the amount of such commitments by the Fund. No 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
each Fund 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 when interest rates decline and decrease in value
when interest rates rise. Therefore, if in order to achieve higher interest
income a 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 Fund's net asset value.
When payment for when-issued securities is due, each 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 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 (Money Market Fund only). The Money Market
Fund 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 Fund's investment
restriction relating to investments in illiquid securities.
Variable and Floating Rate Securities. The 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 Fund 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 the 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 Securities. 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
-15-
<PAGE>
("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
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 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.
-16-
<PAGE>
Zero Coupon Securities. 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.
Because the above Funds accrue taxable income from zero coupon securities
without receiving regular interest payments in cash, each 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 Fund.
Investing in these securities might also force the Fund 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.
TAXES
Each Fund intends 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, each Fund 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 Fund distributes annually to its shareholders at least 90% of
its net investment income and net short-term capital gain for the taxable year
("Distribution Requirement"). For a Fund to qualify as a RIC it must abide by
all of the following requirements: (1) at least 90% of the Fund's 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 Fund's 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
Fund's 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 Fund 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 Fund's
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.
Each Fund 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 its ordinary income for that year; (2) 98% of its
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 Fund subsequent to December 31 but prior to February 1
of the following year.
If a shareholder receives a distribution taxable as a 20% gain or a 28%
gain with respect to shares of a 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 a 20% loss or a 28% loss to the extent
of the respective capital gain distribution.
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As of August 31, 1997, the Money Market Fund had a net tax basis capital
loss carryforward of $2,714,108, which may be applied against any realized net
taxable gains of each succeeding year until the expiration date of August 31,
2003.
State and Local Taxes. Depending upon the extent of each Fund's activities
in states and localities in which its offices are maintained, its agents or
independent contractors are located or it is otherwise deemed to be conducting
business, the Fund 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 Funds and their shareholders. Circumstances among
investors may vary and each investor is encouraged to discuss investment in the
Funds with the investor's tax advisor.
FINANCIAL STATEMENTS
The 1997 fiscal year-end financial statements of Investment Company,
consisting of the Money Market and Government Money Market Funds, including
notes to the financial statements and financial highlights and the Report of
Independent Accountants are included in the Funds' Annual Report to
Shareholders. Copies of these reports accompany this Statement of Additional
Information and are incorporated herein by reference.
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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.
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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.
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:
[bullet] 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:
[bullet] Leading market positions in well-established
industries.
[bullet] High rates of return on funds employed.
[bullet] Conservative capitalization structure with moderate
reliance on debt and ample asset protection.
[bullet] Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
[bullet] Well-established access to a range of financial
markets and assured sources of alternate liquidity.
[bullet] 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.
[bullet] 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.
[bullet] 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.
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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.
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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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Filed pursuant to Rule 485(b)
File Nos. 33-19229; 811-5430
SSgA FUNDS
One International Place
Boston, Massachusetts 02110
(800) 647-7327
STATEMENT OF ADDITIONAL INFORMATION
MATRIX EQUITY FUND
December 24, 1997
SSgA Funds ("Investment Company") a registered open-end investment company
organized as a Massachusetts business trust offering shares of beneficial
interest in separate investment portfolios. In addition, each series of the
Investment Company is diversified as defined under the Investment Company Act of
1940, as amended (the "1940 Act").
This Statement of Additional Information supplements or describes in
greater detail the Investment Company and the SSgA Matrix Equity Fund (the
"Matrix Fund" or the "Fund") as contained in the Fund's Prospectus dated
December 24, 1997. This Statement is not a Prospectus and should be read in
conjunction with the Fund's Prospectus, which may be obtained by telephoning or
writing Investment Company at the number or address shown above.
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TABLE OF CONTENTS
Page
----
Structure and Governance................................................. 3
Organization and Business History............................... 3
Shareholder Meetings............................................ 4
Controlling Shareholders........................................ 4
Principal Shareholders.......................................... 4
Trustees and Officers........................................... 4
Operation of Investment Company.......................................... 6
Service Providers ............................................. 6
Advisor......................................................... 6
Administrator ................................................ 7
Distributor..................................................... 7
Custodian and Transfer Agent.................................... 7
Independent Accountants......................................... 7
Distribution Plan ............................................. 7
Federal Law Affecting State Street.............................. 8
Valuation of Fund Shares........................................ 8
Brokerage Practices............................................. 9
Portfolio Turnover Rate......................................... 11
Total Return Quotations......................................... 11
Investments.............................................................. 11
Investment Restrictions......................................... 12
Investment Policies............................................. 13
Hedging Strategies and Related Investment Techniques............ 15
Taxes.................................................................... 19
Financial Statements..................................................... 20
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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 Matrix Fund is one such investment portfolio. The Trustees may
create additional Funds at any time without shareholder approval.
As of the date of this Statement of Additional Information, Investment
Company is comprised of the following investment portfolios, each of which
commenced operations on the date set forth opposite the portfolio's name:
SSgA Money Market Fund May 2, 1988
SSgA US Government Money Market Fund March 1, 1991
SSgA Matrix Equity Fund May 4, 1992
SSgA Small Cap Fund July 1, 1992
SSgA Yield Plus Fund November 9, 1992
SSgA S&P 500 Index Fund December 30, 1992
SSgA Growth and Income Fund September 1, 1993
SSgA Intermediate Fund September 1, 1993
SSgA US Treasury Money Market Fund December 1, 1993
SSgA Prime Money Market Fund February 22, 1994
SSgA Emerging Markets Fund March 1, 1994
SSgA Tax Free Money Market Fund December 1, 1994
SSgA Active International Fund March 7, 1995
SSgA Bond Market Fund February 7, 1996
SSgA Life Solutions Balanced Fund June 2, 1997
SSgA Life Solutions Growth Fund June 2, 1997
SSgA Life Solutions Income and Growth Fund June 2, 1997
SSgA Real Estate Equity Fund *
SSgA US Treasury Obligations Fund *
SSgA International Pacific Index Fund *
*As of the date of this Statement of Additional Information, these
portfolios have not commenced operations.
Prospectuses for these investment portfolios may be obtained by calling
Investment Company's distributor, Russell Fund Distributors, Inc., at (800)
647-7327, or at its Internet Web Site at www.ssgafunds.com.
Investment Company is authorized to divide shares of any series into two
or more classes of shares. The shares of each 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 Fund may have
separate voting rights or no voting rights. Each class of shares of a Fund is
entitled to the same rights and privileges as all other classes of that Fund,
except that each class bears the 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 Fund's
portfolio securities. Shares of the Money Market, US Government Money Market and
Tax Free Money Market Funds are divided into Classes A, B and C.
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 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.
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Under certain unlikely circumstances, and as is the case with any
Massachusetts business trust, a shareholder of a Fund may be held personally
liable for the obligations of a 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 Fund shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The Master Trust Agreement
also provides that the Fund shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the 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 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 November 30, 1997, State Street held beneficially and of
record 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 November 30, 1997, the following
shareholders owned of record 5% or more of the issued and outstanding shares of
the Fund:
[bullet] Trustees of Alcatel Network, State Street Bank and Trust Company, AO04,
One Enterprise Drive, Quincy, MA 02171 -- 13%;
[bullet] Boston Edison VEBA, 800 Boylston Street P354, Boston, MA 02199 -- 11%;
[bullet] State Street Bank Solutions, State Street Bank and Trust Company, TTEE,
P.O. Box 1389, Boston, MA 02104 -- 22%; and
[bullet] Xerox Canada, Inc. Employee Retirement Plan, Royal Trust Corporation of
Canada, PO Box 7500 Station A, 55 King Street West 7th Floor, Toronto,
Ontario, Canada M5W1P9 -- 6%.
Such shares may be held pursuant to a shareholder servicing arrangement in
omnibus accounts for underlying shareholders.
The Trustees and officers of Investment Company, as a group, own less than
1% of Investment Company's voting securities.
Trustees and Officers. The Board of Trustees is responsible for overseeing
generally the operation of the Fund. The 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 Fund's operations.
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. Investment Company's officers and employees are paid by
Administrator or its affiliates.
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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. Trustee, President and Chief Executive Officer, Russell Insurance Funds
(investment company). Director, Chief Executive Officer and Chairman of the
Board, Russell Fund Distributors, Inc. Trustee, President and Chief Executive
Officer, Frank Russell Investment Company (investment company); Director, Chief
Executive Officer and Chairman of the Board, Frank Russell Investment Management
Company; Director, Chief Executive Officer and President, Frank Russell Trust
Company; Director and Chairman, Frank Russell Investment Company Public Limited
Company; November 1995 to February 1997, Director, Frank Russell Company;
Director and Chairman of the Board, Frank Russell Company (Delaware); Director,
Frank Russell Company; March 1989 to June 1993, Director, Frank Russell Company,
Director of Frank Russell Investments (Ireland) Limited; Director and Chairman,
Frank Russell Investment Company Public Limited Company. Until September 1994,
Director and President, The Laurel Funds, Inc. (investment company).
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 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. 350 Park Avenue, 15th Floor,
New York, NY 10022. Partner, Squire, Sanders & Dempsey (law firm). From 1994 to
1997, Partner, Brown, Rudnick, Freed & Gesmer (law firm). From 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. 1990 to 1992, President, Champions Group Resources--Business
Management and Employee Benefits Consulting; 1990, Senior Vice President,
Employee Benefits Division, Cigna Corporation (providing and insuring group
life, health and disability employee benefit products and services); from 1986
to 1990, Senior Vice President, EQUICOR-Equitable HCA Corporation (providing and
insuring group life, health and disability employee benefit products and
services).
*Bruce D. Taber, Trustee. Born 4/25/43. 26 Round Top Road, Boxford, MA
01921. Consultant, Computer Simulation, General Electric Industrial Control
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
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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. Treasurer and Chief Accounting Officer, Russell
Insurance Funds (investment company); Director of Finance and Operations, Frank
Russell Trust Company; Director, Fund Administration and Operations of Frank
Russell Investment Management Company and Russell Fund Distributors, Inc.;
Treasurer and Chief Accounting Office, Frank Russell Investment Company
(investment company); March 1993 to January 1996, Vice President, Operations,
Funds Management, J.P. Morgan; December 1985 to March 1993, Senior Vice
President, Operations, Frank Russell Investment Company, The Laurel Funds, Inc.
and The Seven Seas Series Fund (investment companies); Director of Operations,
Frank Russell Investment Management Company and Frank Russell Trust Company;
Director, Russell Fund Distributors, Inc.
Total Annual Compensation
Trustee from Investment Company
--------------------------------------------------------
Lynn L. Anderson $0
William L. Marshall $55,500
Steven J. Mastrovich $55,500
Patrick J. Riley $55,500
Richard D. Shirk $55,500
Bruce D. Taber $55,500
Henry W. Todd $55,500
OPERATION OF INVESTMENT COMPANY
Service Providers. Most of the 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.
Advisor. State Street Bank and Trust Company ("State Street" or "Advisor")
serves as the Fund's 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 Corporation, a publicly held bank
holding company. State Street's address is 225 Franklin Street, Boston, MA
02110.
Under the Advisory Agreement, Advisor directs the Fund's investments in
accordance with its investment objectives, policies and limitations. For these
services, the Fund will pay a fee to Advisor at the rate stated in the
Prospectus. The Matrix Fund accrued expenses to Advisor of $2,659,554 in fiscal
1997, $1,755,268 in fiscal 1996 and $1,198,153 in fiscal 1995. Advisor waived
Advisory fees of $1,329,777 in fiscal 1997, $877,634 in fiscal 1996 and $599,077
in fiscal 1995.
The Advisory Agreement will continue from year to year provided that a
majority of the Trustees who are not
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interested persons of the Fund and either a majority of all Trustees or a
majority of the shareholders of the Fund approve its continuance. The Agreement
may be terminated by Advisor or the Fund without penalty upon sixty days' notice
and will terminate automatically upon its assignment.
Administrator. Frank Russell Investment Management Company
("Administrator") serves as the Fund's administrator, pursuant to an
Administration Agreement dated April 12, 1988 ("Administration Agreement"). A
description of the services provided under the Administration Agreement and the
basis for computing fees for such services is provided in the Fund's Prospectus.
The Matrix Fund accrued expenses to Administrator of $98,998 in fiscal 1997,
$73,095 in fiscal 1996 and $47,220 in fiscal 1995.
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 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 Fund 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, Winston-Salem, New
York City, Toronto, London, Tokyo, Sydney, Zurich, Paris and Auckland, and have
approximately 1,200 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 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 One International Place, Boston,
MA 02110.
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
Custodian services, State Street is paid an annual fee in accordance with the
following: custody services--a fee payable monthly on a pro rata basis, based on
the following percentages of average daily net assets of each 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 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. For Transfer and Dividend
Disbursing Agent services, State Street is paid the following annual account
services fees: $9.00 open account fee; $1.50 closed account fee; fund minimum
per portfolio for one to four portfolios--$36,000, five to six
portfolios--$24,000, and over six portfolios $18,000. Portfolio fees are
allocated to each fund based on the average net asset value of each fund and are
billable on a monthly basis at the rate of 1/12 of the annual fee. State Street
will apply a $5.00 fee to each telephone transaction (purchase or redemption),
which is applied against the monthly billing. State Street is reimbursed by the
Fund 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 Fund may, directly or indirectly, bear distribution and shareholder
servicing expenses. The Rule provides that the Fund may pay for such expenses
only pursuant to a plan
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adopted in accordance with the Rule. Accordingly, the Fund has adopted an active
distribution plan (the "Plan"), which is described in the Fund's Prospectus.
The Plan provides that the 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 Fund 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 Fund 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 Fund nor have any direct or indirect financial interest in the
operation of the Plan or any related agreements.
The Fund accrued expenses in the following amounts to Russell Fund
Distributors, Inc., as Distributor, for the fiscal years ended August 31:
1997 1996 1995
---- ---- ----
$95,276 $103,500 $94,034
For fiscal 1997, this amount is reflective of the following individual
payments:
Advertising $ 9,302
Printing of Prospectuses 11,205
Compensation to Dealers 10
Compensation to Sales Personnel 35,525
Other* 39,234
-------
$95,276
* 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 Fund may also enter into agreements ("Service
Agreements") with financial institutions, which may include Advisor ("Service
Organizations"), to provide shareholder servicing with respect to Fund shares
held by or for the customers of the Service Organizations. Such arrangements are
more fully described in the Funds' Prospectus under "Distribution Services and
Shareholder Servicing."
The Fund accrued expenses in the following amount to Advisor, under a
Service Agreement pursuant to Rule 12b-1, for fiscal years ended August 31:
1997 1996 1995
---- ---- ----
$195,589 $82,427 $37,186
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 Fund, 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 Fund Shares. Net asset value per share is calculated once
each business day for the Fund 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,
Martin Luther King Jr. Day, President's Day,
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<PAGE>
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day.
Trading may occur 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 Fund will not be calculated at such times, if securities held in
the Fund's portfolio are traded at such times, the Fund's net asset value per
share may be significantly affected at times when shareholders do not have the
ability to purchase or redeem shares. 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 Fund's calculation of its net asset value unless
the Board of Trustees determines that the particular event would materially
affect the Fund's net asset value, in which case an adjustment would be made.
With the exceptions noted below, the Fund values 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 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.
Because many fixed income securities do not trade each day, last sale or
bid prices are frequently not available. Therefore, fixed income securities 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 equity 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 or
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.
The Fund values 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
Fund would receive if it sold the instrument.
For example, in periods of declining interest rates, the daily yield on
Fund shares computed by dividing the annualized daily income of the 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 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. All portfolio transactions are placed on behalf of
the 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 Fund. Ordinarily,
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<PAGE>
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 Fund and/or Advisor (or its
affiliates). Advisor is authorized to cause the 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 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 Advisor's performance of its
responsibilities in connection with the placement of portfolio transactions on
behalf of the Fund and review the prices paid by the Fund over representative
periods of time to determine if such prices are reasonable in relation to the
benefits provided to the Fund. Certain services received by Advisor attributable
to a particular Fund transaction may benefit one or more other accounts for
which Advisor exercises investment discretion, or an 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 brokerage commissions paid by the Matrix Fund were $790,356 in fiscal
1997, $615,372 in fiscal 1996 and $415,381 for fiscal 1995.
Of the total brokerage commissions paid by the Fund, commissions received
by an affiliated broker/dealer amounted to the following for the fiscal years
ended August 31:
1997 1996 1995
---- ---- ----
$175,918 $143,583 $116,157
Relating to the total brokerage commissions paid by the Fund for fiscal
1997, the percentage of brokerage commissions received by an affiliated
broker/dealer amounted to 22.26% of the total.
The percentage of transactions (relating to trading activity) effected
through an affiliated broker/dealer as a percentage of total transactions was
20.77% for the fiscal year ended August 31, 1997.
During the fiscal year ended August 31, 1997, the Fund 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 the Fund's ten largest
brokers or dealers by dollar amounts of securities executed or commissions
received on behalf of the Fund. The value of broker-dealer securities held as of
August 31, 1997, is as follows:
($000)
------------------
Investment Technology Group, Inc. (a) 0
Morgan Stanley & Co. (a) 4,801
Broadcort Capital (a) 0
Merrill Lynch, Pierce, Fenner, Inc. 3,573
State Street Brokerage Services, Inc. (a) 0
Bear, Stearns Securities (a) 3,873
National Financial Services (a) 0
Nomura Securities International (a) 0
Barclays Dezoete Wedd (a) 0
Instinet (a) 0
Prebon (b) 0
Swiss Bank Corp. (b) 0
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<PAGE>
Lumis & Co. (b) 0
HSBC Securities (b) 0
Goldman Sachs & Co. (b) 0
UBS Securities, Inc. (b) 0
Aubrey G. Lanston & Co. (b) 0
Lehman Brothers Inc. (b) 1,575
Donaldson, Lufkin & Jenrette (b) 0
- ---------------------
(a) Broker commissions only
(b) Broker principal transactions only
Portfolio Turnover Rate. The portfolio turnover rate for the 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.
The portfolio turnover rate for the Fund for each of the fiscal years
ended August 31 was:
1997 1996
---- ----
117.27% 150.68%
Total Return Quotations. The Fund computes 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 Fund
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 the
Fund is as follows:
One Year
Ending Inception to
August 31, 1997 August 31, 1997*
--------------- ----------------
42.75% 18.49%
*Periods less than one year are not annualized. The Fund commenced
operations on May 4, 1992.
Total returns and other performance figures are based on historical
earnings and are not indicative of future performance.
INVESTMENTS
The fundamental investment objective of the Fund is set forth in its
Prospectus. In addition to that investment objective, the Fund also has certain
"fundamental" investment restrictions, which may be changed only with the
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<PAGE>
approval of a majority of the shareholders of the Fund, and certain
nonfundamental investment restrictions and policies, which may be changed by the
Fund without shareholder approval.
Investment Restrictions
The Fund is subject to the following investment restrictions, restrictions
1 through 11 are fundamental and restrictions 12 through 15 are nonfundamental.
Unless otherwise noted, these restrictions apply at the time an investment is
made. The Fund will 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 and instrumentalities). 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 Fund's assets
taken at market value, less liabilities other than borrowings. If at any time
the 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. The 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, the Fund may
pledge securities having a market value at the time of the pledge not exceeding
33-1/3% of the value of the Fund's 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), if immediately after and as a result of such investment the
current market value of the Fund's holdings in the securities of such issuer
exceeds 5% of the value of the Fund's assets.
(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. The 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 the Fund's total
assets.
(6) Purchase or sell commodities or commodity futures contracts except
that the Fund may enter into futures contracts and options thereon to the extent
provided in its Prospectus.
(7) Purchase or sell real estate or real estate mortgage loans; provided,
however, that the Fund 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 Fund 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 the 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
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<PAGE>
are necessary for the clearance of transactions. The Fund 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 Fund,
including their investment advisors and affiliates, except as permitted by the
1940 Act and exemptive rules or orders thereunder.
(13) Invest in securities issued by other investment companies except in
connection with a merger, consolidation, acquisition of assets, or other
reorganization approved by the Fund's shareholders, except that the Fund may
invest in such securities to the extent permitted by the 1940 Act.
(14) 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.
(15) Make investments for the purpose of gaining control of an issuer's
management.
Investment Policies
The Fund may invest in the following instruments:
US Government Obligations. The types of US Government obligations in which
the Fund 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 Fund may purchase US
Government obligations on a forward commitment basis.
Repurchase Agreements. The Fund may enter into repurchase agreements with
financial institutions. Under repurchase agreements, these parties sell
securities to the 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 Fund in being invested fully while retaining "overnight" flexibility
in pursuit of investments of a longer-term nature. The Fund 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. The Fund may enter into reverse repurchase
agreements under the circumstances described in "Investment Restrictions." Under
reverse repurchase agreements, the 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. The 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.
Forward Commitments. The Fund may contract to purchase securities for a
fixed price at a future date beyond customary settlement time consistent with
the Fund's ability to manage its investment portfolio, maintain a stable net
asset value and meet redemption requests. The Fund may dispose of a commitment
prior to settlement if it
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<PAGE>
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 Fund of a dollar amount sufficient to make payment for the portfolio
securities to be purchased will be segregated on the 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. 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 Fund will make commitments to purchase when-issued securities only
with the intention of actually acquiring the securities, but the Fund 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 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 Fund's records on a daily basis so that the market value of
the account will equal the amount of such commitments by the Fund. The Fund will
not 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
Fund 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 when interest rates decline and decrease in value when
interest rates rise. Therefore, if in order to achieve higher interest income
the 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 Fund's net asset value.
When payment for when-issued securities is due, the 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 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 Fund 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 Fund's investment restriction relating to
investments in illiquid securities.
Warrants. The Fund 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. The
Fund will not invest more than 5% of the value of their net assets in warrants,
or more than 2% in warrants which are not listed on the New York or American
Stock Exchange.
American Depository Receipts (ADRs). The Fund may invest in ADRs under
certain circumstances as an alternative to directly investing in foreign
securities. Generally, ADRs, in registered form, are designed for use in the US
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
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<PAGE>
bank or a correspondent bank. ADRs do not eliminate the risk inherent in
investing in the securities of foreign issuers. However, by investing in ADRs
rather than directly in a foreign issuer's stock, the Fund can avoid currency
risks during the settlement period for either purchases or sales. 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 many
foreign issuers are subject.
Hedging Strategies and Related Investment Techniques
The Fund 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 Fund 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 Fund 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 Fund will only engage in these transactions for
hedging purposes, the options and futures portfolio strategies of the Fund will
not subject the Fund to the risks frequently associated with the speculative use
of options and futures transactions. Although the use of hedging strategies by
the Fund is intended to reduce the volatility of the net asset value of the
Fund's shares, the Fund's net asset value will nevertheless fluctuate. There can
be no assurance that the Fund's hedging transactions will be effective.
Writing Covered Call Options. The Fund is 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 Fund 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 Fund 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 Fund
would seek to mitigate the effects of a price decline. By writing covered call
options, however, the Fund 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 Fund's ability to sell the underlying
security will be limited while the option is in effect unless the Fund effects a
closing purchase transaction.
Writing Covered Put Options. The Fund is authorized to write (sell)
covered put options on its portfolio securities and to enter into closing
transactions with respect to such options.
When the Fund 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 Fund 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 Fund 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 Fund has written,
however, the Fund 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.
The Fund may write put options as an alternative to purchasing actual
securities. If security prices rise, the Fund 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 Fund will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the Fund would expect to
suffer a loss. This loss should be less than the loss the Fund 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 Fund is authorized to purchase put options
to hedge against a decline in the market value of its portfolio securities. By
buying a put option the Fund has the right (but not the obligation) to sell the
underlying security at the exercise price, thus limiting the Fund's risk of loss
through a decline in the market
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<PAGE>
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 Fund 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
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
Fund 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 Fund would exceed 5% of the market
value of the Fund's total assets.
Purchasing Call Options. The Fund is 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 Fund will purchase call options only in
connection with "closing purchase transactions."
Stock Index Options and Financial Futures. The Fund is authorized to
engage in transactions in stock index options and financial futures, and related
options. The Fund 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 Fund 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 Fund 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 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 Funds' investments in
foreign options, unless such options are specifically authorized for investment
by order of the CFTC, the Fund will not make such investments.
The Fund 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 Fund 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 Fund in stock index futures and financial
futures are subject to limitations as described below under "Restrictions on the
Use of Futures Transactions."
The Fund may sell futures contracts in anticipation of or during a
market decline to attempt to offset the decrease in market value of the Fund's
securities portfolio that might otherwise result. When the Fund is not fully
invested in the securities markets and anticipates a significant market advance,
the Fund may purchase futures in order to gain rapid market exposure that may
partially or entirely offset increases in the cost of securities that the Fund
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 Fund 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 Fund experiences a
significant amount of redemptions), a long futures position may be terminated
without the corresponding purchase of securities.
The Fund 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 Fund enters into futures transactions. The Fund
may purchase put options or write call options on futures contracts and stock
indices
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<PAGE>
rather than selling the underlying futures contract in anticipation of a
decrease in the market value of securities. Similarly, the Fund 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 Fund
intends to purchase.
The Fund is 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 Fund is 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 Fund, sold by the
Fund but not yet delivered, or committed or anticipated to be purchased by the
Fund. As an illustration, the Fund 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 Fund 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 futures 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.
Regulations of the CFTC applicable to the Fund require that all of the
Fund's futures and options on futures transactions constitute bona fide hedging
transactions and that a Fund not enter into such transactions if, immediately
thereafter, the sum of the amount of initial margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed 5%
of the market value of the Fund's total assets.
Restrictions on OTC Options. The 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 Fund will acquire only those OTC options for which Advisor believes
the Fund 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 Fund 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 Fund; (2) the market value of the underlying
securities covered by outstanding OTC call options sold by the Fund; (3) margin
deposits on the Fund's existing OTC options on futures contracts; and (4) the
market value of all other assets of the Fund that are illiquid or are not
otherwise readily marketable, would exceed 10% of the net assets of the Fund,
taken at market
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<PAGE>
value. However, if an OTC option is sold by the Fund to a primary US Government
securities dealer recognized by the Federal Reserve Bank of New York and the
Fund has the unconditional contractual right to repurchase such OTC option from
the dealer at a predetermined price, then the Fund 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 Fund will not use
leverage in its options and futures strategies. Such investments will be made
for hedging purposes only. The Fund will hold securities or other options or
futures positions whose values are expected to offset its obligations under the
hedge strategies. The Fund will not enter into an option or futures position
that exposes the Fund 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 Fund 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 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 Fund's assets could impede portfolio
management or the 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 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 Fund 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. To compensate for imperfect
correlations, the Fund 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 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 Fund 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 Fund 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 Fund 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 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.
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<PAGE>
TAXES
The Fund intends 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 Fund will not be liable for federal income
taxes on taxable net investment income and net capital gain (long-term capital
gains in excess of short-term capital losses) that it distributes to its
shareholders, provided that the Fund distributes annually to its shareholders at
least 90% of its net investment income and net short-term capital gain for the
taxable year ("Distribution Requirement"). For the Fund to qualify as a RIC it
must abide by all of the following requirements: (1) at least 90% of the Fund's
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) at the close of each quarter of the Fund's 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 Fund and that does
not represent more than 10% of the outstanding voting securities of such issuer;
and (3) at the close of each quarter of the Fund's 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 Fund 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 its ordinary income for that year; (2) 98% of its 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 Fund subsequent to December 31 but prior to February 1 of the
following year.
If a shareholder receives a distribution taxable as a 20% gain or a 28%
gain with respect to shares of a 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 a 20% loss or a 28% loss to the extent
of the respective capital gain distribution.
Issues Related to Hedging and Option Investments. The Fund's ability to
make certain investments may be limited by provisions of the Code that require
inclusion of certain unrealized gains or losses in the Fund's income for
purposes of the Income Requirement 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 Fund 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 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 the Fund in advance since the amount of the assets to be
invested within various countries is not known.
If the Fund invests 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 Fund. The Fund 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.
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<PAGE>
State and Local Taxes. Depending upon the extent of the Fund's activities
in states and localities in which its offices are maintained, its agents or
independent contractors are located or it is otherwise deemed to be conducting
business, the Fund 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 Fund and its shareholders. Circumstances among
investors may vary and each investor is encouraged to discuss investment in the
Fund with the investor's tax advisor.
FINANCIAL STATEMENTS
The 1997 fiscal year-end financial statements of the Matrix Fund,
including notes to the financial statements and financial highlights and the
Report of Independent Accountants, are included in the Fund's Annual Report to
shareholders. A copy of this Annual Report accompanies this Statement of
Additional Information and is incorporated herein by reference.
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<PAGE>
Filed pursuant to Rule 485(b)
File Nos. 33-19229; 811-5430
SSgA FUNDS
One International Place
Boston, Massachusetts 02110
(800) 647-7327
STATEMENT OF ADDITIONAL INFORMATION
S&P 500 INDEX FUND
December 24, 1997
SSgA Funds ("Investment Company") is a registered open-end investment
company organized as a Massachusetts business trust offering shares of
beneficial interest in separate investment portfolios. In addition, each series
of the Investment Company is diversified as defined under the Investment Company
Act of 1940, as amended (the "1940 Act").
This Statement of Additional Information supplements or describes in
greater detail the Investment Company and the SSgA S&P 500 Index Fund (the
"Fund") as contained in the Fund's Prospectus dated December 24, 1997. This
Statement is not a Prospectus and should be read in conjunction with the Fund's
Prospectus, which may be obtained by telephoning or writing Investment Company
at the number or address shown above.
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<PAGE>
TABLE OF CONTENTS
Page
----
Structure and Governance............................................ 3
Organization and Business History.......................... 3
Shareholder Meetings....................................... 4
Controlling Shareholders................................... 4
Principal Shareholders..................................... 4
Trustees and Officers...................................... 4
Operation of Investment Company..................................... 6
Service Providers ........................................ 6
Advisor .................................................. 6
Administrator.............................................. 7
Distributor................................................ 7
Custodian and Transfer Agent............................... 7
Independent Accountants.................................... 7
Distribution Plan ........................................ 8
Federal Law Affecting State Street......................... 8
Valuation of Fund Shares................................... 8
Brokerage Practices........................................ 9
Portfolio Turnover Rate.................................... 11
Total Return Quotations.................................... 11
Investments......................................................... 11
Investment Restrictions.................................... 12
Investment Policies........................................ 13
Hedging Strategies and Related Investment Techniques....... 15
Taxes ........................................................... 18
Financial Statements................................................ 20
Appendix: Description of Securities Ratings........................ 21
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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. The
Investment Company share evidences pro rata ownership interest in a different
investment portfolio, or "Fund." The Fund is one such investment portfolio. The
Trustees may create additional Funds at any time without shareholder approval.
As of the date of this Statement of Additional Information, Investment
Company is comprised of the following investment portfolios, each of which
commenced operations on the date set forth below the portfolio's name:
SSgA Money Market Fund May 2, 1988
SSgA US Government Money Market Fund March 1, 1991
SSgA Matrix Equity Fund May 4, 1992
SSgA Small Cap Fund July 1, 1992
SSgA Yield Plus Fund November 9, 1992
SSgA S&P 500 Index Fund December 30, 1992
SSgA Growth and Income Fund September 1, 1993
SSgA Intermediate Fund September 1, 1993
SSgA US Treasury Money Market Fund December 1, 1993
SSgA Prime Money Market Fund February 22, 1994
SSgA Emerging Markets Fund March 1, 1994
SSgA Tax Free Money Market Fund December 1, 1994
SSgA Active International Fund March 7, 1995
SSgA Bond Market Fund February 7, 1996
SSgA Life Solutions Balanced Fund June 2, 1997
SSgA Life Solutions Growth Fund June 2, 1997
SSgA Life Solutions Income and Growth Fund June 2, 1997
SSgA Real Estate Equity Fund *
SSgA US Treasury Obligations Fund *
SSgA International Pacific Index Fund *
*As of the date of this Statement of Additional Information, these
portfolios have not commenced operations.
Prospectuses for these investment portfolios may be obtained by calling
Investment Company's distributor, Russell Fund Distributors, Inc., at (800)
647-7327, or at its Internet Web Site at www.ssgafunds.com.
Investment Company is authorized to divide shares of any series into two
or more classes of shares. The shares of each 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 Fund may have
separate voting rights or no voting rights. Each class of shares of a Fund is
entitled to the same rights and privileges as all other classes of the Fund,
except that each class bears the 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 Fund's
portfolio securities. Shares of the Money Market, US Government Money Market and
Tax Free Money Market Funds are divided into Classes A, B and C.
Any amendment to the Master Trust Agreement that would materially and
adversely affect shareholders of
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<PAGE>
Investment Company as a whole, or shareholders of a particular 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 the Fund may be held personally
liable for the obligations of the Fund. The Master Trust Agreement provides that
shareholders shall not be subject to any personal liability for the acts or
obligations of the Fund and that every written agreement, obligation, or other
undertaking of the Fund shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The Master Trust Agreement
also provides that the Fund shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the 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 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. 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 Investment Company portfolios 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 November 30, 1997, State Street held of record less than 25% of
the issued and outstanding shares of Investment Company in connection with its
discretionary accounts. Consequently, State Street is not deemed to be a
controlling person of Investment Company for purposes of the 1940 Act.
Principal Shareholders. As of November 30, 1997, the following
shareholders owned of record 5% or more of the issued and outstanding shares of
the Fund:
[bullet] American Home Assurance Company, 175 Water Street 25th Floor,
New York, NY 10038 -- 12%;
[bullet] Energy Insurance Mutual Limited, 6200 Courtney Cambell
Causeway, Suite 510, Tampa, FL 33607 -- 12%;
[bullet] Equitable Life Assurance Society, Alliance Capital, 135 West
50th Street, New York, NY 10020 -- 5%;
[bullet] Trustees of Alcatel Network Systems, AO03, State Street Bank
and Trust Company, One Enterprise Drive, Quincy, MA 02171 --
6%; and
[bullet] Scudder Trust Company TTEE, Scudder Stock Index Fund, Two
International Place, Boston, MA 02110 -- 9%.
Such shares may be held pursuant to a shareholder servicing arrangement in
omnibus accounts for underlying shareholders.
The Trustees and officers of Investment Company, as a group, own less than
1% of Investment Company's voting securities.
Trustees and Officers. The Board of Trustees is responsible for overseeing
generally the operation of the Fund. The 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 Fund's operations.
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<PAGE>
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. Investment Company's officers and employees are paid by
Administrator or its affiliates.
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. Trustee, President and Chief Executive Officer, Russell Insurance Funds
(investment company). Director, Chief Executive Officer and Chairman of the
Board, Russell Fund Distributors, Inc. Trustee, President and Chief Executive
Officer, Frank Russell Investment Company (investment company); Director, Chief
Executive Officer and Chairman of the Board, Frank Russell Investment Management
Company; Director, Chief Executive Officer and President, Frank Russell Trust
Company; Director and Chairman, Frank Russell Investment Company Public Limited
Company; November 1995 to February 1997, Director, Frank Russell Company;
Director and Chairman of the Board, Frank Russell Company (Delaware); Director,
Frank Russell Company; March 1989 to June 1993, Director, Frank Russell Company,
Director of Frank Russell Investments (Ireland) Limited; Director and Chairman,
Frank Russell Investment Company Public Limited Company. Until September 1994,
Director and President, The Laurel Funds, Inc. (investment company).
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 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. 350 Park Avenue, 15th Floor,
New York, NY 10022. Partner, Squire, Sanders & Dempsey (law firm). From 1994 to
1997, Partner, Brown, Rudnick, Freed & Gesmer (law firm). From 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. 1990 to 1992, President, Champions Group Resources--Business
Management and Employee Benefits Consulting; 1990, Senior Vice President,
Employee Benefits Division, Cigna Corporation (providing and insuring group
life, health and disability employee benefit products and services); from 1986
to 1990, Senior Vice President, EQUICOR-Equitable HCA Corporation (providing and
insuring group life, health and disability employee benefit products and
services).
*Bruce D. Taber, Trustee. Born 4/25/43. 26 Round Top Road, Boxford, MA
01921. Consultant, Computer Simulation, General Electric Industrial Control
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
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<PAGE>
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. Treasurer and Chief Accounting Officer, Russell
Insurance Funds (investment company); Director of Finance and Operations, Frank
Russell Trust Company; Director, Fund Administration and Operations of Frank
Russell Investment Management Company and Russell Fund Distributors, Inc.;
Treasurer and Chief Accounting Office, Frank Russell Investment Company
(investment company); March 1993 to January 1996, Vice President, Operations,
Funds Management, J.P. Morgan; December 1985 to March 1993, Senior Vice
President, Operations, Frank Russell Investment Company, The Laurel Funds, Inc.
and The Seven Seas Series Fund (investment companies); Director of Operations,
Frank Russell Investment Management Company and Frank Russell Trust Company;
Director, Russell Fund Distributors, Inc.
Total Annual Compensation
Trustee from Investment Company
--------------------------------------------------------
Lynn L. Anderson $0
William L. Marshall $55,500
Steven J. Mastrovich $55,500
Patrick J. Riley $55,500
Richard D. Shirk $55,500
Bruce D. Taber $55,500
Henry W. Todd $55,500
OPERATION OF INVESTMENT COMPANY
Service Providers. Most of the Fund's necessary day-to-day operations are
performed by separate business organizations under contract to Investment
Company. The principal service providers are:
<TABLE>
<S> <C>
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.
</TABLE>
Advisor. State Street Bank and Trust Company ("State Street" or "Advisor")
serves as the Fund's 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 Corporation, a publicly held bank
holding company. State Street's address is 225 Franklin Street, Boston, MA
02110.
Under the Advisory Agreement, Advisor directs the Fund's investments in
accordance with their investment
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<PAGE>
objectives, policies and limitations. For these services, the Fund pays a fee to
Advisor at the rates stated in the Prospectus. The Fund accrued expenses to
Advisor of $1,006,157 in fiscal 1997, $609,089 in fiscal 1996 and $391,746 in
fiscal 1995. Advisor voluntarily agreed to waive up to the full amount of its
advisory fees for the Fund to the extent that total expenses exceed .15% of
average daily net assets on an annual basis, which amounted to $1,006,157 in
fiscal 1997, $609,089 in fiscal 1996 and $391,746 in fiscal 1995.
The Advisory Agreement will continue from year to year provided that a
majority of the Trustees who are not interested persons of the Fund and either a
majority of all Trustees or a majority of the shareholders of the Fund approve
its continuance. The Agreement may be terminated by Advisor or a Fund without
penalty upon sixty days' notice and will terminate automatically upon its
assignment.
Administrator. Frank Russell Investment Management Company
("Administrator") serves as the Fund's administrator, pursuant to an
Administration Agreement dated April 12, 1988 ("Administration Agreement"). A
description of the services provided under the Administration Agreement and the
basis for computing fees for such services is provided in the Fund's Prospectus.
The Fund accrued expenses to Administrator of $300,097 in fiscal 1997, $171,521
in fiscal 1996 and $115,292 in fiscal 1995.
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 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 any Fund 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, Winston-Salem, New
York City, Toronto, London, Tokyo, Sydney, Paris, Zurich and Auckland, and have
approximately 1,200 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 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 One International Place, Boston,
MA 02110.
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
Custodian services, State Street is paid an annual fee in accordance with the
following: custody services--a fee payable monthly on a pro rata basis, based on
the following percentages of average daily net assets of each 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 domestic Funds 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; and 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. For Transfer and Dividend
Disbursing Agent services, State Street is paid the following annual account
services fees: $9.00 open account fee; $1.50 closed account fee; fund minimum
per portfolio for one to four portfolios--$36,000, five to six
portfolios--$24,000, and over six portfolios $18,000. Portfolio fees are
allocated to each fund based on the average net asset value of each fund and are
billable on a monthly basis at the rate of 1/12 of the annual fee. State Street
will apply a $5.00 fee to each telephone transaction (purchase or redemption),
which is applied against the monthly billing. State Street is reimbursed by each
Fund 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
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<PAGE>
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 Fund may, directly or indirectly, bear distribution and shareholder
servicing expenses. The Rule provides that the Fund may pay for such expenses
only pursuant to a plan adopted in accordance with the Rule. Accordingly, the
Fund has adopted an active distribution plan (the "Plan"), which is described in
the Fund's Prospectuses.
The Plan provides that the 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 Fund 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 Fund 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 Fund nor have any direct or indirect financial interest in the
operation of the Plan or any related agreements.
The Fund accrued expenses in the following amounts to Russell Fund
Distributors, Inc., as Distributor, for the fiscal years ended August 31:
1997 1996 1995
---- ---- ----
$326,488 $134,689 $153,822
For fiscal 1997, this amount is reflective of the following individual
payments:
Advertising $ 25,901
Printing of Prospectuses 18,419
Compensation to Dealers 20,610
Compensation to Sales Personnel 99,664
Other* 161,894
--------
$326,488
========
* 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 Fund may also enter into agreements ("Service
Agreements") with financial institutions, which may include Advisor ("Service
Organizations"), to provide shareholder servicing with respect to Fund shares
held by or for the customers of the Service Organizations. Such arrangements are
more fully described in the Fund's Prospectus under "Distribution Services and
Shareholder Servicing."
The Fund accrued expenses in the following amounts to Advisor, under a
Service Agreement pursuant to Rule 12b-1, for fiscal years ended August 31:
1997 1996 1995
---- ---- ----
$335,725 $199,851 $103,181
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 certain 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 Fund, performing
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<PAGE>
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 Fund contemplated
under this arrangement are consistent with its statutory and regulatory
obligations.
Valuation of Fund Shares. Net asset value per share is calculated once
each business day for the Fund 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,
Martin Luther King Jr. Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
Trading may occur 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). The trading of
portfolio securities at such times may significantly increase or decrease the
net asset value of the Fund's share when shareholders do not have the ability to
purchase or redeem shares. Therefore, 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 Fund's calculation of its net asset value unless the Board of
Trustees determines that the particular event would materially affect the Fund's
net asset value, in which case an adjustment would be made.
With the exceptions noted below, the Fund values 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 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.
Because many fixed income securities do not trade each day, last sale or
bid prices are frequently not available. Therefore, fixed income securities 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 equity 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 or
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.
The Fund values 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 a Fund
would receive if it sold the instrument.
For example, in periods of declining interest rates, the daily yield on
Fund shares computed by dividing the annualized daily income on the 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 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. All portfolio transactions are placed on behalf of
the Fund by Advisor. Advisor ordinarily pays commissions when it executes
transactions on a securities exchange. In contrast, there is generally no stated
commission in the purchase or sale of securities traded in the over-the-counter
markets, including most
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<PAGE>
debt securities on 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 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 Fund and/or Advisor (or its
affiliates). Advisor is authorized to cause the 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 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 Advisor's performance of its
responsibilities in connection with the placement of portfolio transactions on
behalf of the Fund and review the prices paid by the Fund over representative
periods of time to determine if such prices are reasonable in relation to the
benefits provided to the Fund. Certain services received by Advisor attributable
to a particular Fund transaction may benefit one or more other accounts for
which Advisor exercises investment discretion, or an 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 brokerage commissions paid by the Fund were $104,796 in fiscal 1997,
$59,139 for fiscal 1996 and $139,786 for fiscal 1995.
Of the total brokerage commissions paid by the Fund, commissions received
by an affiliated broker/dealer amounted to the following for each of the fiscal
years ended August 31:
1997 1996 1995
---- ---- ----
$40,965 $11,820 $74,061
Relating to the total brokerage commissions paid by the Fund for fiscal
1997, the percentage of brokerage commissions received by an affiliated
broker/dealer amounted to 39.09% of the total.
The percentage of transactions (relating to trading activity) effected
through an affiliated broker/dealer as a percentage of total transactions was
34.30% for the fiscal year ended August 31, 1997.
During the fiscal year ended August 31, 1997, the Fund 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 the Fund's ten largest
brokers or dealers by dollar amounts of securities executed or commissions
received on behalf of the Fund. The value of broker-dealer securities held as of
August 31, 1997, is as follows:
($000)
-----------------
Investment Technology Group, Inc. (a) 0
Morgan Stanley & Co. (a) 4,801
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<PAGE>
Broadcort Capital (a) 0
Merrill Lynch, Pierce, Fenner, Inc. 3,573
State Street Brokerage Services, Inc. (a) 0
Bear, Stearns Securities (a) 0
National Financial Services (a) 0
Nomura Securities International (a) 0
Barclays Dezoete Wedd (a) 0
Instinet (a) 0
Prebon (b) 0
Swiss Bank Corp. (b) 0
Lumis & Co. (b) 0
HSBC Securities (b) 0
Goldman Sachs & Co. (b) 0
UBS Securities, Inc. (b) 0
Aubrey G. Lanston & Co. (b) 0
Lehman Brothers Inc. (b) 0
Donaldson, Lufkin & Jenrette (b) 0
- ---------------------
(a) Broker commissions only
(b) Broker principal transactions only
Portfolio Turnover Rate. The portfolio turnover rate for the 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.
The portfolio turnover rate for the Fund was as follows for the fiscal
years ended August 31:
1997 1996
---- ----
7.54% 28.72%
Portfolio turnover rates for periods less than one fiscal year are
annualized.
Total Return Quotations. The Fund computes 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
funds 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 Fund
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 the Fund is as follows:
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<PAGE>
One Year
Ending Inception to
August 31, 1997 August 31,1997*
--------------- ---------------
40.30% 19.43%
*Periods less than one year are not annualized. The Fund commenced
operations on December 30, 1992.
INVESTMENTS
The fundamental investment objective of the Fund is set forth in its
Prospectus. In addition to that investment objective, the Fund also has certain
fundamental investment restrictions, which may be changed only with the approval
of a majority of the shareholders of the Fund, and certain nonfundamental
investment restrictions and policies, which may be changed by the Fund without
shareholder approval.
Investment Restrictions
The Fund is subject to the following investment restrictions. Restrictions
1 through 11 are fundamental and restrictions 12 through 15 are nonfundamental.
Unless otherwise noted, these restrictions apply at the time an investment is
made. The Fund will 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 and instrumentalities and non-depository instruments issued by
European banks). Concentration may occur as a result of changes in the market
value of portfolio securities, but may not result from investment.
Notwithstanding the foregoing general restrictions, the Fund will concentrate in
particular industries to the extent its underlying index concentrates in those
industries.
(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 Fund's assets
taken at market value, less liabilities other than borrowings. If at any time a
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 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 Fund may pledge
securities having a market value at the time of the pledge not exceeding 33-1/3%
of the value of the Fund's 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), if immediately after and as a result of such investment the
current market value of the Fund's holdings in the securities of such issuer
exceeds 5% of the value of the Fund's assets.
(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 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 the Fund's total
assets.
(6) Purchase or sell commodities or commodity futures contracts except as
provided in its Prospectus.
(7) Purchase or sell real estate or real estate mortgage loans; provided,
however, that the Fund may invest in
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<PAGE>
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 a Fund 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 the 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 Fund 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 Fund,
including their investment advisors and affiliates, except as permitted by the
1940 Act and exemptive rules or orders thereunder.
(13) Invest in securities issued by other investment companies except in
connection with a merger, consolidation, acquisition of assets, or other
reorganization approved by the Fund's shareholders, except that the Fund may
invest in such securities to the extent permitted by the 1940 Act.
(14) Invest more than 15% 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.
(15) Make investments for the purpose of gaining control of an issuer's
management.
Investment Policies
The Fund may invest in the following instruments:
US Government Obligations. The types of US Government obligations in which
the Fund 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 Fund may purchase US
Government obligations on a forward commitment basis.
Repurchase Agreements. The Fund 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 each Fund have a total value in excess of the purchase price paid
by the Fund and are held by Custodian until repurchased.
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<PAGE>
Repurchase agreements assist the Fund in being invested fully while retaining
"overnight" flexibility in pursuit of investments of a longer-term nature. The
Fund 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. The Fund 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. The 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. Reverse
repurchase agreements involve the risk that the market value of securities sold
by the Fund may decline below the price at which it is obligated to repurchase
the securities.
Forward Commitments. The Fund may contract to purchase securities for a
fixed price at a future date beyond customary settlement time consistent with
the Fund's ability to manage its investment portfolio, maintain a stable net
asset value and meet redemption requests. A Fund 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 Fund of a dollar amount sufficient to make
payment for the portfolio securities to be purchased will be segregated on the
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. 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 Fund will make commitments to purchase when-issued securities only
with the intention of actually acquiring the securities, but a Fund 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 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 Fund's records on a daily basis so that the market value of
the account will equal the amount of such commitments by the Fund. The Fund will
not invest more than 25% of its net assets in when-issued securities.
Securities purchased on a when-issued basis and held by the Fund 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 when interest rates decline and decrease in value when interest rates
rise. Therefore, if in order to achieve higher interest income a 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 Fund's net asset value.
When payment for when-issued securities is due, the 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 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 Fund 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
-14-
<PAGE>
("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 Fund's investment restriction relating to
investments in illiquid securities.
American Depository Receipts (ADRs). The Fund may invest in ADRs under
certain circumstances as an alternative to directly investing in foreign
securities. Generally, ADRs, in registered form, are designed for use in the US
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. However, by investing in ADRs rather than
directly in a foreign issuer's stock, the Fund can avoid currency risks during
the settlement period for either purchases or sales. 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 many foreign issuers are subject.
Hedging Strategies and Related Investment Techniques
The Fund may seek to hedge their portfolios 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 Fund 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 Fund 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 Fund will only engage in these transactions for
hedging purposes, the options and futures portfolio strategies of the Fund will
not subject the Fund to the risks frequently associated with the speculative use
of options and futures transactions. Although the use of hedging strategies by
the Fund is intended to reduce the volatility of the net asset value of the
Fund's shares, the Fund's net asset value will nevertheless fluctuate. There can
be no assurance that the Fund's hedging transactions will be effective.
Writing Covered Call Options. The Fund is 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 a Fund 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 Fund 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 Fund
would seek to mitigate the effects of a price decline. By writing covered call
options, however, the Fund 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 Fund's ability to sell the underlying
security will be limited while the option is in effect unless the Fund effects a
closing purchase transaction.
Writing Covered Put Options. The Fund is authorized to write (sell)
covered put options on its portfolio securities and to enter into closing
transactions with respect to such options.
When a Fund 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 Fund 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 Fund 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 Fund has written,
however, the Fund 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 Fund may write put options as an alternative to purchasing actual
securities. If security prices rise, the Fund 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 Fund will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the Fund would expect to
suffer a loss. This loss should be less than the loss the Fund 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 Fund is authorized to purchase put options
to hedge against a decline in the market value of its portfolio securities. By
buying a put option a Fund has the right (but not the obligation) to sell the
underlying security at the exercise price, thus limiting the 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 Fund 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 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 Fund 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 Fund would exceed 5% of the market value of the Fund's total assets.
Purchasing Call Options. The Fund is 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 Fund will purchase call options only in
connection with "closing purchase transactions."
Stock Index Options and Financial Futures. The Fund is authorized to
engage in transactions in stock index options and financial futures, and related
options. A Fund 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 Fund 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 Fund 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 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 Fund's investments in
foreign options, unless such options are specifically authorized for investment
by order of the CFTC, the Fund will not make such investments.
The Fund 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 Fund 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 Fund in stock index futures and financial
futures are subject to limitations as described below under "Restrictions on the
Use of Futures Transactions."
The Fund may sell futures contracts in anticipation of or during a
market decline to attempt to offset the
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decrease in market value of the Fund's securities portfolio that might otherwise
result. When a Fund is not fully invested in the securities markets and
anticipates a significant market advance, the Fund may purchase futures in order
to gain rapid market exposure that may partially or entirely offset increases in
the cost of securities that the Fund 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 Fund 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 Fund experiences a significant amount of redemptions), a long futures
position may be terminated without the corresponding purchase of securities.
The Fund 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 Fund enters into futures transactions. The Fund
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 Fund 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 Fund
intends to purchase.
The Fund is 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 Fund is 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 a Fund, sold by a Fund
but not yet delivered, or committed or anticipated to be purchased by a Fund. As
an illustration, a Fund 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 Fund 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 futures 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.
Regulations of the CFTC applicable to the Fund require that all of the
Fund's futures and options on futures transactions constitute bona fide hedging
transactions and that the Fund not enter into such transactions if, immediately
thereafter, the sum of the amount of initial margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed 5%
of the market value of the Fund's total assets.
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Restrictions on OTC Options. The Fund 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 Fund will acquire only those OTC options for which Advisor believes
the Fund 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 Fund 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 Fund; (2) the market value of the underlying
securities covered by outstanding OTC call options sold by the Fund; (3) margin
deposits on the Fund's existing OTC options on futures contracts; and (4) the
market value of all other assets of the Fund that are illiquid or are not
otherwise readily marketable, would exceed 10% of the net assets of the Fund,
taken at market value. However, if an OTC option is sold by the Fund to a
primary US Government securities dealer recognized by the Federal Reserve Bank
of New York and the Fund has the unconditional contractual right to repurchase
such OTC option from the dealer at a predetermined price, then the Fund 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 Fund will not use
leverage in its options and futures strategies. Such investments will be made
for hedging purposes only. The Fund will hold securities or other options or
futures positions whose values are expected to offset its obligations under the
hedge strategies. The Fund will not enter into an option or futures position
that exposes the Fund 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 Fund 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 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 a Fund's assets could impede portfolio
management or the 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 Fund's 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 Fund 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. To compensate for imperfect
correlations, the Fund 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 Fund 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 Fund 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.
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The Fund 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 Fund 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 a Fund's ability to
effectively hedge its portfolio. There is also the risk of loss by a 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 Fund intends 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 Fund will not be liable for federal income
taxes on taxable net investment income and net capital gain (long-term capital
gains in excess of short-term capital losses) that it distributes to its
shareholders, provided that the Fund distributes annually to its shareholders at
least 90% of its net investment income and net short-term capital gain for the
taxable year ("Distribution Requirement"). For a Fund to qualify as a RIC it
must abide by all of the following requirements: (1) at least 90% of the Fund's
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) at the close of each quarter of the Fund's 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 Fund and that does
not represent more than 10% of the outstanding voting securities of such issuer;
and (3) at the close of each quarter of the Fund's 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 Fund 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 its ordinary income for that year; (2) 98% of its 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 Fund subsequent to December 31 but prior to February 1 of the
following year.
If a shareholder receives a distribution taxable as a 20% gain or a 28%
gain with respect to shares of a 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 a 20% loss or a 28% loss to the extent
of the respective capital gain distribution.
Issues Related to Hedging and Option Investments. A Fund's ability to make
certain investments may be limited by provisions of the Code that require
inclusion of certain unrealized gains or losses in the Fund's income
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for purposes of the Income Requirement 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 Fund 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 the 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.
If a Fund invests 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 Fund. The Fund 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 Fund's activities
in states and localities in which its offices are maintained, its agents or
independent contractors are located or it is otherwise deemed to be conducting
business, the Fund 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 Fund and its shareholders. Circumstances among
investors may vary and each investor is encouraged to discuss investment in the
Fund with the investor's tax advisor.
FINANCIAL STATEMENTS
The 1997 fiscal year-end financial statements of the Fund, including notes
to the financial statements and financial highlights and the Report of
Independent Accountants, are included in the Fund's Annual Reports to
shareholders. A copy of the Annual Report accompanies this Statement of
Additional Information and is incorporated herein by reference.
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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.
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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.
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:
[bullet] 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:
[bullet] Leading market positions in well-established
industries. High rates of return on funds employed.
[bullet] Conservative capitalization structure with moderate
reliance on debt and ample asset protection.
[bullet] Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
[bullet] Well-established access to a range of financial
markets and assured sources of alternate liquidity.
[bullet] 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.
[bullet] 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.
[bullet] 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.
Duff and Phelps, Inc. Duff & Phelps' short-term ratings are consistent
with the rating criteria utilized by
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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 U.S. 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.
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
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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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<PAGE>
Filed pursuant to Rule 485(b)
File Nos. 33-19229; 811-5430
SSgA FUNDS
One International Place
Boston, Massachusetts 02110
(800) 647-7327
STATEMENT OF ADDITIONAL INFORMATION
YIELD PLUS FUND
December 24, 1997
SSgA Funds ("Investment Company") is a registered open-end investment
company organized as a Massachusetts business trust offering shares of
beneficial interest in separate investment portfolios. In addition, each series
of the Investment Company is diversified as defined under the Investment Company
Act of 1940, as amended (the "1940 Act").
This Statement of Additional Information supplements or describes in
greater detail the Investment Company and the SSgA Yield Plus Fund (the "Yield
Plus Fund" or the "Fund") as contained in the Fund's Prospectus dated December
24, 1997. This Statement is not a Prospectus and should be read in conjunction
with the Fund's Prospectus, which may be obtained by telephoning or writing
Investment Company at the number or address shown above.
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<PAGE>
TABLE OF CONTENTS
Page
----
Structure and Governance................................................... 3
Organization and Business History................................. 3
Shareholder Meetings.............................................. 4
Controlling Shareholders.......................................... 4
Principal Shareholders............................................ 4
Trustees and Officers............................................. 4
Operation of Investment Company............................................ 6
Service Providers ............................................... 6
Advisor ......................................................... 6
Administrator..................................................... 7
Distributor....................................................... 7
Custodian and Transfer Agent...................................... 7
Independent Accountants........................................... 7
Distribution Plan ............................................... 7
Federal Law Affecting State Street................................ 8
Valuation of Fund Shares.......................................... 8
Brokerage Practices............................................... 9
Portfolio Turnover Rate........................................... 10
Yield and Total Return Quotations................................. 11
Investments................................................................ 12
Investment Restrictions........................................... 12
Investment Policies............................................... 13
Hedging Strategies and Related Investment Techniques.............. 16
Taxes .................................................................. 21
Financial Statements....................................................... 22
Appendix: Description of Securities Ratings............................... 23
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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 Yield Plus Fund is one such investment portfolio. The Trustees
may create additional Funds at any time without shareholder approval.
As of the date of this Statement of Additional Information, Investment
Company is comprised of the following investment portfolios, each of which
commenced operations on the date set forth opposite the portfolio's name:
SSgA Money Market Fund May 2, 1988
SSgA US Government Money Market Fund March 1, 1991
SSgA Matrix Equity Fund May 4, 1992
SSgA Yield Plus Fund November 9, 1992
SSgA Small Cap Fund July 1, 1992
SSgA S&P 500 Index Fund December 30, 1992
SSgA Growth and Income Fund September 1, 1993
SSgA Intermediate Fund September 1, 1993
SSgA US Treasury Money Market Fund December 1, 1993
SSgA Prime Money Market Fund February 22, 1994
SSgA Emerging Markets Fund March 1, 1994
SSgA Tax Free Money Market Fund December 1, 1994
SSgA Active International Fund March 7, 1995
SSgA Bond Market Fund February 7, 1996
SSgA Life Solutions Balanced Fund June 2, 1997
SSgA Life Solutions Growth Fund June 2, 1997
SSgA Life Solutions Income and Growth Fund June 2, 1997
SSgA Real Estate Equity Fund *
SSgA US Treasury Obligations Fund *
SSgA International Pacific Index Fund *
---------------
*As of the date of this Statement of Additional Information, these
portfolios have not commenced operations.
Prospectuses for these investment portfolios may be obtained by calling
Investment Company's distributor, Russell Fund Distributors, Inc., at (800)
647-7327, or at its Internet Web Site at www.ssgafunds.com.
Investment Company is authorized to divide shares of any series into two
or more classes of shares. The shares of each 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 Fund may have
separate voting rights or no voting rights. Each class of shares of a Fund is
entitled to the same rights and privileges as all other classes of that Fund,
except that each class bears the 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 Fund's
portfolio securities. Shares of the Money Market, US Government Money Market and
Tax Free Money Market Funds are divided into Classes A, B and C.
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 Fund, must be approved by the holders of a majority
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<PAGE>
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 the Fund may be held personally
liable for the obligations of the Fund. The Master Trust Agreement provides that
shareholders shall not be subject to any personal liability for the acts or
obligations of the Fund and that every written agreement, obligation, or other
undertaking of the Fund shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The Master Trust Agreement
also provides that the Fund shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the 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 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 November 30, 1997, State Street held beneficially and of
record 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 November 30, 1997, the following
shareholders owned of record 5% or more of the issued and outstanding shares of
the Fund:
[bullet] International Paper Reserve, State Street Bank and Trust Company 9th
Floor, 1290 Avenue of Americas, New York, NY 10104 -- 7%;
[bullet] Stock Performance Index Futures Fund CM18, a fund of State Street Bank
and Trust Company, 225 Franklin Street, Boston, MA 02110 -- 57%;
[bullet] State Street Solutions, State Street Bank and Trust Company, TTE, P.O.
Box 1389, Boston, MA 02104 -- 7%; and
[bullet] VSD Libor Plus CMA2, P.O. Box 351, Boston, MA 02110 -- 5%.
Such shares may be held pursuant to a shareholder servicing arrangement in
omnibus accounts for underlying shareholders.
The Trustees and officers of Investment Company, as a group, own less than
1% of Investment Company's voting securities.
Trustees and Officers. The Board of Trustees is responsible for overseeing
generally the operation of the Fund. The 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 Fund's operations.
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. Investment
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<PAGE>
Company's officers and employees are paid by Administrator or its affiliates.
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. Trustee, President and Chief Executive Officer, Russell Insurance Funds
(investment company). Director, Chief Executive Officer and Chairman of the
Board, Russell Fund Distributors, Inc. Trustee, President and Chief Executive
Officer, Frank Russell Investment Company (investment company); Director, Chief
Executive Officer and Chairman of the Board, Frank Russell Investment Management
Company; Director, Chief Executive Officer and President, Frank Russell Trust
Company; Director and Chairman, Frank Russell Investment Company Public Limited
Company; November 1995 to February 1997, Director, Frank Russell Company;
Director and Chairman of the Board, Frank Russell Company (Delaware); Director,
Frank Russell Company; March 1989 to June 1993, Director, Frank Russell Company,
Director of Frank Russell Investments (Ireland) Limited; Director and Chairman,
Frank Russell Investment Company Public Limited Company. Until September 1994,
Director and President, The Laurel Funds, Inc. (investment company).
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 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. 350 Park Avenue, 15th Floor,
New York, NY 10022. Partner, Squire, Sanders & Dempsey (law firm). From 1994 to
1997, Partner, Brown, Rudnick, Freed & Gesmer (law firm). From 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. 1990 to 1992, President, Champions Group Resources--Business
Management and Employee Benefits Consulting; 1990, Senior Vice President,
Employee Benefits Division, Cigna Corporation (providing and insuring group
life, health and disability employee benefit products and services); from 1986
to 1990, Senior Vice President, EQUICOR-Equitable HCA Corporation (providing and
insuring group life, health and disability employee benefit products and
services).
*Bruce D. Taber, Trustee. Born 4/25/43. 26 Round Top Road, Boxford, MA
01921. Consultant, Computer Simulation, General Electric Industrial Control
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
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<PAGE>
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. Treasurer and Chief Accounting Officer, Russell
Insurance Funds (investment company); Director of Finance and Operations, Frank
Russell Trust Company; Director, Fund Administration and Operations of Frank
Russell Investment Management Company and Russell Fund Distributors, Inc.;
Treasurer and Chief Accounting Office, Frank Russell Investment Company
(investment company); March 1993 to January 1996, Vice President, Operations,
Funds Management, J.P. Morgan; December 1985 to March 1993, Senior Vice
President, Operations, Frank Russell Investment Company, The Laurel Funds, Inc.
and The Seven Seas Series Fund (investment companies); Director of Operations,
Frank Russell Investment Management Company and Frank Russell Trust Company;
Director, Russell Fund Distributors, Inc.
Total Annual Compensation
Trustee from Investment Company
--------------------------------------------------------
Lynn L. Anderson $0
William L. Marshall $55,500
Steven J. Mastrovich $55,500
Patrick J. Riley $55,500
Richard D. Shirk $55,500
Bruce D. Taber $55,500
Henry W. Todd $55,500
OPERATION OF INVESTMENT COMPANY
Service Providers. Most of the 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.
Advisor. State Street Bank and Trust Company ("State Street" or "Advisor")
serves as the Fund's 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 Corporation, a publicly held bank
holding company. State Street's address is 225 Franklin Street, Boston, MA
02110.
Under the Advisory Agreement, Advisor directs the Fund's investments in
accordance with its investment objectives, policies and limitations. For these
services, the Fund pays a fee to Advisor at the rate stated in the Prospectus.
The Yield Plus Fund accrued expenses to Advisor of $2,310,253 in fiscal 1997,
$3,461,407 in fiscal 1996 and $3,256,063 in fiscal 1995.
The Advisory Agreement will continue from year to year provided that a
majority of the Trustees who are not interested persons of the Fund and either a
majority of all Trustees or a majority of the shareholders of the Fund approve
its continuance. The Agreement may be terminated by Advisor or a Fund without
penalty upon sixty days' notice and will terminate automatically upon its
assignment.
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<PAGE>
Administrator. Frank Russell Investment Management Company
("Administrator") serves as the Fund's administrator, pursuant to an
Administration Agreement dated April 12, 1988 ("Administration Agreement"). A
description of the services provided under the Administration Agreement and the
basis for computing fees for such services is provided in the Fund's Prospectus.
The Yield Plus Fund accrued expenses to Administrator of $290,411 in fiscal
1997, $384,596 in fiscal 1996 and $384,923 in fiscal 1995.
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 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 any Fund 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, Winston-Salem, New
York City, Toronto, London, Tokyo, Sydney, Zurich, Paris and Auckland, and have
approximately 1,200 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 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 One International Place, Boston,
MA 02110.
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
Custodian services, State Street is paid an annual fee in accordance with the
following: custody services--a fee payable monthly on a pro rata basis, based on
the following percentages of average daily net assets of each 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 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. For Transfer and Dividend
Disbursing Agent services, State Street is paid the following annual account
services fees: $9.00 open account fee; $1.50 closed account fee; fund minimum
per portfolio for one to four portfolios--$36,000, five to six
portfolios--$24,000, and over six portfolios $18,000. Portfolio fees are
allocated to each fund based on the average net asset value of each fund and are
billable on a monthly basis at the rate of 1/12 of the annual fee. State Street
will apply a $5.00 fee to each telephone transaction (purchase or redemption),
which is applied against the monthly billing. State Street is reimbursed by the
Fund 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 Fund may, directly or indirectly, bear distribution and shareholder
servicing expenses. The Rule provides that the Fund may pay for such expenses
only pursuant to a plan adopted in accordance with the Rule. Accordingly, the
Fund has adopted an active distribution plan (the "Plan"), which is described in
the Fund's Prospectus.
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<PAGE>
The Plan provides that 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 Fund 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 Fund 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 Fund nor have
any direct or indirect financial interest in the operation of the Plan or any
related agreements.
The Fund accrued expenses in the following amounts to Russell Fund
Distributors, Inc., as Distributor, for the fiscal years ended August 31:
1997 1996 1995
---- ---- ----
$274,801 $256,977 $261,109
For fiscal 1997, this amount is reflective of the following individual
payments:
Advertising $ 23,278
Printing of Prospectuses 13,873
Compensation to Dealers 367
Compensation to Sales Personnel 100,197
Other* 137,086
--------
$274,801
========
* 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 Fund may also enter into agreements ("Service
Agreements") with financial institutions, which may include Advisor ("Service
Organizations"), to provide shareholder servicing with respect to Fund shares
held by or for the customers of the Service Organizations. Such arrangements are
more fully described in the Fund's Prospectus under "Distribution Services and
Shareholder Servicing."
The Fund accrued expenses in the following amounts to Advisor, under a
Service Agreement pursuant to Rule 12b-1, for fiscal years ended August 31:
1997 1996 1995
---- ---- ----
$255,201 $320,725 $506,798
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 certain 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 Fund, 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 Fund contemplated under this arrangement
are consistent with its statutory and regulatory obligations.
Valuation of Fund Shares. Net asset value per share is calculated once
each business day for the Fund 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,
Martin Luther King Jr. Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
Trading may occur 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). The trading of
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<PAGE>
portfolio securities at such times may significantly increase or decrease the
net asset value of the Fund's share when shareholders do not have the ability to
purchase or redeem shares. Therefore, 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 Fund's calculation of its net asset value unless the Board of
Trustees determines that the particular event would materially affect the Fund's
net asset value, in which case an adjustment would be made.
With the exceptions noted below, the Fund values 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 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.
Because many fixed income securities do not trade each day, last sale or
bid prices are frequently not available. Therefore, fixed income securities 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 equity 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 or
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.
The Fund values 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
Fund would receive if it sold the instrument.
For example, in periods of declining interest rates, the daily yield on
Fund shares computed by dividing the annualized daily income on the Fund's
portfolio by the net asset value based upon the amortized cost valuation
technique 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 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. All portfolio transactions are placed on behalf of
the Fund by Advisor. Advisor ordinarily pays commissions when it executes
transactions on a securities exchange. In contrast, there is generally no stated
commission in the purchase or sale of securities traded in the over-the-counter
markets, including most debt securities on 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 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
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<PAGE>
research services" (as those terms are defined in Section 28(e) of the
Securities Exchange Act of 1934) provided to the Fund and/or Advisor (or its
affiliates). Advisor is authorized to cause the 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 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 Advisor's performance of its
responsibilities in connection with the placement of portfolio transactions on
behalf of the Fund and review the prices paid by the Fund over representative
periods of time to determine if such prices are reasonable in relation to the
benefits provided to the Fund. Certain services received by Advisor attributable
to a particular Fund transaction may benefit one or more other accounts for
which Advisor exercises investment discretion, or an 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.
During the fiscal year ended August 31, 1997, the Fund 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 the Fund's ten largest brokers or dealers
by dollar amounts of securities executed or commissions received on behalf of
the Fund. The value of broker-dealer securities held as of August 31, 1997, is
as follows:
($000)
--------------------
Investment Technology Group, Inc. (a) 0
Morgan Stanley & Co. (a) 0
Broadcort Capital (a) 0
Merrill Lynch, Pierce, Fenner, Inc. 37,814
State Street Brokerage Services, Inc. (a) 0
Bear, Stearns Securities (a) 0
National Financial Services (a) 0
Nomura Securities International (a) 0
Barclays Dezoete Wedd (a) 0
Instinet (a) 0
Prebon (b) 0
Swiss Bank Corp. (b) 0
Lumis & Co. (b) 0
HSBC Securities (b) 14,000
Goldman Sachs & Co. (b) 0
UBS Securities, Inc. (b) 0
Aubrey G. Lanston & Co. (b) 0
Lehman Brothers Inc. (b) 0
Donaldson, Lufkin & Jenrette (b) 0
- ---------------------
(a) Broker commissions only
(b) Broker principal transactions only
(a) Broker commissions only
(b) Broker principal transactions only
Portfolio Turnover Rate. The portfolio turnover rate for the 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.
The portfolio turnover rates for the Fund for the last two fiscal years
ended August 31, were:
1997 1996
---- ----
92.38% 97.05%
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Yield and Total Return Quotations. The Fund computes 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
funds 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 Fund
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 returns for the Fund are as follows:
One Year
Ending Inception to
August 31, 1997 August 31,1997*
--------------- ---------------
5.67% 4.97%
*Periods less than one year are not annualized. The Fund commenced
operations on November 9, 1992.
Total returns and other performance figures are based on historical
earnings and are not indicative of future performance.
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 following is the current 30-day yield for the Yield Plus Fund for the
period ended August 31, 1997:
30-day Yield (Annualized) 5.51%
The yield quoted is not indicative of future results. Yields will depend
on the type, quality, maturity and interest rate of instruments held by the
Fund.
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INVESTMENTS
The investment objective of the Fund is set forth in its Prospectus. The
Fund also has certain "fundamental" investment restrictions, which may be
changed only with the approval of a majority of the shareholders of the Fund,
and certain nonfundamental investment restrictions and policies, which may be
changed by the Fund without shareholder approval.
Investment Restrictions
The Fund is subject to the following investment restrictions, restrictions
1 through 11 are fundamental and restrictions 12 through 15 are nonfundamental.
Unless otherwise noted, these restrictions apply at the time an investment is
made. The Fund will 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 and instrumentalities, and non-depository instruments issued by
European banks). 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 Fund's assets
taken at market value, less liabilities other than borrowings. If at any time
the 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. The 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, the Fund may
pledge securities having a market value at the time of the pledge not exceeding
33-1/3% of the value of the Fund's 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), if immediately after and as a result of such investment the
current market value of the Fund's holdings in the securities of such issuer
exceeds 5% of the value of the Fund's assets.
(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. The 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 the Fund's total
assets.
(6) Purchase or sell commodities or commodity futures contracts except
that the Fund may enter into futures contracts and options thereon to the extent
provided in its Prospectus.
(7) Purchase or sell real estate or real estate mortgage loans; provided,
however, the Fund 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 Fund 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.
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(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 the 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 Fund 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 Fund,
including their investment advisors and affiliates, except as permitted by the
1940 Act and exemptive rules or orders thereunder.
(13) Invest in securities issued by other investment companies except in
connection with a merger, consolidation, acquisition of assets, or other
reorganization approved by the Fund's shareholders, except that the Fund may
invest in such securities to the extent permitted by the 1940 Act.
(14) Invest more than 15% 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.
(15) Make investments for the purpose of gaining control of an issuer's
management.
Investment Policies
The Fund may invest in the following instruments:
US Government Obligations. The types of US Government obligations in which
the Fund may at times invest include: (1) A variety of US Treasury obligations
(including Inflation-Protection Securities, described below), 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 Fund may purchase US Government obligations on a forward commitment
basis.
Treasury Inflation-Protection Securities. The Fund may invest in
Inflation-Protection Securities ("IPS"), 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.
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Repurchase Agreements. The Fund may enter into repurchase agreements with
financial institutions. Under repurchase agreements, these parties sell
securities to the 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 Fund in being invested fully while retaining "overnight" flexibility
in pursuit of investments of a longer-term nature. The Fund 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. The Fund may enter into reverse repurchase
agreements under the circumstances described in "Investment Restrictions." Under
reverse repurchase agreements, the 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. The 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.
Forward Commitments. The Fund may contract to purchase securities for a
fixed price at a future date beyond customary settlement time consistent with
the Fund's ability to manage its investment portfolio, maintain a stable net
asset value and meet redemption requests. The Fund 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 Fund of a dollar amount sufficient to make
payment for the portfolio securities to be purchased will be segregated on the
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. 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 Fund will make commitments to purchase when-issued securities only
with the intention of actually acquiring the securities, but the Fund 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 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 Fund's records on a daily basis so that the market value of
the account will equal the amount of such commitments by the Fund. The Fund will
not invest more than 25% of its net assets in when-issued securities.
Securities purchased on a when-issued basis and held by the Fund 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 when interest rates decline and decrease in value when interest rates
rise. Therefore, if in order to achieve higher interest income the 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 Fund's net asset value.
When payment for when-issued securities is due, the 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 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 Fund may invest in commercial paper
issued in reliance on the so-
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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 Fund's
investment restriction relating to investments in illiquid securities.
Variable and Floating Rate Securities. The Fund 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. 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 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. 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 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 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
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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.
Zero Coupon Securities. 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.
Because the Fund accrues taxable income from zero coupon securities
without receiving regular interest payments in cash, the 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 Fund.
Investing in these securities might also force the Fund 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.
Hedging Strategies and Related Investment Techniques
The Fund 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
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currency exchange transactions. The Fund 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
Fund may also deal in certain forward contracts, including forward foreign
exchange transactions, foreign currency options and futures, and related options
on such futures. The Fund 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 Fund will only engage
in these transactions for hedging purposes, the options and futures portfolio
strategies of the Fund will not subject the Fund to the risks frequently
associated with the speculative use of options and futures transactions.
Although the use of hedging strategies by the Fund is intended to reduce the
volatility of the net asset value of the Fund's shares, the Fund's net asset
value will nevertheless fluctuate. There can be no assurance that the Fund's
hedging transactions will be effective.
Hedging Foreign Currency Risk. The 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 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 portfolio positions generally.
The 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 attempt to hedge
all of its portfolio positions and will enter into such transactions only to the
extent, if any, deemed appropriate by Advisor. The Fund will not enter into a
position hedging commitment if, as a result thereof, the Fund 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.
In addition to the forward exchange contracts, the 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 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. Since
transactions in foreign currency exchange usually are conducted on a principal
basis, no fees or commissions are involved. Transactions involving forward
exchange contracts and futures contracts and options thereon are subject to
certain risks. A detailed discussion of such risks appears under the caption
"Risk Factors in Options, Futures, Forward and Currency Transactions."
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 Fund
will not speculate in foreign security or currency options or futures or related
options. The Fund will not hedge a currency substantially in excess of: (1) the
market value of securities denominated in such currency that the Fund has
committed to purchase or anticipates purchasing; or (2) in the case of
securities that have been sold by the Fund but not yet delivered, the proceeds
thereof in their denominated currency. The Fund will not incur potential net
liabilities of more than 25% of its total assets from foreign security or
currency options, futures or related options.
Writing Covered Call Options. The Fund is 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 Fund 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 Fund 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 Fund
would seek to mitigate the effects of a price decline. By writing covered call
options, however, the Fund 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 Fund's ability to sell the
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underlying security will be limited while the option is in effect unless the
Fund effects a closing purchase transaction.
Writing Covered Put Options. The Fund is authorized to write (sell)
covered put options on its portfolio securities and to enter into closing
transactions with respect to such options.
When the Fund 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 Fund 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 Fund 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 Fund has written,
however, the Fund 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.
The Fund may write put options as an alternative to purchasing actual
securities. If security prices rise, the Fund 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 Fund will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the Fund would expect to
suffer a loss. This loss should be less than the loss the Fund 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 Fund is authorized to purchase put options
to hedge against a decline in the market value of its portfolio securities. By
buying a put option the Fund has the right (but not the obligation) to sell the
underlying security at the exercise price, thus limiting the 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 Fund 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 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 Fund 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 Fund would exceed 5% of the market value of the Fund's total assets.
Purchasing Call Options. The Fund is 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 Fund will purchase call options only in
connection with "closing purchase transactions."
Stock Index Options and Financial Futures. The Fund is authorized to
engage in transactions in stock index options and financial futures, and related
options. The Fund 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 Fund 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 Fund 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 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 Fund's investments in
foreign options, unless such options are specifically authorized for investment
by order of the CFTC, the Fund will not make such investments.
The Fund 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
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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 Fund 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 Fund in stock index futures and financial
futures are subject to limitations as described below under "Restrictions on the
Use of Futures Transactions."
The Fund may sell futures contracts in anticipation of or during a
market decline to attempt to offset the decrease in market value of the Fund's
securities portfolio that might otherwise result. When the Fund is not fully
invested in the securities markets and anticipates a significant market advance,
the Fund may purchase futures in order to gain rapid market exposure that may
partially or entirely offset increases in the cost of securities that the Fund
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 Fund 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 Fund experiences a
significant amount of redemptions), a long futures position may be terminated
without the corresponding purchase of securities.
The Fund 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 Fund enters into futures transactions. The Fund
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 Fund 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 Fund
intends to purchase.
The Fund is 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 Fund is 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 Fund, sold by the
Fund but not yet delivered, or committed or anticipated to be purchased by the
Fund. As an illustration, the Fund 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 Fund 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 futures 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
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released by the broker and the purchaser realizes a loss or gain. In addition, a
nominal commission is paid on each completed sale transaction.
Regulations of the CFTC applicable to the Fund requires that all of the
Fund's futures and options on futures transactions constitute bona fide hedging
transactions and that the Fund not enter into such transactions if, immediately
thereafter, the sum of the amount of initial margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed 5%
of the market value of the Fund's total assets.
Restrictions on OTC Options. The Fund 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 Fund will acquire only those OTC options for which Advisor believes
the Fund 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 Fund 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 Fund; (2) the market value of the underlying
securities covered by outstanding OTC call options sold by the Fund; (3) margin
deposits on the Fund's existing OTC options on futures contracts; and (4) the
market value of all other assets of the Fund that are illiquid or are not
otherwise readily marketable, would exceed 10% of the net assets of the Fund,
taken at market value. However, if an OTC option is sold by the Fund to a
primary US Government securities dealer recognized by the Federal Reserve Bank
of New York and the Fund has the unconditional contractual right to repurchase
such OTC option from the dealer at a predetermined price, then the Fund 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 Fund will not use
leverage in its options and futures strategies. Such investments will be made
for hedging purposes only. The Fund will hold securities or other options or
futures positions whose values are expected to offset its obligations under the
hedge strategies. The Fund will not enter into an option or futures position
that exposes the Fund 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 Fund 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 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 Fund's assets could
impede portfolio management or the 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 Fund's portfolio
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 Fund 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. To compensate for imperfect
correlations, the Fund 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 Fund may
purchase or sell fewer stock index options or futures
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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 Fund 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 Fund 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 Fund 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 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 Fund intends 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 Fund will not be liable for federal income
taxes on taxable net investment income and net capital gain (long-term capital
gains in excess of short-term capital losses) that it distributes to its
shareholders, provided that the Fund distributes annually to its shareholders at
least 90% of its net investment income and net short-term capital gain for the
taxable year ("Distribution Requirement"). For the Fund to qualify as a RIC it
must abide by all of the following requirements: (1) at least 90% of the Fund's
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) at the close of each quarter of the Fund's 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 Fund and that does
not represent more than 10% of the outstanding voting securities of such issuer;
and (3) at the close of each quarter of the Fund's 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 Fund 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 its ordinary income for that year; (2) 98% of its 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 Fund subsequent to December 31 but prior to February 1 of the
following year.
If a shareholder receives a distribution taxable as a 20% gain or a 28%
gain with respect to shares of a 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 a 20% loss or a 28% loss to the extent
of the respective capital gain distribution.
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As of August 31, 1997, the Fund had a net tax basis capital loss
carryforward of $1,538,342, which may be applied against any realized net
taxable gains of each succeeding year until the expiration of August 31, 2004.
Issues Related to Hedging and Option Investments. The Fund's ability to
make certain investments may be limited by provisions of the Code that require
inclusion of certain unrealized gains or losses in the Fund's income for
purposes of the Income Requirement 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 Fund 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 the 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 Fund in advance since the amount of the assets to be
invested within various countries is not known.
If the Fund invests 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 Fund. The Fund 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 Fund's activities
in states and localities in which its offices are maintained, its agents or
independent contractors are located or it is otherwise deemed to be conducting
business, the Fund 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 Fund and its shareholders. Circumstances among
investors may vary and each investor is encouraged to discuss investment in the
Fund with the investor's tax advisor.
FINANCIAL STATEMENTS
The 1997 fiscal year-end financial statements of Yield Plus Fund,
including notes to the financial statements and financial highlights and the
Report of Independent Accountants, are included in the Fund's Annual Report to
shareholders. A copy of this Annual Report accompanies this Statement of
Additional Information and is incorporated herein by reference.
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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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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:
[bullet] 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:
[bullet] Leading market positions in well-established
industries.
[bullet] High rates of return on funds employed.
[bullet] Conservative capitalization structure with moderate
reliance on debt and ample asset protection.
[bullet] Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
[bullet] Well-established access to a range of financial
markets and assured sources of alternate liquidity.
[bullet] 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.
[bullet] 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.
[bullet] 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.
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.
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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.
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.
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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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Filed pursuant to Rule 485(b)
File Nos. 33-19229; 811-5430
SSgA FUNDS
One International Place
Boston, Massachusetts 02110
(800) 647-7327
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
EMERGING MARKETS FUND
December 24, 1997
SSgA Funds ("Investment Company") is a registered open-end investment
company organized as a Massachusetts business trust offering shares of
beneficial interest in separate investment portfolios. In addition, each series
of the Investment Company is diversified as defined in the Investment Company
Act of 1940, as amended ("1940 Act").
This Statement of Additional Information supplements or describes in
greater detail the Investment Company and the SSgA Emerging Markets Fund (the
"Emerging Markets Fund" or the "Fund") as contained in the Fund's Prospectus
dated December 24, 1997. This Statement is not a Prospectus and should be read
in conjunction with the Fund's Prospectus, which may be obtained by telephoning
or writing Investment Company at the number or address shown above.
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
Structure and Governance.................................................. 3
Organization and Business History................................ 3
Shareholder Meetings............................................. 4
Controlling Shareholders......................................... 4
Principal Shareholders........................................... 4
Trustees and Officers............................................ 4
Operation of Investment Company........................................... 6
Service Providers .............................................. 6
Advisor.......................................................... 6
Administrator.................................................... 6
Distributor...................................................... 7
Custodian and Transfer Agent..................................... 7
Independent Accountants.......................................... 7
Distribution Plan .............................................. 7
Federal Law Affecting State Street............................... 8
Valuation of Fund Shares......................................... 8
Brokerage Practices.............................................. 8
Portfolio Turnover Policy........................................ 9
Total Return Quotations.......................................... 10
Investments............................................................... 10
Investment Restrictions.......................................... 10
Investment Policies.............................................. 12
Hedging Strategies and Related Investment Techniques............. 14
Risk Considerations....................................................... 18
Taxes..................................................................... 19
Financial Statements...................................................... 20
Appendix: Description of Securities Ratings.............................. 21
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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 Emerging Markets Fund is one such investment portfolio. The
Trustees may create additional Funds at any time without shareholder approval.
Further, the Investment Company is authorized to divide shares of any
series into two or more classes of shares. The shares of each 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 Fund may have separate voting rights or no voting rights. Each class
of shares of a Fund is entitled to the same rights and privileges as all other
classes of that Fund, except that each class bears the 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 Fund's portfolio securities.
As of the date of this Statement of Additional Information, Investment
Company is comprised of the following investment portfolios, each of which
commenced operations on the date set forth opposite the portfolio's name:
SSgA Money Market Fund May 2, 1988
SSgA US Government Money Market Fund March 1, 1991
SSgA Matrix Equity Fund May 4, 1992
SSgA Small Cap Fund July 1, 1992
SSgA Yield Plus Fund November 9, 1992
SSgA S&P 500 Index Fund December 30, 1992
SSgA Growth and Income Fund September 1, 1993
SSgA Intermediate Fund September 1, 1993
SSgA US Treasury Money Market Fund December 1, 1993
SSgA Prime Money Market Fund February 22, 1994
SSgA Emerging Markets Fund March 1, 1994
SSgA Tax Free Money Market Fund December 1, 1994
SSgA Active International Fund March 7, 1995
SSgA Bond Market Fund February 7, 1996
SSgA Life Solutions Balanced Fund June 2, 1997
SSgA Life Solutions Growth Fund June 2, 1997
SSgA Life Solutions Income and Growth Fund June 2, 1997
SSgA Real Estate Equity Fund *
SSgA US Treasury Obligations Fund *
SSgA International Pacific Index Fund *
- ----------
*As of the date of this Statement of Additional Information, these portfolios
have not commenced operations.
Prospectuses for these Investment Portfolios may be obtained by calling
Investment Company's distributor, Russell Fund Distributors, Inc., at (800)
647-7327, or at its Internet Web Site at www.ssgafunds.com.
Shares of the Money Market, US Government Money Market and Tax Free Money
Market Funds are divided into Classes A, B and C.
Any amendment to the Master Trust Agreement that would materially and
adversely affect shareholders of
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<PAGE>
Investment Company as a whole, or shareholders of a particular 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 Fund may be held personally
liable for the obligations of a 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 Fund shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The Master Trust Agreement
also provides that the Fund shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the 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 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 November 30, 1997, State Street held beneficially and of
record 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 November 30, 1997, the following shareholders
owned of record 5% or more of the issued and outstanding shares of the Fund:
[bullet] Charles Schwab & Company, Inc., 101 Montgomery Street, San
Francisco, CA 94104 -- 47%.
Such shares may be held pursuant to a shareholder servicing arrangement in
omnibus accounts for underlying shareholders.
The Trustees and officers of Investment Company, as a group, own less than
1% of Investment Company's voting securities.
Trustees and Officers. The Board of Trustees is responsible for overseeing
generally the operation of the Fund. The 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 Fund's operations.
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. Investment Company's officers and employees are paid by
Administrator or its affiliates.
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.
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<PAGE>
*Lynn L. Anderson, Trustee, Chairman of the Board and President. Born
4/22/39. Trustee, President and Chief Executive Officer, Russell Insurance Funds
(investment company). Director, Chief Executive Officer and Chairman of the
Board, Russell Fund Distributors, Inc. Trustee, President and Chief Executive
Officer, Frank Russell Investment Company (investment company); Director, Chief
Executive Officer and Chairman of the Board, Frank Russell Investment Management
Company; Director, Chief Executive Officer and President, Frank Russell Trust
Company; Director and Chairman, Frank Russell Investment Company Public Limited
Company; November 1995 to February 1997, Director, Frank Russell Company;
Director and Chairman of the Board, Frank Russell Company (Delaware); Director,
Frank Russell Company; March 1989 to June 1993, Director, Frank Russell Company,
Director of Frank Russell Investments (Ireland) Limited; Director and Chairman,
Frank Russell Investment Company Public Limited Company. Until September 1994,
Director and President, The Laurel Funds, Inc. (investment company).
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 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. p., Marietta, Georgia.
*Steven J. Mastrovich, Trustee. Born 11/3/56. 350 Park Avenue, 15th Floor,
New York, NY 10022. Partner, Squire, Sanders & Dempsey (law firm). From 1994 to
1997, Partner, Brown, Rudnick, Freed & Gesmer (law firm). From 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. 1990 to 1992, President, Champions Group Resources--Business
Management and Employee Benefits Consulting; 1990, Senior Vice President,
Employee Benefits Division, Cigna Corporation (providing and insuring group
life, health and disability employee benefit products and services); from 1986
to 1990, Senior Vice President, EQUICOR-Equitable HCA Corporation (providing and
insuring group life, health and disability employee benefit products and
services).
*Bruce D. Taber, Trustee. Born 4/25/43. 26 Round Top Road, Boxford, MA
01921. Consultant, Computer Simulation, General Electric Industrial Control
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. Treasurer and Chief Accounting Officer, Russell
Insurance Funds (investment company); Director of Finance and Operations, Frank
Russell Trust Company; Director, Fund Administration and Operations of Frank
Russell Investment Management Company and Russell Fund Distributors, Inc.;
Treasurer and Chief Accounting Office,
-5-
<PAGE>
Frank Russell Investment Company (investment company); March 1993 to January
1996, Vice President, Operations, Funds Management, J.P. Morgan; December 1985
to March 1993, Senior Vice President, Operations, Frank Russell Investment
Company, The Laurel Funds, Inc. and The Seven Seas Series Fund (investment
companies); Director of Operations, Frank Russell Investment Management Company
and Frank Russell Trust Company; Director, Russell Fund Distributors, Inc.
Total Annual Compensation
Trustee from Investment Company
----------------------------------------------------
Lynn L. Anderson $0
William L. Marshall $55,500
Steven J. Mastrovich $55,500
Patrick J. Riley $55,500
Richard D. Shirk $55,500
Bruce D. Taber $55,500
Henry W. Todd $55,500
OPERATION OF INVESTMENT COMPANY
Service Providers. Most of the 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.
Advisor. State Street Bank and Trust Company ("State Street") serves as the
Fund's investment advisor ("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 Corporation, a publicly held bank
holding company. State Street's address is 225 Franklin Street, Boston, MA
02110.
Under the Advisory Agreement, Advisor directs the Fund's investments in
accordance with its investment objective, policies and limitations. For these
services, the Fund pays a fee to Advisor at the rate stated in the Prospectus.
The Emerging Markets Fund accrued expenses to Advisor of $1,363,080 in fiscal
1997, $709,651 for fiscal 1996 and $321,920 for fiscal 1995. For the period
September 1, 1995 to October 31, 1995, the Advisor voluntarily agreed to
reimburse the Fund for all expenses in excess of 1.50% of average daily net
assets on an annual basis. Effective November 1, 1995, the Advisor voluntarily
agreed to reimburse the Fund for all expenses in excess of 1.25% of average
daily net assets. This reimbursement amounted to $478,666 in fiscal 1997,
$366,588 for fiscal 1996 and $169,331 for fiscal 1995.
The Advisory Agreement will continue from year to year provided that a majority
of the Trustees who are not interested persons of any Investment Portfolio and
either a majority of all Trustees or a majority of the shareholders of each
Investment Portfolio approve its continuance. The Agreement may be terminated by
Advisor or a Fund without penalty upon 60 days' notice and will terminate
automatically upon its assignment.
-6-
<PAGE>
Administrator. Frank Russell Investment Management Company
("Administrator") serves as the Fund's administrator, pursuant to an
Administration Agreement dated April 12, 1988 ("Administration Agreement"). A
description of the services provided under the Administration Agreement and the
basis for computing fees for such services is provided in the Fund's Prospectus.
The Emerging Markets Fund accrued expenses to Administrator of $113,579 in
fiscal 1997, $57,122 for fiscal 1996 and $25,877 for fiscal 1995.
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 any Investment Portfolio 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 a Fund without penalty upon 60 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, Winston-Salem, New
York City, Toronto, London, Tokyo, Sydney, Zurich, Paris and Auckland, and have
approximately 1,200 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 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 One International Place, Boston,
MA 02110.
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
Custodian services, State Street is paid an annual fee in accordance with the
following: custody services--a fee payable monthly on a pro rata basis, based on
the following percentages of average daily net assets of the Fund: $0 up to $100
million--0.05%, $100 million to $200 million -- 0.3%, over $200 million --
0.02%; securities transaction charges from $25.00 to $150.00 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
$11.00 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. For
Transfer and Dividend Disbursing Agent services, State Street is paid the
following annual account services fees: $9.00 open account fee; $1.50 closed
account fee; fund minimum per portfolio for one to four portfolios--$36,000,
five to six portfolios--$24,000, and over six portfolios $18,000. Portfolio fees
are allocated to each fund based on the average net asset value of each fund and
are billable on a monthly basis at the rate of 1/12 of the annual fee. State
Street will apply a $5.00 fee to each telephone transaction (purchase or
redemption), which is applied against the monthly billing. State Street is
reimbursed by the Fund 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 Fund may, directly or indirectly, bear distribution and shareholder
servicing expenses. The Rule provides that the Fund may pay for such expenses
only pursuant to a plan adopted in accordance with the Rule. Accordingly, the
Fund has adopted an active distribution plan (the "Plan"), which is described in
the Fund's Prospectus.
The Plan provides that the 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 Fund 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
-7-
<PAGE>
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 Fund 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 Fund nor have any direct or indirect financial interest in the
operation of the Plan or any related agreements.
The Fund accrued expenses to Russell Fund Distributors, Inc., as
Distributor, for the fiscal year ended August 31:
1997 1996 1995
---- ---- ----
$330,683 $210,030 $95,484
For fiscal 1997, this amount is reflective of the following individual
payments:
Advertising $ 4,875
Printing of Prospectuses 7,436
Compensation to Dealers 42,214
Compensation to Sales Personnel 17,746
Other* 258,412
-- -------
$330,683
* 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 Fund may also enter into agreements ("Service
Agreements") with financial institutions, which may include Advisor ("Service
Organizations"), to provide shareholder servicing with respect to Fund shares
held by or for the customers of the Service Organizations. Such arrangements are
more fully described in the Fund's Prospectus under "Distribution Services and
Shareholder Servicing."
The Fund accrued expenses in the following amount to Advisor, under a
Service Agreement pursuant to Rule 12b-1, for the fiscal year ended August 31:
1997 1996 1995
---- ---- ----
$54,699 $26,521 $11,820
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 Fund, 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 Fund contemplated under this arrangement are
consistent with its statutory and regulatory obligations.
Valuation of Fund Shares. The Fund determines net asset value per share
once each "business day," as of the close of the regular trading session of 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,
Martin Luther King Jr. Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
The Fund's portfolio securities actively trade on foreign exchanges which
may trade on days that the Fund does not offer or redeem shares. The trading of
portfolio securities on foreign exchanges on such days may significantly
increase or decrease the net asset value of Fund shares when the shareholder is
not able to purchase or redeem Fund shares. Further, because foreign securities
markets may close prior to the time the Fund determines net asset value, events
affecting the value of the portfolio securities occurring between the time
prices are determined and the time the Fund calculates net asset value may not
be reflected in the calculation of net asset value unless Advisor determines
that a particular event would materially affect the net asset value. If such an
event occurs, these securities will be valued at their fair value following
procedures approved by the Trustees.
-8-
<PAGE>
Brokerage Practices. All portfolio transactions are placed on behalf of the
Fund by Advisor. Advisor ordinarily pays commissions when it executes
transactions on a securities exchange. In contrast, there is generally no stated
commission in the purchase or sale of securities traded in the over-the-counter
markets, including most debt securities on 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.
The Fund contemplates purchasing most equity securities directly in the
securities markets located in emerging or developing countries or in the
over-the-counter markets. ADRs and EDRs may be listed on stock exchanges, or
traded in the over-the-counter markets in the US or Europe, as the case may be.
ADRs, like other securities traded in the US, will be subject to negotiated
commission rates.
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 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 Fund and/or Advisor (or its
affiliates). Advisor is authorized to cause the 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 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 Advisor's performance of its
responsibilities in connection with the placement of portfolio transactions on
behalf of the Fund and review the prices paid by the Fund over representative
periods of time to determine if such prices are reasonable in relation to the
benefits provided to the Fund. Certain services received by Advisor attributable
to a particular Fund transaction may benefit one or more other accounts for
which Advisor exercises investment discretion or an Investment Portfolio other
than such Fund. Advisor's fees are not reduced by Advisor's receipt of such
brokerage and research services.
The brokerage commissions paid by the Emerging Markets Fund were $260,777
in fiscal 1997, $205,687 for fiscal 1996 and $260,143 for fiscal 1995.
Of the total brokerage commissions paid by the Fund, commissions received
by an affiliated broker/dealer amounted to the following for each of the fiscal
years ended August 31:
1997 1996
-0- $2,726
During the fiscal year ended August 31, 1997, the Fund 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 Policy. Generally, securities are purchased for the Fund
for investment income and/or capital appreciation and not for short-term trading
profits. The Advisor's sell discipline for the Fund's investment in emerging
market companies is based on the premise of a long-term investment horizon,
however, sudden changes in
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<PAGE>
valuation levels arising from, for example, new macroeconomic policies,
political developments, and industry conditions could change the assumed time
horizon. Some countries impose restrictions on repatriation of capital and/or
dividends which would lengthen the Advisor's assumed time horizon in those
countries. Liquidity, volatility, and overall risk of a position are other
factors considered by the Advisor in determining the appropriate investment
horizon. Therefore, the Fund may dispose of securities without regard to the
time they have been held when such action, for defensive or other purposes,
appears advisable. The Fund will limit investments in illiquid securities to 15%
of net assets.
In addition, the Fund trades more actively to realize gains and/or to
increase yields on investments by trading to take advantage of short-term market
variations. This policy is expected to result in higher portfolio turnover for
the Fund. However, the Fund does not give significant weight to attempting to
realize long-term, rather than short-term, capital gains when making portfolio
management decisions.
The portfolio turnover rate for the 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.
The portfolio turnover rate for the Fund for each of the fiscal years ended
August 31, was:
1997 1996
---- ----
15.00% 4.36%
Total Return Quotations. The Fund computes 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-, five- and ten-year periods (or life of the funds 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-, 5- and 10-year periods
at the end of the year or period
The calculation assumes that all dividends and distributions of the Fund
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 the Fund is as follows:
One Year
Ending Inception to
August 31, 1997 August 31,1997*
15.12% 7.53%
* Periods less than one year are not annualized. The Fund commenced operations
on March 1, 1994.
Total returns and other performance figures are based on historical earnings and
are not indicative of future performance.
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<PAGE>
INVESTMENTS
The fundamental investment objective of the Fund is set forth in the
Prospectus. In addition to that investment objective, the Fund also has certain
fundamental investment restrictions, which may be changed only with the approval
of a majority of the shareholders of the Fund, and certain nonfundamental
investment restrictions and policies, which may be changed by the Fund without
shareholder approval.
Investment Restrictions
- -----------------------
The Fund is subject to the following investment restrictions. Restrictions
1 through 11 are fundamental, and restrictions 12 through 15 are nonfundamental.
These restrictions apply at the time an investment is made. The Fund will 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,
emerging market governments, their agencies and instrumentalities, and
non-depository instruments issued by European banks). Concentration may occur as
a result of changes in the market value of portfolio securities, but may not
result from investment.
(2) Borrow money, 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 Fund's assets taken at market value, less
liabilities other than borrowings. If at any time a 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
Fund will not purchase investments once borrowed funds exceed 5% of its total
assets.
(3) Pledge, mortgage, or hypothecate its assets. However, the Fund may
pledge securities having a market value (on a daily marked-to-market basis) at
the time of the pledge not exceeding 33-1/3% of the value of the Fund's 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, emerging markets
governments, their agencies and instrumentalities), if immediately after and as
a result of such investment the current market value of the Fund's holdings in
the securities of such issuer exceeds 5% of the value of the Fund's assets.
(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 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 the Fund's total
assets. Portfolio securities may be loaned if collateral values are continuously
maintained at no less than 100% by "marking to market" daily.
(6) Purchase or sell commodities or commodity futures contracts or option
on a futures contract except that the Fund may enter into futures contracts and
options thereon to the extent provided in its Prospectus, and if, as a result
thereof, more than 10% of the Fund's total assets (taken at market value at the
time of entering into the contract) would be committed to initial deposits and
premiums on open futures contracts and options on such contracts.
(7) Purchase or sell real estate or real estate mortgage loans; provided,
however, that the Fund may invest in securities secured by real estate or
interests therein or issued by companies which invest in real estate or
interests therein (including real estate investment trusts), and may purchase or
sell currencies (including forward currency exchange contracts), futures
contracts and related options generally as described in the Prospectus and
Statement of Additional Information.
(8) Except as required in connection with permissible financial options
activities and futures contracts, purchase securities on margin or underwrite
securities issued by others, except that a Fund 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. This restriction
does not preclude the Fund from obtaining such short-term credit as may be
necessary for the clearance of purchases and sales of its portfolio securities.
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<PAGE>
(9) Issue senior securities, except as permitted by its investment
objective, policies and restrictions, and except as permitted by the 1940 Act.
This restriction shall not be deemed to prohibit the Fund from (i) making any
permitted borrowings, mortgages or pledges, or (ii) entering into repurchase
transactions.
(10) Purchase or sell puts, calls or invest in straddles, spreads or any
combination thereof, except as described herein and in the Fund's Prospectus,
and subject to the following conditions: (i) such options are written by other
persons and (ii) the aggregate premiums paid on all such options which are held
at any time do not 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 Fund 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
Fund, including their investment advisors and affiliates, except as permitted by
the 1940 Act and exemptive rules or orders thereunder.
(13) Invest more than 15% 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.
(15) Invest in warrants, valued at the lower of cost or market, in excess
of 5% of the value of the Fund's net assets. Included in such amount, but not to
exceed 2% of the value of the Fund's net assets, may be warrants which are not
listed on the New York Stock Exchange or American Stock Exchange. Warrants
acquired by the Fund in units or attached to securities may be deemed to be
without value.
To the extent these restrictions reflect matters of operating policy which
may be changed without shareholder vote, these restrictions may be amended upon
approval by the Board of Trustees and notice to shareholders. The Fund currently
does not intend to invest in the securities of any issuer that would qualify as
a real estate investment trust under federal tax law.
Except with respect to Investment Restriction Nos. 2 and 13, if a
percentage restriction is adhered to at the time of investment, a subsequent
increase or decrease in a percentage resulting from a change in the values of
assets will not constitute a violation of that restriction, except as otherwise
noted.
Investment Policies
- -------------------
To the extent consistent with its fundamental investment objective and
restrictions, the Fund may invest in the following instruments and utilize the
following investment techniques:
Warrants. The Fund 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. The
Fund will not invest more than 5% of the value of their net assets in warrants,
or more than 2% in warrants which are not listed on the New York or American
Stock Exchange.
Repurchase Agreements. The Fund may enter into repurchase agreements with
financial institutions. Under repurchase agreements, these parties sell
securities to the 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 Fund in being invested fully while retaining "overnight" flexibility
in pursuit of investments of a longer-term nature. The Fund 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.
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Reverse Repurchase Agreements. The Fund 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. The 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.
Lending Portfolio Securities. The Fund may lend portfolio securities with a
value of up to 33-1/3% of its total assets. Such loans may be terminated at any
time. The Fund will continuously maintain as collateral cash or obligations
issued by the US Government, its agencies or instrumentalities in an amount
equal to not less than 100% of the current market value (on a daily
marked-to-market basis) of the loaned securities plus accrued interest.
The Fund will retain most rights of beneficial ownership, including the
right to receive dividends, interest and other distributions on the loaned
securities. However, the borrower has the right to vote the loaned securities.
The Fund will call loans to vote proxies if a material issue affecting the
investment is passed upon. Should the borrower of the securities fail
financially, the Fund may experience delay in recovering the securities or loss
of rights in the collateral. Loans are made only to borrowers that are deemed by
Advisor to be of good financial standing.
Forward Commitments. The Fund may contract to purchase securities for a
fixed price at a future date beyond customary settlement time consistent with
the Fund's ability to manage its investment portfolio, maintain a stable net
asset value and meet redemption requests. The Fund 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 Fund of a dollar amount sufficient to make
payment for the portfolio securities to be purchased will be segregated on the
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. 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 Fund will make commitments to purchase when-issued securities only with
the intention of actually acquiring the securities, but the Fund 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 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 Fund's records on a daily basis so that the market value of
the account will equal the amount of such commitments by the Fund. The Fund will
invest more than 25% of its net assets in when-issued securities.
Securities purchased on a when-issued basis and held by the Fund 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 when interest rates decline and decrease in value when interest rates
rise. Therefore, if in order to achieve higher interest income the 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 Fund's net asset value.
When payment for when-issued securities is due, the 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 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.
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US Government Obligations. The types of US Government obligations in which
the 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 Funds may purchase
US Government obligations on a forward commitment basis.
Interest Rate Swaps. The Fund may enter into interest rate swap
transactions with respect to any security it is entitled to hold. Interest rate
swaps involve the exchange by the Fund with another party of their respective
rights to receive interest, e.g., an exchange of floating rate payments for
fixed rate payments. The Fund 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 Fund intends to use these
transactions as a hedge and not as a speculative investment.
Hedging Strategies and Related Investment Techniques
- ----------------------------------------------------
The Fund may seek to hedge its portfolios 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 Fund has authority to write (sell) covered call and put
options on its 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 Fund 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 Fund will only engage in these transactions for
hedging purposes, the options and futures portfolio strategies of the Fund will
not subject the Fund to the risks frequently associated with the speculative use
of options and futures transactions. Although the use of hedging strategies by
the Fund is intended to reduce the volatility of the net asset value of the
Fund's shares, the Fund's net asset value will nevertheless fluctuate. There can
be no assurance that the Fund's hedging transactions will be effective.
Writing Covered Call Options. The Fund is 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 Fund 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 Fund 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 Fund
would seek to mitigate the effects of a price decline. By writing covered call
options, however, the Fund 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 Fund's ability to sell the underlying
security will be limited while the option is in effect unless the Fund effects a
closing purchase transaction.
Writing Covered Put Options. The Fund is authorized to write (sell) covered
put options on its portfolio securities and to enter into closing transactions
with respect to such options.
When the Fund 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 Fund 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 Fund may seek to terminate its
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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 Fund has written, however, the Fund 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.
The Fund may write put options as an alternative to purchasing actual
securities. If security prices rise, the Fund 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 Fund will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the Fund would expect to
suffer a loss. This loss should be less than the loss the Fund 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 Fund is authorized to purchase put options to
hedge against a decline in the market value of its portfolio securities. By
buying a put option the Fund has the right (but not the obligation) to sell the
underlying security at the exercise price, thus limiting the 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 Fund 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 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 Fund 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 Fund would exceed 5% of the market value of the Fund's total assets.
Purchasing Call Options. The Fund is 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 Fund will purchase call options only in
connection with "closing purchase transactions."
Stock Index Options and Financial Futures. The Fund is authorized to engage
in transactions in stock index options and financial futures, and related
options. The Fund 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 Fund 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 Fund 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, such as the AMEX Oil & Gas Index. The 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 Fund's investments in foreign options, unless such options are
specifically authorized for investment by order of the CFTC, the Fund will not
make such investments.
The Fund 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 Fund may effect transactions in stock index futures contracts in
connection with debt securities in which it invests and in financial futures
contracts in connection with equity securities in which it invests, if any.
Transactions by the Fund 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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<PAGE>
The Fund may sell futures contracts in anticipation of or during a market
decline to attempt to offset the decrease in market value of the Fund's
securities portfolio that might otherwise result. When a Fund is not fully
invested in the securities markets and anticipates a significant market advance,
the Fund may purchase futures in order to gain rapid market exposure that may
partially or entirely offset increases in the cost of securities that the Fund
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 Fund 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 Fund experiences a
significant amount of redemptions), a long futures position may be terminated
without the corresponding purchase of securities.
The Fund 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 Fund enters into futures transactions. The Fund 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 Fund 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 Fund intends to
purchase.
The Fund is 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 Fund is 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 a Fund, sold by a Fund but not yet
delivered, or committed or anticipated to be purchased by a Fund. As an
illustration, a Fund 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 Fund 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 futures 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.
Regulations of the CFTC applicable to the Fund requires that all of the
Fund's futures and options on futures transactions constitute bona fide hedging
transactions and that the Fund not enter into such transactions if, immediately
thereafter, the sum of the amount of initial margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed 5%
of the market value of the Fund's total assets.
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<PAGE>
Restrictions on OTC Options. The Fund 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 Fund will acquire only those OTC options for which Advisor believes
the Fund 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 Fund 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 Fund; (2) the market value of the underlying
securities covered by outstanding OTC call options sold by the Fund; (3) margin
deposits on the Fund's existing OTC options on futures contracts; and (4) the
market value of all other assets of the Fund that are illiquid or are not
otherwise readily marketable, would exceed 10% of the net assets of the Fund,
taken at market value. However, if an OTC option is sold by the Fund to a
primary US Government securities dealer recognized by the Federal Reserve Bank
of New York and the Fund has the unconditional contractual right to repurchase
such OTC option from the dealer at a predetermined price, then the Fund 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 Fund will not use
leverage in its options and futures strategies. Such investments will be made
for hedging purposes only. The Fund will hold securities or other options or
futures positions whose values are expected to offset its obligations under the
hedge strategies. The Fund will not enter into an option or futures position
that exposes the Fund 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 Fund 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 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 a Fund's assets could impede portfolio
management or the 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 Fund's 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 Fund 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. To compensate for imperfect
correlations, the Fund 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 Fund 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 Fund 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.
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The Fund 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 Fund 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 a Fund's ability to
effectively hedge its portfolio. There is also the risk of loss by a 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.
To the extent permitted under the 1940 Act and exemptive rules and orders
thereunder, the Fund may seek to achieve its investment objectives by investing
solely in the shares of another investment company that has substantially
similar investment objectives and policies.
RISK CONSIDERATIONS
Investors should consider carefully the substantial risks involved in
securities of companies and governments of foreign nations, which are in
addition to the usual risks inherent in domestic investments. There may be less
publicly available information about foreign companies comparable to the reports
and ratings published regarding US companies. Foreign companies are not
generally subject to uniform accounting, auditing and financial reporting
standards, and auditing practices and requirements may not be comparable to
those applicable to US companies. Many foreign markets have substantially less
volume than either the established domestic securities exchanges or the OTC
markets. Securities of some foreign companies are less liquid and more volatile
than securities of comparable US companies. 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 and related administrative uncertainties.
Investments in companies domiciled in emerging market countries may be
subject to additional risks than investment in the US and in other developed
countries. These risks include: (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 can have political systems which can be expected to have less
stability 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 such securities and the currently low
or nonexistent volume of trading can 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 Fund's securities will generally be denominated in
foreign currencies, the value of such securities to the Fund will be affected by
changes in currency exchange rates and in 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 Fund's securities. In
addition, some emerging market countries may have fixed or managed currencies
which are not free-floating against the US dollar. Further, certain emerging
market currencies may not be internationally traded. Certain of these 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 Fund's investment opportunities
and may include restrictions on investment in issuers or industries deemed
sensitive
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<PAGE>
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.
The Fund endeavors 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.
The Fund may be affected either favorably or unfavorably by fluctuations in
the relative rates of exchange between the currencies of differentiations,
exchange control regulations and indigenous economic and political developments.
TAXES
The Fund intends 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 Fund will not be liable for federal income taxes on
taxable net investment income and net capital gain (long-term capital gains in
excess of short-term capital losses) that it distributes to its shareholders,
provided that the Fund distributes annually to its shareholders at least 90% of
its net investment income and net short-term capital gain for the taxable year
("Distribution Requirement"). For a Fund to qualify as a RIC it must abide by
all of the following requirements: (1) at least 90% of the Fund's 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) at
the close of each quarter of the Fund's 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 Fund and that does not represent more than
10% of the outstanding voting securities of such issuer; and (3) at the close of
each quarter of the Fund's 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 Fund 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 its ordinary income for that year; (2) 98% of its 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 Fund subsequent to December 31 but prior to February 1 of the
following year.
As permitted by tax regulations, the Fund intends to defer a net realized
capital loss of $66,274 incurred from November 1, 1996 to August 31, 1997, and
treat it as arising in fiscal year 1998.
If a shareholder receives a distribution taxable as a 20% gain or a 28%
gain with respect to shares of a 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 a 20% loss or a 28% loss to the extent
of the respective capital gain distribution.
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<PAGE>
Issues Related to Hedging and Option Investments. The Fund's ability to
make certain investments may be limited by provisions of the Code that require
inclusion of certain unrealized gains or losses in the Fund's income for
purposes of the Income Requirement 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.
State and Local Taxes. Depending upon the extent of the Fund's activities
in states and localities in which its offices are maintained, its agents or
independent contractors are located or it is otherwise deemed to be conducting
business, the Fund may be subject to the tax laws of such states or localities.
Foreign Income Taxes. Investment income received by the Fund 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 the 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 the Fund in advance since the amount of the assets to be
invested within various countries is not known.
If the Fund invests 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 Fund. The Fund can elect to
mark-to-market its PFIC holdings in lieu of paying taxes on gains or
distributions therefrom. It is anticipated that any taxes on a Fund with respect
to investments in PFICs would be insignificant.
Foreign shareholders should consult with their tax advisors as to if and
how the federal income tax and its withholding requirements applies to them.
The foregoing discussion is only a summary of certain federal income tax
issues generally affecting the Fund and its shareholders. Circumstances among
investors may vary and each investor is encouraged to discuss investment in the
Fund with the investor's tax advisor.
FINANCIAL STATEMENTS
The 1997 fiscal year-end financial statements for the Fund, including notes
to the financial statements and financial highlights and the Report of
Independent Accountants, are included in the Fund's Annual Report to
Shareholders. A copy of this Annual Report accompanies this Statement of
Additional Information and is incorporated herein by reference.
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<PAGE>
APPENDIX
DESCRIPTION OF SECURITIES RATINGS
The following is a description of the securities ratings of Duff & Phelps
Credit Rating Co. ("D&P"), Fitch Investors Service, Inc. ("Fitch"), Standard &
Poor's Corporation ("S&P"), Moody's Investors Service, Inc. ("Moody's"), IBCA
Limited and IBCA Inc. ("IBCA") and Thomson BankWatch ("Thomson").
Long-Term Corporation and Tax-Exempt Debt Ratings
- -------------------------------------------------
The two highest ratings of D&P for tax-exempt and corporate fixed-income
securities are AAA and AA. Securities rated AAA are of the highest credit
quality. The risk factors are considered to be negligible, being only slightly
more than for risk-free US Treasury debt. Securities rated AA are of high credit
quality. Protection factors are strong. Risk is modest but may vary slightly
from time to time because of economic conditions. The AA rating may be modified
by an addition of a plus (+) or minus (-) sign to show relative standing within
the major rating category.
The two highest ratings of Fitch for tax-exempt and corporate bonds are AAA
and AA. AAA bonds are considered to be investment grade and of the highest
credit quality. The obligor is judged to have an exceptionally strong ability to
pay interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events. AA bonds are considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated F-1+. Plus (+) and minus (-) signs are used with the AA rating symbol to
indicate relative standing within the rating category.
The two highest ratings of S&P for tax-exempt and corporate bonds are AAA
and AA. Bonds rated AAA bear the highest rating assigned by S&P to a debt
obligation and the AAA rating indicates in its opinion an extremely strong
capacity to pay interest and repay principal. Bonds rated AA by S&P are judged
by it to have a very strong capacity to pay interest and repay principal, and
they differ from AAA issues only in small degree. The AA rating may be modified
by an addition of a plus (+) or minus (-) sign to show relative standing within
the major rating category. The foregoing ratings are sometimes followed by a "p"
indicating that the rating is provisional. A provisional rating assumes the
successful completion of the project being financed by the debt being rated and
indicates that payment of debt service requirements is largely or entirely
dependent upon the successful and timely completion of the project. This rating,
however, while addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of, or the risk of default upon
failure of, such completion.
The two highest ratings of Moody's for tax-exempt and corporate bonds are
Aaa and Aa. Tax-exempt and corporate bonds rated Aaa are judged to be of the
"best quality." The rating of Aa is assigned to bonds which are of "high quality
by all standards." Aa bonds are rated lower than Aaa bonds because margins of
protection may not be as large or fluctuations of protective elements may be of
greater amplitude or there may be other elements which make the long-term risks
appear somewhat larger. Moody's may modify a rating of Aa by adding numerical
modifiers of 1, 2 or 3 to show relative standing within the Aa category. The
foregoing ratings for tax-exempt bonds are sometimes presented in parentheses
preceded with a "con" indicating the bonds are rated conditionally. Such
parenthetical rating denotes the probable credit stature upon completion of
construction or elimination of the basis of the condition. In addition, Moody's
has advised that the short-term credit risk of a long-term instrument sometimes
carries a MIG rating or one of the commercial paper ratings described below.
The two highest ratings of IBCA for corporate bonds are AAA and AA.
Obligations rated AAA by IBCA have the lowest expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial, such
that adverse changes in business, economic or financial conditions are unlikely
to increase investment risk significantly. Obligations for which there is a very
low expectation of investment risk are rated AA. IBCA may append a rating of
plus (+) or minus (-) to a rating to denote relative status within a major
rating category. IBCA does not rate tax-exempt bonds.
The two highest ratings of Thomson for corporate bonds are AAA and AA.
Bonds rated AAA are of the highest credit quality. The ability of the obligor to
repay principal and interest on a timely basis is considered to be very high.
Bonds rated AA indicate a superior ability on the part of the obligor to repay
principal and interest on a timely basis with limited incremental risk versus
issues rated in the highest category. These ratings may be modified by the
addition of a plus (+) or minus (-) sign to show relative standing within the
rating categories. Thomson does not rate tax-exempt bonds.
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<PAGE>
Short-Term Corporate and Tax-Exempt Debt Ratings
- ------------------------------------------------
The highest rating of D&P for commercial paper is Duff 1. D&P employs three
designations, Duff 1 plus, Duff 1 and Duff 1 minus, within the highest rating
category. Duff 1 plus indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or ready access to
alternative sources of funds, is judged to be outstanding, and safety is just
below risk-free US Treasury short-term obligations. Duff 1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
strong fundamental protection factors. Risk factors are considered to be minor.
Duff 1 minus indicates high certainty of timely payment. Liquidity factors are
strong and supported by good fundamental protection factors. Risk factors are
very small. Duff 2 indicates 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.
Fitch's short-term ratings apply to tax-exempt and corporate debt
obligations that are payable on demand or have original maturities of up to
three years. The highest rating of Fitch for short-term securities encompasses
both the F-1+ and F-1 ratings. F-1+ securities possess exceptionally strong
credit quality. Issues assigned this rating are regarded as having the strongest
degree of assurance for timely payment. F-1 securities possess very strong
credit quality. Issues assigned this rating reflect an assurance of timely
payment only slightly less in degree than issues rated F-1+. F-2 securities
possess good credit quality and have a satisfactory degree of assurance for
timely payment, but the margin of safety is not as great as the F-1+ and F-1
categories.
S&P's commercial paper ratings are current assessments of the likelihood of
timely payment of debt having an original maturity of no more than 365 days. The
A-1 designation indicates that the degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety
characteristics will be denoted with a plus (+) designation. The A-2 designation
indicates that capacity for timely payment on these issues is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Issuers rated Prime-1 (or related supporting
institutions) in the opinion of Moody's have a superior capacity for repayment
of short-term promissory obligations. Issuers rated Prime-2 (or related
supporting institutions) have a strong capacity for repayment of short-term
promissory obligations. This capacity will normally be evidenced by many of the
characteristics of Prime-1 rated issues, but to a lesser degree. Ample alternate
liquidity is maintained.
IBCA assesses the investment quality of unsecured debt with an original
maturity of less than one year which is issued by bank holding companies and
their principal banking subsidiaries. The designation A1 by IBCA indicates that
the obligation is supported by a very strong capacity for timely repayment.
Those obligations rated A1+ are supported by the highest capacity for timely
repayment. The designation A-2 by IBCA indicates that the obligation is
supported by a satisfactory capacity for timely payment, although such capacity
may be susceptible to adverse changes in business, economic or financial
conditions.
Thomson's short-term paper ratings assess the likelihood of an untimely
payment of principal or interest of debt having a maturity of one year or less
which is issued by banks and financial institutions. The designation TBW-1
represents the highest short-term rating category and indicates a very high
degree of likelihood that principal and interest will be paid on a timely basis.
The designation TBW-2 represents the second highest short-term rating category
and indicates that while the degree of safety regarding timely payment of
principal and interest is strong, the relative degree of safety is not as high
as for issues rated TBW-1.
Tax-Exempt Note Ratings
- -----------------------
A S&P rating of SP-1 indicates very strong or strong capacity to pay
principal and interest. Those issues determined to possess overwhelming safety
characteristics are given a plus (+) designation. Notes rated SP-2 are issued by
issuers that exhibit satisfactory capacity to pay principal and interest.
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<PAGE>
Moody's ratings for state and municipal notes and other short-term
obligations are designated Moody's Investment Grade ("MIG"). MIG-1/VMIG-1
denotes best quality. There is present strong protection from established cash
flows, superior liquidity support or demonstrated broad-based access to the
market for refinancing. MIG-2/VMIG-2 denotes high quality, with margins of
protection ample although not as large as in the MIG-1/VMIG-1 group.
Fitch uses its short-term ratings described above under "Short-Term
Corporate and Tax-Exempt Debt Ratings" for tax-exempt notes.
D&P uses the fixed-income ratings described above under "Long-Term
Corporate and Tax-Exempt Debt Ratings" for tax-exempt notes and other short-term
obligations.
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<PAGE>
Filed pursuant to Rule 485(b)
File Nos. 33-19229; 811-5430
SSgA FUNDS
----------
One International Place
Boston, Massachusetts 02110
(800) 647-7327
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
US TREASURY MONEY MARKET FUND
December 24, 1997
SSgA Funds ("Investment Company") is a registered open-end investment
company organized as a Massachusetts business trust offering shares of
beneficial interest in separate investment portfolios. In addition, each series
of the Investment Company is diversified as defined in the Investment Company
Act of 1940, as amended ("1940 Act").
This Statement of Additional Information supplements or describes in
greater detail the Investment Company and the SSgA US Treasury Money Market Fund
(the "Treasury Money Market Fund" or the "Fund") as contained in the Fund's
Prospectus dated December 24, 1997. This Statement is not a Prospectus and
should be read in conjunction with the Fund's Prospectus, which may be obtained
by telephoning or writing Investment Company at the number or address shown
above.
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<PAGE>
TABLE OF CONTENTS
-----------------
Page
Structure and Governance.................................................. 3
Organization and Business History................................ 3
Shareholder Meetings............................................. 4
Controlling Shareholders......................................... 4
Principal Shareholders........................................... 4
Trustees and Officers............................................ 4
Operation of Investment Company........................................... 6
Service Providers .............................................. 6
Advisor ........................................................ 6
Administrator.................................................... 6
Distributor...................................................... 7
Custodian and Transfer Agent..................................... 7
Independent Accountants.......................................... 7
Distribution Plan .............................................. 7
Federal Law Affecting State Street............................... 8
Valuation of Fund Shares......................................... 8
Brokerage Practices.............................................. 9
Yield and Total Return Quotations................................ 9
Investments............................................................... 10
Investment Restrictions.......................................... 13
Investment Policies.............................................. 14
Taxes..................................................................... 13
Financial Statements...................................................... 14
Appendix: Description of Securities Ratings.............................. 15
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<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. 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," one
of which is the Treasury Money Market Fund. The Trustees may create additional
Funds at any time without shareholder approval.
Further, the Investment Company is authorized to divide shares of any
series into two or more classes of shares. The shares of each 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 Fund may have separate voting rights or no voting rights. Each class
of shares of a Fund is entitled to the same rights and privileges as all other
classes of that Fund, except that each class bears the 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 Fund's portfolio securities.
As of the date of this Statement of Additional Information, Investment
Company is comprised of the following investment portfolios, each of which
commenced operations on the date set forth opposite the portfolio's name:
SSgA Money Market Fund May 2, 1988
SSgA US Government Money Market Fund March 1, 1991
SSgA Matrix Equity Fund May 4, 1992
SSgA Small Cap Fund July 1, 1992
SSgA Yield Plus Fund November 9, 1992
SSgA S&P 500 Index Fund December 30, 1992
SSgA Growth and Income Fund September 1, 1993
SSgA Intermediate Fund September 1, 1993
SSgA US Treasury Money Market Fund December 1, 1993
SSgA Prime Money Market Fund February 22, 1994
SSgA Emerging Markets Fund March 1, 1994
SSgA Tax Free Money Market Fund December 1, 1994
SSgA Active International Fund March 7, 1995
SSgA Bond Market Fund February 7, 1996
SSgA Life Solutions Balanced Fund June 2, 1997
SSgA Life Solutions Growth Fund June 2, 1997
SSgA Life Solutions Income and Growth Fund June 2, 1997
SSgA Real Estate Equity Fund *
SSgA US Treasury Obligations Fund *
SSgA International Pacific Index Fund *
- ----------
*As of the date of this Statement of Additional Information, these portfolios
have not commenced operations.
Prospectuses for these investment portfolios may be obtained by calling
Investment Company's distributor, Russell Fund Distributors, Inc., at (800)
647-7327, or at its Internet Web Site at www.ssgafunds.com.
Shares of the Money Market, US Government Money Market and Tax Free Money
Market Funds are divided into Classes A, B and C.
-3-
<PAGE>
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 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 Fund may be held personally
liable for the obligations of a 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 Fund shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The Master Trust Agreement
also provides that the Fund shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the 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 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 November 30, 1997, State Street held beneficially and of
record less than 25% of Investment Company's shares in connection with various
lending portfolios and, consequently, is 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 November 30, 1997, the following shareholders
owned of record 5% or more of the issued and outstanding shares of the Fund:
[bullet] Global Financial Asset Services Control Account MT01, State Street
Bank, P.O. Box 1992, North Quincy, MA 02171 -- 21%;
[bullet] State Street Bank and Trust Company, Newport Office Park, 108
Myrtle St. AH3, North Quincy, MA 02171 -- 22%; and
[bullet] State Street Bank and Trust Company, 108 Myrtle Street AH2,
Quincy, MA 02171 -- 63%.
Such shares may be held pursuant to a shareholder servicing arrangement in
omnibus accounts for underlying shareholders.
The Trustees and officers of Investment Company, as a group, own less than
1% of Investment Company's voting securities.
Trustees and Officers. The Board of Trustees is responsible for overseeing
generally the operation of the Fund. The 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 Fund's operations.
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. Investment Company's officers and employees are paid by
Administrator or its affiliates.
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
-4-
<PAGE>
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. Trustee, President and Chief Executive Officer, Russell Insurance Funds
(investment company). Director, Chief Executive Officer and Chairman of the
Board, Russell Fund Distributors, Inc. Trustee, President and Chief Executive
Officer, Frank Russell Investment Company (investment company); Director, Chief
Executive Officer and Chairman of the Board, Frank Russell Investment Management
Company; Director, Chief Executive Officer and President, Frank Russell Trust
Company; Director and Chairman, Frank Russell Investment Company Public Limited
Company; November 1995 to February 1997, Director, Frank Russell Company;
Director and Chairman of the Board, Frank Russell Company (Delaware); Director,
Frank Russell Company; March 1989 to June 1993, Director, Frank Russell Company,
Director of Frank Russell Investments (Ireland) Limited; Director and Chairman,
Frank Russell Investment Company Public Limited Company. Until September 1994,
Director and President, The Laurel Funds, Inc. (investment company).
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 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. 350 Park Avenue, 15th Floor,
New York, NY 10022. Partner, Squire, Sanders & Dempsey (law firm). From 1994 to
1997, Partner, Brown, Rudnick, Freed & Gesmer (law firm). From 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. 1990 to 1992, President, Champions Group Resources--Business
Management and Employee Benefits Consulting; 1990, Senior Vice President,
Employee Benefits Division, Cigna Corporation (providing and insuring group
life, health and disability employee benefit products and services); from 1986
to 1990, Senior Vice President, EQUICOR-Equitable HCA Corporation (providing and
insuring group life, health and disability employee benefit products and
services).
*Bruce D. Taber, Trustee. Born 4/25/43. 26 Round Top Road, Boxford, MA
01921. Consultant, Computer Simulation, General Electric Industrial Control
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., Feed Flavors, Inc. 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.
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<PAGE>
George W. Weber, Senior Vice President, Fund Treasurer and Principal
Accounting Officer. Born 6/3/51. Treasurer and Chief Accounting Officer, Russell
Insurance Funds (investment company); Director of Finance and Operations, Frank
Russell Trust Company; Director, Fund Administration and Operations of Frank
Russell Investment Management Company and Russell Fund Distributors, Inc.;
Treasurer and Chief Accounting Office, Frank Russell Investment Company
(investment company); March 1993 to January 1996, Vice President, Operations,
Funds Management, J.P. Morgan; December 1985 to March 1993, Senior Vice
President, Operations, Frank Russell Investment Company, The Laurel Funds, Inc.
and The Seven Seas Series Fund (investment companies); Director of Operations,
Frank Russell Investment Management Company and Frank Russell Trust Company;
Director, Russell Fund Distributors, Inc.
Total Annual Compensation
Trustee from Investment Company
-----------------------------------------------------
Lynn L. Anderson $0
William L. Marshall $55,500
Steven J. Mastrovich $55,500
Patrick J. Riley $55,500
Richard D. Shirk $55,500
Bruce D. Taber $55,500
Henry W. Todd $55,500
OPERATION OF INVESTMENT COMPANY
Service Providers. Most of the 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.
Advisor. State Street Bank and Trust Company ("State Street" or "Advisor")
serves as the Fund's 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 Corporation, a publicly-held bank
holding company. State Street's address is 225 Franklin Street, Boston, MA
02110.
Under the Advisory Agreement, Advisor directs the Fund's investments in
accordance with its investment objective, policies and limitations. For these
services, the Fund pays a fee to Advisor at the rate stated in the Prospectus.
The Fund accrued expenses to Advisor of $893,875 in fiscal 1997, $466,951 for
fiscal 1996 and $462,645 for fiscal 1995. Advisor voluntarily agreed to
reimburse the Fund for all expenses in excess of .20% of average daily net
assets on an annual basis, which amounted to $921,450 in fiscal 1997 and
$335,610 for fiscal 1996. There was no reimbursement necessary for fiscal 1995.
Additionally, Advisor waived fees of $497,132 in fiscal 1995.
The Advisory Agreement will continue from year to year provided that a
majority of the Trustees who are not interested persons of any investment
portfolio and either a majority of all Trustees or a majority of the
shareholders of each investment portfolio approve its continuance. The Agreement
may be terminated by Advisor or a Fund without penalty upon 60 days' notice and
will terminate automatically upon its assignment.
Administrator. Frank Russell Investment Management Company
("Administrator") serves as the Fund's administrator, pursuant to an
Administration Agreement dated April 12, 1988 ("Administration Agreement"). A
description
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<PAGE>
of the services provided under the Administration Agreement and the basis for
computing fees for such services is provided in the Fund's Prospectus. The Fund
accrued expenses to Administrator of $104,779 in fiscal 1997, $53,003 for fiscal
1996 and $54,150 for fiscal 1995.
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 any investment portfolio 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 a Fund without penalty upon 60 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, Winston-Salem, New
York City, Toronto, London, Tokyo, Sydney, Paris, Zurich and Auckland, and have
approximately 1,200 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 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 One International Place, Boston,
MA 02110.
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
Custodian services, State Street is paid an annual fee in accordance with the
following: custody services--a fee payable monthly on a pro rata basis, based on
the following percentages of average daily net assets of the 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 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. For Transfer and Dividend
Disbursing Agent services, State Street is paid the following annual account
services fees: $9.00 open account fee; $1.50 closed account fee; fund minimum
per portfolio for one to four portfolios--$36,000, five to six
portfolios--$24,000, and over six portfolios $18,000. Portfolio fees are
allocated to each fund based on the average net asset value of each fund and are
billable on a monthly basis at the rate of 1/12 of the annual fee. State Street
will apply a $5.00 fee to each telephone transaction (purchase or redemption),
which is applied against the monthly billing. State Street is reimbursed by the
Fund 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 Fund may, directly or indirectly, bear distribution and shareholder
servicing expenses. The Rule provides that the Fund may pay for such expenses
only pursuant to a plan adopted in accordance with the Rule. Accordingly, the
Fund has adopted a distribution plan (the "Plan"), which is described in the
Fund's Prospectus.
The Plan provides that the 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 Fund 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 Fund may pay. The Plan and
material amendments to it must be approved annually by
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<PAGE>
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 Fund accrued expenses to Russell Fund Distributors, Inc., as
Distributor, for the fiscal year ended August 31:
1997 1996 1995
---- ---- ----
$101,741 $22,784 $31,785
For fiscal 1997, these amounts are reflective of the following individual
payments:
Advertising $ 6,680
Printing of Prospectuses 6,565
Compensation to Dealers --
Compensation to Sales Personnel 30,903
Other* 57,593
--------
$101,741
* 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 Fund may also enter into agreements ("Service
Agreements") with financial institutions, which may include Advisor ("Service
Organizations"), to provide shareholder servicing with respect to Fund shares
held by or for the customers of the Service Organizations. Such arrangements are
more fully described in the Fund's Prospectus under "Distribution Services and
Shareholder Servicing."
The Fund accrued expenses in the following amount to Advisor, under a Service
Agreement pursuant to Rule 12b-1, for the fiscal year ended August 31:
1997 1996 1995
---- ---- ----
$89,388 $47,066 $110,284
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 certain 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 Fund, 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 Fund contemplated under this arrangement
are consistent with its statutory and regulatory obligations.
Valuation of Fund Shares. The Fund determines net asset value per share
twice each business day, as of 3:00 p.m. Eastern time and as of the close of the
regular trading session of the New York Stock Exchange (currently, 4:00 p.m.
Eastern time). A business day is one on which both the Boston Federal Reserve
and the New York Stock Exchange are open for business.
It is the Fund's policy to use its best efforts to maintain a constant
price per share of $1.00, although there can be no assurance that the $1.00 net
asset value per share will be maintained. In accordance with this effort and
pursuant to Rule 2a-7 under the 1940 Act, the Fund uses the amortized cost
valuation method to value its portfolio instruments. 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 Fund would receive if it sold the instrument.
For example, in periods of declining interest rates, the daily yield on
the Fund's shares computed by dividing the annualized daily income on the Fund's
portfolio by the net asset value based upon the amortized cost valuation
technique may tend to be higher than a similar computation made by using a
method of valuation based upon market prices
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<PAGE>
and estimates. In periods of rising interest rates, the daily yield on 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.
The Trustees have established procedures reasonably designed to stabilize
the Fund's price per share at $1.00. These procedures include: (1) the
determination of the deviation from $1.00, if any, of the Fund's net asset value
using market values; (2) periodic review by the Trustees of the amount of and
the methods used to calculate the deviation; and (3) maintenance of records of
such determination. The Trustees will promptly consider what action, if any,
should be taken if such deviation exceeds 1/2 of one percent.
Brokerage Practices. All portfolio transactions are placed on behalf of
the 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 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 Fund and/or Advisor (or its
affiliates). Advisor is authorized to cause the 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 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 Advisor's performance of its
responsibilities in connection with the placement of portfolio transactions on
behalf of the Fund and review the prices paid by the Fund over representative
periods of time to determine if such prices are reasonable in relation to the
benefits provided to the Fund. Certain services received by Advisor attributable
to a particular Fund transaction may benefit one or more other accounts for
which Advisor exercises investment discretion or an investment portfolio other
than such Fund. Advisor's fees are not reduced by Advisor's receipt of such
brokerage and research services.
During the fiscal year ended August 31, 1997, the Fund 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 the Fund's ten largest brokers or dealers
by dollar amounts of securities executed or commissions received on behalf of
the Fund. The value of broker-dealer securities held as of August 31, 1997, is
as follows:
($000)
-----------------------
Investment Technology Group, Inc. (a) 0
Morgan Stanley & Co. (a) 0
Broadcort Capital (a) 0
Merrill Lynch, Pierce, Fenner, Inc. 0
State Street Brokerage Services, Inc. (a) 0
Bear, Stearns Securities (a) 0
National Financial Services (a) 0
Nomura Securities International (a) 0
Barclays Dezoete Wedd (a) 0
Instinet (a) 0
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<PAGE>
Prebon (b) 0
Swiss Bank Corp. (b) 40,000
Lumis & Co. (b) 0
HSBC Securities (b) 0
Goldman Sachs & Co. (b) 40,000
UBS Securities, Inc. (b) 225,000
Aubrey G. Lanston & Co. (b) 40,000
Lehman Brothers Inc. (b) 0
Donaldson, Lufkin & Jenrette (b) 225,000
- ---------------------
(a) Broker commissions only
(b) Broker principal transactions only
Yield and Total Return Quotations. The Fund computes 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, five and ten year periods (or life of the funds 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-, 5- and 10-year periods at the end of
the year or period
The calculation assumes that all dividends and distributions of the Fund
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.
Total returns and other performance figures are based on historical
earnings and are not indicative of future performance.
The current annualized yield of the Fund 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
The following are the Fund's current and effective yields for the seven-day
period ended August 31, 1997:
Current Yield 5.40%
Effective Yield 5.54%
The yields quoted are not indicative of future results. Yields will depend
on the type, quality, maturity, and interest rate of money market instruments
held by the Fund.
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<PAGE>
INVESTMENTS
The fundamental investment objective of the Fund is set forth in the
Prospectus. In addition to that investment objective, the Fund also has certain
"fundamental" investment restrictions, which may be changed only with the
approval of a majority of the shareholders of the Fund, and certain
nonfundamental investment restrictions and policies, which may be changed by the
Fund without shareholder approval.
Investment Restrictions
- -----------------------
The Fund is subject to the following fundamental investment restrictions,
each of which applies at the time an investment is made. The Fund will not:
(1) Borrow money, 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 Fund's assets taken at market value, less
liabilities other than borrowings. If at any time the 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.
The Fund will not purchase investments once borrowed funds (including reverse
repurchase agreements) exceed 5% of its total assets.
(2) Pledge, mortgage or hypothecate its assets. However, the Fund may
pledge securities having a market value (on a daily marked-to-market basis) at
the time of the pledge not exceeding 33-1/3% of the value of the Fund's total
assets to secure borrowings permitted by paragraph (1) above.
(3) 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." A 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 the Fund's total assets.
(4) Engage in the business of underwriting securities issued by others,
except that the Fund 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.
(5) Issue senior securities, except as permitted by its investment
objective, policies and restrictions, and except as permitted by the 1940 Act.
(6) Purchase or sell puts, calls or invest in straddles, spreads or any
combination thereof.
(7) 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.
(8) Purchase from or sell portfolio securities to its officers or
directors or other "interested persons" (as defined in the 1940 Act) of the
Fund, including their investment advisors and affiliates, except as permitted by
the 1940 Act and exemptive rules or orders thereunder.
(9) 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.
(10) Make investments for the purpose of gaining control of an issuer's
management.
Investment Policies
- -------------------
To the extent consistent with its fundamental investment objective and
restrictions and except as otherwise indicated, the Fund may invest in the
following instruments and utilize the following investment techniques:
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<PAGE>
US Government Obligations. The types of US Government obligations in which
the Fund may at times invest include: (1) a variety of US Treasury obligations
(including Treasury Inflation-Protection Securities, described below), which
differ only in their interest rates, maturities and times of issuance and which
have remaining maturities or hard put dates of 397 days or less; 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, although the Treasury Money Market Fund presently does not
intend to invest in securities described in (2). Examples of such issuers are
the 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.
Treasury Inflation-Protection Securities. The Fund may invest in
Inflation-Protection Securities ("IPS"), 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.
When-Issued Transactions. 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 Fund will make commitments to purchase when-issued securities only
with the intention of actually acquiring the securities, but the Fund 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 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 Fund's records on a daily basis so that the market value of
the account will equal the amount of such commitments by the Fund. The Fund will
invest no more than 25% of its net assets in when-issued securities. The Fund
will not purchase the securities of any issuer if the Investment Company's
officers, Directors, Advisor or any of their affiliates beneficially own more
than one-half of 1% of the securities of such issuer or together own
beneficially more than 5% of the securities of such issuer.
Securities purchased on a when-issued basis and held by the Fund 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 when interest rates decline and decrease in value when interest rates
rise. Therefore, if in order to achieve higher interest income the 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 Fund's net asset value.
When payment for when-issued securities is due, the 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
-12-
<PAGE>
of the when-issued securities themselves (which may have a market value greater
or less than the 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.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain financial institutions. Under repurchase agreements, these parties sell
US Treasury bills, notes and bonds to the 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 Fund in being invested fully while retaining
"overnight" flexibility in pursuit of investments of a longer-term nature. The
Fund will limit repurchase transactions to those member banks of the Federal
Reserve System and primary dealers in US Government securities whose
creditworthiness is continually monitored and found satisfactory by Advisor.
To the extent permitted under the 1940 Act and exemptive rules and orders
thereunder, the Fund may seek to achieve its investment objective by investing
solely in the shares of another investment company that has a substantially
similar investment objective and policy.
TAXES
The Fund intends 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 Fund will not be liable for federal income
taxes on taxable net investment income and net capital gain (long-term capital
gains in excess of short-term capital losses) that it distributes to its
shareholders, provided that the Fund distributes annually to its shareholders at
least 90% of its net investment income and net short-term capital gain for the
taxable year ("Distribution Requirement"). For a Fund to qualify as a RIC it
must abide by all of the following requirements: (1) at least 90% of the Fund's
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) at the close of each quarter of the Fund's 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 Fund and that does
not represent more than 10% of the outstanding voting securities of such issuer;
and (3) at the close of each quarter of the Fund's 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 Fund 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 its ordinary income for that year; (2) 98% of its 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 Fund subsequent to December 31 but prior to February 1 of the
following year.
If a shareholder receives a distribution taxable as a 20% gain or a 28% gain
with respect to shares of a 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 a 20% loss or a 28% loss to the extent of the
respective capital gain distribution.
As of August 31, 1997, the Fund had a net tax basis capital loss
carryforward of $42,115, which may be applied against any realized net taxable
gains of each succeeding year until the expiration date of August 31, 2003.
State and Local Taxes. Under federal law, the income derived from
obligations issued by the US Government and certain of its agencies and
instrumentalities is exempt from state income taxes. All states that tax
personal income, other than Pennsylvania, permit mutual funds to pass through
this tax exemption to shareholders. Income from repurchase agreements entered
into by the Fund does not receive this exempt treatment.
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<PAGE>
The foregoing discussion is only a summary of certain federal income tax
issues generally affecting the Fund and its shareholders. Circumstances among
investors may vary and each investor is encouraged to discuss investment in the
Funds with the investor's tax advisor.
FINANCIAL STATEMENTS
The 1997 fiscal year-end financial statements for the Fund, including notes to
the financial statements and financial highlights and the Report of Independent
Accountants, are included in the Fund's Annual Report to shareholders. A copy of
this Annual Report accompanies this Statement of Additional Information and is
incorporated herein by reference.
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<PAGE>
APPENDIX
DESCRIPTION OF SECURITIES RATINGS
The following is a description of the securities ratings of Duff & Phelps
Credit Rating Co. ("D&P"), Fitch Investors Service, Inc. ("Fitch"), Standard &
Poor's Corporation ("S&P"), Moody's Investors Service, Inc. ("Moody's"), IBCA
Limited and IBCA Inc. ("IBCA") and Thomson BankWatch ("Thomson").
Long-Term Corporation and Tax-Exempt Debt Ratings
The two highest ratings of D&P for tax-exempt and corporate
fixed-income securities are AAA and AA. Securities rated AAA are of the highest
credit quality. The risk factors are considered to be negligible, being only
slightly more than for risk-free US Treasury debt. Securities rated AA are of
high credit quality. Protection factors are strong. Risk is modest but may vary
slightly from time to time because of economic conditions. The AA rating may be
modified by an addition of a plus (+) or minus (-) sign to show relative
standing within the major rating category.
The two highest ratings of Fitch for tax-exempt and corporate bonds are
AAA and AA. AAA bonds are considered to be investment grade and of the highest
credit quality. The obligor is judged to have an exceptionally strong ability to
pay interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events. AA bonds are considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated F-1+. Plus (+) and minus (-) signs are used with the AA rating symbol to
indicate relative standing within the rating category.
The two highest ratings of S&P for tax-exempt and corporate bonds are
AAA and AA. Bonds rated AAA bear the highest rating assigned by S&P to a debt
obligation and the AAA rating indicates in its opinion an extremely strong
capacity to pay interest and repay principal. Bonds rated AA by S&P are judged
by it to have a very strong capacity to pay interest and repay principal, and
they differ from AAA issues only in small degree. The AA rating may be modified
by an addition of a plus (+) or minus (-) sign to show relative standing within
the major rating category. The foregoing ratings are sometimes followed by a "p"
indicating that the rating is provisional. A provisional rating assumes the
successful completion of the project being financed by the debt being rated and
indicates that payment of debt service requirements is largely or entirely
dependent upon the successful and timely completion of the project. This rating,
however, while addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of, or the risk of default upon
failure of, such completion.
The two highest ratings of Moody's for tax-exempt and corporate bonds
are Aaa and Aa. Tax-exempt and corporate bonds rated Aaa are judged to be of the
"best quality." The rating of Aa is assigned to bonds which are of "high quality
by all standards." Aa bonds are rated lower than Aaa bonds because margins of
protection may not be as large or fluctuations of protective elements may be of
greater amplitude or there may be other elements which make the long-term risks
appear somewhat larger. Moody's may modify a rating of Aa by adding numerical
modifiers of 1, 2 or 3 to show relative standing within the Aa category. The
foregoing ratings for tax-exempt bonds are sometimes presented in parentheses
preceded with a "con" indicating the bonds are rated conditionally. Such
parenthetical rating denotes the probable credit stature upon completion of
construction or elimination of the basis of the condition. In addition, Moody's
has advised that the short-term credit risk of a long-term instrument sometimes
carries a MIG rating or one of the commercial paper ratings described below.
The two highest ratings of IBCA for corporate bonds are AAA and AA.
Obligations rated AAA by IBCA have the lowest expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial, such
that adverse changes in business, economic or financial conditions are unlikely
to increase investment risk significantly. Obligations for which there is a very
low expectation of investment risk are rated AA. IBCA may append a rating of
plus (+) or minus (-) to a rating to denote relative status within a major
rating category. IBCA does not rate tax-exempt bonds.
The two highest ratings of Thomson for corporate bonds are AAA and AA.
Bonds rated AAA are of the highest credit quality. The ability of the obligor to
repay principal and interest on a timely basis is considered to be very high.
Bonds rated AA indicate a superior ability on the part of the obligor to repay
principal and interest on a timely basis with limited incremental risk versus
issues rated in the highest category. These ratings may be modified by the
addition of a plus (+) or minus (-) sign to show relative standing within the
rating categories. Thomson does not rate tax-exempt bonds.
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<PAGE>
Short-Term Corporate and Tax-Exempt Debt Ratings
The highest rating of D&P for commercial paper is Duff 1. D&P employs
three designations, Duff 1 plus, Duff 1 and Duff 1 minus, within the highest
rating category. Duff 1 plus indicates highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or ready access
to alternative sources of funds, is judged to be outstanding, and safety is just
below risk-free US Treasury short-term obligations. Duff 1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
strong fundamental protection factors. Risk factors are considered to be minor.
Duff 1 minus indicates high certainty of timely payment. Liquidity factors are
strong and supported by good fundamental protection factors. Risk factors are
very small. Duff 2 indicates 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.
Fitch's short-term ratings apply to tax-exempt and corporate debt
obligations that are payable on demand or have original maturities of up to
three years. The highest rating of Fitch for short-term securities encompasses
both the F-1+ and F-1 ratings. F-1+ securities possess exceptionally strong
credit quality. Issues assigned this rating are regarded as having the strongest
degree of assurance for timely payment. F-1 securities possess very strong
credit quality. Issues assigned this rating reflect an assurance of timely
payment only slightly less in degree than issues rated F-1+. F-2 securities
possess good credit quality and have a satisfactory degree of assurance for
timely payment, but the margin of safety is not as great as the F-1+ and F-1
categories.
S&P's commercial paper ratings are current assessments of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. The A-1 designation indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics will be denoted with a plus (+) designation. The A-2
designation indicates that capacity for timely payment on these issues is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
Moody's short-term debt ratings are opinions of the ability of issuers
to repay punctually promissory obligations not having an original maturity in
excess of nine months. Issuers rated Prime-1 (or related supporting
institutions) in the opinion of Moody's have a superior capacity for repayment
of short-term promissory obligations. Issuers rated Prime-2 (or related
supporting institutions) have a strong capacity for repayment of short-term
promissory obligations. This capacity will normally be evidenced by many of the
characteristics of Prime-1 rated issues, but to a lesser degree.
Ample alternate liquidity is maintained.
IBCA assesses the investment quality of unsecured debt with an original
maturity of less than one year which is issued by bank holding companies and
their principal banking subsidiaries. The designation A1 by IBCA indicates that
the obligation is supported by a very strong capacity for timely repayment.
Those obligations rated A1+ are supported by the highest capacity for timely
repayment. The designation A-2 by IBCA indicates that the obligation is
supported by a satisfactory capacity for timely payment, although such capacity
may be susceptible to adverse changes in business, economic or financial
conditions.
Thomson's short-term paper ratings assess the likelihood of an untimely
payment of principal or interest of debt having a maturity of one year or less
which is issued by banks and financial institutions. The designation TBW-1
represents the highest short-term rating category and indicates a very high
degree of likelihood that principal and interest will be paid on a timely basis.
The designation TBW-2 represents the second highest short-term rating category
and indicates that while the degree of safety regarding timely payment of
principal and interest is strong, the relative degree of safety is not as high
as for issues rated TBW-1.
Tax-Exempt Note Ratings
A S&P rating of SP-1 indicates very strong or strong capacity to pay
principal and interest. Those issues determined to possess overwhelming safety
characteristics are given a plus (+) designation. Notes rated SP-2 are issued by
issuers that exhibit satisfactory capacity to pay principal and interest.
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<PAGE>
Moody's ratings for state and municipal notes and other short-term
obligations are designated Moody's Investment Grade ("MIG"). MIG-1/VMIG-1
denotes best quality. There is present strong protection from established cash
flows, superior liquidity support or demonstrated broad-based access to the
market for refinancing. MIG-2/VMIG-2 denotes high quality, with margins of
protection ample although not as large as in the MIG-1/VMIG-1 group.
Fitch uses its short-term ratings described above under "Short-Term
Corporate and Tax-Exempt Debt Ratings" for tax-exempt notes.
D&P uses the fixed-income ratings described above under "Long-Term
Corporate and Tax-Exempt Debt Ratings" for tax-exempt notes and other short-term
obligations.
-17-
<PAGE>
Filed pursuant to Rule 485(b)
File Nos. 33-19229; 811-5430
SSgA FUNDS
----------
One International Place
Boston, Massachusetts 02110
(800) 647-7327
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
PRIME MONEY MARKET FUND
December 24, 1997
SSgA Funds ("Investment Company") is a registered open-end investment
company organized as a Massachusetts business trust offering shares of
beneficial interest in separate investment portfolios. In addition, each series
of the Investment Company is diversified as defined in the Investment Company
Act of 1940, as amended ("1940 Act").
This Statement of Additional Information supplements or describes in
greater detail the Investment Company and the SSgA Prime Money Market Fund (the
"Prime Money Market Fund" or the "Fund") as contained in the Fund's Prospectus
dated December 24, 1997. This Statement is not a Prospectus and should be read
in conjunction with the Fund's Prospectus, which may be obtained by telephoning
or writing Investment Company at the number or address shown above.
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<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
Structure and Governance................................................. 3
Organization and Business History............................... 3
Shareholder Meetings............................................ 4
Controlling Shareholders........................................ 4
Principal Shareholders.......................................... 4
Trustees and Officers........................................... 4
Operation of Investment Company.......................................... 6
Service Providers ............................................. 6
Advisor ....................................................... 6
Administrator................................................... 6
Distributor..................................................... 7
Custodian and Transfer Agent.................................... 7
Independent Accountants......................................... 7
Distribution Plan ............................................. 7
Federal Law Affecting State Street.............................. 8
Valuation of Fund Shares........................................ 8
Brokerage Practices............................................. 9
Yield and Total Return Quotations............................... 10
Investments.............................................................. 11
Investment Restrictions......................................... 11
Investment Policies............................................. 12
Taxes.................................................................... 15
Financial Statements..................................................... 16
Appendix: Description of Securities Ratings............................. 17
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<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. 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," one
of which is the Prime Money Market Fund. The Trustees may create additional
Funds at any time without shareholder approval.
Further, the Investment Company is authorized to divide shares of any
series into two or more classes of shares. The shares of each 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 Fund may have separate voting rights or no voting rights. Each class
of shares of a Fund is entitled to the same rights and privileges as all other
classes of that Fund, except that each class bears the 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 Fund's portfolio securities.
As of the date of this Statement of Additional Information, Investment
Company is comprised of the following investment portfolios, each of which
commenced operations on the date set forth opposite the portfolio's name:
SSgA Money Market Fund May 2, 1988
SSgA US Government Money Market Fund March 1, 1991
SSgA Matrix Equity Fund May 4, 1992
SSgA Small Cap Fund July 1, 1992
SSgA Yield Plus Fund November 9, 1992
SSgA S&P 500 Index Fund December 30, 1992
SSgA Growth and Income Fund September 1, 1993
SSgA Intermediate Fund September 1, 1993
SSgA US Treasury Money Market Fund December 1, 1993
SSgA Prime Money Market Fund February 22, 1994
SSgA Emerging Markets Fund March 1, 1994
SSgA Tax Free Money Market Fund December 1, 1994
SSgA Active International Fund March 7, 1995
SSgA Bond Market Fund February 7, 1996
SSgA Life Solutions Balanced Fund June 2, 1997
SSgA Life Solutions Growth Fund June 2, 1997
SSgA Life Solutions Income and Growth Fund June 2, 1997
SSgA Real Estate Equity Fund *
SSgA US Treasury Obligations Fund *
SSgA International Pacific Index Fund *
- ----------
*As of the date of this Statement of Additional Information, these portfolios
have not commenced operations.
Prospectuses for these investment portfolios may be obtained by calling
Investment Company's distributor, Russell Fund Distributors, Inc., at (800)
647-7327, or at its Internet Web Site at www.ssgafunds.com.
Shares of the Money Market, US Government Money Market and Tax Free Money
Market Funds are divided into Classes A, B and C.
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<PAGE>
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 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 Fund may be held personally
liable for the obligations of a 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 Fund shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The Master Trust Agreement
also provides that the Fund shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the 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 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 November 30, 1997, State Street held beneficially and of
record 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 November 30, 1997, the following shareholders
owned of record 5% or more of the issued and outstanding shares of the Fund:
[bullet] CUNA Mutual Group C/O State Street Bank Corporation,
108 Myrtle Street #AH2, Quincy, MA 02171 -- 14%; and
[bullet] Global Financial Asset Services Omnibus Control Account MT01,
State Street Bank and Trust Company, P.O. Box 1992,
North Quincy, MA 02171 -- 40%.
Such shares may be held pursuant to a shareholder servicing arrangement in
omnibus accounts for underlying shareholders.
The Trustees and officers of Investment Company, as a group, own less than
1% of Investment Company's voting securities.
Trustees and Officers. The Board of Trustees is responsible for overseeing
generally the operation of the Fund. The 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 Fund's operations.
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. Investment Company's officers and employees are paid by
Administrator or its affiliates.
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.
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<PAGE>
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. Trustee, President and Chief Executive Officer, Russell Insurance Funds
(investment company). Director, Chief Executive Officer and Chairman of the
Board, Russell Fund Distributors, Inc. Trustee, President and Chief Executive
Officer, Frank Russell Investment Company (investment company); Director, Chief
Executive Officer and Chairman of the Board, Frank Russell Investment Management
Company; Director, Chief Executive Officer and President, Frank Russell Trust
Company; Director and Chairman, Frank Russell Investment Company Public Limited
Company; November 1995 to February 1997, Director, Frank Russell Company;
Director and Chairman of the Board, Frank Russell Company (Delaware); Director,
Frank Russell Company; March 1989 to June 1993, Director, Frank Russell Company,
Director of Frank Russell Investments (Ireland) Limited; Director and Chairman,
Frank Russell Investment Company Public Limited Company. Until September 1994,
Director and President, The Laurel Funds, Inc. (investment company).
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 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. 350 Park Avenue, 15th Floor,
New York, NY 10022. Partner, Squire, Sanders & Dempsey (law firm). From 1994 to
1997, Partner, Brown, Rudnick, Freed & Gesmer (law firm). From 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. 1990 to 1992, President, Champions Group Resources--Business
Management and Employee Benefits Consulting; 1990, Senior Vice President,
Employee Benefits Division, Cigna Corporation (providing and insuring group
life, health and disability employee benefit products and services); from 1986
to 1990, Senior Vice President, EQUICOR-Equitable HCA Corporation (providing and
insuring group life, health and disability employee benefit products and
services).
*Bruce D. Taber, Trustee. Born 4/25/43. 26 Round Top Road, Boxford, MA
01921. Consultant, Computer Simulation, General Electric Industrial Control
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., Feed Flavors, Inc. 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. Treasurer and Chief Accounting Officer, Russell
Insurance Funds (investment company); Director of Finance and Operations, Frank
Russell Trust Company; Director, Fund Administration and Operations of Frank
Russell Investment Management Company and Russell Fund Distributors, Inc.;
Treasurer and Chief Accounting Office, Frank Russell Investment Company
(investment company); March 1993 to January 1996, Vice President, Operations,
Funds Management, J.P. Morgan; December 1985 to
-5-
<PAGE>
March 1993, Senior Vice President, Operations, Frank Russell Investment Company,
The Laurel Funds, Inc. and The Seven Seas Series Fund (investment companies);
Director of Operations, Frank Russell Investment Management Company and Frank
Russell Trust Company; Director, Russell Fund Distributors, Inc.
Total Annual Compensation
Trustee from Investment Company
--------------------------------------------------------
Lynn L. Anderson $0
William L. Marshall $55,500
Steven J. Mastrovich $55,500
Patrick J. Riley $55,500
Richard D. Shirk $55,500
Bruce D. Taber $55,500
Henry W. Todd $55,500
OPERATION OF INVESTMENT COMPANY
Service Providers. Most of the 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.
Advisor. State Street Bank and Trust Company ("State Street" or "Advisor")
serves as the Fund's 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 Corporation, a publicly-held bank
holding company. State Street's address is 225 Franklin Street, Boston, MA
02110.
Under the Advisory Agreement, Advisor directs the Fund's investments in
accordance with its investment objective, policies and limitations. For these
services, the Fund pays a fee to Advisor at the rate stated in the Prospectus.
The Fund accrued expenses to Advisor of $1,919,970 in fiscal 1997, $2,221,865
for fiscal 1996 and $1,319,424 for fiscal 1995. Advisor voluntarily agreed to
reimburse the Fund for all expenses in excess of .20% of average daily net
assets on an annual basis. The Advisor reimbursed $986,421 in fiscal 1997,
$809,259 in fiscal 1996, and there was no reimbursement necessary for fiscal
1995. Additionally, Advisor waived fees of $1,159,949 in fiscal 1995.
The Advisory Agreement will continue from year to year provided that a
majority of the Trustees who are not interested persons of any investment
portfolio and either a majority of all Trustees or a majority of the
shareholders of each investment portfolio approve its continuance. The Agreement
may be terminated by Advisor or a Fund without penalty upon 60 days' notice and
will terminate automatically upon its assignment.
Administrator. Frank Russell Investment Management Company
("Administrator") serves as the Fund's administrator, pursuant to an
Administration Agreement dated April 12, 1988 ("Administration Agreement"). A
description of the services provided under the Administration Agreement and the
basis for computing fees for such services is provided in the Fund's Prospectus.
The Fund accrued expenses to Administrator of $375,056 in fiscal 1997, $429,434
for fiscal 1996 and $261,274 for fiscal 1995.
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<PAGE>
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 any investment portfolio 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 a Fund without penalty upon 60 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, Winston-Salem, New
York City, Toronto, London, Tokyo, Sydney, Paris, Zurich and Auckland, and have
approximately 1,200 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 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 One International Place, Boston,
MA 02110.
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
Custodian services, State Street is paid an annual fee in accordance with the
following: custody services--a fee payable monthly on a pro rata basis, based on
the following percentages of average daily net assets of the 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 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. For Transfer and Dividend
Disbursing Agent services, State Street is paid the following annual account
services fees: $9.00 open account fee; $1.50 closed account fee; fund minimum
per portfolio for one to four portfolios--$36,000, five to six
portfolios--$24,000, and over six portfolios $18,000. Portfolio fees are
allocated to each fund based on the average net asset value of each fund and are
billable on a monthly basis at the rate of 1/12 of the annual fee. State Street
will apply a $5.00 fee to each telephone transaction (purchase or redemption),
which is applied against the monthly billing. State Street is reimbursed by the
Fund 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 Fund may, directly or indirectly, bear distribution and shareholder
servicing expenses. The Rule provides that the Fund may pay for such expenses
only pursuant to a plan adopted in accordance with the Rule. Accordingly, the
Fund has adopted a distribution plan (the "Plan"), which is described in the
Fund's Prospectus.
The Plan provides that the 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 Fund 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 Fund 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.
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<PAGE>
The Fund accrued expenses to Russell Fund Distributors, Inc., as
Distributor, for the fiscal year ended August 31:
1997 1996 1995
---- ---- ----
$364,711 $274,219 $184,201
For fiscal 1997, these amounts are reflective of the following individual
payments:
Advertising $ 30,345
Printing of Prospectuses 17,849
Compensation to Dealers --
Compensation to Sales Personnel 129,173
Other* 187,344
--------
$364,711
* 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 Fund may also enter into agreements ("Service
Agreements") with financial institutions, which may include Advisor ("Service
Organizations"), to provide shareholder servicing with respect to Fund shares
held by or for the customers of the Service Organizations. Such arrangements are
more fully described in the Fund's Prospectus under "Distribution Services and
Shareholder Servicing."
The Fund accrued expenses in the following amount to Advisor, under a Service
Agreement pursuant to Rule 12b-1, for the fiscal year ended August 31:
1997 1996 1995
---- ---- ----
$319,995 $369,950 $262,458
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 certain 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 Fund, 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 Fund contemplated under this arrangement
are consistent with its statutory and regulatory obligations.
Valuation of Fund Shares. The Fund determines net asset value per share as
of the close of the regular trading session of the New York Stock Exchange
(currently, 4:00 p.m. Eastern time). A business day is one on which both the
Boston Federal Reserve and the New York Stock Exchange are open for business.
It is the Fund's policy to use its best efforts to maintain a constant
price per share of $1.00, although there can be no assurance that the $1.00 net
asset value per share will be maintained. In accordance with this effort and
pursuant to Rule 2a-7 under the 1940 Act, the Fund uses the amortized cost
valuation method to value its portfolio instruments. 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 Fund would receive if it sold the instrument.
For example, in periods of declining interest rates, the daily yield on the
Fund's shares computed by dividing the annualized daily income on the Fund's
portfolio by the net asset value based upon the amortized cost valuation
technique 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 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.
-8-
<PAGE>
The Trustees have established procedures reasonably designed to stabilize
the Fund's price per share at $1.00. These procedures include: (1) the
determination of the deviation from $1.00, if any, of the Fund's net asset value
using market values; (2) periodic review by the Trustees of the amount of and
the methods used to calculate the deviation; and (3) maintenance of records of
such determination. The Trustees will promptly consider what action, if any,
should be taken if such deviation exceeds 1/2 of one percent.
Brokerage Practices. All portfolio transactions are placed on behalf of
the 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 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 Fund and/or Advisor (or its
affiliates). Advisor is authorized to cause the 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 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 Advisor's performance of its
responsibilities in connection with the placement of portfolio transactions on
behalf of the Fund and review the prices paid by the Fund over representative
periods of time to determine if such prices are reasonable in relation to the
benefits provided to the Fund. Certain services received by Advisor attributable
to a particular Fund transaction may benefit one or more other accounts for
which Advisor exercises investment discretion or an investment portfolio other
than such Fund. Advisor's fees are not reduced by Advisor's receipt of such
brokerage and research services.
During the fiscal year ended August 31, 1997, the Fund 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 the Fund's ten largest brokers or dealers
by dollar amounts of securities executed or commissions received on behalf of
the Fund. The value of broker-dealer securities held as of August 31, 1997, is
as follows:
($000)
------------------------
Investment Technology Group, Inc. (a) 0
Morgan Stanley & Co. (a) 0
Broadcort Capital (a) 0
Merrill Lynch, Pierce, Fenner, Inc. 71,540
State Street Brokerage Services, Inc. (a) 0
Bear, Stearns Securities (a) 0
National Financial Services (a) 0
Nomura Securities International (a) 0
Barclays Dezoete Wedd (a) 0
Instinet (a) 0
Prebon (b) 0
Swiss Bank Corp. (b) 9,999
Lumis & Co. (b) 0
HSBC Securities (b) 0
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Goldman Sachs & Co. (b) 0
UBS Securities, Inc. (b) 0
Aubrey G. Lanston & Co. (b) 0
Lehman Brothers Inc. (b) 0
Donaldson, Lufkin & Jenrette (b) 0
- ---------------------
(a) Broker commissions only
(b) Broker principal transactions only
Yield and Total Return Quotations. The Fund computes 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, five and ten year periods (or life of the funds 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-, 5- and 10-year periods at the end of
the year or period
The calculation assumes that all dividends and distributions of the Fund
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.
Total returns and other performance figures are based on historical
earnings and are not indicative of future performance.
The current annualized yield of the Fund 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
The following are the Fund's current and effective yields for the seven-day
period ended August 31, 1997:
Current Yield 5.52%
Effective Yield 5.67%
The yields quoted are not indicative of future results. Yields will depend
on the type, quality, maturity, and interest rate of money market instruments
held by the Fund.
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INVESTMENTS
The fundamental investment objective of the Fund is set forth in the
Prospectus. In addition to that investment objective, the Fund also has certain
"fundamental" investment restrictions, which may be changed only with the
approval of a majority of the shareholders of the Fund, and certain
nonfundamental investment restrictions and policies, which may be changed by the
Fund without shareholder approval.
Investment Restrictions
- -----------------------
The Fund is subject to the following fundamental investment restrictions,
each of which applies at the time an investment is made. The Fund will not:
(1) Borrow money, 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 Fund's assets taken at market value, less
liabilities other than borrowings. If at any time the 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.
The Fund will not purchase investments once borrowed funds (including reverse
repurchase agreements) exceed 5% of its total assets.
(2) Pledge, mortgage or hypothecate its assets. However, the Fund may
pledge securities having a market value (on a daily marked-to-market basis) at
the time of the pledge not exceeding 33-1/3% of the value of the Fund's total
assets to secure borrowings permitted by paragraph (1) above.
(3) 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." A 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 the Fund's total assets.
(4) Engage in the business of underwriting securities issued by others,
except that the Fund 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.
(5) Issue senior securities, except as permitted by its investment
objective, policies and restrictions, and except as permitted by the 1940 Act.
(6) Purchase or sell puts, calls or invest in straddles, spreads or any
combination thereof.
(7) 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.
(8) Purchase from or sell portfolio securities to its officers or
directors or other "interested persons" (as defined in the 1940 Act) of the
Fund, including their investment advisors and affiliates, except as permitted by
the 1940 Act and exemptive rules or orders thereunder.
(9) 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.
(10) Make investments for the purpose of gaining control of an issuer's
management.
(11) 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). Concentration may occur as a result of
changes in the market value of portfolio securities, but may not result from
investment. Foreign and domestic branches of US banks and US branches of foreign
banks are not considered a single industry for purposes of this restriction.
-11-
<PAGE>
(12) 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), if immediately after and as a result of such investment the
current market value of the Fund's holdings in the securities of such issuer
exceeds 5% of the value of the Fund's assets.
(13) Purchase or sell real estate or real estate mortgage loans; provided,
however, that the Fund may invest in securities secured by real estate or
interests therein or issued by companies which invest in real estate or
interests therein.
(14) Purchase interests in oil, gas or other mineral exploration or
development programs.
(15) Purchase the securities of any issuer if the Investment Company's
officers, Directors, Advisor or any of their affiliates beneficially own more
than one-half of 1% of the securities of such issuer or together own
beneficially more than 5% of the securities of such issuer.
(16) Invest in securities of any issuer which, together with its
predecessor, has been in operation for less than three years if, as a result,
more than 5% of the Funds' total assets would be invested in such securities,
except that the Funds may invest in securities of a particular issuer to the
extent their respective underlying indices invest in that issuer.
Investment Policies
- -------------------
To the extent consistent with its fundamental investment objective and
restrictions and except as otherwise indicated, the Fund may invest in the
following instruments and utilize the following investment techniques:
US Government Obligations. The types of US Government obligations in which
the Fund may at times invest include: (1) a variety of US Treasury obligations
(including Treasury Inflation-Protection Securities, described below), which
differ only in their interest rates, maturities and times of issuance and which
have remaining maturities or hard put dates of 397 days or less; 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 such issuers are the 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.
Treasury Inflation-Protection Securities. The Fund may invest in
Inflation-Protection Securities ("IPS"), 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.
When-Issued Transactions. 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.
-12-
<PAGE>
The Fund will make commitments to purchase when-issued securities only
with the intention of actually acquiring the securities, but the Fund 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 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 Fund's records on a daily basis so that the market value of
the account will equal the amount of such commitments by the Fund. The Fund will
invest no more than 25% of its net assets in when-issued securities. The Fund
will not purchase the securities of any issuer if the Investment Company's
officers, Directors, Advisor or any of their affiliates beneficially own more
than one-half of 1% of the securities of such issuer or together own
beneficially more than 5% of the securities of such issuer.
Securities purchased on a when-issued basis and held by the Fund 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 when interest rates decline and decrease in value when interest rates
rise. Therefore, if in order to achieve higher interest income the 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 Fund's net asset value.
When payment for when-issued securities is due, the 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 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.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain financial institutions. Under repurchase agreements, these parties sell
US Treasury bills, notes and bonds to the 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 Fund in being invested fully while retaining
"overnight" flexibility in pursuit of investments of a longer-term nature.
Reverse Repurchase Agreements. The Fund may enter into reverse repurchase
agreements under the circumstances described in "Investment Restrictions." Under
reverse repurchase agreements, the Fund transfers possession of portfolio
securities to banks 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. The 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.
Forward Commitments. The Fund may contract to purchase securities for a
fixed price at a future date beyond customary settlement time consistent with
the Fund's ability to manage its investment portfolio, maintain a stable net
asset value and meet redemption requests. The Fund 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 Fund of a dollar amount sufficient to make
payment for the portfolio securities to be purchased will be segregated on the
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.
Section 4(2) Commercial Paper. The Fund may also 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 institutional investors such as
the Prime Money Market Fund that agree that they are purchasing the paper for
investment and not with a view to public distribution. Any resale by the
purchaser must be in an exempt transaction. Section 4(2) paper normally is
resold to other institutional investors like the Fund through or with the
assistance of the issuer or investment dealers that make a market in Section
4(2) paper. Section 4(2) paper will not be subject to the Fund's 10% limitation
on illiquid securities set forth below where the Board of Trustees of Investment
Company (pursuant to guidelines adopted by the Board) determines that a liquid
trading market exists.
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<PAGE>
Mortgage-Related Pass-Through Securities. 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 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 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
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<PAGE>
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.
Zero Coupon Securities. 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.
Because the Prime Money Market Fund accrues taxable income from zero
coupon securities without receiving regular interest payments in cash, it 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
Fund. Investing in these securities might also force the Fund 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.
To the extent permitted under the 1940 Act and exemptive rules and orders
thereunder, the Fund may seek to achieve its investment objectives by investing
solely in the shares of another investment company that has a substantially
similar investment objective and policy.
TAXES
The Fund intends 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 Fund will not be liable for federal income
taxes on taxable net investment income and net capital gain (long-term capital
gains in excess of short-term capital losses) that it distributes to its
shareholders, provided that the Fund distributes annually to its shareholders at
least 90% of its net investment income and net short-term capital gain for the
taxable year ("Distribution Requirement"). For a Fund to qualify as a RIC it
must abide by all of the following requirements: (1) at least 90% of the Fund's
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) at the close of each quarter of the Fund's 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 Fund and that does
not represent more than 10% of the outstanding voting securities of such issuer;
and (3) at the close of each quarter of the Fund's 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 Fund 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 its ordinary income for that year; (2) 98% of its 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 Fund subsequent to December 31 but prior to February 1 of the
following year.
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<PAGE>
If a shareholder receives a distribution taxable as a 20% gain or a 28%
gain with respect to shares of a 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 a 20% loss or a 28% loss to the extent
of the respective capital gain distribution.
As of August 31, 1997, the Fund had a net tax basis capital loss carryover
of $89,293, which may be applied against any realized net taxable gains in each
succeeding year or until its expiration date of August 31, 2005.
State and Local Taxes. Under federal law, the income derived from
obligations issued by the US Government and certain of its agencies and
instrumentalities is exempt from state income taxes. All states that tax
personal income, other than Pennsylvania, permit mutual funds to pass through
this tax exemption to shareholders.
The foregoing discussion is only a summary of certain federal income tax
issues generally affecting the Fund and its shareholders. Circumstances among
investors may vary and each investor is encouraged to discuss investment in the
Funds with the investor's tax advisor.
FINANCIAL STATEMENTS
The 1997 fiscal year-end financial statements for the Fund, including notes to
the financial statements and financial highlights and the Report of Independent
Accountants, are included in the Fund's Annual Report to shareholders. A copy of
this Annual Report accompanies this Statement of Additional Information and is
incorporated herein by reference.
-16-
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APPENDIX
DESCRIPTION OF SECURITIES RATINGS
The following is a description of the securities ratings of Duff & Phelps
Credit Rating Co. ("D&P"), Fitch Investors Service, Inc. ("Fitch"), Standard &
Poor's Corporation ("S&P"), Moody's Investors Service, Inc. ("Moody's"), IBCA
Limited and IBCA Inc. ("IBCA") and Thomson BankWatch ("Thomson").
Long-Term Corporation and Tax-Exempt Debt Ratings
The two highest ratings of D&P for tax-exempt and corporate
fixed-income securities are AAA and AA. Securities rated AAA are of the highest
credit quality. The risk factors are considered to be negligible, being only
slightly more than for risk-free US Treasury debt. Securities rated AA are of
high credit quality. Protection factors are strong. Risk is modest but may vary
slightly from time to time because of economic conditions. The AA rating may be
modified by an addition of a plus (+) or minus (-) sign to show relative
standing within the major rating category.
The two highest ratings of Fitch for tax-exempt and corporate bonds are
AAA and AA. AAA bonds are considered to be investment grade and of the highest
credit quality. The obligor is judged to have an exceptionally strong ability to
pay interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events. AA bonds are considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated F-1+. Plus (+) and minus (-) signs are used with the AA rating symbol to
indicate relative standing within the rating category.
The two highest ratings of S&P for tax-exempt and corporate bonds are
AAA and AA. Bonds rated AAA bear the highest rating assigned by S&P to a debt
obligation and the AAA rating indicates in its opinion an extremely strong
capacity to pay interest and repay principal. Bonds rated AA by S&P are judged
by it to have a very strong capacity to pay interest and repay principal, and
they differ from AAA issues only in small degree. The AA rating may be modified
by an addition of a plus (+) or minus (-) sign to show relative standing within
the major rating category. The foregoing ratings are sometimes followed by a "p"
indicating that the rating is provisional. A provisional rating assumes the
successful completion of the project being financed by the debt being rated and
indicates that payment of debt service requirements is largely or entirely
dependent upon the successful and timely completion of the project. This rating,
however, while addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of, or the risk of default upon
failure of, such completion.
The two highest ratings of Moody's for tax-exempt and corporate bonds
are Aaa and Aa. Tax-exempt and corporate bonds rated Aaa are judged to be of the
"best quality." The rating of Aa is assigned to bonds which are of "high quality
by all standards." Aa bonds are rated lower than Aaa bonds because margins of
protection may not be as large or fluctuations of protective elements may be of
greater amplitude or there may be other elements which make the long-term risks
appear somewhat larger. Moody's may modify a rating of Aa by adding numerical
modifiers of 1, 2 or 3 to show relative standing within the Aa category. The
foregoing ratings for tax-exempt bonds are sometimes presented in parentheses
preceded with a "con" indicating the bonds are rated conditionally. Such
parenthetical rating denotes the probable credit stature upon completion of
construction or elimination of the basis of the condition. In addition, Moody's
has advised that the short-term credit risk of a long-term instrument sometimes
carries a MIG rating or one of the commercial paper ratings described below.
The two highest ratings of IBCA for corporate bonds are AAA and AA.
Obligations rated AAA by IBCA have the lowest expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial, such
that adverse changes in business, economic or financial conditions are unlikely
to increase investment risk significantly. Obligations for which there is a very
low expectation of investment risk are rated AA. IBCA may append a rating of
plus (+) or minus (-) to a rating to denote relative status within a major
rating category. IBCA does not rate tax-exempt bonds.
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<PAGE>
The two highest ratings of Thomson for corporate bonds are AAA and AA.
Bonds rated AAA are of the highest credit quality. The ability of the obligor to
repay principal and interest on a timely basis is considered to be very high.
Bonds rated AA indicate a superior ability on the part of the obligor to repay
principal and interest on a timely basis with limited incremental risk versus
issues rated in the highest category. These ratings may be modified by the
addition of a plus (+) or minus (-) sign to show relative standing within the
rating categories. Thomson does not rate tax-exempt bonds.
Short-Term Corporate and Tax-Exempt Debt Ratings
The highest rating of D&P for commercial paper is Duff 1. D&P employs
three designations, Duff 1 plus, Duff 1 and Duff 1 minus, within the highest
rating category. Duff 1 plus indicates highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or ready access
to alternative sources of funds, is judged to be outstanding, and safety is just
below risk-free US Treasury short-term obligations. Duff 1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
strong fundamental protection factors. Risk factors are considered to be minor.
Duff 1 minus indicates high certainty of timely payment. Liquidity factors are
strong and supported by good fundamental protection factors. Risk factors are
very small. Duff 2 indicates 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.
Fitch's short-term ratings apply to tax-exempt and corporate debt
obligations that are payable on demand or have original maturities of up to
three years. The highest rating of Fitch for short-term securities encompasses
both the F-1+ and F-1 ratings. F-1+ securities possess exceptionally strong
credit quality. Issues assigned this rating are regarded as having the strongest
degree of assurance for timely payment. F-1 securities possess very strong
credit quality. Issues assigned this rating reflect an assurance of timely
payment only slightly less in degree than issues rated F-1+. F-2 securities
possess good credit quality and have a satisfactory degree of assurance for
timely payment, but the margin of safety is not as great as the F-1+ and F-1
categories.
S&P's commercial paper ratings are current assessments of the likelihood of
timely payment of debt having an original maturity of no more than 365 days. The
A-1 designation indicates that the degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety
characteristics will be denoted with a plus (+) designation. The A-2 designation
indicates that capacity for timely payment on these issues is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.
Moody's short-term debt ratings are opinions of the ability of issuers
to repay punctually promissory obligations not having an original maturity in
excess of nine months. Issuers rated Prime-1 (or related supporting
institutions) in the opinion of Moody's have a superior capacity for repayment
of short-term promissory obligations. Issuers rated Prime-2 (or related
supporting institutions) have a strong capacity for repayment of short-term
promissory obligations. This capacity will normally be evidenced by many of the
characteristics of Prime-1 rated issues, but to a lesser degree.
Ample alternate liquidity is maintained.
IBCA assesses the investment quality of unsecured debt with an original
maturity of less than one year which is issued by bank holding companies and
their principal banking subsidiaries. The designation A1 by IBCA indicates that
the obligation is supported by a very strong capacity for timely repayment.
Those obligations rated A1+ are supported by the highest capacity for timely
repayment. The designation A-2 by IBCA indicates that the obligation is
supported by a satisfactory capacity for timely payment, although such capacity
may be susceptible to adverse changes in business, economic or financial
conditions.
Thomson's short-term paper ratings assess the likelihood of an untimely
payment of principal or interest of debt having a maturity of one year or less
which is issued by banks and financial institutions. The designation TBW-1
represents the highest short-term rating category and indicates a very high
degree of likelihood that principal and interest will be paid on a timely basis.
The designation TBW-2 represents the second highest short-term rating category
and indicates that while the degree of safety regarding timely payment of
principal and interest is strong, the relative degree of safety is not as high
as for issues rated TBW-1.
Tax-Exempt Note Ratings
A S&P rating of SP-1 indicates very strong or strong capacity to pay
principal and interest. Those issues determined to possess overwhelming safety
characteristics are given a plus (+) designation. Notes rated SP-2 are issued by
issuers that exhibit satisfactory capacity to pay principal and interest.
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<PAGE>
Moody's ratings for state and municipal notes and other short-term
obligations are designated Moody's Investment Grade ("MIG"). MIG-1/VMIG-1
denotes best quality. There is present strong protection from established cash
flows, superior liquidity support or demonstrated broad-based access to the
market for refinancing. MIG-2/VMIG-2 denotes high quality, with margins of
protection ample although not as large as in the MIG-1/VMIG-1 group.
Fitch uses its short-term ratings described above under "Short-Term
Corporate and Tax-Exempt Debt Ratings" for tax-exempt notes.
D&P uses the fixed-income ratings described above under "Long-Term
Corporate and Tax-Exempt Debt Ratings" for tax-exempt notes and other short-term
obligations.
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<PAGE>
Filed pursuant to Rule 485(b)
File Nos. 33-19229; 811-5430
SSgA FUNDS
----------
One International Place
Boston, Massachusetts 02110
(800) 647-7327
SSgA GROWTH AND INCOME FUND
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
December 24, 1997
SSgA Funds ("Investment Company") is a registered open-end investment
company organized as a Massachusetts business trust offering shares of
beneficial interest in separate investment portfolios. In addition, each series
of the Investment Company is diversified as defined under the Investment Company
Act of 1940, as amended ("1940 Act").
This Statement of Additional Information supplements or describes in
greater detail the Investment Company and the SSgA Growth and Income Fund (the
"Growth and Income Fund" or the "Fund") as contained in the Fund's Prospectus
dated December 24, 1997. This Statement is not a Prospectus and should be read
in conjunction with the Fund's Prospectus, which may be obtained by telephoning
or writing Investment Company at the number or address shown above.
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<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
Structure and Governance................................................... 3
Organization and Business History................................. 3
Shareholder Meetings.............................................. 4
Controlling Shareholders.......................................... 4
Principal Shareholders............................................ 4
Trustees and Officers............................................. 4
Operation of Investment Company............................................ 6
Service Providers ............................................... 6
Advisor ......................................................... 6
Administrator..................................................... 6
Distributor....................................................... 7
Custodian and Transfer Agent...................................... 7
Independent Accountants........................................... 7
Distribution Plan ............................................... 7
Federal Law Affecting State Street................................ 8
Valuation of Fund Shares.......................................... 8
Brokerage Practices............................................... 9
Portfolio Turnover Rate........................................... 10
Yield and Total Return Quotations................................. 10
Investments................................................................ 11
Investment Restrictions........................................... 11
Investment Policies............................................... 12
Hedging Strategies and Related Investment Techniques.............. 14
Taxes..................................................................... 18
Financial Statements...................................................... 19
Appendix: Description of Securities Ratings.............................. 20
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<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,
one of which is the "Fund." The Trustees may create additional Funds at any time
without shareholder approval.
As of the date of this Statement of Additional Information, Investment
Company is comprised of the following investment portfolios, each of which
commenced operations on the date set forth opposite the portfolio's name:
SSgA Money Market Fund May 2, 1988
SSgA US Government Money Market Fund March 1, 1991
SSgA Matrix Equity Fund May 4, 1992
SSgA Small Cap Fund July 1, 1992
SSgA Yield Plus Fund November 9, 1992
SSgA S&P 500 Index Fund December 30, 1992
SSgA Growth and Income Fund September 1, 1993
SSgA Intermediate Fund September 1, 1993
SSgA US Treasury Money Market Fund December 1, 1993
SSgA Prime Money Market Fund February 22, 1994
SSgA Emerging Markets Fund March 1, 1994
SSgA Tax Free Money Market Fund December 1, 1994
SSgA Active International Fund March 7, 1995
SSgA Bond Market Fund February 7, 1996
SSgA Life Solutions Balanced Fund June 2, 1997
SSgA Life Solutions Growth Fund June 2, 1997
SSgA Life Solutions Income and Growth Fund June 2, 1997
SSgA Real Estate Equity Fund *
SSgA US Treasury Obligations Fund *
SSgA International Pacific Index Fund *
- ----------
*As of the date of this Statement of Additional Information, these portfolios
have not commenced operations.
The Investment Company is authorized to divide shares of any series into
two or more classes of shares. The shares of each 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 Fund may have
separate voting rights or no voting rights. Each class of shares of a Fund is
entitled to the same rights and privileges as all other classes of that Fund,
except that each class bears the 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 Fund's
portfolio securities.
Prospectuses for these Investment Portfolios may be obtained by calling
Investment Company's distributor, Russell Fund Distributors, Inc., at (800)
647-7327, or at its Internet Web Site at www.ssgafunds.com.
Shares of the Money Market, US Government Money Market and Tax Free Money
Market Funds are divided into Classes A, B and C.
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<PAGE>
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 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 the Fund may be held personally
liable for the obligations of the Fund. The Master Trust Agreement provides that
shareholders shall not be subject to any personal liability for the acts or
obligations of the Fund and that every written agreement, obligation, or other
undertaking of the Fund shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The Master Trust Agreement
also provides that the Fund shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the 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 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 November 30, 1997, State Street held beneficially and of
record 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 November 30, 1997, the following shareholders
owned of record 5% or more of the issued and outstanding shares of the Fund, as
follows:
[bullet] State Street Solutions, State Street Bank and Trust Company, TTEE,
P.O. Box 1389, Boston, MA 02104 -- 28%; and
[bullet] State Street Bank, Employee 401K Plan IA06, an account of
State Street Bank and Trust Company, 225 Franklin St.,
Quincy, MA 02169 -- 30%.
Such shares may be held pursuant to a shareholder servicing arrangement in
omnibus accounts for underlying shareholders.
The Trustees and officers of Investment Company, as a group, own less than
1% of Investment Company's voting securities.
Trustees and Officers. The Board of Trustees is generally responsible for
overseeing the operation of the Fund. The 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 Fund's operations.
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. Investment Company's officers and employees are paid by
Administrator or its affiliates.
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
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<PAGE>
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. Trustee, President and Chief Executive Officer, Russell Insurance Funds
(investment company). Director, Chief Executive Officer and Chairman of the
Board, Russell Fund Distributors, Inc. Trustee, President and Chief Executive
Officer, Frank Russell Investment Company (investment company); Director, Chief
Executive Officer and Chairman of the Board, Frank Russell Investment Management
Company; Director, Chief Executive Officer and President, Frank Russell Trust
Company; Director and Chairman, Frank Russell Investment Company Public Limited
Company; November 1995 to February 1997, Director, Frank Russell Company;
Director and Chairman of the Board, Frank Russell Company (Delaware); Director,
Frank Russell Company; March 1989 to June 1993, Director, Frank Russell Company,
Director of Frank Russell Investments (Ireland) Limited; Director and Chairman,
Frank Russell Investment Company Public Limited Company. Until September 1994,
Director and President, The Laurel Funds, Inc. (investment company).
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 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. 350 Park Avenue, 15th Floor,
New York, NY 10022. Partner, Squire, Sanders & Dempsey (law firm). From 1994 to
1997, Partner, Brown, Rudnick, Freed & Gesmer (law firm). From 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. 1990 to 1992, President, Champions Group Resources--Business
Management and Employee Benefits Consulting; 1990, Senior Vice President,
Employee Benefits Division, Cigna Corporation (providing and insuring group
life, health and disability employee benefit products and services); from 1986
to 1990, Senior Vice President, EQUICOR-Equitable HCA Corporation (providing and
insuring group life, health and disability employee benefit products and
services).
*Bruce D. Taber, Trustee. Born 4/25/43. 26 Round Top Road, Boxford, MA
01921. Consultant, Computer Simulation, General Electric Industrial Control
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.
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<PAGE>
George W. Weber, Senior Vice President, Fund Treasurer and Principal
Accounting Officer. Born 6/3/51. Treasurer and Chief Accounting Officer, Russell
Insurance Funds (investment company); Director of Finance and Operations, Frank
Russell Trust Company; Director, Fund Administration and Operations of Frank
Russell Investment Management Company and Russell Fund Distributors, Inc.;
Treasurer and Chief Accounting Office, Frank Russell Investment Company
(investment company); March 1993 to January 1996, Vice President, Operations,
Funds Management, J.P. Morgan; December 1985 to March 1993, Senior Vice
President, Operations, Frank Russell Investment Company, The Laurel Funds, Inc.
and The Seven Seas Series Fund (investment companies); Director of Operations,
Frank Russell Investment Management Company and Frank Russell Trust Company;
Director, Russell Fund Distributors, Inc.
Total Annual Compensation
Trustee from Investment Company
--------------------------------------------------------
Lynn L. Anderson $0
William L. Marshall $55,500
Steven J. Mastrovich $55,500
Patrick J. Riley $55,500
Richard D. Shirk $55,500
Bruce D. Taber $55,500
Henry W. Todd $55,500
OPERATION OF INVESTMENT COMPANY
Service Providers. Most of the 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.
Advisor. State Street Bank and Trust Company ("State Street") serves as the
Fund's investment advisor ("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 Corporation, a publicly held bank
holding company. State Street's address is 225 Franklin Street, Boston, MA
02110.
Under the Advisory Agreement, Advisor directs the Fund's investments in
accordance with its objectives, policies and limitations. For these services,
the Fund pays a fee to Advisor at the rates stated in the Prospectus. The Fund
accrued expenses to Advisor of $572,342 in fiscal 1997, $437,548 in fiscal 1996
and $280,417 in fiscal 1995. Advisor voluntarily agreed to reimburse the Fund
for all expenses in excess of .95% of average daily net assets on an annual
basis, which amounted to $174,536 in fiscal 1997, $233,947 in fiscal 1996 and
$216,126 in fiscal 1995.
The Advisory Agreement will continue from year to year provided that a
majority of the Trustees who are not interested persons of the Fund and either a
majority of all Trustees or a majority of the shareholders of the Fund approve
its continuance. The Agreement may be terminated by Advisor or the Fund without
penalty upon sixty days' notice and will terminate automatically upon its
assignment.
-6-
<PAGE>
Administrator. Frank Russell Investment Management Company
("Administrator") serves as the Fund's administrator, pursuant to an
Administration Agreement dated April 12, 1988 ("Administration Agreement"). A
description of the services provided under the Administration Agreement and the
basis for computing fees for such services is provided in the Fund's Prospectus.
The Fund accrued expenses to Administrator of $19,744 in fiscal 1997, $14,921 in
fiscal 1996 and $9,796 in fiscal 1995.
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 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 any Fund 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, Winston-Salem, New
York City, Toronto, London, Tokyo, Sydney, Zurich, Paris, and Auckland, and have
approximately 1,200 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 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 One International Place, Boston,
MA 02110.
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
Custodian services, State Street is paid an annual fee in accordance with the
following: custody services--a fee payable monthly on a pro rata basis, based on
the following percentages of average daily net assets of the 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 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. For Transfer and Dividend
Disbursing Agent services, State Street is paid the following annual account
services fees: $9.00 open account fee; $1.50 closed account fee; fund minimum
per portfolio for one to four portfolios--$36,000, five to six
portfolios--$24,000, and over six portfolios $18,000. Portfolio fees are
allocated to each fund based on the average net asset value of each fund and are
billable on a monthly basis at the rate of 1/12 of the annual fee. State Street
will apply a $5.00 fee to each telephone transaction (purchase or redemption),
which is applied against the monthly billing. State Street is reimbursed by the
Fund 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 Fund may, directly or indirectly, bear distribution and shareholder
servicing expenses. The Rule provides that the Fund may pay for such expenses
only pursuant to a plan adopted in accordance with the Rule. Accordingly, the
Fund has adopted an active distribution plan (the "Plan"), which is described in
the Fund's Prospectus.
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<PAGE>
The Plan provides that the 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 Fund 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 Fund 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 Fund nor have any direct or indirect financial interest in the
operation of the Plan or any related agreements.
The Fund accrued expenses to Russell Fund Distributors, Inc., as
Distributor, for the fiscal year ended August 31:
1997 1996 1995
---- ---- ----
$23,811 $21,617 $33,428
For fiscal 1997, these amounts are reflective of the following individual
payments:
Advertising $ 1,638
Printing of Prospectuses 5,517
Compensation to Dealers 43
Compensation to Sales Personnel 6,869
Other* 9,744
-------
$23,811
* 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 Fund may also enter into agreements ("Service
Agreements") with financial institutions, which may include Advisor ("Service
Organizations"), to provide shareholder servicing with respect to Fund shares
held by or for the customers of the Service Organizations. Such arrangements are
more fully described in the Fund's Prospectus under "Distribution Services and
Shareholder Servicing."
The Fund accrued expenses to State Street, as Advisor, under a Service Agreement
pursuant to Rule 12b-1, for the fiscal year ended August 31:
1997 1996 1995
---- ---- ----
$24,972 $13,646 $10,370
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 certain 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 Fund, 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 Fund contemplated under this arrangement
are consistent with its statutory and regulatory obligations.
Valuation of Fund Shares. Net asset value per share is calculated on each
"business day" 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, Martin
Luther King Jr. Day, President's Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day, and Christmas Day.
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<PAGE>
Trading may occur 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). The trading of
portfolio securities at such times may significantly increase or decrease the
net asset value of the Fund's share when shareholders do not have the ability to
purchase or redeem shares. Therefore, 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 Fund's calculation of its net asset value unless the Board of
Trustees determines that the particular event would materially affect the Fund's
net asset value, in which case an adjustment would be made.
With the exceptions noted below, the Fund values 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 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.
Because many fixed income securities do not trade each day, last sale or
bid prices are frequently not available. Therefore, fixed income securities 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 equity 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 or
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.
The Fund values securities maturing within 60 days of the valuation date
at amortized cost unless the Board determines that the amortized cost method
does not represent market 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
Fund would receive if it sold the instrument.
For example, in periods of declining interest rates, the daily yield on
Fund shares computed by dividing the annualized daily income on the Fund's
portfolio by the net asset value based upon the amortized cost valuation
technique 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 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. All portfolio transactions are placed on behalf of
the 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 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.
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<PAGE>
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 Fund and/or Advisor (or its
affiliates). Advisor is authorized to cause the 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 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 Advisor's performance of its
responsibilities in connection with the placement of portfolio transactions on
behalf of the Fund and review the prices paid by the Fund over representative
periods of time to determine if such prices are reasonable in relation to the
benefits provided to the Fund. Certain services received by Advisor attributable
to a particular Fund transaction may benefit one or more other accounts for
which Advisor exercises investment discretion, or the Fund 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 brokerage commissions paid by the Fund were $34,566 in fiscal 1997,
$39,435 for fiscal 1996 and $43,993 for fiscal 1995.
Of the total brokerage commissions paid by the Fund, commissions received
by an affiliated broker/dealer for fiscal 1997 were $20,282 Of that amount, the
percentage of affiliated brokerage to total brokerage for the Fund was 58.68%.
The percentage of total affiliated transactions (relating to trading
activity) to total transactions for the Fund was 54.77% for fiscal 1997.
During the fiscal year ended August 31, 1997, the Fund did not purchase
securities issued by the regular brokers or dealers of the Fund, as defined by
Rule 10b-10 of the 1940 Act.
Portfolio Turnover Rate. The portfolio turnover rate for the Fund is
calculated by dividing the lesser of purchases or sales of the 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.
The portfolio turnover rate for the Fund for each of the fiscal years ended
August 31 was:
1997 1996
---- ----
29.88% 38.34%
Yield and Total Return Quotations. The Fund computes 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-, five- and ten-year periods (or life of the funds as
appropriate), that would equate the initial amount invested to the ending
redeemable value, according to the following formula:
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<PAGE>
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-, 5- and 10-year periods at the end of
the year or period
The calculation assumes that all dividends and distributions of the Fund
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 the Fund is as follows:
One Year
Ending Inception to
August 31, 1997 August 31,1997*
40.95% 18.42%
*Periods less than one year are not annualized. The Fund commenced
operations on September 1, 1993.
Total returns and other performance figures are based on historical
earnings and are not indicative of future performance.
INVESTMENTS
The investment objective of the Fund is set forth in its Prospectus. The
Fund also has certain "fundamental" investment restrictions, which may be
changed only with the approval of a majority of the shareholders of the Fund,
and certain nonfundamental investment restrictions and policies, which may be
changed by the Fund without shareholder approval.
Investment Restrictions
- -----------------------
The Fund is subject to the following investment restrictions. Restrictions
1 through 11 are fundamental and restrictions 12 through 16 are nonfundamental.
Unless otherwise noted, these restrictions apply on a Fund-by-Fund basis at the
time an investment is made. The Fund will 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 and instrumentalities and non-depository instruments issued by
European banks). 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 Fund's assets
taken at market value, less liabilities other than borrowings. If at any time
the 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. The Fund will not purchase investments once
borrowed funds (including reverse repurchase agreements) exceed 5% of its total
assets. Should the parties to these transactions fail financially, the Fund may
experience delays or loss of rights in the collateral securing the borrowers'
obligations.
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<PAGE>
(3) Pledge, mortgage or hypothecate its assets. However, the Fund may
pledge securities having a market value at the time of the pledge not exceeding
33-1/3% of the value of the Fund's 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), if immediately after and as a result of such investment the
current market value of the Fund's holdings in the securities of such issuer
exceeds 5% of the value of the Fund's assets.
(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. The 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 the Fund's total assets. Portfolio Securities may be
loaned if collateral values are continuously maintained at no less than 100% by
"marking to market" daily.
(6) Purchase or sell commodities or commodity futures contracts except
that the Fund may enter into futures contracts and options thereon to the extent
provided in its Prospectus.
(7) Purchase or sell real estate or real estate mortgage loans; provided,
however, that the Fund 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 Fund 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 the 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 Fund 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
Fund, including its investment advisor and affiliates, except as permitted by
the 1940 Act and exemptive rules or orders thereunder.
(13) Invest in securities issued by other investment companies except in
connection with a merger, consolidation, acquisition of assets, or other
reorganization approved by the Fund's shareholders, and except to the extent
permitted by the 1940 Act.
(14) Invest more than 15% 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.
(15) Make investments for the purpose of gaining control of an issuer's
management.
(16) Invest in real estate limited partnerships that are not readily
marketable.
Investment Policies
- -------------------
Except as otherwise indicated, the Fund may invest in the following
instruments:
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<PAGE>
US Government Obligations. The types of US Government obligations in which
the Fund 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 Fund may purchase US
Government obligations on a forward commitment basis.
Repurchase Agreements. The Fund may enter into repurchase agreements with
financial institutions. Under repurchase agreements, these parties sell
securities to the 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 Fund in being invested fully while retaining "overnight" flexibility
in pursuit of investments of a longer-term nature. The Fund 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. The Fund may enter into reverse repurchase
agreements under the circumstances described in "Investment Restrictions." Under
reverse repurchase agreements, the 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. The 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 the 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. Reverse
repurchase agreements involve the risk of default by the counterparty, which may
adversely affect the Fund's ability to reacquire the underlying security.
Forward Commitments. The Fund may contract to purchase securities for a
fixed price at a future date beyond customary settlement time consistent with
the Fund's ability to manage its investment portfolio, maintain a stable net
asset value and meet redemption requests. The Fund 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 Fund of a dollar amount sufficient to make
payment for the portfolio securities to be purchased will be segregated on the
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. 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 approximately 7 to 15 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 Fund will make commitments to purchase when-issued securities only
with the intention of actually acquiring the securities, but the Fund 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 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 Fund's records on a daily basis so that the market value of
the account will equal the amount of such commitments by the Fund. The Fund will
not invest more than 25% of its net assets in when-issued securities.
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<PAGE>
Securities purchased on a when-issued basis and held by the Fund 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 when interest rates decline and decrease in value when interest rates
rise. Therefore, if in order to achieve higher interest income the 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 Fund's net asset value.
When payment for when-issued securities is due, the 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 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 Fund 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 Fund's investment restriction relating to
investments in illiquid securities.
Warrants. The Fund 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. The
Fund will not invest 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.
American Depository Receipts (ADRs). The Fund may invest in ADRs under
certain circumstances as an alternative to directly investing in foreign
securities. Generally, ADRs, in registered form, are designed for use in the US
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
corespondent bank. ADRs do not eliminate the risk inherent in investing in the
securities of foreign issuers. However, by investing in ADRs rather than
directly in a foreign issuer's stock, the Fund can avoid currency risks during
the settlement period for either purchases or sales. 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 in which many foreign issuers are subject.
Hedging Strategies and Related Investment Techniques
- ----------------------------------------------------
The Fund 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 Fund has authority to write (sell) covered call and put
options on its 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 Fund 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 Fund will only engage in these transactions for
hedging purposes, the options and futures portfolio strategies of the Fund will
not subject the Fund to the risks frequently associated with the speculative use
of options and futures
-14-
<PAGE>
transactions. Although the use of hedging strategies by the Fund is intended to
reduce the volatility of the net asset value of the Fund's shares, the Fund's
net asset value will nevertheless fluctuate. There can be no assurance that the
Fund's hedging transactions will be effective.
Writing Covered Call Options. The Fund is 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 Fund 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 Fund 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 Fund
would seek to mitigate the effects of a price decline. By writing covered call
options, however, the Fund 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 Fund's ability to sell the underlying
security will be limited while the option is in effect unless the Fund effects a
closing purchase transaction.
Writing Covered Put Options. The Fund is authorized to write (sell)
covered put options on its portfolio securities and to enter into closing
transactions with respect to such options.
When the Fund 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 Fund 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 Fund 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 Fund has written,
however, the Fund 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.
The Fund may write put options as an alternative to purchasing actual
securities. If security prices rise, the Fund 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 Fund will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the Fund would expect to
suffer a loss. This loss should be less than the loss the Fund 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 Fund is authorized to purchase put options
to hedge against a decline in the market value of its portfolio securities. By
buying a put option the Fund has the right (but not the obligation) to sell the
underlying security at the exercise price, thus limiting the 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 Fund 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 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 Fund 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 Fund would exceed 5% of the market value of the Fund's total assets.
Purchasing Call Options. The Fund is 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 Fund will purchase call options only in
connection with "closing purchase transactions."
Stock Index Options and Financial Futures. The Fund is authorized to
engage in transactions in stock index options and financial futures, and related
options. The Fund may purchase or write put and call options on
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<PAGE>
stock indices to hedge against the risks of market-wide stock price movements in
the securities in which the Fund 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 Fund 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 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 Fund's investments in
foreign options, unless such options are specifically authorized for investment
by order of the CFTC, the Fund will not make such investments.
The Fund 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 Fund may effect transactions in stock index futures
contracts in connection with debt securities in which it invests and in
financial futures contracts in connection with equity securities in which it
invests, if any. Transactions by the Fund in stock index futures and financial
futures are subject to limitations as described below under "Restrictions on the
Use of Futures Transactions."
The Fund may sell futures contracts in anticipation of or during a
market decline to attempt to offset the decrease in market value of the Fund's
securities portfolio that might otherwise result. When the Fund is not fully
invested in the securities markets and anticipates a significant market advance,
the Fund may purchase futures in order to gain rapid market exposure that may
partially or entirely offset increases in the cost of securities that the Fund
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 Fund 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 Fund experiences a
significant amount of redemptions), a long futures position may be terminated
without the corresponding purchase of securities.
The Fund 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 Fund enters into futures transactions. The Fund
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 Fund 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 Fund
intends to purchase.
The Fund is 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 Fund is 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 Fund, sold by the
Fund but not yet delivered, or committed or anticipated to be purchased by the
Fund. As an illustration, the Fund 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 Fund can purchase a
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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 futures 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.
Regulations of the CFTC applicable to the Fund require that all of the
Fund's futures and options on futures transactions constitute bona fide hedging
transactions and that the Fund not enter into such transactions if, immediately
thereafter, the sum of the amount of initial margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed 5%
of the market value of the Fund's total assets.
Restrictions on OTC Options. The Fund 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 Fund will acquire only those OTC options for which Advisor believes
the Fund 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 Fund 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 Fund; (2) the market value of the underlying
securities covered by outstanding OTC call options sold by the Fund; (3) margin
deposits on the Fund's existing OTC options on futures contracts; and (4) the
market value of all other assets of the Fund that are illiquid or are not
otherwise readily marketable, would exceed 10% of the net assets of the Fund,
taken at market value. However, if an OTC option is sold by the Fund to a
primary US Government securities dealer recognized by the Federal Reserve Bank
of New York and the Fund has the unconditional contractual right to repurchase
such OTC option from the dealer at a predetermined price, then the Fund 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 Fund will not use
leverage in its options and futures strategies. Such investments will be made
for hedging purposes only. The Fund will hold securities or other options or
futures positions whose values are expected to offset its obligations under the
hedge strategies. The Fund will not enter into an option or futures position
that exposes the Fund 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 Fund 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 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
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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 Fund's assets could
impede portfolio management or the Fund's ability to meet redemption requests or
other current obligations.
Risk Factors in Options, Futures, Forward and Currency Transactions.
Utilization of options and futures transactions to hedge the Fund's 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 Fund 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. To compensate for imperfect
correlations, the Fund 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 Fund 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 Fund 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 Fund 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 Fund 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 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.
To the extent permitted under the 1940 Act and exemptive rules and orders
thereunder, the Fund may seek to achieve its investment objective by investing
solely in the shares of another investment company that has substantially
similar investment objectives and policies.
TAXES
The Fund intends 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 Fund will not be liable for federal income
taxes on taxable net investment income and net capital gain (long-term capital
gains in excess of short-term capital losses) that it distributes to its
shareholders, provided that the Fund distributes annually to its shareholders at
least 90% of its net investment income and net short-term capital gain for the
taxable year ("Distribution Requirement"). For the Fund to qualify as a RIC it
must abide by all of the following requirements: (1) at least 90% of the Fund's
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");
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(2) at the close of each quarter of the Fund's 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 Fund and that does not represent more
than 10% of the outstanding voting securities of such issuer; and (3) at the
close of each quarter of the Fund's 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 Fund 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 its ordinary income for that year, (2) 98% of its 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 Fund subsequent to December 31 but prior to February 1 of the
following year.
If a shareholder receives a distribution taxable as a 20% gain or a 28%
gain with respect to shares of a 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 a 20% loss or a 28% loss to the extent
of the respective capital gain distribution.
Issues Related to Hedging and Option Investments. The Fund's ability to
make certain investments may be limited by provisions of the Code that require
inclusion of certain unrealized gains or losses in the Fund's income for
purposes of the Income Requirement 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.
State and Local Taxes. Depending upon the extent of the Fund's activities
in states and localities in which its offices are maintained, its agents or
independent contractors are located or it is otherwise deemed to be conducting
business, the Fund 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 Fund and its shareholders.
Circumstances among investors may vary and each investor is encouraged to
discuss investment in the Fund with the investor's tax advisor.
FINANCIAL STATEMENTS
The 1997 fiscal year-end financial statements for the Fund, including notes
to the financial statements financial highlights and the Report of Independent
Accountants, are included in the Fund's Annual Report to shareholders. Copies of
the Annual Report accompany this Statement of Additional Information and are
incorporated herein by reference.
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APPENDIX
DESCRIPTION OF SECURITIES RATINGS
Ratings of Debt Instruments
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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.
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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.
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:
[bullet] 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:
[bullet] Leading market positions in well-established industries.
[bullet] High rates of return on funds employed.
[bullet] Conservative capitalization structure with moderate reliance on
debt and ample asset protection.
[bullet] Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
[bullet] Well-established access to a range of financial markets and
assured sources of alternate liquidity.
[bullet] 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.
[bullet] 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.
[bullet] 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.
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
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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.
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.
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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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Filed pursuant to Rule 485(b)
File Nos. 33-19229; 811-5430
SSgA FUNDS
----------
One International Place
Boston, Massachusetts 02110
(800) 647-7327
SSgA INTERMEDIATE FUND
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
December 24, 1997
SSgA Funds ("Investment Company") is a registered open-end investment
company organized as a Massachusetts business trust offering shares of
beneficial interest in separate investment portfolios. In addition, each series
of the Investment Company is diversified as defined under the Investment Company
Act of 1940, as amended ("1940 Act").
This Statement of Additional Information supplements or describes in
greater detail the Investment Company and the SSgA Intermediate Fund (the
"Intermediate Fund" or the "Fund") as contained in the Fund's Prospectus dated
December 24, 1997. This Statement is not a Prospectus and should be read in
conjunction with the Fund's Prospectus, which may be obtained by telephoning or
writing Investment Company at the number or address shown above.
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TABLE OF CONTENTS
-----------------
Page
----
Structure and Governance................................................. 3
Organization and Business History............................... 3
Shareholder Meetings............................................ 4
Controlling Shareholders........................................ 4
Principal Shareholders.......................................... 4
Trustees and Officers........................................... 4
Operation of Investment Company.......................................... 6
Service Providers ............................................. 6
Advisor ....................................................... 6
Administrator................................................... 6
Distributor..................................................... 7
Custodian and Transfer Agent.................................... 7
Independent Accountants......................................... 7
Distribution Plan ............................................. 7
Federal Law Affecting State Street.............................. 8
Valuation of Fund Shares........................................ 8
Brokerage Practices............................................. 9
Portfolio Turnover Rate......................................... 10
Yield and Total Return Quotations............................... 10
Investments.............................................................. 11
Investment Restrictions......................................... 11
Investment Policies............................................. 12
Hedging Strategies and Related Investment Techniques............ 16
Taxes................................................................... 20
Financial Statements.................................................... 22
Appendix: Description of Securities Ratings............................ 23
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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,
one of which is the Fund. The Trustees may create additional Funds at any time
without shareholder approval.
As of the date of this Statement of Additional Information, Investment
Company is comprised of the following investment portfolios, each of which
commenced operations on the date set forth opposite the portfolio's name:
SSgA Money Market Fund May 2, 1988
SSgA US Government Money Market Fund March 1, 1991
SSgA Matrix Equity Fund May 4, 1992
SSgA Small Cap Fund July 1, 1992
SSgA Yield Plus Fund November 9, 1992
SSgA S&P 500 Index Fund December 30, 1992
SSgA Growth and Income Fund September 1, 1993
SSgA Intermediate Fund September 1, 1993
SSgA US Treasury Money Market Fund December 1, 1993
SSgA Prime Money Market Fund February 22, 1994
SSgA Emerging Markets Fund March 1, 1994
SSgA Tax Free Money Market Fund December 1, 1994
SSgA Active International Fund March 7, 1995
SSgA Bond Market Fund February 7, 1996
SSgA Life Solutions Balanced Fund June 2, 1997
SSgA Life Solutions Growth Fund June 2, 1997
SSgA Life Solutions Income and Growth Fund June 2, 1997
SSgA Real Estate Equity Fund *
SSgA US Treasury Obligations Fund *
SSgA International Pacific Index Fund *
- ----------
*As of the date of this Statement of Additional Information, these portfolios
have not commenced operations.
The Investment Company is authorized to divide shares of any series into
two or more classes of shares. The shares of each 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 Fund may have
separate voting rights or no voting rights. Each class of shares of a Fund is
entitled to the same rights and privileges as all other classes of that Fund,
except that each class bears the 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 Fund's
portfolio securities.
Prospectuses for these investment portfolios may be obtained by calling
Investment Company's distributor, Russell Fund Distributors, Inc., at (800)
647-7327, or at its Internet Web Site at www.ssgafunds.com.
Shares of the Money Market, US Government Money Market and Tax Free Money
Market Funds are divided into Classes A, B and C.
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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 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 the Fund may be held personally
liable for the obligations of the Fund. The Master Trust Agreement provides that
shareholders shall not be subject to any personal liability for the acts or
obligations of the Fund and that every written agreement, obligation, or other
undertaking of the Fund shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The Master Trust Agreement
also provides that the Fund shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the 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 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 November 30, 1997, State Street held beneficially and of
record 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 November 30, 1997, the following shareholders
owned of record 5% or more of the issued and outstanding shares of the Fund, as
follows:
[bullet] State Street Solutions, State Street Bank and Trust Company, TTEE,
P.O. Box 1389, Boston, MA 02104 -- 19%; and
[bullet] Windachor, 1776 Heritage Drive 4th Floor, Adams Building 4W,
North Quincy, MA 02171 -- 9%.
Such shares may be held pursuant to a shareholder servicing arrangement in
omnibus accounts for underlying shareholders.
The Trustees and officers of Investment Company, as a group, own less than
1% of Investment Company's voting securities.
Trustees and Officers. The Board of Trustees is generally responsible for
overseeing the operation of the Fund. The 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 Fund's operations.
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. Investment Company's officers and employees are paid by
Administrator or its affiliates.
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.
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<PAGE>
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. Trustee, President and Chief Executive Officer, Russell Insurance Funds
(investment company). Director, Chief Executive Officer and Chairman of the
Board, Russell Fund Distributors, Inc. Trustee, President and Chief Executive
Officer, Frank Russell Investment Company (investment company); Director, Chief
Executive Officer and Chairman of the Board, Frank Russell Investment Management
Company; Director, Chief Executive Officer and President, Frank Russell Trust
Company; Director and Chairman, Frank Russell Investment Company Public Limited
Company; November 1995 to February 1997, Director, Frank Russell Company;
Director and Chairman of the Board, Frank Russell Company (Delaware); Director,
Frank Russell Company; March 1989 to June 1993, Director, Frank Russell Company,
Director of Frank Russell Investments (Ireland) Limited; Director and Chairman,
Frank Russell Investment Company Public Limited Company. Until September 1994,
Director and President, The Laurel Funds, Inc. (investment company).
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 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. 350 Park Avenue, 15th Floor,
New York, NY 10022. Partner, Squire, Sanders & Dempsey (law firm). From 1994 to
1997, Partner, Brown, Rudnick, Freed & Gesmer (law firm). From 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. 1990 to 1992, President, Champions Group Resources--Business
Management and Employee Benefits Consulting; 1990, Senior Vice President,
Employee Benefits Division, Cigna Corporation (providing and insuring group
life, health and disability employee benefit products and services); from 1986
to 1990, Senior Vice President, EQUICOR-Equitable HCA Corporation (providing and
insuring group life, health and disability employee benefit products and
services).
*Bruce D. Taber, Trustee. Born 4/25/43. 26 Round Top Road, Boxford, MA
01921. Consultant, Computer Simulation, General Electric Industrial Control
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.
-5-
<PAGE>
George W. Weber, Senior Vice President, Fund Treasurer and Principal
Accounting Officer. Born 6/3/51. Treasurer and Chief Accounting Officer, Russell
Insurance Funds (investment company); Director of Finance and Operations, Frank
Russell Trust Company; Director, Fund Administration and Operations of Frank
Russell Investment Management Company and Russell Fund Distributors, Inc.;
Treasurer and Chief Accounting Office, Frank Russell Investment Company
(investment company); March 1993 to January 1996, Vice President, Operations,
Funds Management, J.P. Morgan; December 1985 to March 1993, Senior Vice
President, Operations, Frank Russell Investment Company, The Laurel Funds, Inc.
and The Seven Seas Series Fund (investment companies); Director of Operations,
Frank Russell Investment Management Company and Frank Russell Trust Company;
Director, Russell Fund Distributors, Inc.
Total Annual Compensation
Trustee from Investment Company
--------------------------------------------------------
Lynn L. Anderson $0
William L. Marshall $55,500
Steven J. Mastrovich $55,500
Patrick J. Riley $55,500
Richard D. Shirk $55,500
Bruce D. Taber $55,500
Henry W. Todd $55,500
OPERATION OF INVESTMENT COMPANY
Service Providers. Most of the 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.
Advisor. State Street Bank and Trust Company ("State Street") serves as the
Fund's investment advisor ("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 Corporation, a publicly held bank
holding company. State Street's address is 225 Franklin Street, Boston, MA
02110.
Under the Advisory Agreement, Advisor directs the Fund's investments in
accordance with its objectives, policies and limitations. For these services,
the Fund pays a fee to Advisor at the rates stated in the Prospectus. The Fund
accrued expenses to Advisor of $372,981 in fiscal 1997, $332,599 in fiscal 1996
and $198,032 in fiscal 1995. Advisor voluntarily agreed to reimburse the Fund
for all expenses in excess of .60% of average daily net assets on an annual
basis, which amounted to $327,656 in fiscal 1997, $322,501 in fiscal 1996 and
$263,571 in fiscal 1995.
The Advisory Agreement will continue from year to year provided that a
majority of the Trustees who are not interested persons of the Fund and either a
majority of all Trustees or a majority of the shareholders of the Fund approve
its continuance. The Agreement may be terminated by Advisor or the Fund without
penalty upon sixty days' notice and will terminate automatically upon its
assignment.
-6-
<PAGE>
Administrator. Frank Russell Investment Management Company
("Administrator") serves as the Fund's administrator, pursuant to an
Administration Agreement dated April 12, 1988 ("Administration Agreement"). A
description of the services provided under the Administration Agreement and the
basis for computing fees for such services is provided in the Fund's Prospectus.
The Fund accrued expenses to Administrator of $13,683 in fiscal 1997, $12,048 in
fiscal 1996 and $7,344 in fiscal 1995.
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 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 Fund 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, Winston-Salem, New
York City, Toronto, London, Tokyo, Sydney, Zurich, Paris, and Auckland, and have
approximately 1,200 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 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.
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
Custodian services, State Street is paid an annual fee in accordance with the
following: custody services--a fee payable monthly on a pro rata basis, based on
the following percentages of average daily net assets of the 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 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. For Transfer and Dividend
Disbursing Agent services, State Street is paid the following annual account
services fees: $9.00 open account fee; $1.50 closed account fee; fund minimum
per portfolio for one to four portfolios--$36,000, five to six
portfolios--$24,000, and over six portfolios $18,000. Portfolio fees are
allocated to each fund based on the average net asset value of each fund and are
billable on a monthly basis at the rate of 1/12 of the annual fee. State Street
will apply a $5.00 fee to each telephone transaction (purchase or redemption),
which is applied against the monthly billing. State Street is reimbursed by the
Fund 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 Fund may, directly or indirectly, bear distribution and shareholder
servicing expenses. The Rule provides that the Fund may pay for such expenses
only pursuant to a plan adopted in accordance with the Rule. Accordingly, the
Fund has adopted an active distribution plan (the "Plan"), which is described in
the Fund's Prospectus.
-7-
<PAGE>
The Plan provides that the 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 Fund 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 Fund 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 Fund nor have any direct or indirect financial interest in the
operation of the Plan or any related agreements.
The Fund accrued expenses to Russell Fund Distributors, Inc., as Distributor,
for the fiscal year ended August 31:
1997 1996 1995
---- ---- ----
$18,633 $22,007 27,531
For fiscal 1997, these amounts are reflective of the following individual
payments:
Advertising $ 1,169
Printing of Prospectuses 6,018
Compensation to Dealers --
Compensation to Sales Personnel 4,769
Other* 6,677
-------
$18,633
* 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 Fund may also enter into agreements ("Service
Agreements") with financial institutions, which may include Advisor ("Service
Organizations"), to provide shareholder servicing with respect to Fund shares
held by or for the customers of the Service Organizations. Such arrangements are
more fully described in the Fund's Prospectus under "Distribution Services and
Shareholder Servicing."
The Fund accrued expenses to State Street, as Advisor, under a Service Agreement
pursuant to Rule 12b-1, for the fiscal year ended August 31:
1997 1996 1995
---- ---- ----
$16,776 $10,699 7,921
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 certain 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 Fund, 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 Fund contemplated under this arrangement
are consistent with its statutory and regulatory obligations.
Valuation of Fund Shares. Net asset value per share is calculated on each
"business day" 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, Martin
Luther King Jr. Day, President's Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day, and Christmas Day.
Trading may occur 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). The trading of
-8-
<PAGE>
portfolio securities at such times may significantly increase or decrease the
net asset value of the Fund's share when shareholders do not have the ability to
purchase or redeem shares. Therefore, 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 Fund's calculation of its net asset value unless the Board of
Trustees determines that the particular event would materially affect the Fund's
net asset value, in which case an adjustment would be made.
With the exceptions noted below, the Fund values 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 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.
Because many fixed income securities do not trade each day, last sale or
bid prices are frequently not available. Therefore, fixed income securities 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 equity 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 or
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.
The Fund values securities maturing within 60 days of the valuation date
at amortized cost unless the Board determines that the amortized cost method
does not represent market 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
Fund would receive if it sold the instrument.
For example, in periods of declining interest rates, the daily yield on
Fund shares computed by dividing the annualized daily income on the Fund's
portfolio by the net asset value based upon the amortized cost valuation
technique 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 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. All portfolio transactions are placed on behalf of
the Fund by Advisor. Advisor ordinarily pays commissions when it executes
transactions on a securities exchange. In contrast, there is generally no stated
commission in 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 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.
-9-
<PAGE>
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 Fund and/or Advisor (or its
affiliates). Advisor is authorized to cause the 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 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 Advisor's performance of its
responsibilities in connection with the placement of portfolio transactions on
behalf of the Fund and review the prices paid by the Fund over representative
periods of time to determine if such prices are reasonable in relation to the
benefits provided to the Fund. Certain services received by Advisor attributable
to a particular Fund transaction may benefit one or more other accounts for
which Advisor exercises investment discretion, or the Fund 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.
During the fiscal year ended August 31, 1997, the Fund 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 the Fund's ten largest brokers or dealers
by dollar amounts of securities executed or commissions received on behalf of
the Fund. The value of broker-dealer securities held as of August 31, 1997, is
as follows:
($000)
-----------------------
Investment Technology Group, Inc. (a) 0
Morgan Stanley & Co. (a) 0
Broadcort Capital (a) 0
Merrill Lynch, Pierce, Fenner, Inc. 300
State Street Brokerage Services, Inc. (a) 0
Bear, Stearns Securities (a) 0
National Financial Services (a) 0
Nomura Securities International (a) 0
Barclays Dezoete Wedd (a) 0
Instinet (a) 0
Prebon (b) 0
Swiss Bank Corp. (b) 0
Lumis & Co. (b) 0
HSBC Securities (b) 0
Goldman Sachs & Co. (b) 0
UBS Securities, Inc. (b) 0
Aubrey G. Lanston & Co. (b) 0
Lehman Brothers Inc. (b) 0
Donaldson, Lufkin & Jenrette (b) 0
- ---------------------
(a) Broker commissions only
(b) Broker principal transactions only
Portfolio Turnover Rate. The portfolio turnover rate for the Fund is
calculated by dividing the lesser of purchases or sales of the 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.
The portfolio turnover rate for the Fund for each of the fiscal years ended
August 31, was:
1997 1996
---- ----
242.76% 221.73%
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<PAGE>
Yield and Total Return Quotations. The Fund computes 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-, five- and ten-year periods (or life of the funds 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-, 5- and 10-year periods at the end of
the year or period
The calculation assumes that all dividends and distributions of the Fund
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 the Fund is as follows:
One Year
Ending Inception to
August 31, 1997 August 31,1997*
--------------- ---------------
8.00% 4.56%
*Periods less than one year are not annualized. The Fund commenced
operations on September 1, 1993.
Total returns and other performance figures are based on historical
earnings and are not indicative of future performance.
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/cd)(6)-1]
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 30-day yield (annualized) for the Fund for the period ended August
31, 1997 was 5.87%.
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 Fund.
-11-
<PAGE>
INVESTMENTS
The investment objective of the Fund is set forth in its Prospectus. The
Fund also has certain "fundamental" investment restrictions, which may be
changed only with the approval of a majority of the shareholders of the Fund,
and certain nonfundamental investment restrictions and policies, which may be
changed by the Fund without shareholder approval.
Investment Restrictions
- -----------------------
The Fund is subject to the following investment restrictions. Restrictions
1 through 11 are fundamental and restrictions 12 through 16 are nonfundamental.
The Fund will 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 and instrumentalities, and non-depository instruments issued by
European banks). 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), 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 Fund's assets taken at
market value, less liabilities other than borrowings. If at any time the 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. The Fund will not purchase investments once borrowed funds
(including reverse repurchase agreements) exceed 5% of its total assets. Should
the parties to these transactions fail financially, the Fund may experience
delays or loss of rights in the collateral securing the borrowers' obligations.
(3) Pledge, mortgage or hypothecate its assets. However, the Fund may
pledge securities having a market value at the time of the pledge not exceeding
33-1/3% of the value of the Fund's 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), if immediately after and as a result of such investment the
current market value of the Fund's holdings in the securities of such issuer
exceeds 5% of the value of the Fund's assets.
(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. The 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 the Fund's total assets. Portfolio Securities may be
loaned if collateral values are continuously maintained at no less than 100% by
"marking to market" daily.
(6) Purchase or sell commodities or commodity futures contracts except
that the Fund may enter into futures contracts and options thereon to the extent
provided in its Prospectus.
(7) Purchase or sell real estate or real estate mortgage loans; provided,
however, that the Fund 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 Fund 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.
-12-
<PAGE>
(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 the 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 Fund 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
Fund, including its investment advisor and affiliates, except as permitted by
the 1940 Act and exemptive rules or orders thereunder.
(13) Invest in securities issued by other investment companies except in
connection with a merger, consolidation, acquisition of assets, or other
reorganization approved by the Fund's shareholders, and except to the extent
permitted by the 1940 Act.
(14) Invest more than 15% 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.
(15) Make investments for the purpose of gaining control of an issuer's
management.
(16) Invest in real estate limited partnerships that are not readily
marketable.
Investment Policies
- -------------------
Except as otherwise indicated, the Fund may invest in the following
instruments:
US Government Obligations. The types of US Government obligations in which
the Fund 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 Fund may purchase US
Government obligations on a forward commitment basis.
Repurchase Agreements. The Fund may enter into repurchase agreements with
financial institutions. Under repurchase agreements, these parties sell
securities to the 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 Fund in being invested fully while retaining "overnight" flexibility
in pursuit of investments of a longer-term nature. The Fund 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. The Fund may enter into reverse repurchase
agreements under the circumstances described in "Investment Restrictions." Under
reverse repurchase agreements, the 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
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interest. The 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 the 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. Reverse repurchase agreements involve the risk of
default by the counterparty, which may adversely affect the Fund's ability to
reacquire the underlying security.
Forward Commitments. The Fund may contract to purchase securities for a
fixed price at a future date beyond customary settlement time consistent with
the Fund's ability to manage its investment portfolio, maintain a stable net
asset value and meet redemption requests. The Fund 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 Fund of a dollar amount sufficient to make
payment for the portfolio securities to be purchased will be segregated on the
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. 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 approximately 7 to 15 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 Fund will make commitments to purchase when-issued securities only
with the intention of actually acquiring the securities, but the Fund 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 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 Fund's records on a daily basis so that the market value of
the account will equal the amount of such commitments by the Fund. The Fund will
not invest more than 25% of its net assets in when-issued securities.
Securities purchased on a when-issued basis and held by the Fund 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 when interest rates decline and decrease in value when interest rates
rise. Therefore, if in order to achieve higher interest income the 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 Fund's net asset value.
When payment for when-issued securities is due, the 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 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 Fund 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 Fund's investment restriction relating to
investments in illiquid securities.
Variable and Floating Rate Securities. The Fund 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
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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. 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 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 Securities. 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 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 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.
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<PAGE>
(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.
Zero Coupon Securities. 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.
Because the Fund accrues taxable income from zero coupon securities
without receiving regular interest payments in cash, the 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 Fund.
Investing in these securities might also force the Fund 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.
Mortgage-Backed Security Rolls. The Fund may enter into "forward roll"
transactions with respect to mortgage-backed securities it holds. In a forward
roll transaction, the Fund 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 Fund 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 Fund may decline below the price at which the Fund is
obligated to purchase the securities. Upon entering into a mortgage-backed
security roll, the Fund 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.
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Interest Rate Swaps. The Fund may enter into interest rate swap
transactions with respect to any security it is entitled to hold. Interest rate
swaps involve the exchange by the Fund with another party of their respective
rights to receive interest, e.g., an exchange of floating rate payments for
fixed rate payments. The Fund 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 Fund intends to use these
transactions as a hedge and not as a speculative investment.
Preferred Stocks. 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 fund 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.
Hedging Strategies and Related Investment Techniques
- ----------------------------------------------------
The Fund 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 Fund has authority to write (sell) covered call and put
options on its 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 Fund may also deal in
certain forward contracts, including forward foreign exchange transactions,
foreign currency options and futures, and related options on such futures. The
Fund 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 Fund will only engage in these transactions
for hedging purposes, the options and futures portfolio strategies of the Fund
will not subject the Fund to the risks frequently associated with the
speculative use of options and futures transactions. Although the use of hedging
strategies by these Funds is intended to reduce the volatility of the net asset
value of the Fund's shares, each such Fund's net asset value will nevertheless
fluctuate. There can be no assurance that the Fund's hedging transactions will
be effective.
Hedging Foreign Currency Risk. Generally, the foreign exchange
transactions of the Fund will be conducted on a spot (cash) basis at the spot
rate then prevailing for purchasing or selling currency in the foreign exchange
market. However, the 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 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 portfolio positions generally.
The 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 attempt to hedge
all of its portfolio positions and will enter into such transactions only to the
extent, if any, deemed appropriate by Advisor. The Fund will not enter into a
position hedging commitment if, as a result thereof, the Fund 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.
In addition to the forward exchange contracts, the 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 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. Since
transactions in foreign currency exchange usually are conducted on a principal
basis, no fees or commissions are involved. Transactions involving forward
exchange contracts and futures contracts and options thereon are subject to
certain risks. A detailed discussion of such risks appears under the caption
"Risk Factors in Options, Futures, Forward and Currency Transactions."
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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 Fund
will not speculate in foreign security or currency options or futures or related
options. The Fund will not hedge a currency substantially in excess of: (1) the
market value of securities denominated in such currency that the Fund has
committed to purchase or anticipates purchasing; or (2) in the case of
securities that have been sold by the Fund but not yet delivered, the proceeds
thereof in their denominated currency. The Fund will not incur potential net
liabilities of more than 25% of its total assets from foreign security or
currency options, futures or related options.
Writing Covered Call Options. The Fund is 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 Fund 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 Fund 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 Fund
would seek to mitigate the effects of a price decline. By writing covered call
options, however, the Fund 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 Fund's ability to sell the underlying
security will be limited while the option is in effect unless the Fund effects a
closing purchase transaction.
Writing Covered Put Options. The Fund is authorized to write (sell)
covered put options on its portfolio securities and to enter into closing
transactions with respect to such options.
When the Fund 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 Fund 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 Fund 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 Fund has written,
however, the Fund 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.
The Fund may write put options as an alternative to purchasing actual
securities. If security prices rise, the Fund 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 Fund will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the Fund would expect to
suffer a loss. This loss should be less than the loss the Fund 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 Fund is authorized to purchase put options
to hedge against a decline in the market value of its portfolio securities. By
buying a put option the Fund has the right (but not the obligation) to sell the
underlying security at the exercise price, thus limiting the 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 Fund 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 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 Fund 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 Fund would exceed 5% of the market value of the Fund's total assets.
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Purchasing Call Options. The Fund is 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 Fund will purchase call options only in
connection with "closing purchase transactions."
Stock Index Options and Financial Futures. The Fund is authorized to
engage in transactions in stock index options and financial futures, and related
options. The Fund 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 Fund 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 Fund 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 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 Fund's investments in
foreign options, unless such options are specifically authorized for investment
by order of the CFTC, the Fund will not make such investments.
The Fund 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 Fund may effect transactions in stock index futures
contracts in connection with debt securities in which it invests and in
financial futures contracts in connection with equity securities in which it
invests, if any. Transactions by the Fund in stock index futures and financial
futures are subject to limitations as described below under "Restrictions on the
Use of Futures Transactions."
The Fund may sell futures contracts in anticipation of or during a
market decline to attempt to offset the decrease in market value of the Fund's
securities portfolio that might otherwise result. When the Fund is not fully
invested in the securities markets and anticipates a significant market advance,
the Fund may purchase futures in order to gain rapid market exposure that may
partially or entirely offset increases in the cost of securities that the Fund
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 Fund 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 Fund experiences a
significant amount of redemptions), a long futures position may be terminated
without the corresponding purchase of securities.
The Fund 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 Fund enters into futures transactions. The Fund
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 Fund 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 Fund
intends to purchase.
The Fund is 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
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by the buyer and seller. See "Restrictions on OTC Options" below for information
as to restrictions on the use of OTC options.
The Fund is 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 Fund, sold by the
Fund but not yet delivered, or committed or anticipated to be purchased by the
Fund. As an illustration, the Fund 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 Fund 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 futures 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.
Regulations of the CFTC applicable to the Fund require that all of the
Fund's futures and options on futures transactions constitute bona fide hedging
transactions and that the Fund not enter into such transactions if, immediately
thereafter, the sum of the amount of initial margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed 5%
of the market value of the Fund's total assets.
Restrictions on OTC Options. The Fund 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 Fund will acquire only those OTC options for which Advisor believes
the Fund 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 Fund 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 Fund; (2) the market value of the underlying
securities covered by outstanding OTC call options sold by the Fund; (3) margin
deposits on the Fund's existing OTC options on futures contracts; and (4) the
market value of all other assets of the Fund that are illiquid or are not
otherwise readily marketable, would exceed 10% of the net assets of the Fund,
taken at market value. However, if an OTC option is sold by the Fund to a
primary US Government securities dealer recognized by the Federal Reserve Bank
of New York and the Fund has the unconditional contractual right to repurchase
such OTC option from the dealer at a predetermined price, then the Fund 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."
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Asset Coverage for Futures and Options Positions. The Fund will not use
leverage in its options and futures strategies. Such investments will be made
for hedging purposes only. The Fund will hold securities or other options or
futures positions whose values are expected to offset its obligations under the
hedge strategies. No Fund will enter into an option or futures position that
exposes the Fund 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 Fund 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 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 Fund's assets could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.
Risk Factors in Options, Futures, Forward and Currency Transactions.
Utilization of options and futures transactions to hedge the Fund's 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 Fund 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. To compensate for imperfect
correlations, the Fund 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 Fund 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 Fund 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 Fund 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 Fund 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 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.
To the extent permitted under the 1940 Act and exemptive rules and orders
thereunder, the Fund may seek to achieve its investment objective by investing
solely in the shares of another investment company that has substantially
similar investment objectives and policies.
TAXES
The Fund intends 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 Fund will not be liable for federal
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income taxes on taxable net investment income and net capital gain (long term
capital gains in excess of short term capital losses) that it distributes to its
shareholders, provided that the Fund distributes annually to its shareholders at
least 90% of its net investment income and net short-term capital gain for the
taxable year ("Distribution Requirement"). For the Fund to qualify as a RIC it
must abide by all of the following requirements: (1) at least 90% of the Fund's
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) at the close of each quarter of the Fund's 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 Fund and that does
not represent more than 10% of the outstanding voting securities of such issuer;
and (3) at the close of each quarter of the Fund's 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 Fund 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 its ordinary income for that year, (2) 98% of its 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 Fund subsequent to December 31 but prior to February 1 of the
following year.
If a shareholder receives a distribution taxable as a 20% gain or a 28%
gain with respect to shares of a 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 a 20% loss or a 28% loss to the extent
of the respective capital gain distribution.
As of August 31, 1997, the Fund had net tax basis capital loss carryovers
of $6,763 and $155,968, which may be applied against any realized net taxable
gains of each succeeding year until their expiration dates of August 31, 2003
and August 31, 2004, respectively.
Issues Related to Hedging and Option Investments. The Fund's ability to
make certain investments may be limited by provisions of the Code that require
inclusion of certain unrealized gains or losses in the Fund's income for
purposes of the Income Requirement, 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.
State and Local Taxes. Depending upon the extent of the Fund's activities
in states and localities in which its offices are maintained, its agents or
independent contractors are located or it is otherwise deemed to be conducting
business, the Fund may be subject to the tax laws of such states or localities.
Foreign Income Taxes. Investment income received by the Fund 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 the 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 the Fund in advance since the amount of the assets to be
invested within various countries is not known.
If the Fund invests 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 Fund. The Fund can elect to
mark-to-market its PFIC holdings in lieu of paying taxes on gains or
distributions therefrom.
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Foreign shareholders should consult with their tax advisors as to if and
how the federal income tax and its withholding requirements applies to them.
The foregoing discussion is only a summary of certain federal income tax
issues generally affecting the Fund and its shareholders. Circumstances among
investors may vary and each investor is encouraged to discuss investment in the
Fund with the investor's tax advisor.
FINANCIAL STATEMENTS
The 1997 fiscal year-end financial statements for the Fund, including notes
to the financial statements financial highlights and the Report of Independent
Accountants, are included in the Fund's Annual Report to shareholders. Copies of
the Annual Report accompany this Statement of Additional Information and are
incorporated herein by reference.
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APPENDIX
DESCRIPTION OF SECURITIES RATINGS
Ratings of Debt Instruments
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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.
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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.
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:
[bullet] 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:
[box] Leading market positions in well-established industries.
[box] High rates of return on funds employed.
[box] Conservative capitalization structure with moderate reliance on
debt and ample asset protection.
[box] Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
[box] Well-established access to a range of financial markets and
assured sources of alternate liquidity.
[bullet] 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.
[bullet] 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.
[bullet] 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.
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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.
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
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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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Filed pursuant to Rule 485(b)
File Nos. 33-19229; 811-5430
SSgA FUNDS
----------
One International Place
Boston, Massachusetts 02110
(800) 647-7327
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
ACTIVE INTERNATIONAL FUND
December 24, 1997
SSgA Funds ("Investment Company") is a registered open-end investment
company organized as a Massachusetts business trust offering shares of
beneficial interest in separate investment portfolios. In addition, each series
of the Investment Company is diversified as defined in the Investment Company
Act of 1940, as amended ("1940 Act").
This Statement of Additional Information supplements or describes in
greater detail the Investment Company and the SSgA Active International Fund
(the "Active International Fund" or the "Fund") as contained in the Fund's
Prospectus dated December 24, 1997. This Statement is not a Prospectus and
should be read in conjunction with the Fund's Prospectus, which may be obtained
by telephoning or writing Investment Company at the number or address shown
above.
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
Structure and Governance................................................. 3
Organization and Business History............................... 3
Shareholder Meetings............................................ 4
Controlling Shareholders........................................ 4
Principal Shareholders.......................................... 4
Trustees and Officers........................................... 4
Operation of Investment Company.......................................... 6
Service Providers ............................................. 6
Advisor ..................................................... 6
Administrator................................................... 7
Distributor..................................................... 7
Custodian and Transfer Agent.................................... 7
Independent Accountants......................................... 7
Distribution Plan ............................................. 7
Federal Law Affecting State Street.............................. 8
Valuation of Fund Shares........................................ 8
Brokerage Practices............................................. 9
Portfolio Turnover Policy....................................... 9
Total Return Quotations......................................... 10
Investments.............................................................. 11
Investment Restrictions......................................... 11
Investment Policies............................................. 12
Hedging Strategies and Related Investment Techniques............ 15
Risk Considerations...................................................... 18
Taxes ................................................................ 19
Financial Statements..................................................... 20
Appendix: Description of Securities Ratings............................. 21
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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 Active International Fund is one such investment portfolio. The
Trustees may create additional Funds at any time without shareholder approval.
Further, the Investment Company is authorized to divide shares of any
series into two or more classes of shares. The shares of each 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 Fund may have separate voting rights or no voting rights. Each class
of shares of a Fund is entitled to the same rights and privileges as all other
classes of that Fund, except that each class bears the 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 Fund's portfolio securities.
As of the date of this Statement of Additional Information, Investment
Company is comprised of the following investment portfolios, each of which
commenced operations on the date set forth opposite the portfolio's name:
SSgA Money Market Fund May 2, 1988
SSgA US Government Money Market Fund March 1, 1991
SSgA Matrix Equity Fund May 4, 1992
SSgA Small Cap Fund July 1, 1992
SSgA Yield Plus Fund November 9, 1992
SSgA S&P 500 Index Fund December 30, 1992
SSgA Growth and Income Fund September 1, 1993
SSgA Intermediate Fund September 1, 1993
SSgA US Treasury Money Market Fund December 1, 1993
SSgA Prime Money Market Fund February 22, 1994
SSgA Emerging Markets Fund March 1, 1994
SSgA Tax Free Money Market Fund December 1, 1994
SSgA Active International Fund March 7, 1995
SSgA Bond Market Fund February 7, 1996
SSgA Life Solutions Balanced Fund June 2, 1997
SSgA Life Solutions Growth Fund June 2, 1997
SSgA Life Solutions Income and Growth Fund June 2, 1997
SSgA Real Estate Equity Fund *
SSgA US Treasury Obligations Fund *
SSgA International Pacific Index Fund *
*As of the date of this Statement of Additional Information, these
portfolios have not commenced operations.
Prospectuses for these Investment Portfolios may be obtained by calling
Investment Company's distributor, Russell Fund Distributors, Inc., at (800)
647-7327, or at its Internet Web Site at www.ssgafunds.com.
Shares of the Money Market, US Government Money Market and Tax Free Money
Market Funds are divided into Classes A, B and C.
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 Fund, must be approved by the holders of a majority
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<PAGE>
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 Fund may be held personally
liable for the obligations of a 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 Fund shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The Master Trust Agreement
also provides that the Fund shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the 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 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.
State Street Bank and Trust Company ("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
program and investment accounts which permit the use of Investment Company
portfolios 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 November 30, 1997, State Street held of record
less than 25% of the issued and outstanding shares of Investment Company in
connection with its discretionary accounts. Consequently, State Street 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 November 30, 1997, the following
shareholders owned of record 5% or more of the issued and outstanding shares of
the Fund:
[bullet] Coca-Cola Foundation, P.O. Drawer 1734, Atlanta, GA 30301 -- 7%;
[bullet] State Street Solutions, State Street Bank and Trust Company, TTEE,
P.O. Box 1389, Boston, MA 02104 -- 6%;
[bullet] Windachor, 1776 Heritage Drive 4th Floor, Adams Building 4W,
North Quincy, MA 02171 -- 8%;
[bullet] Winddeck, 1776 Heritage Drive 4th Floor, Adams Building 4W,
North Quincy, MA 02171 -- 9%.
Such shares may be held pursuant to a shareholder servicing arrangement in
omnibus accounts for underlying shareholders.
The Trustees and officers of Investment Company, as a group, own less than
1% of Investment Company's voting securities.
Trustees and Officers. The Board of Trustees is responsible for overseeing
generally the operation of the Fund. The 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 Fund's operations.
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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. Investment Company's officers and employees are paid by
Administrator or its affiliates.
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. Trustee, President and Chief Executive Officer, Russell Insurance Funds
(investment company). Director, Chief Executive Officer and Chairman of the
Board, Russell Fund Distributors, Inc. Trustee, President and Chief Executive
Officer, Frank Russell Investment Company (investment company); Director, Chief
Executive Officer and Chairman of the Board, Frank Russell Investment Management
Company; Director, Chief Executive Officer and President, Frank Russell Trust
Company; Director and Chairman, Frank Russell Investment Company Public Limited
Company; November 1995 to February 1997, Director, Frank Russell Company;
Director and Chairman of the Board, Frank Russell Company (Delaware); Director,
Frank Russell Company; March 1989 to June 1993, Director, Frank Russell Company,
Director of Frank Russell Investments (Ireland) Limited; Director and Chairman,
Frank Russell Investment Company Public Limited Company. Until September 1994,
Director and President, The Laurel Funds, Inc. (investment company).
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 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. 350 Park Avenue, 15th Floor,
New York, NY 10022. Partner, Squire, Sanders & Dempsey (law firm). From 1994 to
1997, Partner, Brown, Rudnick, Freed & Gesmer (law firm). From 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. 1990 to 1992, President, Champions Group Resources--Business
Management and Employee Benefits Consulting; 1990, Senior Vice President,
Employee Benefits Division, Cigna Corporation (providing and insuring group
life, health and disability employee benefit products and services); from 1986
to 1990, Senior Vice President, EQUICOR-Equitable HCA Corporation (providing and
insuring group life, health and disability employee benefit products and
services).
*Bruce D. Taber, Trustee. Born 4/25/43. 26 Round Top Road, Boxford, MA
01921. Consultant, Computer Simulation, General Electric Industrial Control
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.
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<PAGE>
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. Treasurer and Chief Accounting Officer, Russell
Insurance Funds (investment company); Director of Finance and Operations, Frank
Russell Trust Company; Director, Fund Administration and Operations of Frank
Russell Investment Management Company and Russell Fund Distributors, Inc.;
Treasurer and Chief Accounting Office, Frank Russell Investment Company
(investment company); March 1993 to January 1996, Vice President, Operations,
Funds Management, J.P. Morgan; December 1985 to March 1993, Senior Vice
President, Operations, Frank Russell Investment Company, The Laurel Funds, Inc.
and The Seven Seas Series Fund (investment companies); Director of Operations,
Frank Russell Investment Management Company and Frank Russell Trust Company;
Director, Russell Fund Distributors, Inc.
Total Annual Compensation
Trustee from Investment Company
--------------------------------------------------------
Lynn L. Anderson $0
William L. Marshall $55,500
Steven J. Mastrovich $55,500
Patrick J. Riley $55,500
Richard D. Shirk $55,500
Bruce D. Taber $55,500
Henry W. Todd $55,500
OPERATION OF INVESTMENT COMPANY
Service Providers. Most of the 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.
Advisor. State Street serves as the Fund's investment advisor ("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
Corporation, a publicly held bank holding company. State Street's address is 225
Franklin Street, Boston, MA 02110.
Under the Advisory Agreement, Advisor directs the Fund's investments in
accordance with its investment objective, policies and limitations. For these
services, the Fund pays a fee to Advisor at the rate stated in the Prospectus.
The Fund accrued expenses to Advisor of $516,858 in fiscal 1997, $294,486 in
fiscal 1996 and $46,488 from the date of inception to August 31, 1995.
Additionally, Advisor voluntarily agreed to waive up to the full amount of its
advisory fees for the Fund to the extent that expenses exceed 1.00% of average
daily net assets on an
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<PAGE>
annual basis, which amounted to $274,723 in fiscal 1997, $186,020 in fiscal 1996
and $46,488 from the date of inception to August 31, 1995. The Advisory
Agreement will continue from year to year provided that a majority of the
Trustees who are not interested persons of any Investment Portfolio and either a
majority of all Trustees or a majority of the shareholders of each Investment
Portfolio approve its continuance. The Agreement may be terminated by Advisor or
a Fund without penalty upon 60 days' notice and will terminate automatically
upon its assignment.
Administrator. Frank Russell Investment Management Company
("Administrator") serves as the Fund's administrator, pursuant to an
Administration Agreement dated April 12, 1988 ("Administration Agreement"). A
description of the services provided under the Administration Agreement and the
basis for computing fees for such services is provided in the Fund's Prospectus.
The Fund accrued expenses to Administrator of $42,948 in fiscal 1997, $23,662 in
fiscal 1996 and $3,720 from the date of inception to August 31, 1995.
Administrator waived administration fees of $502 from the date of inception to
August 31, 1995. 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 any Investment Portfolio 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 a Fund without penalty upon 60 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, Winston-Salem, New
York City, Toronto, London, Tokyo, Sydney, Paris, Zurich and Auckland, and have
approximately 1,200 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 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 One International Place, Boston,
MA 02110.
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
Custodian services, State Street is paid an annual fee in accordance with the
following: custody services--a fee payable monthly on a pro rata basis, based on
the following percentages of average daily net assets of each Fund: $0 up to
$100 million--0.05%, over $100 million to $200 million-0.03%; and over $200
million-0.02%; securities transaction charges from $25.00 to $150.00 per
transaction; Eurodollar transaction fees ranging from $110.00 to $125.00 per
transaction; monthly pricing fees of $375.00 per Investment Fund and from $4.00
to $11.00 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 month. As
of the date of this SAI, a yield calculation will not be calculated for the Fund
and therefore the $350.00 fee will not be charged. For Transfer and Dividend
Disbursing Agent services, State Street is paid the following annual account
services fees: $9.00 open account fee; $1.50 closed account fee; fund minimum
per portfolio for one to four portfolios--$36,000, five to six
portfolios--$24,000, and over six portfolios $18,000. Portfolio fees are
allocated to each fund based on the average net asset value of each fund and are
billable on a monthly basis at the rate of 1/12 of the annual fee. State Street
will apply a $5.00 fee to each telephone transaction (purchase or redemption),
which is applied against the monthly billing. State Street is reimbursed by the
Fund 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.
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<PAGE>
Distribution Plan. Under the 1940 Act, the Securities and Exchange
Commission has adopted Rule 12b-1, which regulates the circumstances under which
the Fund may, directly or indirectly, bear distribution and shareholder
servicing expenses. The Rule provides that the Fund may pay for such expenses
only pursuant to a plan adopted in accordance with the Rule. Accordingly, the
Fund has adopted an active distribution plan (the "Plan"), which is described in
the Fund's Prospectus.
The Plan provides that the Fund may spend annually, directly or indirectly,
up to 0.25% of 1% of the average daily value of the net assets for distribution
and shareholder servicing services. The Plan does not provide for the Fund 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 Fund 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 Fund nor have any direct or indirect financial interest in the
operation of the Plan or any related agreements.
The Fund accrued expenses in the following amount to Russell Fund
Distributors, Inc., as Distributor, for the fiscal year ended August 31:
1997 1996 1995
---- ---- ----
$25,068 $10,949 $3,988
For fiscal 1997, this amount is reflective of the following individual
payments:
Advertising $ 1,694
Printing of Prospectuses 6,192
Compensation to Dealers 96
Compensation to Sales Personnel 6,930
Other* 10,156
-------
$25,068
* 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 Fund may also enter into agreements ("Service
Agreements") with financial institutions, which may include Advisor ("Service
Organizations"), to provide shareholder servicing with respect to Fund shares
held by or for the customers of the Service Organizations. Such arrangements are
more fully described in the Fund's Prospectus under "Distribution Services and
Shareholder Servicing."
The Fund accrued expenses in the following amount to Advisor, under a
Service Agreement pursuant to Rule 12b-1, for the fiscal year ended August 31:
1997 1996 1995
---- ---- ----
$21,040 $10,086 $1,550
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 certain 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 Fund, 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 Fund contemplated under this arrangement
are consistent with its statutory and regulatory obligations.
Valuation of Fund Shares. The Fund determines net asset value per share
once each "business day," as of the close of the regular trading session of the
New York Stock Exchange (currently, 4:00 p.m. Eastern time). A
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<PAGE>
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, Martin Luther King Jr. Day, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
The Fund's portfolio securities actively trade on foreign exchanges which
may trade on Saturdays and on days that the Fund does not offer or redeem
shares. The trading of portfolio securities on foreign exchanges on such days
may significantly increase or decrease the net asset value of Fund shares when
the shareholder is not able to purchase or redeem Fund shares. Further, because
foreign securities markets may close prior to the time the Fund determines net
asset value, events affecting the value of the portfolio securities occurring
between the time prices are determined and the time the Fund calculates net
asset value may not be reflected in the calculation of net asset value unless
Advisor determines that a particular event would materially affect the net asset
value. If such an event occurs, these securities will be valued at their fair
value following procedures approved by the Trustees.
Brokerage Practices. All portfolio transactions are placed on behalf of
the 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.
The Fund contemplates purchasing most equity securities directly in the
securities markets located in emerging or developing countries or in the
over-the-counter markets. ADRs and EDRs may be listed on stock exchanges, or
traded in the over-the-counter markets in the US or Europe, as the case may be.
ADRs, like other securities traded in the US, will be subject to negotiated
commission rates.
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 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 Fund and/or Advisor (or its
affiliates). Advisor is authorized to cause the 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 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 Advisor's performance of its
responsibilities in connection with the placement of portfolio transactions on
behalf of the Fund and review the prices paid by the Fund over representative
periods of time to determine if such prices are reasonable in relation to the
benefits provided to the Fund. Certain services received by Advisor attributable
to a particular Fund transaction may benefit one or more other accounts for
which Advisor exercises investment discretion or an Investment Portfolio other
than such Fund. Advisor's fees are not reduced by Advisor's receipt of such
brokerage and research services.
The brokerage commissions paid by the Fund were $145,721 in fiscal 1997,
$66,505 in fiscal 1996 and $21,872 from the date of inception to August 31,
1995.
During the fiscal year ended August 31, 1997, the Fund 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 the Fund's ten largest brokers or dealers
by dollar amounts of securities executed or commissions received on behalf of
the Fund. The value of broker-dealer securities held as of August 31, 1997, is
as follows:
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<PAGE>
($000)
-----------------------
Investment Technology Group, Inc. (a) 0
Morgan Stanley & Co. (a) 0
Broadcort Capital (a) 0
Merrill Lynch, Pierce, Fenner, Inc. 0
State Street Brokerage Services, Inc. (a) 0
Bear, Stearns Securities (a) 0
National Financial Services (a) 0
Nomura Securities International (a) 0
Barclays Dezoete Wedd (a) 0
Instinet (a) 0
Prebon (b) 0
Swiss Bank Corp. (b) 0
Lumis & Co. (b) 0
HSBC Securities (b) 105
Goldman Sachs & Co. (b) 0
UBS Securities, Inc. (b) 0
Aubrey G. Lanston & Co. (b) 0
Lehman Brothers Inc. (b) 0
Donaldson, Lufkin & Jenrette (b) 0
- ---------------------
(a) Broker commissions only
(b) Broker principal transactions only
Portfolio Turnover Policy. Generally, securities are purchased for the
Fund for investment income and/or capital appreciation and not for short-term
trading profits. The Advisor's sell discipline for the Fund's investment in
securities of foreign issuers is based on the premise of a long-term investment
horizon, however, sudden changes in valuation levels arising from, for example,
new macroeconomic policies, political developments, and industry conditions
could change the assumed time horizon. Some countries impose restrictions on
repatriation of capital and/or dividends which would lengthen the Advisor's
assumed time horizon in those countries. Liquidity, volatility, and overall risk
of a position are other factors considered by the Advisor in determining the
appropriate investment horizon. Therefore, the Fund may dispose of securities
without regard to the time they have been held when such action, for defensive
or other purposes, appears advisable. The Fund will limit investments in
illiquid securities to 15% of net assets.
The portfolio turnover rate for the 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.
The portfolio turnover rate for the Fund for each of the fiscal years
ended August 31 was:
1997 1996
---- ----
48.29% 22.02%
Total Return Quotations. The Fund computes 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-, five- and ten-year periods (or life of the funds as
appropriate), that would equate the initial amount invested to the ending
redeemable value, according to the following formula:
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<PAGE>
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-, 5- and 10-year periods
at the end of the year or period
The calculation assumes that all dividends and distributions of the Fund
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 the Fund is as follows:
One Year
Ending Inception to
August 31, 1997 August 31, 1997*
--------------- ----------------
1.17% 6.54%
*Periods less than one year are not annualized. The Fund commenced
operations on March 7, 1995.
Total return and other performance figures are based on historical
earnings and are not indicative of future performance.
INVESTMENTS
The nonfundamental investment objective of the Fund is set forth in the
Prospectus. The investment objective may be changed with the approval of a
majority of the Fund's Board of Trustees, with at least 60 days' prior notice to
shareholders. However, to meet certain state requirements, it may be determined
that the objective will only be changed with the approval of a majority of the
Fund's shareholders, as defined by the 1940 Act.
In addition to that investment objective, the Fund also has certain
fundamental investment restrictions, which may be changed only with the approval
of a majority of the shareholders of the Fund, and certain nonfundamental
investment restrictions and policies, which may be changed by the Fund without
shareholder approval.
Investment Restrictions
- -----------------------
The Fund is subject to the following investment restrictions. Restrictions
1 through 11 are fundamental, and restrictions 12 through 15 are nonfundamental.
These restrictions apply at the time an investment is made.
The Fund will 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 and instrumentalities and non-depository instruments issued by
European banks). Concentration may occur as a result of changes in the market
value of portfolio securities, but may not result from investment.
(2) Borrow money, 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 Fund's assets taken at market value, less
liabilities other than borrowings. If at any time a 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
Fund will not purchase investments once borrowed funds exceed 5% of its total
assets.
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<PAGE>
(3) Pledge, mortgage, or hypothecate its assets. However, the Fund may
pledge securities having a market value (on a daily marked-to-market basis) at
the time of the pledge not exceeding 33-1/3% of the value of the Fund's 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), if immediately after and as a result of such investment the
current market value of the Fund's holdings in the securities of such issuer
exceeds 5% of the value of the Fund's assets.
(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 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 the Fund's total
assets. Portfolio securities may be loaned if collateral values are continuously
maintained at no less than 100% by "marking to market" daily.
(6) Purchase or sell commodities or commodity futures contracts or options
on a futures contract except that the Fund may enter into futures contracts and
options thereon to the extent provided in its Prospectus, and if, as a result
thereof, more than 10% of the Fund's total assets (taken at market value at the
time of entering into the contract) would be committed to initial deposits and
premiums on open futures contracts and options on such contracts.
(7) Purchase or sell real estate or real estate mortgage loans; provided,
however, that the Fund may invest in securities secured by real estate or
interests therein or issued by companies which invest in real estate or
interests therein (including real estate investment trusts), and may purchase or
sell currencies (including forward currency exchange contracts), futures
contracts and related options generally as described in the Prospectus and
Statement of Additional Information.
(8) Except as required in connection with permissible financial options
activities and futures contracts, purchase securities on margin or underwrite
securities issued by others, except that a Fund 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. This restriction
does not preclude the Fund from obtaining such short-term credit as may be
necessary for the clearance of purchases and sales of its portfolio securities.
(9) Issue senior securities, except as permitted by its investment
objective, policies and restrictions, and except as permitted by the 1940 Act.
This restriction shall not be deemed to prohibit the Fund from (i) making any
permitted borrowings, mortgages or pledges, or (ii) entering into repurchase
transactions.
(10) Purchase or sell puts, calls or invest in straddles, spreads or any
combination thereof, except as described herein and in the Fund's Prospectus,
and subject to the following conditions: (i) such options are written by other
persons and (ii) the aggregate premiums paid on all such options which are held
at any time do not 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 Fund 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
Fund, including their investment advisors and affiliates, except as permitted by
the 1940 Act and exemptive rules or orders thereunder.
(13) Invest more than 15% 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.
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<PAGE>
(15) Invest in real estate limited partnerships that are not readily
marketable.
To the extent these restrictions reflect matters of operating policy which
may be changed without shareholder vote, these restrictions may be amended upon
approval by the Board of Trustees and notice to shareholders. The Fund currently
does not intend to invest in the securities of any issuer that would qualify as
a real estate investment trust under federal tax law.
Except with respect to Investment Restriction Nos. 2 and 13, if a
percentage restriction is adhered to at the time of investment, a subsequent
increase or decrease in a percentage resulting from a change in the values of
assets will not constitute a violation of that restriction, except as otherwise
noted.
Investment Policies
- -------------------
To the extent permitted under the 1940 Act and exemptive rules and orders
thereunder, the Fund may seek to achieve its investment objective by investing
solely in the shares of another investment company that has substantially
similar investment objectives and policies. To the extent consistent with its
investment objective and restrictions, the Fund may invest in the following
instruments and utilize the following investment techniques:
Equity Securities. 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.
US Government Obligations. The types of US Government obligations in which
the Fund 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 Fund may purchase US
Government obligations on a forward commitment basis.
Debt Securities. The Fund may also invest in debt securities, including
instruments issued by emerging market companies, governments and their agencies.
Other debt will typically represent less than 5% of the Fund's 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 may include
obligations that are in default or that face the risk of default with respect to
principal or interest. Such securities are sometimes referred to as "junk
bonds." Please see the Appendix for a description of securities ratings.
Asset-Backed Securities. 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. 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.
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<PAGE>
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 a 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. Use of asset-backed securities will
represent less than 5% of the Fund's total assets.
Section 4(2) Commercial Paper. The Fund 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 Fund's investment restriction relating to
investments in illiquid securities.
Eurodollar Certificates of Deposit (ECDs), Eurodollar Time Deposits
(ETDs) and Yankee Certificates of Deposit (YCDs). 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.
Repurchase Agreements. The Fund may enter into repurchase agreements with
financial institutions. Under repurchase agreements, these parties sell
securities to the 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 Fund in being invested fully while retaining "overnight" flexibility
in pursuit of investments of a longer-term nature. The Fund 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. The Fund 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. The 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. Reverse
repurchase agreements involve the risk of default by the counterparty, which may
adversely affect the Fund's ability to reacquire the underlying security.
When-Issued Transactions. 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 Fund will make commitments to purchase when-issued securities only
with the intention of actually acquiring the securities, but the Fund 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 Fund's records. For the purpose of
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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 Fund's records on a daily basis so
that the market value of the account will equal the amount of such commitments
by the Fund. The Fund will invest no more than 5% of its net assets in
when-issued securities.
Securities purchased on a when-issued basis and held by the Fund 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 when interest rates decline and decrease in value when interest rates
rise. Therefore, if in order to achieve higher interest income the 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 Fund's net asset value.
When payment for when-issued securities is due, the 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 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.
Special Situations and Illiquid Securities. The Fund 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 Fund's capital
appreciation potential. These investments are generally illiquid. The Fund
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 Fund invest more than 15% of its net
assets in illiquid securities. Due to foreign ownership restrictions, the Fund
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.
Forward Commitments. The Fund may contract to purchase securities for a
fixed price at a future date beyond customary settlement time consistent with
the Fund's ability to manage its investment portfolio, maintain a stable net
asset value and meet redemption requests. The Fund 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 Fund of a dollar amount sufficient to make
payment for the portfolio securities to be purchased will be segregated on the
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.
Hedging Strategies and Related Investment Techniques
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The Fund may seek to hedge its portfolios 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 Fund has authority to write (sell) covered call and
put options on its 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 Fund 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 Fund will only engage in these transactions for
hedging purposes, the options and futures portfolio strategies of the Fund will
not subject the Fund to the risks frequently associated with the speculative use
of options and futures transactions. Although the use of hedging strategies by
the Fund is intended to reduce the volatility of the net asset value of the
Fund's shares, the Fund's net asset value will nevertheless fluctuate. There can
be no assurance that the Fund's hedging transactions will be effective.
Writing Covered Call Options. The Fund is 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 Fund to sell or deliver the option's underlying security,
in return for the strike price, upon
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exercise of the option. By writing a call option, the Fund 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 Fund would seek to mitigate the effects of a
price decline. By writing covered call options, however, the Fund 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 Fund's
ability to sell the underlying security will be limited while the option is in
effect unless the Fund effects a closing purchase transaction.
Writing Covered Put Options. The Fund is authorized to write (sell)
covered put options on its portfolio securities and to enter into closing
transactions with respect to such options.
When the Fund 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 Fund 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 Fund 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 Fund has written,
however, the Fund 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.
The Fund may write put options as an alternative to purchasing actual
securities. If security prices rise, the Fund 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 Fund will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the Fund would expect to
suffer a loss. This loss should be less than the loss the Fund 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 Fund is authorized to purchase put options
to hedge against a decline in the market value of its portfolio securities. By
buying a put option the Fund has the right (but not the obligation) to sell the
underlying security at the exercise price, thus limiting the 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 Fund 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 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 Fund 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 Fund would exceed 5% of the market value of the Fund's total assets.
Purchasing Call Options. The Fund is 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 Fund will purchase call options only in
connection with "closing purchase transactions."
Stock Index Options and Financial Futures. The Fund is authorized to
engage in transactions in stock index options and financial futures, and related
options. The Fund 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 Fund 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 Fund 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 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 Fund's
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investments in foreign options, unless such options are specifically authorized
for investment by order of the CFTC, the Fund will not make such investments.
The Fund 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 and to obtain exposure to foreign markets. 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 Fund 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 Fund in
stock index futures and financial futures are subject to limitations as
described below under "Restrictions on the Use of Futures Transactions."
The Fund may sell futures contracts in anticipation of or during a
market decline to attempt to offset the decrease in market value of the Fund's
securities portfolio that might otherwise result. When a Fund is not fully
invested in the securities markets and anticipates a significant market advance,
the Fund may purchase futures in order to gain rapid market exposure that may
partially or entirely offset increases in the cost of securities that the Fund
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 Fund 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 Fund experiences a
significant amount of redemptions), a long futures position may be terminated
without the corresponding purchase of securities.
The Fund 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 Fund enters into futures transactions. The Fund
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 Fund 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 Fund
intends to purchase.
The Fund is 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 Fund is 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 a Fund, sold by a Fund
but not yet delivered, or committed or anticipated to be purchased by a Fund. As
an illustration, a Fund 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 Fund 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.
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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 futures 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.
Regulations of the CFTC applicable to the Fund requires that all of the
Fund's futures and options on futures transactions constitute bona fide hedging
transactions and that the Fund not enter into such transactions if, immediately
thereafter, the sum of the amount of initial margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed 5%
of the market value of the Fund's total assets.
Restrictions on OTC Options. The Fund 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 Fund will acquire only those OTC options for which Advisor believes
the Fund 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 Fund 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 Fund; (2) the market value of the underlying
securities covered by outstanding OTC call options sold by the Fund; (3) margin
deposits on the Fund's existing OTC options on futures contracts; and (4) the
market value of all other assets of the Fund that are illiquid or are not
otherwise readily marketable, would exceed 10% of the net assets of the Fund,
taken at market value. However, if an OTC option is sold by the Fund to a
primary US Government securities dealer recognized by the Federal Reserve Bank
of New York and the Fund has the unconditional contractual right to repurchase
such OTC option from the dealer at a predetermined price, then the Fund 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 Fund will not use
leverage in its options and futures strategies. Such investments will be made
for hedging purposes only. The Fund will hold securities or other options or
futures positions whose values are expected to offset its obligations under the
hedge strategies. The Fund will not enter into an option or futures position
that exposes the Fund 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 Fund 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 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 a Fund's assets could
impede portfolio management or the 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 Fund's 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 Fund will experience a
gain or loss which will not be completely offset by movements in the price of
the subject of
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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. To compensate for imperfect
correlations, the Fund 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 Fund 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 Fund 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 Fund 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 Fund 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 a Fund's ability to
effectively hedge its portfolio. There is also the risk of loss by a 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.
RISK CONSIDERATIONS
Investors should consider carefully the substantial risks involved in
securities of companies and governments of foreign nations, which are in
addition to the usual risks inherent in domestic investments. There may be less
publicly available information about foreign companies comparable to the reports
and ratings published regarding US companies. Foreign companies are not
generally subject to uniform accounting, auditing and financial reporting
standards, and auditing practices and requirements may not be comparable to
those applicable to US companies. Many foreign markets have substantially less
volume than either the established domestic securities exchanges or the OTC
markets. Securities of some foreign companies are less liquid and more volatile
than securities of comparable US companies. 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 and related administrative uncertainties.
Investments in companies domiciled in emerging market countries may be
subject to additional risks than investment in the US and in other developed
countries. These risks include: (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 can have political systems which can be expected to have less
stability 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 such securities and the currently low
or nonexistent volume of trading can 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 Fund's securities
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will generally be denominated in foreign currencies, the value of such
securities to the Fund will be affected by changes in currency exchange rates
and in 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 Fund's securities. In addition, some emerging market countries may
have fixed or managed currencies which are not free-floating against the US
dollar. Further, certain emerging market currencies may not be internationally
traded. Certain of these 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 Fund's 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.
The Fund endeavors 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.
The Fund may be affected either favorably or unfavorably by fluctuations
in the relative rates of exchange between the currencies of differentiations,
exchange control regulations and indigenous economic and political developments.
TAXES
The Fund intends 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 Fund will not be liable for federal income
taxes on taxable net investment income and net capital gain (long term capital
gains in excess of short term capital losses) that it distributes to its
shareholders, provided that the Fund distributes annually to its shareholders at
least 90% of its net investment income and net short-term capital gain for the
taxable year ("Distribution Requirement"). For a Fund to qualify as a RIC it
must abide by all of the following requirements: (1) at least 90% of the Fund's
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) at the close of each quarter of the Fund's 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 Fund and that does
not represent more than 10% of the outstanding voting securities of such issuer;
and (3) at the close of each quarter of the Fund's 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 Fund 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 its ordinary income for that year; (2) 98% of its 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 Fund subsequent to December 31 but prior to February 1 of the
following year.
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As permitted by tax regulations, the Fund intends to defer a net realized
capital loss of $100,182 incurred from November 1, 1996 to August 31, 1997, and
treat it as arising in fiscal year 1998.
If a shareholder receives a distribution taxable as a 20% gain or a 28%
gain with respect to shares of a 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 a 20% loss or a 28% loss to the extent
of the respective capital gain distribution.
Issues Related to Hedging and Option Investments. The Fund's ability to
make certain investments may be limited by provisions of the Code that require
inclusion of certain unrealized gains or losses in the Fund's income for
purposes of the Income Requirement 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.
State and Local Taxes. Depending upon the extent of the Fund's activities
in states and localities in which its offices are maintained, its agents or
independent contractors are located or it is otherwise deemed to be conducting
business, the Fund may be subject to the tax laws of such states or localities.
Foreign Income Taxes. Investment income received by the Fund 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 the 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 the Fund in advance since the amount of the assets to be
invested within various countries is not known.
If the Fund invests 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 Fund. The Fund can elect to mark-to-
market its PFIC holdings in lieu of paying taxes on gains or distributions
therefrom. It is anticipated that any taxes on a Fund with respect to
investments in PFICs would be insignificant.
Foreign shareholders should consult with their tax advisors as to if and
how the federal income tax and its withholding requirements applies to them.
The foregoing discussion is only a summary of certain federal income tax
issues generally affecting the Fund and its shareholders. Circumstances among
investors may vary and each investor is encouraged to discuss investment in the
Fund with the investor's tax advisor.
FINANCIAL STATEMENTS
The 1997 fiscal year-end financial statements for the Fund, including
notes to the financial statements and financial highlights and the Report of
Independent Accountants, are included in the Fund's Annual Report to
shareholders. A copy of the Annual Report accompanies this Statement of
Additional Information and is incorporated herein by reference.
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APPENDIX
DESCRIPTION OF SECURITIES RATINGS
Ratings of Debt Instruments
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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.
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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.
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:
[bullet] 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:
[box] Leading market positions in well-established industries.
[box] High rates of return on funds employed.
[box] Conservative capitalization structure with moderate reliance on
debt and ample asset protection.
[box] Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
[box] Well-established access to a range of financial markets and
assured sources of alternate liquidity.
[bullet] 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.
[bullet] 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.
[bullet] 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.
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
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<PAGE>
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.
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.
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<PAGE>
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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<PAGE>
Filed pursuant to Rule 485(b)
File Nos. 33-19229; 811-5430
SSgA FUNDS
----------
One International Place
Boston, Massachusetts 02110
(800) 647-7327
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
SMALL CAP FUND
December 24, 1997
SSgA Funds ("Investment Company") is a registered open-end investment
company organized as a Massachusetts business trust offering shares of
beneficial interest in separate investment portfolios. In addition, each series
of the Investment Company is diversified as defined under the Investment Company
Act of 1940, as amended (the "1940 Act").
This Statement of Additional Information supplements or describes in
greater detail the Investment Company and the SSgA Small Cap Fund (the "Fund")
as contained in the Fund's Prospectus dated December 24, 1997. This Statement is
not a Prospectus and should be read in conjunction with the Fund's Prospectus,
which may be obtained by telephoning or writing Investment Company at the number
or address shown above.
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<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
Structure and Governance.................................................. 3
Organization and Business History................................ 3
Shareholder Meetings............................................. 4
Controlling Shareholders......................................... 4
Principal Shareholders........................................... 4
Trustees and Officers............................................ 5
Operation of Investment Company........................................... 6
Service Providers .............................................. 6
Advisor ........................................................ 6
Administrator.................................................... 7
Distributor...................................................... 7
Custodian and Transfer Agent..................................... 7
Independent Accountants.......................................... 8
Distribution Plan .............................................. 8
Federal Law Affecting State Street............................... 9
Valuation of Fund Shares......................................... 9
Brokerage Practices.............................................. 10
Portfolio Turnover Rate.......................................... 11
Total Return Quotations.......................................... 11
Investments............................................................... 12
Investment Restrictions.......................................... 12
Investment Policies.............................................. 13
Hedging Strategies and Related Investment Techniques............. 15
Certain Risk Factors............................................. 20
Taxes ................................................................. 20
Financial Statements...................................................... 21
Appendix: Description of Securities Ratings.............................. 22
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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, one of
which is the Fund. The Investment Company share evidences pro rata ownership
interest in a different investment portfolio, or "Fund." The Fund is one such
investment portfolio. Certain figures contained herein are applicable to periods
when the Fund was passively managed under the name S&P Midcap Index Fund. The
name and investment objective of the Fund was changed pursuant to a shareholder
vote on November 22, 1994. Figures for activities subsequent to this change are
reflective of the new strategy. The Trustees may create additional Funds at any
time without shareholder approval.
As of the date of this Statement of Additional Information, Investment
Company is comprised of the following investment portfolios, each of which
commenced operations on the date set forth below the portfolio's name:
SSgA Money Market Fund May 2, 1988
SSgA US Government Money Market Fund March 1, 1991
SSgA Matrix Equity Fund May 4, 1992
SSgA Small Cap Fund July 1, 1992
SSgA Yield Plus Fund November 9, 1992
SSgA S&P 500 Index Fund December 30, 1992
SSgA Growth and Income Fund September 1, 1993
SSgA Intermediate Fund September 1, 1993
SSgA US Treasury Money Market Fund December 1, 1993
SSgA Prime Money Market Fund February 22, 1994
SSgA Emerging Markets Fund March 1, 1994
SSgA Tax Free Money Market Fund December 1, 1994
SSgA Active International Fund March 7, 1995
SSgA Bond Market Fund February 7, 1996
SSgA Life Solutions Balanced Fund June 2, 1997
SSgA Life Solutions Growth Fund June 2, 1997
SSgA Life Solutions Income and Growth Fund June 2, 1997
SSgA Real Estate Equity Fund *
SSgA US Treasury Obligations Fund *
SSgA International Pacific Index Fund *
---------------
*As of the date of this Statement of Additional Information, these
portfolios have not commenced operations.
Prospectuses for these investment portfolios may be obtained by calling
Investment Company's distributor, Russell Fund Distributors, Inc., at (800)
647-7327, or at its Internet Web Site at www.ssgafunds.com.
Investment Company is authorized to divide shares of any series into two
or more classes of shares. The shares of each 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
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<PAGE>
Fund may have separate voting rights or no voting rights. Each class of shares
of a Fund is entitled to the same rights and privileges as all other classes of
the Fund, except that each class bears the 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
Fund's portfolio securities. Shares of the Money Market, US Government Money
Market and Tax Free Money Market Funds are divided into Classes A, B and C.
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 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 the Fund may be held personally
liable for the obligations of the Fund. The Master Trust Agreement provides that
shareholders shall not be subject to any personal liability for the acts or
obligations of the Fund and that every written agreement, obligation, or other
undertaking of the Fund shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The Master Trust Agreement
also provides that the Fund shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the 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 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. 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 Investment Company portfolios 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 November 30, 1997, State Street held of record less than 25% of
the issued and outstanding shares of Investment Company in connection with its
discretionary accounts. Consequently, State Street is not deemed to be a
controlling person of Investment Company for purposes of the 1940 Act.
Principal Shareholders. As of November 30, 1997, the following shareholders
owned of record 5% or more of the issued and outstanding shares of the Fund:
[bullet] Boeing FLW1, State Street Bank and Trust Company, JQ7S Newport
Avenue, Quincy, MA 02171 -- 26%;
[bullet] State Street Bank Retirement CM01, an account of State Street Bank
and Trust Company, P.O. Box 351, Boston, MA 02101 -- 7%; and
[bullet] State Street Solutions, State Street Bank and Trust Company, TTE,
P.O. Box 1389, Boston, MA 02104 -- 11%.
Such shares may be held pursuant to a shareholder servicing arrangement in
omnibus accounts for underlying shareholders.
The Trustees and officers of Investment Company, as a group, own less than
1% of Investment Company's voting securities.
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<PAGE>
Trustees and Officers. The Board of Trustees is responsible for overseeing
generally the operation of the Fund. The 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 Fund's operations.
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. Investment Company's officers and employees are paid by
Administrator or its affiliates.
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. Trustee, President and Chief Executive Officer, Russell Insurance Funds
(investment company). Director, Chief Executive Officer and Chairman of the
Board, Russell Fund Distributors, Inc. Trustee, President and Chief Executive
Officer, Frank Russell Investment Company (investment company); Director, Chief
Executive Officer and Chairman of the Board, Frank Russell Investment Management
Company; Director, Chief Executive Officer and President, Frank Russell Trust
Company; Director and Chairman, Frank Russell Investment Company Public Limited
Company; November 1995 to February 1997, Director, Frank Russell Company;
Director and Chairman of the Board, Frank Russell Company (Delaware); Director,
Frank Russell Company; March 1989 to June 1993, Director, Frank Russell Company,
Director of Frank Russell Investments (Ireland) Limited; Director and Chairman,
Frank Russell Investment Company Public Limited Company. Until September 1994,
Director and President, The Laurel Funds, Inc. (investment company).
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 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. 350 Park Avenue, 15th Floor,
New York, NY 10022. Partner, Squire, Sanders & Dempsey (law firm). From 1994 to
1997, Partner, Brown, Rudnick, Freed & Gesmer (law firm). From 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. 1990 to 1992, President, Champions Group Resources--Business
Management and Employee Benefits Consulting; 1990, Senior Vice President,
Employee Benefits Division, Cigna Corporation (providing and insuring group
life, health and disability employee benefit products and services); from 1986
to 1990, Senior Vice President, EQUICOR-Equitable HCA Corporation (providing and
insuring group life, health and disability employee benefit products and
services).
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<PAGE>
*Bruce D. Taber, Trustee. Born 4/25/43. 26 Round Top Road, Boxford, MA
01921. Consultant, Computer Simulation, General Electric Industrial Control
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. Treasurer and Chief Accounting Officer, Russell
Insurance Funds (investment company); Director of Finance and Operations, Frank
Russell Trust Company; Director, Fund Administration and Operations of Frank
Russell Investment Management Company and Russell Fund Distributors, Inc.;
Treasurer and Chief Accounting Office, Frank Russell Investment Company
(investment company); March 1993 to January 1996, Vice President, Operations,
Funds Management, J.P. Morgan; December 1985 to March 1993, Senior Vice
President, Operations, Frank Russell Investment Company, The Laurel Funds, Inc.
and The Seven Seas Series Fund (investment companies); Director of Operations,
Frank Russell Investment Management Company and Frank Russell Trust Company;
Director, Russell Fund Distributors, Inc.
Total Annual Compensation
Trustee from Investment Company
--------------------------------------------------------
Lynn L. Anderson $0
William L. Marshall $55,500
Steven J. Mastrovich $55,500
Patrick J. Riley $55,500
Richard D. Shirk $55,500
Bruce D. Taber $55,500
Henry W. Todd $55,500
OPERATION OF INVESTMENT COMPANY
Service Providers. Most of the 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.
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<PAGE>
Advisor. State Street Bank and Trust Company ("State Street" or "Advisor")
serves as the Fund's 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 Corporation, a publicly held bank
holding company. State Street's address is 225 Franklin Street, Boston, MA
02110.
Under the Advisory Agreement, Advisor directs the Fund's investments in
accordance with its investment objectives, policies and limitations. For these
services, the Fund pays a fee to Advisor at the rates stated in the Prospectus.
After the previously mentioned shareholder vote on November 22, 1994, and
through March 9, 1995, Advisor voluntarily agreed to waive up to the full amount
of its advisory fees for the Fund to the extent that total fund expenses exceed
1.00% of average daily net assets on an annual basis. Effective March 9, 1995
through the fiscal year ended August 31, 1997, Advisor voluntarily agreed to
reimburse the Fund for all expenses in excess of 1.00% on an annual basis. The
Fund accrued gross expenses to Advisor and the Advisor waived or reimbursed
expenses to the Fund in the following amounts:
1997 1996 1995
---- ---- ----
Accrued Expenses $689,684 $276,229 $71,087
Waived Expenses -- -- 17,654
Reimbursed Expenses 86,094 66,461 57,869
The Advisory Agreement will continue from year to year provided that a
majority of the Trustees who are not interested persons of the Fund and either a
majority of all Trustees or a majority of the shareholders of the Fund approve
its continuance. The Agreement may be terminated by Advisor or a Fund without
penalty upon sixty days' notice and will terminate automatically upon its
assignment.
Administrator. Frank Russell Investment Management Company
("Administrator") serves as the Fund's administrator, pursuant to an
Administration Agreement dated April 12, 1988 ("Administration Agreement"). A
description of the services provided under the Administration Agreement and the
basis for computing fees for such services is provided in the Fund's Prospectus.
The Fund accrued expenses to Administrator of $26,966 in fiscal 1997, $10,629 in
fiscal 1996 and $3,463 in fiscal 1995.
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 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 any Fund 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, Winston-Salem, New
York City, Toronto, London, Tokyo, Sydney, Paris, Zurich and Auckland, and have
approximately 1,200 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 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 One International Place, Boston,
MA 02110.
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
Custodian services, State Street is paid an annual fee in accordance with the
following: custody services--a fee payable monthly on a pro rata basis, based on
the following percentages of average daily net assets of each Fund: $0 up to
$1.5 billion--0.02%, over
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$1.5 billion--0.015% (for purposes of calculating the break point, the assets of
all domestic Funds 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; and 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. For Transfer and Dividend Disbursing Agent
services, State Street is paid the following annual account services fees: $9.00
open account fee; $1.50 closed account fee; fund minimum per portfolio for one
to four portfolios--$36,000, five to six portfolios--$24,000, and over six
portfolios $18,000. Portfolio fees are allocated to each fund based on the
average net asset value of each fund and are billable on a monthly basis at the
rate of 1/12 of the annual fee. State Street will apply a $5.00 fee to each
telephone transaction (purchase or redemption), which is applied against the
monthly billing. State Street is reimbursed by each Fund 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 Fund may, directly or indirectly, bear distribution and shareholder
servicing expenses. The Rule provides that the Fund may pay for such expenses
only pursuant to a plan adopted in accordance with the Rule. Accordingly, the
Fund has adopted an active distribution plan (the "Plan"), which is described in
the Fund's Prospectus.
The Plan provides that the 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 Fund 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 Fund 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 Fund nor have any direct or indirect financial interest in the
operation of the Plan or any related agreements.
The Fund accrued expenses in the following amounts to Russell Fund
Distributors, Inc., as Distributor for the fiscal years ended August 31:
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1997 1996 1995
---- ---- ----
$48,647 $25,184 $25,754
For fiscal 1997, this amount is reflective of the following individual
payments:
Advertising $ 2,319
Printing of Prospectuses 7,108
Compensation to Sales Personnel 8,809
Compensation to Dealers 8,748
Other* 21,663
-------
$48,647
* 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 Fund may also enter into agreements ("Service
Agreements") with financial institutions, which may include Advisor ("Service
Organizations"), to provide shareholder servicing with respect to Fund shares
held by or for the customers of the Service Organizations. Such arrangements are
more fully described in the Fund's Prospectus under "Distribution Services and
Shareholder Servicing."
The Fund accrued expenses in the following amounts to Advisor, under a
Service Agreement pursuant to Rule 12b-1, for fiscal years ended August 31:
1997 1996 1995
---- ---- ----
$26,732 $11,505 $6,245
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 certain 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 Fund, 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 Fund contemplated under this arrangement
are consistent with its statutory and regulatory obligations.
Valuation of Fund Shares. Net asset value per share is calculated once each
business day for the Fund 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,
Martin Luther King Jr. Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
Trading may occur 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). The trading of
portfolio securities at such times may significantly increase or decrease the
net asset value of the Fund's share when shareholders do not have the ability to
purchase or redeem shares. Therefore, events affecting the values of foreign
securities trading 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 Fund's calculation of its net asset value unless the Board of
Trustees determines that the particular event would materially affect the Fund's
net asset value, in which case an adjustment would be made.
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<PAGE>
With the exceptions noted below, the Fund values portfolio securities at
fair 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 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 sales price.
Because many fixed income securities do not trade each day, last sale or
bid prices are frequently not available. Therefore, fixed income securities may
be valued using prices provided by a pricing service when such prices are
determined by Custodian to reflect the fair market value of such securities.
International equity 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 or
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 fair
value of such securities.
The Fund values 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 a Fund
would receive if it sold the instrument.
For example, in periods of declining interest rates, the daily yield on
Fund shares computed by dividing the annualized daily income on the Fund's
portfolio by the net asset value based upon the amortized cost valuation
technique 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 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. All portfolio transactions are placed on behalf of
the 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 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 Fund and/or Advisor (or its
affiliates). Advisor is authorized to cause the Fund to pay a commission to a
broker or dealer who provides such brokerage and research services for executing
a portfolio transaction which is
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in excess of the amount of commission another broker or dealer would have
charged for effecting that transaction. The 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 Advisor's performance of its
responsibilities in connection with the placement of portfolio transactions on
behalf of the Fund and review the prices paid by the Fund over representative
periods of time to determine if such prices are reasonable in relation to the
benefits provided to the Fund. Certain services received by Advisor attributable
to a particular Fund transaction may benefit one or more other accounts for
which Advisor exercises investment discretion, or an 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 total brokerage commissions paid by the Fund amounted to the following
for the fiscal years ended August 31:
1997 1996 1995
---- ---- ----
$381,531 $83,140 $35,824
Of the total brokerage commissions paid by the Fund, commissions received
by an affiliated broker/dealer amounted to the following for each of the fiscal
years ended August 31:
1997 1996 1995
---- ---- ----
$52,449 $38,694 $11,696
Relating to the total brokerage commissions paid by the Fund for fiscal
1997, the percentage of brokerage commissions received by an affiliated
broker/dealer amounted to 13.75% of the total.
The percentage of transactions (relating to commission-based trading
activity) effected through an affiliated broker/dealer as a percentage of total
commission-based transactions was 9.98% for the fiscal year ended August 31,
1997.
During the fiscal year ended August 31, 1997, the Fund 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 rate for the 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.
The portfolio turnover rate for the Fund for the fiscal years ended
August 31 was as follows:
1997 1996
---- ----
143.79% 76.85%
Total Return Quotations. The Fund computes 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
funds as appropriate), that would equate the initial amount invested to the
ending redeemable value, according to the following formula:
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<PAGE>
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 Fund
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 returns for the
Fund are as follows:
One Year
Ending Inception to
August 31, 1997 August 31,1997*
--------------- ---------------
35.85% 22.22
*Periods less than one year are not annualized. The Fund commenced
operations on July 1, 1992.
Total returns and other performance figures are based on historical
earnings and are not indicative of future performance.
INVESTMENTS
The non-fundamental investment objective of the Fund is set forth in its
Prospectus. The investment objective may be changed with the approval of a
majority of the Fund's Board of Trustees, with at least 60 days' prior notice to
shareholders. In addition to that investment objective, the Fund also has
certain fundamental investment restrictions, which may be changed only with the
approval of a majority of the shareholders of the Fund, and certain
nonfundamental investment restrictions and policies, which may be changed by the
Fund without shareholder approval.
Investment Restrictions
- -----------------------
The Fund is subject to the following investment restrictions. Restrictions
1 through 11 are fundamental and restrictions 12 through 15 are nonfundamental.
Unless otherwise noted, these restrictions apply at the time an investment is
made. The Fund will 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 and instrumentalities, and non-depository instruments issued by
European banks). 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 Fund's assets
taken at market value, less liabilities other than borrowings. If at any time a
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 Fund will not purchase investments once borrowed funds
(including reverse repurchase agreements) exceed 5% of its total assets.
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<PAGE>
(3) Pledge, mortgage or hypothecate its assets. However, a Fund may pledge
securities having a market value at the time of the pledge not exceeding 33-1/3%
of the value of the Fund's 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), if immediately after and as a result of such investment the
current market value of the Fund's holdings in the securities of such issuer
exceeds 5% of the value of the Fund's assets.
(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 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 the Fund's total
assets.
(6) Purchase or sell commodities or commodity futures contracts except
that the Fund may enter into futures contracts and options thereon to the extent
provided in their respective Prospectuses.
(7) Purchase or sell real estate or real estate mortgage loans; provided,
however, that the Fund 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 a Fund 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 the 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 Fund 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 Fund,
including their investment advisors and affiliates, except as permitted by the
1940 Act and exemptive rules or orders thereunder.
(13) Invest in securities issued by other investment companies except in
connection with a merger, consolidation, acquisition of assets, or other
reorganization approved by the Fund's shareholders, except that the Fund may
invest in such securities to the extent permitted by the 1940 Act.
(14) Invest more than 15% 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.
(15) Make investments for the purpose of gaining control of an issuer's
management.
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Investment Policies
- -------------------
The Fund may invest in the following instruments:
US Government Obligations. The types of US Government obligations in which
the Fund 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 Fund may purchase US
Government obligations on a forward commitment basis.
Repurchase Agreements. The Fund 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 each 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 Fund in being invested fully while retaining "overnight" flexibility
in pursuit of investments of a longer-term nature. The Fund 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. The Fund 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. The 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. Reverse
repurchase agreements involve the risk that the market value of securities sold
by the Fund may decline below the price at which it is obligated to repurchase
the securities.
Forward Commitments. The Fund may contract to purchase securities for a
fixed price at a future date beyond customary settlement time consistent with
the Fund's ability to manage its investment portfolio, maintain a stable net
asset value and meet redemption requests. A Fund 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 Fund of a dollar amount sufficient to make
payment for the portfolio securities to be purchased will be segregated on the
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. 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.
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<PAGE>
The Fund will make commitments to purchase when-issued securities only
with the intention of actually acquiring the securities, but a Fund 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 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 Fund's records on a daily basis so that the market value of
the account will equal the amount of such commitments by the Fund. The Fund will
not invest more than 25% of its net assets in when-issued securities.
Securities purchased on a when-issued basis and held by the Fund 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 when interest rates decline and decrease in value when interest rates
rise. Therefore, if in order to achieve higher interest income a 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 Fund's net asset value.
When payment for when-issued securities is due, the 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 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 Fund 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 Fund's investment restriction relating to
investments in illiquid securities.
American Depository Receipts (ADRs). The Fund may invest in ADRs under
certain circumstances as an alternative to directly investing in foreign
securities. Generally, ADRs, in registered form, are designed for use in the US
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. However, by investing in ADRs rather than
directly in a foreign issuer's stock, the Fund can avoid currency risks during
the settlement period for either purchases or sales. 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 many foreign issuers are subject.
Hedging Strategies and Related Investment Techniques
- ----------------------------------------------------
The Fund may seek to hedge their portfolios 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 Fund 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,
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<PAGE>
stock index futures and financial futures and related options on such futures.
The Fund 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 Fund will only engage in these
transactions for hedging purposes, the options and futures portfolio strategies
of the Fund will not subject the Fund to the risks frequently associated with
the speculative use of options and futures transactions. Although the use of
hedging strategies by the Fund is intended to reduce the volatility of the net
asset value of the Fund's shares, the Fund's net asset value will nevertheless
fluctuate. There can be no assurance that the Fund's hedging transactions will
be effective.
Writing Covered Call Options. The Fund is 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 a Fund 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 Fund 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 Fund
would seek to mitigate the effects of a price decline. By writing covered call
options, however, the Fund 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 Fund's ability to sell the underlying
security will be limited while the option is in effect unless the Fund effects a
closing purchase transaction.
Writing Covered Put Options. The Fund is authorized to write (sell) covered
put options on its portfolio securities and to enter into closing transactions
with respect to such options.
When a Fund 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 Fund 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 Fund 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 Fund has written,
however, the Fund 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.
The Fund may write put options as an alternative to purchasing actual
securities. If security prices rise, the Fund 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 Fund will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the Fund would expect to
suffer a loss. This loss should be less than the loss the Fund 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 Fund is authorized to purchase put options to
hedge against a decline in the market value of its portfolio securities. By
buying a put option a Fund has the right (but not the obligation) to sell the
underlying security at the exercise price, thus limiting the 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 Fund 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 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 Fund 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 Fund would exceed 5% of the market value of the Fund's total assets.
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Purchasing Call Options. The Fund is 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 Fund will purchase call options only in
connection with "closing purchase transactions."
Stock Index Options and Financial Futures. The Fund is authorized to
engage in transactions in stock index options and financial futures, and related
options. A Fund 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 Fund 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 Fund 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 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 Fund's investments in
foreign options, unless such options are specifically authorized for investment
by order of the CFTC, the Fund will not make such investments.
The Fund 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 Fund 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 Fund in stock index futures and financial
futures are subject to limitations as described below under "Restrictions on the
Use of Futures Transactions."
The Fund may sell futures contracts in anticipation of or during a
market decline to attempt to offset the decrease in market value of the Fund's
securities portfolio that might otherwise result. When a Fund is not fully
invested in the securities markets and anticipates a significant market advance,
the Fund may purchase futures in order to gain rapid market exposure that may
partially or entirely offset increases in the cost of securities that the Fund
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 Fund 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 Fund experiences a
significant amount of redemptions), a long futures position may be terminated
without the corresponding purchase of securities.
The Fund 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 Fund enters into futures transactions. The Fund
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 Fund 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 Fund
intends to purchase.
The Fund is 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
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(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 Fund is 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 a Fund, sold by a Fund
but not yet delivered, or committed or anticipated to be purchased by a Fund. As
an illustration, a Fund 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 Fund 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 futures 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.
Regulations of the CFTC applicable to the Fund require that all of the
Fund's futures and options on futures transactions constitute bona fide hedging
transactions and that the Fund not enter into such transactions if, immediately
thereafter, the sum of the amount of initial margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed 5%
of the market value of the Fund's total assets.
Restrictions on OTC Options. The Fund 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 Fund will acquire only those OTC options for which Advisor believes
the Fund 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 Fund 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 Fund; (2) the market value of the underlying
securities covered by outstanding OTC call options sold by the Fund; (3) margin
deposits on the Fund's existing OTC options on futures contracts; and (4) the
market value of all other assets of the Fund that are illiquid or are not
otherwise readily marketable, would exceed 10% of the net assets of the Fund,
taken at market value. However, if an OTC option is sold by the Fund to a
primary US Government securities dealer recognized by the Federal Reserve Bank
of New York and the Fund has the unconditional contractual right to repurchase
such OTC option from the dealer at a predetermined price, then the Fund 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"
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(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 Fund will not use
leverage in its options and futures strategies. Such investments will be made
for hedging purposes only. The Fund will hold securities or other options or
futures positions whose values are expected to offset its obligations under the
hedge strategies. The Fund will not enter into an option or futures position
that exposes the Fund 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 Fund 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 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 a Fund's assets could impede portfolio
management or the 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 Fund's 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 Fund 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. To compensate for imperfect
correlations, the Fund 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 Fund 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 Fund 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 Fund 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 Fund 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 a Fund's ability to
effectively hedge its portfolio. There is also the risk of loss by a 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.
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Certain Risk Factors
- --------------------
Foreign Investments. Investors should consider carefully the
substantial risks involved in securities of companies and governments of foreign
nations. There may be less publicly available information about foreign
companies comparable to the reports and ratings published regarding US
companies. Foreign companies are not generally subject to uniform accounting,
auditing and financial reporting standards, and auditing practices and
requirements may not be comparable to those applicable to US companies. Many
foreign markets have substantially less volume than either the established
domestic securities exchanges or the OTC markets. Securities of some foreign
companies are less liquid and more volatile than securities of comparable US
companies. 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 and related
administrative uncertainties. Because the some of the Fund's securities may be
denominated in foreign currencies, the value of such securities to the Fund will
be affected by changes in currency exchange rates and in 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 Fund's
securities. In addition, some emerging market countries may have fixed or
managed currencies which are not free-floating against the US dollar. Further,
certain emerging market currencies may not be internationally traded. Certain of
these currencies have experienced a steady devaluation relative to the US
dollar. ADRs are subject to all the above risks, except the imposition of
exchange controls and currency fluctuations during the settlement period.
TAXES
The Fund intends 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 Fund will not be liable for federal income
taxes on taxable net investment income and net capital gain (long term capital
gains in excess of short term capital losses) that it distributes to its
shareholders, provided that the Fund distributes annually to its shareholders at
least 90% of its net investment income and net short-term capital gain for the
taxable year ("Distribution Requirement"). For a Fund to qualify as a RIC it
must abide by all of the following requirements: (1) at least 90% of the Fund's
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) at the close of each quarter of the Fund's 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 Fund and that does
not represent more than 10% of the outstanding voting securities of such issuer;
and (3) at the close of each quarter of the Fund's 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 Fund 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 its ordinary income for that year; (2) 98% of its 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 Fund subsequent to December 31 but prior to February 1 of the
following year.
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If a shareholder receives a distribution taxable as a 20% gain or a 28%
gain with respect to shares of a 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 a 20% loss or a 28% loss to the extent
of the respective capital gain distribution.
Issues Related to Hedging and Option Investments. A Fund's ability to make
certain investments may be limited by provisions of the Code that require
inclusion of certain unrealized gains or losses in the Fund's income for
purposes of the Income Requirement 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 Fund 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 the 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.
If the Fund invests 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 Fund. The Fund 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 Fund's activities
in states and localities in which its offices are maintained, its agents or
independent contractors are located or it is otherwise deemed to be conducting
business, the Fund 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 Fund and its shareholders. Circumstances among
investors may vary and each investor is encouraged to discuss investment in the
Fund with the investor's tax advisor.
FINANCIAL STATEMENTS
The 1997 fiscal year-end financial statements of the Fund, including notes
to the financial statements and financial highlights and the Report of
Independent Accountants, are included in the Fund's Annual Reports to
shareholders. A copy of the Annual Report accompanies this Statement of
Additional Information and is incorporated herein by reference.
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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.
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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.
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:
[bullet] 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:
[box] Leading market positions in well-established industries.
[box] High rates of return on funds employed.
[box] Conservative capitalization structure with moderate reliance on
debt and ample asset protection.
[box] Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
[box] Well-established access to a range of financial markets and
assured sources of alternate liquidity.
[bullet] 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.
[bullet] 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.
[bullet] 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.
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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.
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 U.S. 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.
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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.
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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Filed pursuant to Rule 485(b)
File Nos. 33-19229; 811-5430
SSgA FUNDS
----------
One International Place
Boston, Massachusetts 02110
(800) 647-7327
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
INTERNATIONAL PACIFIC INDEX FUND
December 24, 1997
SSgA Funds ("Investment Company") is a registered open-end investment
company organized as a Massachusetts business trust offering shares of
beneficial interest in separate investment portfolios, each of which is referred
to as a "Fund." In addition, each series of the Investment Company is
diversified as defined under the Investment Company Act of 1940, as amended
("1940 Act").
This Statement of Additional Information supplements or describes in
greater detail the Investment Company and the SSgA International Pacific Index
Fund ("Pacific Index Fund" or the "Fund") as contained in the Fund's Prospectus
dated December 24, 1997. This Statement is not a Prospectus and should be read
in conjunction with the Fund's Prospectus, which may be obtained by telephoning
or writing Investment Company at the number or address shown above.
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
Structure and Governance.................................................. 3
Organization and Business History................................ 3
Shareholder Meetings............................................. 4
Controlling Shareholders......................................... 4
Trustees and Officers............................................ 4
Operation of Investment Company........................................... 6
Service Providers .............................................. 6
Advisor.......................................................... 6
Administrator.................................................... 6
Distributor...................................................... 7
Custodian and Transfer Agent..................................... 7
Independent Accountants.......................................... 7
Distribution Plan .............................................. 7
Federal Law Affecting State Street............................... 8
Valuation of Fund Shares......................................... 8
Brokerage Practices.............................................. 9
Total Return Quotations.......................................... 9
Investments............................................................... 10
Investment Restrictions.......................................... 10
Investment Policies.............................................. 11
Hedging Strategies and Related Investment Techniques............. 13
Taxes ................................................................. 18
Financial Statements...................................................... 19
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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 Pacific Index Fund is one such investment portfolio. The Trustees
may create additional Funds at any time without shareholder approval.
Further, the Investment Company is authorized to divide shares of any
series into two or more classes of shares. The shares of each 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 Fund may have separate voting rights or no voting rights. Each class
of shares of a Fund is entitled to the same rights and privileges as all other
classes of that Fund, except that each class bears the 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 Fund's portfolio securities.
As of the date of this Statement of Additional Information, Investment
Company is comprised of the following investment portfolios, each of which
commenced operations on the date set forth opposite the portfolio's name:
SSgA Money Market Fund May 2, 1988
SSgA US Government Money Market Fund March 1, 1991
SSgA Matrix Equity Fund May 4, 1992
SSgA Small Cap Fund July 1, 1992
SSgA Yield Plus Fund November 9, 1992
SSgA S&P 500 Index Fund December 30, 1992
SSgA Growth and Income Fund September 1, 1993
SSgA Intermediate Fund September 1, 1993
SSgA US Treasury Money Market Fund December 1, 1993
SSgA Prime Money Market Fund February 22, 1994
SSgA Emerging Markets Fund March 1, 1994
SSgA Tax Free Money Market Fund December 1, 1994
SSgA Active International Fund March 7, 1995
SSgA Bond Market Fund February 7, 1996
SSgA Life Solutions Balanced Fund June 2, 1997
SSgA Life Solutions Growth Fund June 2, 1997
SSgA Life Solutions Income and Growth Fund June 2, 1997
SSgA Real Estate Equity Fund *
SSgA US Treasury Obligations Fund *
SSgA International Pacific Index Fund *
*As of the date of this Statement of Additional Information, these
portfolios have not commenced operations.
Prospectuses for these Investment Portfolios may be obtained by calling
Investment Company's distributor, Russell Fund Distributors, Inc., at (800)
647-7327, or at its Internet Web Site at www.ssgafunds.com.
Shares of the Money Market, US Government Money Market and Tax Free Money
Market Funds are divided into Classes A, B and C.
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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 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 Fund may be held personally
liable for the obligations of a 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 Fund shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The Master Trust Agreement
also provides that the Fund shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the 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 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 November 30, 1997, State Street held beneficially and of
record 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.
The Trustees and officers of Investment Company, as a group, own less than
1% of Investment Company's voting securities.
Frank Russell Investment Management Company ("Administrator"), Investment
Company's administrator, will be the sole shareholder of the Fund until such
time as the Fund has public shareholders and therefore may be deemed to be a
controlling person.
Trustees and Officers. The Board of Trustees is responsible for overseeing
generally the operation of the Fund. The 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 Fund's operations.
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. Investment Company's officers and employees are paid by
Administrator or its affiliates.
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.
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<PAGE>
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. Trustee, President and Chief Executive Officer, Russell Insurance Funds
(investment company). Director, Chief Executive Officer and Chairman of the
Board, Russell Fund Distributors, Inc. Trustee, President and Chief Executive
Officer, Frank Russell Investment Company (investment company); Director, Chief
Executive Officer and Chairman of the Board, Frank Russell Investment Management
Company; Director, Chief Executive Officer and President, Frank Russell Trust
Company; Director and Chairman, Frank Russell Investment Company Public Limited
Company; November 1995 to February 1997, Director, Frank Russell Company;
Director and Chairman of the Board, Frank Russell Company (Delaware); Director,
Frank Russell Company; March 1989 to June 1993, Director, Frank Russell Company,
Director of Frank Russell Investments (Ireland) Limited; Director and Chairman,
Frank Russell Investment Company Public Limited Company. Until September 1994,
Director and President, The Laurel Funds, Inc. (investment company).
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 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. 350 Park Avenue, 15th Floor,
New York, NY 10022. Partner, Squire, Sanders & Dempsey (law firm). From 1994 to
1997, Partner, Brown, Rudnick, Freed & Gesmer (law firm). From 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. 1990 to 1992, President, Champions Group Resources--Business
Management and Employee Benefits Consulting; 1990, Senior Vice President,
Employee Benefits Division, Cigna Corporation (providing and insuring group
life, health and disability employee benefit products and services); from 1986
to 1990, Senior Vice President, EQUICOR-Equitable HCA Corporation (providing and
insuring group life, health and disability employee benefit products and
services).
*Bruce D. Taber, Trustee. Born 4/25/43. 26 Round Top Road, Boxford, MA
01921. Consultant, Computer Simulation, General Electric Industrial Control
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.
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<PAGE>
George W. Weber, Senior Vice President, Fund Treasurer and Principal
Accounting Officer. Born 6/3/51. Treasurer and Chief Accounting Officer, Russell
Insurance Funds (investment company); Director of Finance and Operations, Frank
Russell Trust Company; Director, Fund Administration and Operations of Frank
Russell Investment Management Company and Russell Fund Distributors, Inc.;
Treasurer and Chief Accounting Office, Frank Russell Investment Company
(investment company); March 1993 to January 1996, Vice President, Operations,
Funds Management, J.P. Morgan; December 1985 to March 1993, Senior Vice
President, Operations, Frank Russell Investment Company, The Laurel Funds, Inc.
and The Seven Seas Series Fund (investment companies); Director of Operations,
Frank Russell Investment Management Company and Frank Russell Trust Company;
Director, Russell Fund Distributors, Inc.
Total Annual Compensation
Trustee from Investment Company
--------------------------------------------------------
Lynn L. Anderson $0
William L. Marshall $55,500
Steven J. Mastrovich $55,500
Patrick J. Riley $55,500
Richard D. Shirk $55,500
Bruce D. Taber $55,500
Henry W. Todd $55,500
OPERATION OF INVESTMENT COMPANY
Service Providers. Most of the 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.
Advisor. State Street Bank and Trust Company ("State Street" or "Advisor")
serves as the Fund's investment advisor pursuant to an Advisory Agreement dated
April 12, 1988. State Street Bank and Trust Company is a wholly owned subsidiary
of State Street Corporation, a publicly held bank holding company. State
Street's address is 225 Franklin Street, Boston, MA 02110.
Under the Advisory Agreement, Advisor directs the Fund's investments in
accordance with its investment objective, policies and limitations. For these
services, the Fund pays a fee to Advisor at the rates stated in the Prospectus.
The Advisory Agreement will continue from year to year provided that a majority
of the Trustees who are not interested persons of the Fund and either a majority
of all Trustees or a majority of the shareholders of the Fund approve its
continuance. The Agreement may be terminated by Advisor or the Fund without
penalty upon 60 days' notice and will terminate automatically upon its
assignment.
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<PAGE>
Administrator. Frank Russell Investment Management Company
("Administrator") serves as the Fund's administrator, pursuant to an
Administration Agreement dated April 12, 1988. A description of the services
provided under the Administration Agreement and the basis for computing fees for
such services is provided in the Fund's Prospectus. 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 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 Fund without penalty
upon 60 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, Winston-Salem, New
York City, Toronto, London, Tokyo, Sydney, Paris Zurich and Auckland, and have
approximately 1,200 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 Fund shares pursuant to a Distribution Agreement dated April 12,
1988. Distributor is a wholly owned subsidiary of Administrator. Distributor's
mailing address is One International Place, Boston, MA 02110.
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
Custodian services, State Street is paid an annual fee in accordance with the
following: custody services--a fee payable monthly on a pro rata basis, based on
the following percentages of average daily net assets of each 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 domestic Funds 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 Fund 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 month. For Transfer and Dividend Disbursing Agent
services, State Street is paid the following annual account services fees: $9.00
open account fee; $1.50 closed account fee; fund minimum per portfolio for one
to four portfolios--$36,000, five to six portfolios--$24,000, and over six
portfolios $18,000. Portfolio fees are allocated to each fund based on the
average net asset value of each fund and are billable on a monthly basis at the
rate of 1/12 of the annual fee. State Street will apply a $5.00 fee to each
telephone transaction (purchase or redemption), which is applied against the
monthly billing. State Street is reimbursed by the Fund 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 Fund may, directly or indirectly, bear distribution and shareholder
servicing expenses. The Rule provides that the Fund may pay for such expenses
only pursuant to a plan adopted in accordance with the Rule. Accordingly, the
Fund has adopted an active distribution plan (the "Plan"), which is described in
the Fund's Prospectus.
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<PAGE>
The Plan provides that the 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 Fund 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 Fund 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.
Under the Plan, the Fund may also enter into agreements ("Service
Agreements") with financial institutions, which may include Advisor ("Service
Organizations"), to provide shareholder servicing with respect to Fund shares
held by or for the customers of the Service Organizations. Such arrangements are
more fully described in the Funds' Prospectus under "Distribution Services and
Shareholder Servicing."
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 certain 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 Fund, 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 Fund contemplated under this arrangement
are consistent with its statutory and regulatory obligations.
Valuation of Fund Shares. Net asset value per share is calculated on each
"business day" as of the close of the regular trading session on the New York
Stock Exchange (currently 4:00 p.m. Eastern time) for the Fund. 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,
Martin Luther King Jr. Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
Trading may occur 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). The trading of
portfolio securities at such times may significantly increase or decrease the
net asset value of the Fund's share when shareholders do not have the ability to
purchase or redeem shares. Therefore, 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 Fund's calculation of its net asset value unless the Board of
Trustees determines that the particular event would materially affect the Fund's
net asset value, in which case an adjustment would be made.
The Fund values portfolio securities at "fair 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 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.
Because many fixed income securities do not trade each day, last sale or
bid prices are frequently not available. Therefore, fixed income securities may
be valued using prices provided by a pricing service when such prices are
determined by Custodian to reflect the fair market value of such securities.
International equity 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 or
best or official bid price, such
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<PAGE>
securities may be valued on the basis of prices provided by a pricing service if
those prices are believed to reflect the fair value of such securities.
Brokerage Practices. All portfolio transactions are placed on behalf of
the 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 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 Fund and/or Advisor (or its
affiliates). Advisor is authorized to cause the 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 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 Advisor's performance of its
responsibilities in connection with the placement of portfolio transactions on
behalf of the Fund and review the prices paid by the Fund over representative
periods of time to determine if such prices are reasonable in relation to the
benefits provided to the Fund. Certain services received by Advisor attributable
to a particular Fund transaction may benefit one or more other accounts for
which Advisor exercises investment discretion, or a Fund 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.
Total Return Quotations. The Fund computes 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-, five- and ten-year periods (or life of the funds 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-, 5- and 10-year periods at the end of
the year or period
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<PAGE>
The calculation assumes that all dividends and distributions of the Fund
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.
Total returns and other performance figures are based on historical
earnings and are not indicative of future performance.
INVESTMENTS
The fundamental investment objective of the Fund is set forth in the
Prospectus. In addition to that investment objective, the Fund also has certain
"fundamental" investment restrictions, which may be changed only with the
approval of a majority of the shareholders of the Fund, and certain
nonfundamental investment restrictions and policies, which may be changed by the
Fund without shareholder approval.
Investment Restrictions
- -----------------------
The Fund is subject to the following investment restrictions. Restrictions
1 through 11 are fundamental and restrictions 12 through 15 are nonfundamental.
Unless otherwise noted, these restrictions apply at the time an investment is
made. The Fund will 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 and instrumentalities and non-depository instruments issued by
European banks). Concentration may occur as a result of changes in the market
value of portfolio securities, but may not result from investment.
Notwithstanding the foregoing general restrictions, the Fund will concentrate in
particular industries to the extent the underlying indices concentrate in those
industries.
(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 Fund's assets taken
at market value, less liabilities other than borrowings. If at any time the
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. The 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, the Fund may
pledge securities having a market value at the time of the pledge not exceeding
33-1/3% of the value of the Fund's 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), if immediately after and as a result of such investment the
current market value of the Fund's holdings in the securities of such issuer
exceeds 5% of the value of the Fund's assets.
(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." The 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 the Fund's total
assets.
(6) Purchase or sell commodities or commodity futures contracts except
that the Fund may enter into futures contracts and options thereon to the extent
provided in its Prospectus.
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<PAGE>
(7) Purchase or sell real estate or real estate mortgage loans; provided,
however, that the Fund 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 Fund 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 the 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 Fund 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
Fund, including its investment advisors and affiliates, except as permitted by
the 1940 Act and exemptive rules or orders thereunder.
(13) Invest in securities issued by other investment companies except: (i)
in connection with a merger, consolidation, acquisition of assets, or other
reorganization approved by the Fund's shareholders; or (ii) as otherwise
permitted by the 1940 Act.
(14) Invest more than 15% 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.
(15) Make investments for the purpose of gaining control of an issuer's
management.
Investment Policies
- -------------------
Except as otherwise indicated, the Fund may invest in the following
instruments:
US Government Obligations. The types of US Government obligations in which
the Fund 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 Fund may purchase US
Government obligations on a forward commitment basis.
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<PAGE>
Repurchase Agreements. The Fund may enter into repurchase agreements with
financial institutions. Under repurchase agreements, these parties sell
securities to the 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 Fund in being invested fully while retaining "overnight" flexibility
in pursuit of investments of a longer-term nature. The Fund 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.
Forward Commitments. The Fund may contract to purchase securities for a
fixed price at a future date beyond customary settlement time consistent with
the Fund's ability to manage its investment portfolio, maintain a stable net
asset value and meet redemption requests. The Fund 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 Fund of a dollar amount sufficient to make
payment for the portfolio securities to be purchased will be segregated on the
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. 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 Fund will make commitments to purchase when-issued securities only
with the intention of actually acquiring the securities, but the Fund 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 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 Fund's records on a daily basis so that the market value of
the account will equal the amount of such commitments by the Fund. The Fund will
invest no more than 25% of its net assets in when-issued securities.
Securities purchased on a when-issued basis and the securities held by the
Fund 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 when interest rates decline and decrease in value when
interest rates rise. Therefore, if in order to achieve higher interest income
the 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 Fund's net asset value.
When payment for when-issued securities is due, the 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 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 Fund 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
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may determine that Section 4(2) paper is liquid for the purposes of complying
with the Funds' investment restriction relating to investments in illiquid
securities.
Warrants. The Fund 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. The
Fund will invest no more than 5% of the value of its net assets in warrants, nor
more than 2% in warrants which are not listed on the New York or American Stock
Exchange.
American Depository Receipts (ADRs). The Fund may invest in ADRs under
certain circumstances as an alternative to directly investing in foreign
securities. Generally, ADRs, in registered form, are designed for use in the US
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. However, by investing in ADRs rather than
directly in a foreign issuer's stock, the Fund can avoid currency risks during
the settlement period for either purchases or sales. 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 many foreign issuers are subject.
Hedging Strategies and Related Investment Techniques
- ----------------------------------------------------
The Fund 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 Fund has authority to write (sell) covered call and put
options on its 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 Fund may also deal in
certain forward contracts, including forward foreign exchange transactions,
foreign currency options and futures, and related options on such futures. The
Fund 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 Fund will only engage in these transactions
for hedging purposes, the options and futures portfolio strategies of the Fund
will not subject the Fund to the risks frequently associated with the
speculative use of options and futures transactions. Although the use of hedging
strategies by the Fund is intended to reduce the volatility of the net asset
value of the Fund's shares, the Fund's net asset value will nevertheless
fluctuate. There can be no assurance that the Fund's hedging transactions will
be effective.
Hedging Foreign Currency Risk. Generally, the foreign exchange
transactions of the Fund will be conducted on a spot (cash) basis at the spot
rate then prevailing for purchasing or selling currency in the foreign exchange
market. However, the 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 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 portfolio positions generally.
The 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 attempt to hedge
all of its portfolio positions and will enter into such transactions only to the
extent, if any, deemed appropriate by Advisor. The Fund will not enter into a
position hedging commitment if, as a result thereof, the Fund 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.
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<PAGE>
In addition to the forward exchange contracts, the 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 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. Since
transactions in foreign currency exchange usually are conducted on a principal
basis, no fees or commissions are involved. Transactions involving forward
exchange contracts and futures contracts and options thereon are subject to
certain risks. A detailed discussion of such risks appears under the caption
"Risk Factors in Options, Futures, Forward and Currency Transactions."
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 Fund
will not speculate in foreign security or currency options or futures or related
options. The Fund will not hedge a currency substantially in excess of: (1) the
market value of securities denominated in such currency that the Fund has
committed to purchase or anticipates purchasing; or (2) in the case of
securities that have been sold by the Fund but not yet delivered, the proceeds
thereof in their denominated currency. The Fund will not incur potential net
liabilities of more than 25% of its total assets from foreign security or
currency options, futures or related options.
Writing Covered Call Options. The Fund is 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 Fund 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 Fund 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 Fund
would seek to mitigate the effects of a price decline. By writing covered call
options, however, the Fund 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 Fund's ability to sell the underlying
security will be limited while the option is in effect unless the Fund effects a
closing purchase transaction.
Writing Covered Put Options. The Fund is authorized to write (sell)
covered put options on its portfolio securities and to enter into closing
transactions with respect to such options.
When the Fund 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 Fund 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 Fund 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 Fund has written,
however, the Fund 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.
The Fund may write put options as an alternative to purchasing actual
securities. If security prices rise, the Fund 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 Fund will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the Fund would expect to
suffer a loss. This loss should be less than the loss the Fund 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.
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<PAGE>
Purchasing Put Options. The Fund is authorized to purchase put options
to hedge against a decline in the market value of its portfolio securities. By
buying a put option a Fund has the right (but not the obligation) to sell the
underlying security at the exercise price, thus limiting the 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 Fund 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 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 Fund 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 Fund would exceed 5% of the market value of the Fund's total assets.
Purchasing Call Options. The Fund is 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 Fund will purchase call options only in
connection with "closing purchase transactions."
Stock Index Options and Financial Futures. The Fund is authorized to
engage in transactions in stock index options and financial futures, and related
options. The Fund 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 Fund 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 Fund 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, such as the AMEX Oil & Gas Index. The 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 Fund's investments in foreign options, unless such options are
specifically authorized for investment by order of the CFTC, the Funds will not
make such investments.
The Fund 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 Fund 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 Fund in stock index futures and financial
futures are subject to limitations as described below under "Restrictions on the
Use of Futures Transactions."
The Fund may sell futures contracts in anticipation of or during a
market decline to attempt to offset the decrease in market value of the Fund's
securities portfolio that might otherwise result. When the Fund is not fully
invested in the securities markets and anticipates a significant market advance,
the Fund may purchase futures in order to gain rapid market exposure that may
partially or entirely offset increases in the cost of securities that the Fund
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 Fund 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 Fund experiences a
significant amount of redemptions), a long futures position may be terminated
without the corresponding purchase of securities.
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<PAGE>
The Fund 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 Fund enters into futures transactions. The Fund
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 Fund 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 Fund
intends to purchase.
The Fund is 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 Fund is 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 Fund, sold by the
Fund but not yet delivered, or committed or anticipated to be purchased by the
Fund. As an illustration, the Fund 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 Fund 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 futures 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.
Regulations of the CFTC applicable to the Fund require that all of the
Fund's futures and options on futures transactions constitute bona fide hedging
transactions and that the Fund not enter into such transactions if, immediately
thereafter, the sum of the amount of initial margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed 5%
of the market value of the Fund's total assets.
Restrictions on OTC Options. The Fund 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 Fund will acquire only those OTC options for which Advisor believes
the Fund 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).
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<PAGE>
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 Fund 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 Fund; (2) the market value of the underlying
securities covered by outstanding OTC call options sold by the Fund; (3) margin
deposits on the Fund's existing OTC options on futures contracts; and (4) the
market value of all other assets of the Fund that are illiquid or are not
otherwise readily marketable, would exceed 15% of the net assets of the Fund,
taken at market value. However, if an OTC option is sold by the Fund to a
primary US Government securities dealer recognized by the Federal Reserve Bank
of New York and the Fund has the unconditional contractual right to repurchase
such OTC option from the dealer at a predetermined price, then the Fund 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 Fund will not use
leverage in its options and futures strategies. Such investments will be made
for hedging purposes only. The Fund will hold securities or other options or
futures positions whose values are expected to offset its obligations under the
hedge strategies. The Fund will not enter into an option or futures position
that exposes the Fund 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 Fund 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 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 Fund's assets could impede portfolio
management or the 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 Fund's 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 Fund 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. To compensate for imperfect
correlations, the Fund 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 Fund 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 Fund 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.
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<PAGE>
The Fund 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 Fund 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 a 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.
To the extent permitted under the 1940 Act and exemptive rules and orders
thereunder, the Fund may seek to achieve its investment objective by investing
solely in the shares of another investment company that has substantially
similar investment objectives and policies.
TAXES
The Fund intends 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 Fund will not be liable for federal income
taxes on taxable net investment income and net capital gain (long term capital
gains in excess of short term capital losses) that it distributes to its
shareholders, provided that the Fund distributes annually to its shareholders at
least 90% of its net investment income and net short-term capital gain for the
taxable year ("Distribution Requirement"). For the Fund to qualify as a RIC it
must abide by all of the following requirements: (1) at least 90% of the Fund's
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) at the close of each quarter of the Fund's 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 Fund and that does
not represent more than 10% of the outstanding voting securities of such issuer;
and (3) at the close of each quarter of the Fund's 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 Fund 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 its ordinary income for that year; (2) 98% of its 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 Fund subsequent to December 31 but prior to February 1 of the
following year.
If a shareholder receives a distribution taxable as a 20% gain or a 28%
gain with respect to shares of a 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 a 20% loss or a 28% loss to the extent
of the respective capital gain distribution.
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<PAGE>
Issues Related to Hedging and Option Investments. The Fund's ability to
make certain investments may be limited by provisions of the Code that require
inclusion of certain unrealized gains or losses in the Fund's income for
purposes of the Income Requirement 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 Fund 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 the 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 Fund in advance since the amount of the assets to be
invested within various countries is not known.
If the Fund invests 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 Fund. The Fund can elect to
mark-to-market its PFIC holdings in lieu of paying taxes on gains or
distributions therefrom. It is anticipated that any taxes on the Fund with
respect to investments in PFICs would be insignificant.
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 Fund's activities
in states and localities in which its offices are maintained, its agents or
independent contractors are located or it is otherwise deemed to be conducting
business, the Fund 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 Funds and their shareholders. Circumstances among
investors may vary and each investor is encouraged to discuss investment in the
Funds with the investor's tax advisor.
FINANCIAL STATEMENTS
Unaudited financial statements for the Fund, 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 Fund first accepts a subscription from an
unaffiliated shareholder. Audited financial statements for the Fund will be
available within 60 days following the end of the Fund's then current fiscal
year. When available, copies of the financial statements can be obtained without
charge by calling Distributor at (800) 647-7327.
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Filed pursuant to Rule 485(b)
File Nos. 33-19229; 811-5430
SSgA FUNDS
----------
One International Place
Boston, Massachusetts 02110
(800) 647-7327
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
BOND MARKET FUND
December 24, 1997
SSgA Funds ("Investment Company") is a registered open-end investment
company organized as a Massachusetts business trust offering shares of
beneficial interest in separate investment portfolios. In addition, each series
of the Investment Company is diversified as defined under the Investment Company
Act of 1940, as amended (the "1940 Act").
This Statement of Additional Information supplements or describes in
greater detail the Investment Company and the SSgA Bond Market Fund (the "Bond
Market Fund" or the "Fund") as contained in the Fund's Prospectus dated December
24, 1997. This Statement is not a Prospectus and should be read in conjunction
with the Fund's Prospectus, which may be obtained by telephoning or writing
Investment Company at the number or address shown above.
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TABLE OF CONTENTS
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Page
----
Structure and Governance................................................. 3
Organization and Business History............................... 3
Shareholder Meetings............................................ 4
Controlling Shareholders........................................ 4
Principal Shareholders.......................................... 4
Trustees and Officers........................................... 4
Operation of Investment Company.......................................... 6
Service Providers ............................................. 6
Advisor......................................................... 6
Administrator................................................... 7
Distributor..................................................... 7
Custodian and Transfer Agent.................................... 7
Independent Accountants......................................... 8
Distribution Plan ............................................. 8
Federal Law Affecting State Street.............................. 8
Valuation of Fund Shares........................................ 9
Brokerage Practices............................................. 10
Portfolio Turnover Rate......................................... 11
Yield and Total Return Quotations............................... 11
Investments.............................................................. 12
Investment Restrictions......................................... 12
Investment Policies............................................. 13
Hedging Strategies and Related Investment Techniques............ 17
Taxes ................................................................ 21
Financial Statements..................................................... 23
Appendix: Description of Securities Ratings............................. 24
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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 Bond Market Fund is one such investment portfolio. The Trustees
may create additional Funds at any time without shareholder approval.
As of the date of this Statement of Additional Information, Investment
Company is comprised of the following investment portfolios, each of which
commenced operations on the date set forth opposite the portfolio's name:
SSgA Money Market Fund May 2, 1988
SSgA US Government Money Market Fund March 1, 1991
SSgA Matrix Equity Fund May 4, 1992
SSgA Small Cap Fund July 1, 1992
SSgA Yield Plus Fund November 9, 1992
SSgA S&P 500 Index Fund December 30, 1992
SSgA Growth and Income Fund September 1, 1993
SSgA Intermediate Fund September 1, 1993
SSgA US Treasury Money Market Fund December 1, 1993
SSgA Prime Money Market Fund February 22, 1994
SSgA Emerging Markets Fund March 1, 1994
SSgA Tax Free Money Market Fund December 1, 1994
SSgA Active International Fund March 7, 1995
SSgA Bond Market Fund February 7, 1996
SSgA Life Solutions Balanced Fund June 2, 1997
SSgA Life Solutions Growth Fund June 2, 1997
SSgA Life Solutions Income and Growth Fund June 2, 1997
SSgA Real Estate Equity Fund *
SSgA US Treasury Obligations Fund *
SSgA International Pacific Index Fund *
---------------
*As of the date of this Statement of Additional Information, these
portfolios have not commenced operations.
Prospectuses for these investment portfolios may be obtained by calling
Investment Company's distributor, Russell Fund Distributors, Inc., at (800)
647-7327, or at its Internet Website at www.ssgafunds.com.
Investment Company is authorized to divide shares of any series into two
or more classes of shares. The shares of each 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 Fund may have
separate voting rights or no voting rights. Each class of shares of a Fund is
entitled to the same rights and privileges as all other classes of that Fund,
except that each class bears the 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 Fund's
portfolio securities. Shares of the Money Market, US Government Money Market and
Tax Free Money Market Funds are divided into Classes A, B and C.
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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 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 the Fund may be held personally
liable for the obligations of the Fund. The Master Trust Agreement provides that
shareholders shall not be subject to any personal liability for the acts or
obligations of the Fund and that every written agreement, obligation, or other
undertaking of the Fund shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The Master Trust Agreement
also provides that the Fund shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the 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 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 November 30, 1997, State Street held beneficially and of
record 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 November 30, 1997, the following
shareholders owned of record 5% or more of the issued and outstanding shares of
the Fund:
[bullet] Anthem Insurance Company, P.O. Box 9242, Boston, MA 02209 -- 7%;
[bullet] Wellesley College, State Street Bank and Trust Company,
225 Franklin Street M/3, Boston, MA 02110--5%;
[bullet] United Jewish Appeal, 200 Newport Avenue JQ7,
North Quincy, MA 02171 -- 7%;
[bullet] Windachor, 1776 Heritage Drive 4th Floor, Adams Building 4W,
North Quincy, MA 02171 --13%;
[bullet] Windcove, 1776 Heritage Drive 4th Floor, Adams Building 4W,
North Quincy, MA 02171 --6%; and
[bullet] Winddeck, 1776 Heritage Drive 4th Floor, Adams Building 4W, North
Quincy, MA 02171 --5%.
Such shares may be held pursuant to a shareholder servicing arrangement in
omnibus accounts for underlying shareholders.
The Trustees and officers of the Investment Company, as a group, own less
than 1% of Investment Company's voting securities.
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Trustees and Officers. The Board of Trustees is responsible for overseeing
generally the operation of the Fund. The 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 Fund's operations.
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. Investment Company's officers and employees are paid by
Administrator or its affiliates.
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. Trustee, President and Chief Executive Officer, Russell Insurance
Funds. Director, Chief Executive Officer and Chairman of the Board, Russell Fund
Distributors, Inc. Trustee, President and Chief Executive Officer, Frank Russell
Investment Company (investment company); Director, Chief Executive Officer and
Chairman of the Board, Frank Russell Investment Management Company; Director,
Chief Executive Officer and President, Frank Russell Trust Company; Director and
Chairman, Frank Russell Investment Company Public Limited Company; November 1995
to February 1997, Director, Frank Russell Company; Director and Chairman of the
Board, Frank Russell Company (Delaware); Director, Frank Russell Company; March
1989 to June 1993, Director, Frank Russell Company, Director of Frank Russell
Investments (Ireland) Limited; Director and Chairman, Frank Russell Investment
Company Public Limited Company. Until September 1994, Director and President,
The Laurel Funds, Inc. (investment company).
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 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. 350 Park Avenue, 15th Floor,
New York, NY 10022. Partner, Squire, Sanders & Dempsey (law firm). From 1994 to
1997, Partner, Brown, Rudnick, Freed & Gesmer (law firm). From 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. 1990 to 1992, President, Champions Group Resources--Business
Management and Employee Benefits Consulting; 1990, Senior Vice President,
Employee Benefits Division, Cigna Corporation (providing and insuring group
life, health and disability employee benefit products and services); from 1986
to 1990, Senior Vice President, EQUICOR-Equitable HCA Corporation (providing and
insuring group life, health and disability employee benefit products and
services).
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<PAGE>
*Bruce D. Taber, Trustee. Born 4/25/43. 26 Round Top Road, Boxford, MA
01921. Consultant, Computer Simulation, General Electric Industrial Control
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. Treasurer and Chief Accounting Officer, Russell
Insurance Funds (investment company); Director of Finance and Operations, Frank
Russell Trust Company; Director, Fund Administration and Operations of Frank
Russell Investment Management Company and Russell Fund Distributors, Inc.;
Treasurer and Chief Accounting Office, Frank Russell Investment Company
(investment company); March 1993 to January 1996, Vice President, Operations,
Funds Management, J.P. Morgan; December 1985 to March 1993, Senior Vice
President, Operations, Frank Russell Investment Company, The Laurel Funds, Inc.
and The Seven Seas Series Fund (investment companies); Director of Operations,
Frank Russell Investment Management Company and Frank Russell Trust Company;
Director, Russell Fund Distributors, Inc.
Total Annual Compensation
Trustee from Investment Company
--------------------------------------------------------
Lynn L. Anderson $0
William L. Marshall $55,500
Steven J. Mastrovich $55,500
Patrick J. Riley $55,500
Richard D. Shirk $55,500
Bruce D. Taber $55,500
Henry W. Todd $55,500
OPERATION OF INVESTMENT COMPANY
Service Providers. Most of the 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.
Advisor. State Street Bank and Trust Company ("State Street" or "Advisor")
serves as the Fund's investment advisor pursuant to an Advisory Agreement dated
April 12, 1988 ("Advisory Agreement"). State Street Bank and
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Trust Company is a wholly owned subsidiary of State Street Corporation, a
publicly held bank holding company. State Street's address is 225 Franklin
Street, Boston, MA 02110.
Under the Advisory Agreement, Advisor directs the Fund's investments in
accordance with its investment objectives, policies and limitations. For these
services, the Fund pays a fee to Advisor at the rate stated in the Prospectus.
The Fund accrued expenses to Advisor of $144,230 in fiscal 1997 and $38,564 from
the date of inception to August 31, 1996. Additionally, the Advisor voluntarily
agreed to waive one-half of its advisory fee, and to waive up to the full amount
of its remaining Advisory fee to the extent that total expenses exceeded .50% of
average daily net assets on an annual basis, which amounted to $115,024 in
fiscal 1997 and $38,564 from the date of inception to August 31, 1996.
The Advisory Agreement will continue from year to year provided that a
majority of the Trustees who are not interested persons of the Fund and either a
majority of all Trustees or a majority of the shareholders of the Fund approve
its continuance. The Agreement may be terminated by Advisor or the Fund without
penalty upon sixty days' notice and will terminate automatically upon its
assignment.
Administrator. Frank Russell Investment Management Company
("Administrator") serves as the Fund's administrator, pursuant to an
Administration Agreement dated April 12, 1988 ("Administration Agreement"). A
description of the services provided under the Administration Agreement and the
basis for computing fees for such services is provided in the Fund's Prospectus.
The Fund accrued expenses to Administrator of $14,790 in fiscal 1997 and $3,000
from the date of inception to August 31, 1996. Administrator waived
administration fees of $673 from the date of inception to August 31, 1995.
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 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 Fund 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, Winston-Salem, New
York City, Toronto, London, Tokyo, Sydney, Zurich, Paris and Auckland, and have
approximately 1,200 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 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 One International Place, Boston,
MA 02110.
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:
custody services--a fee payable monthly on a pro rata basis, based on the
following percentages of average daily net assets of each 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 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. For Transfer and Dividend
Disbursing Agent services, State Street is paid the following annual account
services fees: $9.00 open account fee; $1.50 closed account fee; fund minimum
per portfolio for one to four portfolios--$36,000, five to six
portfolios--$24,000, and over six portfolios $18,000. Portfolio fees are
allocated to each fund based on the average net asset value of each
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fund and are billable on a monthly basis at the rate of 1/12 of the annual fee.
State Street will apply a $5.00 fee to each telephone transaction (purchase or
redemption), that is applied against the monthly billing. State Street is
reimbursed by the Fund 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 Fund may, directly or indirectly, bear distribution and shareholder
servicing expenses. The Rule provides that the Fund may pay for such expenses
only pursuant to a plan adopted in accordance with the Rule. Accordingly, the
Fund has adopted an active distribution plan (the "Plan"), which is described in
the Fund's Prospectus.
The Plan provides that the 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 Fund 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 Fund 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 Fund nor have any direct or indirect financial interest in the
operation of the Plan or any related agreements.
The Fund accrued expenses in the following amount to Russell Fund
Distributors, Inc., as Distributor, for the fiscal year ended August 31:
1997 1996
---- ----
$19,299 $2,738
For fiscal 1997, this amount is reflective of the following individual
payments:
Advertising $ 1,159
Printing of Prospectuses 5,879
Compensation to Dealers --
Compensation to Sales Personnel 4,524
Other* 7,737
-------
$19,299
*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 Fund may also enter into agreements ("Service
Agreements") with financial institutions, which may include Advisor ("Service
Organizations"), to provide shareholder servicing with respect to Fund shares
held by or for the customers of the Service Organizations. Such arrangements are
more fully described in the Fund's Prospectus under "Distribution Services and
Shareholder Servicing."
The Fund accrued expenses in the following amount to Advisor, under a
Service Agreement pursuant to Rule 12b-1, for the fiscal year ended August 31:
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1997 1996
---- ----
$10,607 $3,214
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 certain 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 Fund, 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 Fund Shares. Net asset value per share is calculated once
each business day for the Bond Market Fund 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, Martin Luther King Jr. Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day.
Trading may occur 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). The trading of
portfolio securities at such times may significantly increase or decrease the
Fund's net asset value when shareholders do not have the ability to purchase or
redeem shares. 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 Fund's calculation of its net asset value unless the Board of Trustees
determines that the particular event would materially affect the Fund's net
asset value, in which case an adjustment would be made.
With the exceptions noted below, the Fund values 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 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.
Because many fixed income securities do not trade each day, last sale or
bid prices are frequently not available. Therefore, fixed income securities 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 equity 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 or
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.
The Fund values securities maturing within 60 days of the valuation date
at amortized cost unless the Board determines that the amortized cost method
does not represent market 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
Fund would receive if it sold the instrument.
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For example, in periods of declining interest rates, the daily yield on
Fund shares computed by dividing the annualized daily income on the Fund's
portfolio by the net asset value based upon the amortized cost valuation
technique 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 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. All portfolio transactions are placed on behalf of
the 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 Fund. 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 Fund and/or Advisor (or its
affiliates). Advisor is authorized to cause the 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 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 Advisor's performance of its
responsibilities in connection with the placement of portfolio transactions on
behalf of the Fund and review the prices paid by the Fund over representative
periods of time to determine if such prices are reasonable in relation to the
benefits provided to the Fund. Certain services received by Advisor attributable
to a particular Fund transaction may benefit one or more other accounts for
which Advisor exercises investment discretion, or an 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.
During the fiscal year ended August 31, 1997, the Fund did not purchase
securities issued by the regular brokers or dealers of the Fund, as defined by
Rule 10b-10 of the 1940 Act.
Portfolio Turnover Rate. The portfolio turnover rate for the 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.
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The portfolio turnover rate for the Fund for the fiscal year ended
August 31 was:
1997 1996*
---- -----
453.14% 313.85%
*Portfolio turnover rates for periods less than one fiscal year are
annualized. The Fund commenced operations on February 7, 1996.
Yield and Total Return Quotations. The Fund computes 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 Fund
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 the Fund is as follows:
One Year Ending Inception to
August 31, 1997 August 31, 1997*
--------------- ----------------
9.47% 4.47%
*Periods less than one year are not annualized. The Fund commenced
operations on February 7, 1996.
The Fund computes yield 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)/cd(6)-1]
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 30-day yield (annualized) for the Fund for the period ended
August 31, 1997 was 6.18%.
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The yield quoted is not indicative of future results. Yields will depend
on the type, quality, maturity and interest rate of instruments held by the
Fund. Total return and other performance figures are based on historical
earnings and are not indicative of future performance.
INVESTMENTS
The investment objective of the Fund is set forth in its Prospectus. In
addition to the investment objective, the Fund also has certain "fundamental"
investment restrictions, which may be changed only with the approval of a
majority of the shareholders of the Fund, and certain nonfundamental investment
restrictions and policies, which may be changed by the Fund without shareholder
approval.
Investment Restrictions
- -----------------------
The Fund is subject to the following investment restrictions, restrictions
1 through 11 are fundamental and restrictions 12 through 16 are nonfundamental.
Unless otherwise noted, these restrictions apply at the time an investment is
made. The Fund will 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 and instrumentalities and non-depository instruments issued by
European banks). 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 Fund's assets
taken at market value, less liabilities other than borrowings. If at any time
the 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. The 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, the Fund may
pledge securities having a market value at the time of the pledge not exceeding
33-1/3% of the value of the Fund's 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), if immediately after and as a result of such investment the
current market value of the Fund's holdings in the securities of such issuer
exceeds 5% of the value of the Fund's assets.
(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. The 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 the Fund's total
assets.
(6) Purchase or sell commodities or commodity futures contracts except
that the Fund may enter into futures contracts and options thereon to the extent
provided in its Prospectus.
(7) Purchase or sell real estate or real estate mortgage loans; provided,
however, the Fund may invest in securities secured by real estate or interests
therein or issued by companies which invest in real estate or interests therein.
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<PAGE>
(8) Engage in the business of underwriting securities issued by others,
except that the Fund 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 the 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 Fund 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 Fund,
including their investment advisors and affiliates, except as permitted by the
1940 Act and exemptive rules or orders thereunder.
(13) Invest in securities issued by other investment companies except in
connection with a merger, consolidation, acquisition of assets, or other
reorganization approved by the Fund's shareholders, except that the Fund may
invest in such securities to the extent permitted by the 1940 Act.
(14) Invest more than 15% 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.
(15) Make investments for the purpose of gaining control of an issuer's
management.
(16) Invest in real estate limited partnerships that are not readily
marketable.
Investment Policies
- -------------------
The Fund will measure its performance against The Lehman Brothers
Aggregate Bond Index. The Lehman Brothers Aggregate Bond 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 Index includes all public obligations of the US
Treasury (excluding flower bonds and foreign-targeted issues); all publicly
issued debt of US Government agencies and quasi-federal corporations; corporate
debt guaranteed by the US Government; and all publicly issued, fixed rate,
nonconvertible, investment grade, dollar denominated, SEC registered corporate
debt. Corporate sectors include, but are not limited to, industrial, finance,
utility and Yankee. Included among Yankees is debt issued or guaranteed by
foreign sovereign governments, municipalities or governmental agencies or
international agencies.
The mortgage component of the Lehman Brothers Aggregate Bond Index
includes 15- and 30-year fixed rate securities backed by mortgage pools of GNMA,
FHLMC, and FNMA. Balloons are included in the index. The Asset-Backed Index is
composed of credit card, auto and home equity loans (pass-throughs, bullets and
controlled amortization structures). All securities have an average life of at
least one year.
The Fund may invest in the following instruments:
US Government Obligations. The types of US Government obligations in which
the Fund 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
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<PAGE>
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 Fund may purchase US Government obligations on a forward commitment
basis.
Repurchase Agreements. The Fund may enter into repurchase agreements with
financial institutions. Under repurchase agreements, these parties sell
securities to the 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 Fund in being invested fully while retaining "overnight" flexibility
in pursuit of investments of a longer-term nature. The Fund 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. The Fund may enter into reverse repurchase
agreements under the circumstances described in "Investment Restrictions." Under
reverse repurchase agreements, the Fund sells 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. The Fund retains the right to
receive interest and principal payments from the securities while they are in
the possession of the financial institutions.
Forward Commitments. The Fund may contract to purchase securities for a
fixed price at a future date beyond customary settlement time. The Fund 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 Fund of a
dollar amount sufficient to make payment for the portfolio securities to be
purchased will be segregated on the Fund's records at the trade date and
maintained until the transaction is settled.
When-Issued Transactions. 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 Fund will make commitments to purchase when-issued securities only
with the intention of actually acquiring the securities, but the Fund 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 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 Fund's records on a daily basis so that the market value of
the account will equal the amount of such commitments by the Fund. The Fund will
not invest more than 25% of its net assets in when-issued securities.
Securities purchased on a when-issued basis and held by the Fund 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 when interest rates decline and decrease in value when interest rates
rise.
When payment for when-issued securities is due, the 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
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<PAGE>
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 Fund 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 Fund's investment restriction relating to
investments in illiquid securities.
Variable and Floating Rate Securities. The Fund 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. 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 a 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 Securities. 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 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 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.
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<PAGE>
(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.
Zero Coupon Securities. 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.
Because the Fund accrues taxable income from zero coupon securities
without receiving regular interest payments in cash, the 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 Fund.
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.
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Hedging Strategies and Related Investment Techniques
- ----------------------------------------------------
The 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 Fund has authority to write (sell) covered call and
put options on its 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 Fund may
also deal in certain forward contracts, including forward foreign exchange
transactions, foreign currency options and futures, and related options on such
futures. The Fund 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 Fund will only engage in these
transactions for hedging purposes, the options and futures portfolio strategies
of the Fund will not subject the Fund to the risks frequently associated with
the speculative use of options and futures transactions. Although the use of
hedging strategies by these Funds is intended to reduce the volatility of the
net asset value of the Fund's shares, the Fund's net asset value will
nevertheless fluctuate. There can be no assurance that the Fund's hedging
transactions will be effective.
Hedging Foreign Currency Risk. The 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 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 portfolio positions generally.
The 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 attempt to hedge
all of its portfolio positions and will enter into such transactions only to the
extent, if any, deemed appropriate by Advisor. The Fund will not enter into a
position hedging commitment if, as a result thereof, the Fund 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.
In addition to the forward exchange contracts, the 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 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. Since
transactions in foreign currency exchange usually are conducted on a principal
basis, no fees or commissions are involved. Transactions involving forward
exchange contracts and futures contracts and options thereon are subject to
certain risks. A detailed discussion of such risks appears under the caption
"Risk Factors in Options, Futures, Forward and Currency Transactions."
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 futures exchanges. The Fund will not speculate
in foreign security or currency options or futures or related options. The Fund
will not hedge a currency substantially in excess of: (1) the market value of
securities denominated in such currency that the Fund has committed to purchase
or anticipates purchasing; or (2) in the case of securities that have been sold
by the Fund but not yet delivered, the proceeds thereof in their denominated
currency. The Fund will not incur potential net liabilities of more than 25% of
its total assets from foreign security or currency options, futures or related
options.
Writing Covered Call Options. The Fund is 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 Fund to sell or deliver the option's underlying security,
in return for the strike price, upon
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exercise of the option. By writing a call option, the Fund 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 Fund would seek to mitigate the effects of a
price decline. By writing covered call options, however, the Fund 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 Fund's
ability to sell the underlying security will be limited while the option is in
effect unless the Fund effects a closing purchase transaction.
Writing Covered Put Options. The Fund is authorized to write (sell)
covered put options on its portfolio securities and to enter into closing
transactions with respect to such options.
When the Fund 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 Fund 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 Fund 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 Fund has written,
however, the Fund 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.
The Fund may write put options as an alternative to purchasing actual
securities. If security prices rise, the Fund 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 Fund will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the Fund would expect to
suffer a loss. This loss should be less than the loss the Fund 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 Fund is authorized to purchase put options
to hedge against a decline in the market value of its portfolio securities. By
buying a put option the Fund has the right (but not the obligation) to sell the
underlying security at the exercise price, thus limiting the 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 Fund 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 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 Fund 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 Fund would exceed 5% of the market value of the Fund's total assets.
Purchasing Call Options. The Fund is 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 Fund will purchase call options only in
connection with "closing purchase transactions."
Stock Index Options and Financial Futures. The Fund is authorized to
engage in transactions in stock index options and financial futures, and related
options. The Fund 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 Fund 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 Fund 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, such as the AMEX Oil & Gas Index. The 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.
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<PAGE>
Additionally, with respect to the Fund's investments in foreign options, unless
such options are specifically authorized for investment by order of the CFTC,
the Fund will not make such investments.
The Fund 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 Fund may effect transactions in stock index futures
contracts in connection with debt securities in which it invests and in
financial futures contracts in connection with equity securities in which it
invests, if any. Transactions by the Fund in stock index futures and financial
futures are subject to limitations as described below under "Restrictions on the
Use of Futures Transactions."
The Fund may sell futures contracts in anticipation of or during a
market decline to attempt to offset the decrease in market value of the Fund's
securities portfolio that might otherwise result. When the Fund is not fully
invested in the securities markets and anticipates a significant market advance,
the Fund may purchase futures in order to gain rapid market exposure that may
partially or entirely offset increases in the cost of securities that the Fund
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 Fund 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 Fund experiences a
significant amount of redemptions), a long futures position may be terminated
without the corresponding purchase of securities.
The Fund 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 Fund enters into futures transactions. The Fund
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 Fund 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 Fund
intends to purchase.
The Fund is 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 Fund is 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 Fund, sold by the
Fund but not yet delivered, or committed or anticipated to be purchased by the
Fund. As an illustration, the Fund 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 Fund 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
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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 futures
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.
Regulations of the CFTC applicable to the Fund requires that all of the
Fund's futures and options on futures transactions constitute bona fide hedging
transactions and that the Fund not enter into such transactions if, immediately
thereafter, the sum of the amount of initial margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed 5%
of the market value of the Fund's total assets.
Restrictions on OTC Options. The Fund 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 Fund will acquire only those OTC options for which Advisor believes
the Fund 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 Fund 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 Fund; (2) the market value of the underlying
securities covered by outstanding OTC call options sold by the Fund; (3) margin
deposits on the Fund's existing OTC options on futures contracts; and (4) the
market value of all other assets of the Fund that are illiquid or are not
otherwise readily marketable, would exceed 10% of the net assets of the Fund,
taken at market value. However, if an OTC option is sold by the Fund to a
primary US Government securities dealer recognized by the Federal Reserve Bank
of New York and the Fund has the unconditional contractual right to repurchase
such OTC option from the dealer at a predetermined price, then the Fund 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 Fund will not use
leverage in its options and futures strategies. Such investments will be made
for hedging purposes only. The Fund will hold securities or other options or
futures positions whose values are expected to offset its obligations under the
hedge strategies. The Fund will not enter into an option or futures position
that exposes the Fund 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 Fund 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 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 Fund's assets could impede portfolio
management or the Fund's ability to meeting redemption requests or other current
obligations.
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Risk Factors in Options, Futures, Forward and Currency Transactions.
Utilization of options and futures transactions to hedge the Fund's 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 Fund will experience a
gain or loss which will not be completely offset by movements in the price of
the subject of the hedge. To compensate for imperfect correlations, the Fund 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 Fund 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 Fund 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 Fund 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 Fund 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 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.
To the extent permitted under the 1940 Act and exemptive rules and orders
thereunder, the Fund may seek to achieve its investment objective by investing
solely in the shares of another investment company that has substantially
similar investment objectives and policies.
TAXES
The Fund intends 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 Fund will not be liable for federal income
taxes on taxable net investment income and net capital gain (long term capital
gains in excess of short term capital losses) that it distributes to its
shareholders, provided that the Fund distributes annually to its shareholders at
least 90% of its net investment income and net short-term capital gain for the
taxable year ("Distribution Requirement"). For the Fund to qualify as a RIC it
must abide by all of the following requirements: (1) at least 90% of the Fund's
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) at the close of each quarter of the Fund's 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 Fund and that does
not represent more than 10% of the outstanding voting securities of such issuer;
and (3) at the close of each quarter of the Fund's taxable year,
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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 Fund 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 its ordinary income for that year; (2) 98% of its 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 Fund subsequent to December 31 but prior to February 1 of the
following year.
If a shareholder receives a distribution taxable as a 20% gain or a 28%
gain with respect to shares of a 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 a 20% loss or a 28% loss to the extent
of the respective capital gain distribution.
As of August 31, 1997, the fund had a net tax basis capital loss carryover
of S5,379, which may be applied against any realized net taxable gains in each
succeeding year or until its expiration date of August 31, 2005. As permitted by
tax regulations, the Fund intends to defer a net realized capital loss of
$88,439 incurred from November 1, 1996 to August 31, 1997, and treat it as
arising in fiscal year 1998.
Issues Related to Hedging and Option Investments. The Fund's ability to
make certain investments may be limited by provisions of the Code that require
inclusion of certain unrealized gains or losses in the Fund's income for
purposes of the Income Requirement 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.
State and Local Taxes. Depending upon the extent of the Fund's activities
in states and localities in which its offices are maintained, its agents or
independent contractors are located or it is otherwise deemed to be conducting
business, the Fund may be subject to the tax laws of such states or localities.
Foreign Income Taxes. Investment income received by the Fund 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 the 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 a Fund in advance since the amount of the assets to be
invested within various countries is not known.
If a Fund invests 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 Fund. The 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.
The foregoing discussion is only a summary of certain federal tax issues
generally affecting the Fund and its shareholders. Circumstances among investors
may vary, and each investor is encouraged to discuss investment in the Fund with
the investor's tax advisor.
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FINANCIAL STATEMENTS
The 1997 fiscal year-end financial statements of the Fund, including
notes to the financial statements and financial highlights and the Report of
Independent Accountants, are included in the Fund's Annual Reports to
shareholders. A copy of the Annual Report accompanies this Statement of
Additional Information and is incorporated herein by reference.
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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
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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.
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:
[bullet] 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:
[bullet] Leading market positions in well-established industries.
[bullet] High rates of return on funds employed.
[bullet] Conservative capitalization structure with moderate
reliance on debt and ample asset protection.
[bullet] Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
[bullet] Well-established access to a range of financial markets and
assured sources of alternate liquidity.
[bullet] 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.
[bullet] 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.
[bullet] 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.
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
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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.
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
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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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Filed pursuant to Rule 485(b)
File Nos. 33-19229; 811-5430
SSgA FUNDS
----------
One International Place
Boston, Massachusetts 02110
(800) 647-7327
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
US TREASURY OBLIGATIONS FUND
December 24, 1997
SSgA Funds ("Investment Company") is a registered open-end investment
company organized as a Massachusetts business trust offering shares of
beneficial interest in separate investment portfolios. In addition, each series
of the Investment Company is diversified as defined in the Investment Company
Act of 1940, as amended (the "1940 Act").
This Statement of Additional Information supplements or describes in
greater detail the Investment Company and the SSgA US Treasury Obligations Fund
(the "Treasury Obligations Fund" or the "Fund") as contained in the Fund's
Prospectus dated December 24, 1997. This Statement is not a Prospectus and
should be read in conjunction with the Fund's Prospectus, which may be obtained
by telephoning or writing Investment Company at the number or address shown
above.
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
Structure and Governance.................................................. 3
Organization and Business History................................ 3
Shareholder Meetings............................................. 4
Controlling Shareholders......................................... 4
Principal Shareholders........................................... 4
Trustees and Officers............................................ 4
Operation of Investment Company........................................... 6
Service Providers .............................................. 6
Advisor ......................................................... 6
Administrator.................................................... 6
Distributor...................................................... 7
Custodian and Transfer Agent..................................... 7
Independent Accountants.......................................... 7
Distribution Plan .............................................. 7
Federal Law Affecting State Street............................... 8
Valuation of Fund Shares......................................... 8
Brokerage Practices.............................................. 8
Yield and Total Return Quotations................................ 9
Investments............................................................... 10
Investment Restrictions.......................................... 10
Investment Policies.............................................. 11
Taxes..................................................................... 12
Financial Statements...................................................... 12
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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 Treasury Obligations Fund is one such investment portfolio. The
Trustees may create additional Funds at any time without shareholder approval.
Further, the Investment Company is authorized to divide shares of any
series into two or more classes of shares. The shares of each 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 Fund may have separate voting rights or no voting rights. Each class
of shares of a Fund is entitled to the same rights and privileges as all other
classes of that Fund, except that each class bears the 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 Fund's portfolio securities.
As of the date of this Statement of Additional Information, Investment
Company is comprised of the following investment portfolios, each of which
commenced operations on the date set forth opposite the portfolio's name:
SSgA Money Market Fund May 2, 1988
SSgA US Government Money Market Fund March 1, 1991
SSgA Matrix Equity Fund May 4, 1992
SSgA Small Cap Fund July 1, 1992
SSgA Yield Plus Fund November 9, 1992
SSgA S&P 500 Index Fund December 30, 1992
SSgA Growth and Income Fund September 1, 1993
SSgA Intermediate Fund September 1, 1993
SSgA US Treasury Money Market Fund December 1, 1993
SSgA Prime Money Market Fund February 22, 1994
SSgA Emerging Markets Fund March 1, 1994
SSgA Tax Free Money Market Fund December 1, 1994
SSgA Active International Fund March 7, 1995
SSgA Bond Market Fund February 7, 1996
SSgA Life Solutions Balanced Fund June 2, 1997
SSgA Life Solutions Growth Fund June 2, 1997
SSgA Life Solutions Income and Growth Fund June 2, 1997
SSgA Real Estate Equity Fund *
SSgA US Treasury Obligations Fund *
SSgA International Pacific Index Fund *
- -----------------
*As of the date of this Statement of Additional Information, these portfolios
have not commenced operations.
Prospectuses for these Investment Portfolios may be obtained by calling
Investment Company's distributor, Russell Fund Distributors, Inc., at (800)
647-7327, or at its Internet Web Site at www.ssgafunds.com.
Shares of the Money Market, US Government Money Market and Tax Free Money
Market Funds are divided into Classes A, B and C.
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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 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 the Fund may be held personally
liable for the obligations of the Fund. The Master Trust Agreement provides that
shareholders shall not be subject to any personal liability for the acts or
obligations of the Fund and that every written agreement, obligation, or other
undertaking of the Fund shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The Master Trust Agreement
also provides that the Fund shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the 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 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 November 30, 1997, State Street held beneficially and of
record 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.
Frank Russell Investment Management Company, Investment Company's
administrator ("Administrator"), will be the initial sole shareholder of the
Fund and may be deemed to be a controlling person until such time as the Fund
has public shareholders.
Principal Shareholders. As of the date of this Statement of Additional
Information, Administrator is the Fund's sole shareholder.
The Trustees and officers of Investment Company, as a group, own less than
1% of Investment Company's voting securities.
Trustees and Officers. The Board of Trustees is responsible for overseeing
generally the operation of the Fund. The 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 Fund's operations.
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. Investment Company's officers and employees are paid by
Administrator or its affiliates.
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
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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. Trustee, President and Chief Executive Officer, Russell Insurance Funds
(investment company). Director, Chief Executive Officer and Chairman of the
Board, Russell Fund Distributors, Inc. Trustee, President and Chief Executive
Officer, Frank Russell Investment Company (investment company); Director, Chief
Executive Officer and Chairman of the Board, Frank Russell Investment Management
Company; Director, Chief Executive Officer and President, Frank Russell Trust
Company; Director and Chairman, Frank Russell Investment Company Public Limited
Company; November 1995 to February 1997, Director, Frank Russell Company;
Director and Chairman of the Board, Frank Russell Company (Delaware); Director,
Frank Russell Company; March 1989 to June 1993, Director, Frank Russell Company,
Director of Frank Russell Investments (Ireland) Limited; Director and Chairman,
Frank Russell Investment Company Public Limited Company. Until September 1994,
Director and President, The Laurel Funds, Inc. (investment company).
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 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. 350 Park Avenue, 15th Floor,
New York, NY 10022. Partner, Squire, Sanders & Dempsey (law firm). From 1994 to
1997, Partner, Brown, Rudnick, Freed & Gesmer (law firm). From 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. 1990 to 1992, President, Champions Group Resources--Business
Management and Employee Benefits Consulting; 1990, Senior Vice President,
Employee Benefits Division, Cigna Corporation (providing and insuring group
life, health and disability employee benefit products and services); from 1986
to 1990, Senior Vice President, EQUICOR-Equitable HCA Corporation (providing and
insuring group life, health and disability employee benefit products and
services).
*Bruce D. Taber, Trustee. Born 4/25/43. 26 Round Top Road, Boxford, MA
01921. Consultant, Computer Simulations, General Electric Industrial Control
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.
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George W. Weber, Senior Vice President, Fund Treasurer and Principal
Accounting Officer. Born 6/3/51. Treasurer and Chief Accounting Officer, Russell
Insurance Funds (investment company); Director of Finance and Operations, Frank
Russell Trust Company; Director, Fund Administration and Operations of Frank
Russell Investment Management Company and Russell Fund Distributors, Inc.;
Treasurer and Chief Accounting Office, Frank Russell Investment Company
(investment company); March 1993 to January 1996, Vice President, Operations,
Funds Management, J.P. Morgan; December 1985 to March 1993, Senior Vice
President, Operations, Frank Russell Investment Company, The Laurel Funds, Inc.
and The Seven Seas Series Fund (investment companies); Director of Operations,
Frank Russell Investment Management Company and Frank Russell Trust Company;
Director, Russell Fund Distributors, Inc.
Total Annual Compensation
Trustee from Investment Company
--------------------------------------------------------
Lynn L. Anderson $0
William L. Marshall $55,500
Steven J. Mastrovich $55,500
Patrick J. Riley $55,500
Richard D. Shirk $55,500
Bruce D. Taber $55,500
Henry W. Todd $55,500
OPERATION OF INVESTMENT COMPANY
Service Providers. Most of the 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.
Advisor. State Street Bank and Trust Company ("State Street" or "Advisor")
serves as the Fund's investment advisor pursuant to an Advisory Agreement dated
April 12, 1988. State Street Bank and Trust Company is a wholly owned subsidiary
of State Street Corporation, a publicly held bank holding company. State
Street's address is 225 Franklin Street, Boston, MA 02110.
Under the Advisory Agreement, Advisor directs the Fund's investments in
accordance with its investment objective, policies and limitations. For these
services, the Fund pays a fee to Advisor at the rate stated in the Prospectus.
The Advisory Agreement will continue from year to year provided that a majority
of the Trustees who are not interested persons of any Investment Portfolio and
either a majority of all Trustees or a majority of the shareholders of each
Investment Portfolio approve its continuance. The Agreement may be terminated by
Advisor or the Fund without penalty upon 60 days' notice and will terminate
automatically upon its assignment.
Administrator. Frank Russell Investment Management Company
("Administrator") serves as the Fund's administrator, pursuant to an
Administration Agreement dated April 12, 1988. A description of the services
provided under the Administration Agreement and the basis for computing fees for
such services is provided in the Fund's
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Prospectus. 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 any Investment Portfolio 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 Fund without penalty upon 60 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, Winston-Salem, New
York City, Toronto, London, Tokyo, Sydney, Paris, Zurich and Auckland, and have
approximately 1,200 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 Fund shares pursuant to a Distribution Agreement dated April 12,
1988. Distributor is a wholly owned subsidiary of Administrator. Distributor's
mailing address is One International Place, Boston, MA 02110.
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
Custodian services, State Street is paid an annual fee in accordance with the
following: custody services--a fee payable monthly on a pro rata basis, based on
the following percentages of average daily net assets of the 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 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. For Transfer and Dividend
Disbursing Agent services, State Street is paid the following annual account
services fees: $9.00 open account fee; $1.50 closed account fee; fund minimum
per portfolio for one to four portfolios--$36,000, five to six
portfolios--$24,000, and over six portfolios $18,000. Portfolio fees are
allocated to each fund based on the average net asset value of each fund and are
billable on a monthly basis at the rate of 1/12 of the annual fee. State Street
will apply a $5.00 fee to each telephone transaction (purchase or redemption),
which is applied against the monthly billing. State Street is reimbursed by the
Fund 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 Fund may, directly or indirectly, bear distribution and shareholder
servicing expenses. The Rule provides that the Fund may pay for such expenses
only pursuant to a plan adopted in accordance with the Rule. Accordingly, the
Fund has adopted an active distribution plan (the "Plan"), which is described in
the Fund's Prospectus.
The Plan provides that the 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 Fund 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
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shareholder approval to increase materially the distribution or shareholder
servicing costs that the Fund 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 Fund nor have any
direct or indirect financial interest in the operation of the Plan or any
related agreements.
Under the Plan, the Fund may also enter into agreements ("Service
Agreements") with financial institutions, which may include Advisor ("Service
Organizations"), to provide shareholder servicing with respect to Fund shares
held by or for the customers of the Service Organizations. Such arrangements are
more fully described in the Fund's Prospectus under "Distribution Services and
Shareholder Servicing."
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 certain 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 Fund, 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 Fund Shares. The Fund determines net asset value per share
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 (currently, 4:00 p.m.
Eastern time). A business day is one on which both the Boston Federal Reserve
and the New York Stock Exchange are open for business.
It is the Fund's policy to use its best efforts to maintain a constant
price per share of $1.00, although there can be no assurance that the $1.00 net
asset value per share will be maintained. In accordance with this effort and
pursuant to Rule 2a-7 under the 1940 Act, the Fund uses the amortized cost
valuation method to value its portfolio instruments. 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 Fund would receive if it sold the instrument.
For example, in periods of declining interest rates, the daily yield on
the Fund's shares computed by dividing the annualized daily income on the Fund's
portfolio by the net asset value based upon the amortized cost valuation
technique 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 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.
The Trustees have established procedures reasonably designed to stabilize
the Fund's price per share at $1.00. These procedures include: (1) the
determination of the deviation from $1.00, if any, of the Fund's net asset value
using market values; (2) periodic review by the Trustees of the amount of and
the methods used to calculate the deviation; and (3) maintenance of records of
such determination. The Trustees will promptly consider what action, if any,
should be taken if such deviation exceeds 1/2 of one percent.
Brokerage Practices. All portfolio transactions are placed on behalf of
the 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.
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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 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 Fund and/or Advisor (or its
affiliates). Advisor is authorized to cause the 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 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 Advisor's performance of its
responsibilities in connection with the placement of portfolio transactions on
behalf of the Fund and review the prices paid by the Fund over representative
periods of time to determine if such prices are reasonable in relation to the
benefits provided to the Fund. Certain services received by Advisor attributable
to a particular Fund transaction may benefit one or more other accounts for
which Advisor exercises investment discretion or an Investment Portfolio other
than such Fund. Advisor's fees are not reduced by Advisor's receipt of such
brokerage and research services.
Yield and Total Return Quotations. The Fund computes 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-, five- and ten-year periods (or life of the funds 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-, 5- and 10-year periods at the end
of the year or period
The calculation assumes that all Fund dividends and distributions 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.
Total returns and other performance figures are based on historical
earnings and are not indicative of future performance.
The Fund's current annualized yield 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
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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
The yields quoted are not indicative of future results. Yields will depend
on the type, quality, maturity, and interest rate of money market instruments
held by the Fund.
INVESTMENTS
The fundamental investment objective of the Fund is set forth in the
Prospectus. In addition to that investment objective, the Fund also has certain
fundamental investment restrictions, which may be changed only with the approval
of a majority of the Fund's shareholders, and certain nonfundamental investment
restrictions and policies, which may be changed by the Fund without shareholder
approval.
Investment Restrictions
- -----------------------
The Fund is subject to the following fundamental investment restrictions,
each of which applies at the time an investment is made. The Fund will not:
(1) Borrow money, 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 Fund's assets taken at market value, less
liabilities other than borrowings. If at any time the 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.
The Fund will not purchase investments once borrowed funds (including reverse
repurchase agreements) exceed 5% of its total assets.
(2) Pledge, mortgage or hypothecate its assets. However, the Fund may
pledge securities having a market value (on a daily marked-to-market basis) at
the time of the pledge not exceeding 33-1/3% of the value of the Fund's total
assets to secure borrowings permitted by paragraph (1) above.
(3) 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." The
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 the Fund's total assets.
(4) Engage in the business of underwriting securities issued by others,
except that the Fund 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.
(5) Issue senior securities, except as permitted by its investment
objective, policies and restrictions, and except as permitted by the 1940 Act.
(6) Purchase or sell puts, calls or invest in straddles, spreads or any
combination thereof.
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(7) 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.
(8) Purchase from or sell portfolio securities to its officers or
directors or other "interested persons" (as defined in the 1940 Act) of the
Fund, including their investment advisors and affiliates, except as permitted by
the 1940 Act and exemptive rules or orders thereunder.
(9) 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.
(10) Make investments for the purpose of gaining control of an issuer's
management.
Investment Policies
- -------------------
To the extent consistent with its fundamental investment objective and
restrictions and except as otherwise indicated, the Fund may invest in the
following instruments and utilize the following investment techniques:
US Government Obligations. The types of US Government obligations in which
the Fund 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
which have remaining maturities or hard put dates of 397 days or less; and (2)
obligations issued or guaranteed by US Government agencies and instrumentalities
which are supported by the unconditional guarantee of the US Government as to
the payment of principal and interest, although neither Fund presently intends
to invest in securities described in (2). Examples of such issuers are the
Export--Import Bank of the United States, General Services Administration, the
Government National Mortgage Association and the Small Business Administration.
When-Issued Transactions. 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 Fund will make commitments to purchase when-issued securities only
with the intention of actually acquiring the securities, but the Fund 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 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 Fund's records on a daily basis so that the market value of
the account will equal the amount of such commitments by the Fund. The Fund will
invest no more than 25% of its net assets in when-issued securities. The Fund
will not purchase the securities of any issuer if the Investment Company's
officers, Trustees, Advisor or any of their affiliates beneficially own more
than one-half of 1% of the securities of such issuer or together own
beneficially more than 5% of the securities of such issuer.
Securities purchased on a when-issued basis and the securities held by the
Fund 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 when interest rates decline and decrease in value when
interest rates rise. Therefore, if in order to achieve higher interest income
the 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 Fund's net asset value.
When payment for when-issued securities is due, the 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 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.
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TAXES
The Fund intends 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 Fund 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 Fund distributes annually to its shareholders at least 90% of
its net investment income and net short-term capital gain for the taxable year
("Distribution Requirement"). For the Fund to qualify as a RIC it must abide by
all of the following requirements: (1) at least 90% of the Fund's 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 Fund's 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
Fund's 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 Fund 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 Fund's
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 Fund 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 its ordinary income for that year; (2) 98% of its 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 Fund subsequent to December 31 but prior to February 1 of the
following year.
If a shareholder receives a distribution taxable as a 20% gain or a 28%
gain with respect to shares of a 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 a 20% loss or a 28% loss to the extent
of the respective capital gain distribution.
State and Local Taxes. Under federal law, the income derived from
obligations issued by the US Government and certain of its agencies and
instrumentalities is exempt from state income taxes. All states that tax
personal income, other than Pennsylvania, permit mutual funds to pass through
this tax exemption to shareholders.
The foregoing discussion is only a summary of certain federal income tax
issues generally affecting the Funds and their shareholders. Circumstances among
investors may vary and each investor is encouraged to discuss investment in the
Funds with the investor's tax advisor.
FINANCIAL STATEMENTS
Unaudited financial statements for the Fund, including notes to the
financial statements and financial information, 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 Fund first accepts a subscription from an
unaffiliated shareholder. Audited financial statements for the Fund will be
available within 60 days following the end of the Fund's then current fiscal
year. When available, copies of the financial statements can be obtained without
charge by calling Distributor at (800) 647-7327.
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Filed pursuant to Rule 485(b)
File Nos. 33-19229; 811-5430
SSgA FUNDS
----------
One International Place
Boston, Massachusetts 02110
(800) 647-7327
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
TAX FREE MONEY MARKET FUND
Class A Shares
December 24, 1997
SSgA Funds ("Investment Company") is a registered open-end investment
company organized as a Massachusetts business trust offering shares of
beneficial interest in separate investment portfolios. In addition, each series
of the Investment Company is diversified as defined in the Investment Company
Act of 1940, as amended ("1940 Act").
This Statement of Additional Information supplements or describes in
greater detail the Investment Company and the SSgA Tax Free Money Market Fund
(the "Tax Free Fund" or "Fund") as contained in the Fund's Prospectus relating
to Class A shares dated December 24, 1997. This Statement is not a Prospectus
and should be read in conjunction with the Fund's Prospectus for Class A shares,
which may be obtained by telephoning or writing Investment Company at the number
or address shown above.
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
Structure and Governance.................................................. 3
Organization and Business History................................ 3
Shareholder Meetings............................................. 4
Controlling Shareholders......................................... 4
Principal Shareholders........................................... 4
Trustees and Officers............................................ 4
Operation of Investment Company........................................... 6
Service Providers................................................ 6
Advisor.......................................................... 6
Administrator.................................................... 7
Distributor...................................................... 7
Custodian and Transfer Agent..................................... 7
Distribution Plan................................................ 8
Federal Law Affecting State Street............................... 9
Valuation of Fund Shares......................................... 9
Brokerage Practices.............................................. 9
Yield and Total Return Quotations................................ 10
Investments............................................................... 11
Investment Restrictions.......................................... 11
Investment Policies.............................................. 13
Taxes ................................................................. 15
Financial Statements...................................................... 17
Appendix: Description of Securities Ratings ............................. 18
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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 Tax Free Money Market Money Market Funds is one such investment
portfolio. The Trustees may create additional Funds at any time without
shareholder approval.
As of the date of this Statement of Additional Information, Investment
Company is comprised of the following investment portfolios, each of which
commenced operations on the date set forth opposite the portfolio's name:
SSgA Money Market Fund May 2, 1988
SSgA US Government Money Market Fund March 1, 1991
SSgA Matrix Equity Fund May 4, 1992
SSgA Small Cap Fund July 1, 1992
SSgA Yield Plus Fund November 9, 1992
SSgA S&P 500 Index Fund December 30, 1992
SSgA Growth and Income Fund September 1, 1993
SSgA Intermediate Fund September 1, 1993
SSgA US Treasury Money Market Fund December 1, 1993
SSgA Prime Money Market Fund February 22, 1994
SSgA Emerging Markets Fund March 1, 1994
SSgA Tax Free Money Market Fund December 1, 1994
SSgA Active International Fund March 7, 1995
SSgA Bond Market Fund February 7, 1996
SSgA Life Solutions Balanced Fund June 2, 1997
SSgA Life Solutions Growth Fund June 2, 1997
SSgA Life Solutions Income and Growth Fund June 2, 1997
SSgA Real Estate Equity Fund *
SSgA US Treasury Obligations Fund *
SSgA International Pacific Index Fund *
----------
*As of the date of this Statement of Additional Information, these
portfolios have not commenced operations.
Prospectuses for these investment portfolios may be obtained by calling
Investment Company's distributor, Russell Fund Distributors, Inc., at (800)
647-7327, or at its Internet Web Site at www.ssgafunds.com.
Investment Company is authorized to divide shares of any series into two
or more classes of shares. The shares of each 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 Fund may have
separate voting rights or no voting rights. Each class of shares of a Fund is
entitled to the same rights and privileges as all other classes of that Fund,
except that each class bears the 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 Fund's
portfolio securities. Shares of the Money Market, US Government Money Market and
Tax Free Money Market Funds are divided into Classes A, B and C.
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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 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 the Fund may be held personally
liable for the obligations of the Fund. The Master Trust Agreement provides that
shareholders shall not be subject to any personal liability for the acts or
obligations of the Fund and that every written agreement, obligation, or other
undertaking of the Fund shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The Master Trust Agreement
also provides that the Fund shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the 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 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. 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 Investment Company portfolios 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 November 30, 1997, State Street held of record less than 25% of
the issued and outstanding shares of Investment Company in connection with its
discretionary accounts. Consequently, State Street 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 November 30, 1997, the following
shareholders owned of record 5% or more of the issued and outstanding shares of
the Fund:
[bullet] Lazard Freres & Company LLC, 30 Rockefeller Plaza 57th Floor,
New York, NY 02112-- 61%.
[bullet] State Street Bank and Trust Company, Newport Office Park,
108 Myrtle St. AH3, North Quincy, MA 02171-- 16%; and
[bullet] State Street Bank and Trust Company, Newport Office Park,
108 Myrtle St. AH3, N Quincy, MA 02171 -- 12%.
Such shares may be held pursuant to a shareholder servicing arrangement in
omnibus accounts for underlying shareholders.
The Trustees and officers of the Investment Company, as a group, own less
than 1% of Investment Company's voting securities.
Trustees and Officers. The Board of Trustees is responsible for overseeing
generally the operation of the Fund. The 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 Fund's operations.
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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. Investment Company's officers and employees are paid by
Administrator or its affiliates.
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. Trustee, President and Chief Executive Officer, Russell Insurance Funds
(investment company). Director, Chief Executive Officer and Chairman of the
Board, Russell Fund Distributors, Inc. Trustee, President and Chief Executive
Officer, Frank Russell Investment Company (investment company); Director, Chief
Executive Officer and Chairman of the Board, Frank Russell Investment Management
Company; Director, Chief Executive Officer and President, Frank Russell Trust
Company; Director and Chairman, Frank Russell Investment Company Public Limited
Company; November 1995 to February 1997, Director, Frank Russell Company;
Director and Chairman of the Board, Frank Russell Company (Delaware); Director,
Frank Russell Company; March 1989 to June 1993, Director, Frank Russell Company,
Director of Frank Russell Investments (Ireland) Limited; Director and Chairman,
Frank Russell Investment Company Public Limited Company. Until September 1994,
Director and President, The Laurel Funds, Inc. (investment company).
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 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. 350 Park Avenue, 15th Floor,
New York, NY 10022. Partner, Squire, Sanders & Dempsey (law firm). From 1994 to
1997, Partner, Brown, Rudnick, Freed & Gesmer (law firm). From 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. 1990 to 1992, President, Champions Group Resources--Business
Management and Employee Benefits Consulting; 1990, Senior Vice President,
Employee Benefits Division, Cigna Corporation (providing and insuring group
life, health and disability employee benefit products and services); from 1986
to 1990, Senior Vice President, EQUICOR-Equitable HCA Corporation (providing and
insuring group life, health and disability employee benefit products and
services).
*Bruce D. Taber, Trustee. Born 4/25/43. 26 Round Top Road, Boxford, MA
01921. Consultant, Computer Simulation, General Electric Industrial Control
Systems. Prior to that, President, A.B. Reed, Inc. - Engineers, Architects,
Planners. Prior to that, Vice President, Instrumentation and Controls, A.B.
Reed., Inc.
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<PAGE>
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. Treasurer and Chief Accounting Officer, Russell
Insurance Funds (investment company); Director of Finance and Operations, Frank
Russell Trust Company; Director, Fund Administration and Operations of Frank
Russell Investment Management Company and Russell Fund Distributors, Inc.;
Treasurer and Chief Accounting Office, Frank Russell Investment Company
(investment company); March 1993 to January 1996, Vice President, Operations,
Funds Management, J.P. Morgan; December 1985 to March 1993, Senior Vice
President, Operations, Frank Russell Investment Company, The Laurel Funds, Inc.
and The Seven Seas Series Fund (investment companies); Director of Operations,
Frank Russell Investment Management Company and Frank Russell Trust Company;
Director, Russell Fund Distributors, Inc.
Total Annual Compensation
Trustee from Investment Company
--------------------------------------------------------
Lynn L. Anderson $0
William L. Marshall $55,500
Steven J. Mastrovich $55,500
Patrick J. Riley $55,500
Richard D. Shirk $55,500
Bruce D. Taber $55,500
Henry W. Todd $55,500
OPERATION OF INVESTMENT COMPANY
Service Providers. Most of the 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.
Advisor. State Street Bank and Trust Company ("State Street" or "Advisor")
serves as the Fund's 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 Corporation, a publicly-held bank
holding company. State Street's address is 225 Franklin Street, Boston, MA
02110.
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Under the Advisory Agreement, Advisor directs the Fund's investments in
accordance with its investment objective, policies and limitations. For these
services, the Fund pays a fee to Advisor at the rate stated in the Prospectus.
The Fund accrued expenses to Advisor of $298,042 in fiscal 1997, $123,174 in
fiscal 1996 and $63,602 from the date of inception to August 31, 1995.
The Advisory Agreement will continue from year to year provided that a
majority of the Trustees who are not interested persons of the Funds and either
a majority of all Trustees or a majority of the shareholders of the Fund approve
its continuance. The Agreement may be terminated by Advisor or the Fund without
penalty upon 60 days' notice and will terminate automatically upon its
assignment.
Administrator. Frank Russell Investment Management Company
("Administrator") serves as the Fund's administrator, pursuant to an
Administration Agreement dated April 12, 1988 ("Administration Agreement"). A
description of the services provided under the Administration Agreement and the
basis for computing fees for such services is provided in the Fund's Prospectus.
The Tax Free Fund accrued expenses to Administrator of $34,968 in fiscal 1997,
$14,213 in fiscal 1996 and $7,564 from the date of inception to August 31, 1995.
Administrator waived administration fees of $855 from the date of inception to
August 31, 1995.
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 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 a Fund without penalty upon 60 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, Winston-Salem, New
York City, Toronto, London, Tokyo, Sydney, Paris, Zurich and Auckland, and have
approximately 1,200 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 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 One International Place, Boston,
MA 02110.
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
Custodian services, State Street is paid an annual fee in accordance with the
following: custody services--a fee payable monthly on a pro rata basis, based on
the following percentages of average daily net assets of each 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 domestic Funds 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 Fund 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. For Transfer and Dividend Disbursing Agent
services, State Street is paid the following annual account services fees: $9.00
open account fee; $1.50 closed account fee; fund minimum per portfolio for one
to four portfolios--$36,000, five to six portfolios--$24,000, and over six
portfolios $18,000. Portfolio fees are allocated to each fund based on the
average net asset value of each fund and are billable on a monthly basis at the
rate of 1/12 of the annual fee. State Street will apply a $5.00 fee to each
telephone transaction (purchase or redemption), which is applied against the
monthly billing. State Street is reimbursed by the Fund for supplying certain
out-of-pocket expenses including postage, transfer fees, stamp duties, taxes,
wire fees, telexes, and freight.
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<PAGE>
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 Fund may, directly or indirectly, bear distribution and shareholder
servicing expenses. The Rule provides that the Fund may pay for such expenses
only pursuant to a plan adopted in accordance with the Rule.
Accordingly, the Fund has adopted a distribution plan (the "Plan") for the
Fund's Class A shares which is described in the Fund's Prospectus. The Plan
provides that the Fund may spend annually, directly or indirectly, up to 0.25%
of the average net asset value of its Class A shares for distribution and
shareholder servicing services. The Plan does not provide for the Fund 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 approval of the holders of Class A shares to
increase materially the distribution or shareholder servicing costs that the
Fund 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 Fund nor have any direct or indirect
financial interest in the operation of the Plan or any related agreements.
The Fund accrued expenses in the following amount to Russell Fund
Distributors, Inc., as Distributor, for the fiscal period ended August 31:
1997 1996 1995
---- ---- ----
$166,360 $13,211 $9,234
This amount is reflective of the following individual payments:
Advertising $ 3,921
Printing of Prospectuses 4,936
Compensation to Dealers 89,240
Compensation to Sales Personnel 10,574
Other* 57,689
--------
$166,360
* 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 Fund may also enter into agreements ("Service
Agreements") with financial institutions, which may include Advisor ("Service
Organizations"), to provide shareholder servicing with respect to Fund shares
held by or for the customers of the Service Organizations. Such arrangements are
more fully described in the Fund's Prospectus under "Distribution Services and
Shareholder Servicing."
Similar plans have been adopted for the Class B and Class C shares of the
Fund. However, annual payment under these plans are limited to .35% and .60% of
the net asset value of Class B and Class C shares of the Fund, respectively.
The Fund accrued expenses in the following amount to Advisor, under a
Service Agreement pursuant to Rule 12b-1, for the fiscal period ended August 31:
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1997 1996 1995
---- ---- ----
$45,703 $28,584 $6,360
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 certain 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 Fund, 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 Fund contemplated under this arrangement
are consistent with its statutory and regulatory obligations.
Valuation of Fund Shares. Net asset value per share for the Class A shares
of the Fund is calculated 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 (currently, 4:00 p.m. Eastern time). A business day is one on which
both the Boston Federal Reserve and the New York Stock Exchange are open for
business.
It is the policy of the Fund to use its best efforts to maintain a
constant price per share of $1.00, although there can be no assurance that the
$1.00 net asset value per share will be maintained. In accordance with this
effort and pursuant to Rule 2a-7 under the 1940 Act, the Fund uses the amortized
cost valuation method to value their portfolio instruments. 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 Fund would receive if it sold the instrument.
For example, in periods of declining interest rates, the daily yield on
the Fund's shares computed by dividing the annualized daily income on the Fund's
portfolio by the net asset value based upon the amortized cost valuation
technique 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 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.
The Trustees have established procedures reasonably designed to stabilize
the Fund's price per share at $1.00. These procedures include: (1) the
determination of the deviation from $1.00, if any, of the Fund's net asset value
using market values; (2) periodic review by the Trustees of the amount of and
the methods used to calculate the deviation; and (3) maintenance of records of
such determination. The Trustees will promptly consider what action, if any,
should be taken if such deviation exceeds 1/2 of one percent.
Brokerage Practices. All portfolio transactions are placed on behalf of
the Fund by Advisor. 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 Fund. Ordinarily, securities will
be purchased from primary and secondary 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
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<PAGE>
reasonableness of any commission or spread, if known, 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 Fund and/or Advisor (or its
affiliates). Advisor is authorized to cause the 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 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 Advisor's performance of its
responsibilities in connection with the placement of portfolio transactions on
behalf of the Fund and review the prices paid by the Fund over representative
periods of time to determine if such prices are reasonable in relation to the
benefits provided to the Fund. Certain services received by Advisor attributable
to a particular Fund transaction may benefit one or more other accounts for
which Advisor exercises investment discretion or a Fund other than such Fund.
Advisor's fees are not reduced by Advisor's receipt of such brokerage and
research services.
During the fiscal year ended August 31, 1997, the Fund did not purchase
securities issued by the regular brokers or dealers of the Fund, as defined by
Rule 10b-1 of the 1940 Act.
Yield and Total Return Quotations. The Fund computes 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, five and ten year periods (or life of the funds 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-, 5- and 10-year periods at the end of
the year or period
The calculation assumes that all dividends and distributions of the Fund
are reinvested at the price calculated in the manner described 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 current annualized yield of the Fund 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:
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<PAGE>
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1)(365/7)]-1
The following are the current and effective yields for the Fund for the
seven- and 30-day periods ended August 31, 1997:
7-day 30-day
----- ------
Current Yield 2.94% 2.95%
Effective Yield 2.98 3.01
The Fund may also, from to time to time, utilize tax-equivalent yields.
The tax-equivalent yield is calculated by dividing that portion of the Fund's
yield (as calculated above) which is generated by tax-exempt income by one minus
a stated tax rate and adding the quotient to that portion of the Fund's yield,
if any (as calculated above) that is generated by taxable income and gains. The
Fund may advertise tax-equivalency tables which compare tax-exempt yields to
their equivalent taxable yields for relevant federal income tax brackets.
The following are the current and effective tax equivalent yields based
on a tax rate of 39.6% during 1997 for the seven- and 30-day periods ended
August 31, 1997:
7-day 30-day
----- ------
Tax Equivalent Current Yield 4.86% 4.89%
Tax Equivalent Effective Yield 4.93 4.91
The yields quoted are based on historical earnings and are not indicative
of future results. Yields will depend on the type, quality, maturity, and
interest rate of money market instruments held by the Fund.
INVESTMENTS
The fundamental investment objective of the Fund is set forth in the
Prospectus. In addition to that investment objective, the Fund also has certain
"fundamental" investment restrictions, which may be changed only with the
approval of a majority of the shareholders of the Fund, and certain
nonfundamental investment restrictions and policies, which may be changed by the
Fund without shareholder approval.
Investment Restrictions
- -----------------------
The Fund is subject to the following fundamental investment restrictions,
each of which applies at the time an investment is made. The Fund will not:
(1) Borrow money, 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 Fund's assets taken at market value, less
liabilities other than borrowings. If at any time the 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.
The Fund will not purchase investments once borrowed funds (including reverse
repurchase agreements) exceed 5% of its total assets.
(2) Pledge, mortgage or hypothecate its assets. However, the Fund may
pledge securities having a market value (on a daily marked-to-market basis) at
the time of the pledge not exceeding 33-1/3% of the value of the Fund's total
assets to secure borrowings permitted by paragraph (1) above.
(3) 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. The Fund may lend its portfolio securities to
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<PAGE>
broker-dealers or other institutional investors if the aggregate value of all
securities loaned does not exceed 33-1/3% of the value of the Fund's total
assets.
(4) Invest 25% or more of the value of its total assets in securities of
issuers located in any one state or group of public agencies primarily engaged
in any one industry (such as power generation) (other than the US Government,
its agencies and instrumentalities). Concentration may occur as a result of
changes in the market value of portfolio securities, but may not result from
investment.
(5) 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), if immediately after and as a result of such investment the
current market value of the Fund's holdings in the securities of such issuer
exceeds 5% of the value of the Fund's assets.
(6) Engage in the business of underwriting securities issued by others,
except that the Fund 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.
(7) Issue senior securities, except as permitted by its investment
objective, policies and restrictions, and except as permitted by the 1940 Act.
(8) Purchase or sell puts, calls or invest in straddles, spreads or any
combination thereof, provided however, that the Fund may purchase securities
that provide the Fund the right to put the securities back to the issuer or a
third party.
(9) 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.
(10) Purchase from or sell portfolio securities to its officers or
directors or other "interested persons" (as defined in the 1940 Act) of the
Fund, including their investment advisors and affiliates, except as permitted by
the 1940 Act and exemptive rules or orders thereunder.
(11) Purchase or sell real estate or real estate mortgage loans; provided,
however, that the Fund may invest in securities secured by real estate or
interests therein or issued by companies which invest in real estate or
interests therein.
(12) Purchase or sell commodities or commodity futures contracts.
In addition, the Fund has adopted the following non-fundamental investment
restrictions:
(1) Invest in securities of any issuer which, together with its
predecessor, has been in operation for less than three years if, as a result,
more than 5% of the Fund's total assets would be invested in such securities.
(2) Make investments for the purpose of gaining control of an issuer's
management.
(3) 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, participation
interests (including municipal leases) and floating and variable rate demand
obligations as to which the Fund cannot exercise the demand feature on seven or
fewer days notice and for which there is no secondary market.
(4) Invest in securities issued by other investment companies except in
connection with a merger, consolidation, acquisition of assets, or other
reorganization approved by the Fund's shareholders, and except to the extent
permitted by the 1940 Act.
-12-
<PAGE>
Investment Policies
- -------------------
To the extent consistent with its fundamental investment objective and
restrictions and except as otherwise indicated, the Fund may invest in the
following instruments and utilize the following investment techniques:
Municipal Securities. Municipal securities purchased by the Fund may bear
fixed, floating or variable rates of interest or may be zero coupon securities.
Municipal securities are generally of two types: general obligations and revenue
obligations. General obligations are backed by the full faith and credit of the
issuer. These securities include tax anticipation notes, bond anticipation
notes, general obligation bonds and commercial paper. Revenue obligations are
backed by the revenues generated from a specific project or facility and include
industrial development bonds and private activity bonds. Tax anticipation notes
are issued to finance working capital needs of municipalities and are generally
issued in anticipation of future tax revenues. Bond anticipation notes are
issued in expectation of the issuer obtaining longer-term financing.
Tax Exempt Commercial Paper. Tax exempt commercial paper is a short-term
obligation with a stated maturity of 365 days or less. It is typically issued to
finance seasonal working capital needs or as short-term financing in
anticipation of longer term financing. Each instrument may be backed only by the
credit of the issuer or may be backed by some form of credit enhancement,
typically in the form of a guarantee by a commercial bank. Commercial paper
backed by guarantees of foreign banks may involve additional risk due to the
difficulty of obtaining and enforcing judgments against such banks and the
generally less restrictive regulations to which such banks are subject. The Fund
will only invest in commercial paper rated at the time of purchase not less than
Prime-1 by Moody's Investors Service, Inc., A-1 by Standard & Poor's Rating
Group or F-1 by Fitch's Investor Service.
Industrial Development and Private Activity Bonds. Industrial development
bonds are issued to finance a wide variety of capital projects including:
electric, gas, water and sewer systems; ports and airport facilities; colleges
and universities; and hospitals. The principal security for these bonds is
generally the net revenues derived from a particular facility, group of
facilities, or in some cases, the proceeds of a special excise tax or other
specific revenue sources. Although the principal security behind these bonds may
vary, many provide additional security in the form of a debt service reserve
fund whose money may be used to make principal and interest payments on the
issuer's obligations. Some authorities provide further security in the form of a
state's ability without obligation to make up deficiencies in the debt service
reserve fund.
Private activity bonds are considered municipal securities if the interest
paid thereon is exempt from federal income tax and are issued by or on behalf of
public authorities to raise money to finance various privately operated
facilities for business and manufacturing, housing, sports, and pollution
control. These bonds are also used to finance public facilities such as
airports, mass transit systems, ports and parking. The payment of the principal
and interest on such bonds is dependent solely on the ability of the facility's
user to meet its financial obligations and the value of any real or personal
property pledged as security for such payment. As noted in the Fund's Prospectus
and discussed below under "Taxes," interest income on these bonds may be an item
of tax preference subject to federal alternative minimum tax for individuals and
corporations.
US Government Obligations. The types of US Government obligations in which
the 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
which have remaining maturities or hard put dates of 397 days or less; 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 such issuers are the Federal Land Banks and the
Federal Housing Administration. 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.
-13-
<PAGE>
When-Issued Transactions. 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 Fund will make commitments to purchase when-issued securities only
with the intention of actually acquiring the securities, but the Fund 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 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 Fund's records on a daily basis so that the market value of
the account will equal the amount of such commitments by the Fund. The Fund will
not invest more than 25% of its net assets in when-issued securities.
Securities purchased on a when-issued basis and held by the Fund are
subject to changes in market value based upon 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 when interest
rates decline and decrease in value when interest rates rise. Therefore, if in
order to achieve higher interest income the 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 Fund's net
asset value.
When payment for when-issued securities is due, the 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 Fund's payment obligation). Any gain from
the sale of securities to meet such obligations would be subject to federal
income taxes.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain financial institutions. Under repurchase agreements, these parties sell
US Treasury bills, notes and bonds to the 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 Funds in being invested fully while retaining
"overnight" flexibility in pursuit of investments of a longer-term nature. The
Fund will limit repurchase transactions to those member banks of the Federal
Reserve System and primary dealers in US Government securities whose
creditworthiness is continually monitored and found satisfactory by Advisor.
Forward Commitments. The Fund may contract to purchase securities for a
fixed price at a future date beyond customary settlement time consistent with
the Fund's ability to manage its investment portfolio, maintain a stable net
asset value and meet redemption requests. The Fund 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 Fund of a dollar amount sufficient to make
payment for the portfolio securities to be purchased will be segregated on the
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.
Section 4(2) Commercial Paper. The Fund may also invest in taxable
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 institutional investors
such as the Fund that agree that they are purchasing the paper for investment
and not with a view to public distribution. Any resale by the purchaser must be
in an exempt transaction. Section 4(2) paper normally is resold to other
institutional investors like the Fund through or with the assistance of the
issuer or investment dealers that make a market in Section 4(2) paper. Section
4(2) paper will not be subject to
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<PAGE>
the Fund's 10% limitation on illiquid securities set forth below where the Board
of Trustees of Investment Company (pursuant to guidelines adopted by the Board)
determines that a liquid trading market exists.
Zero Coupon Securities. 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.
Because the Fund accrues income from zero coupon securities without
receiving regular interest payments in cash, it 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 Fund. Investing in
these securities might also force the Fund 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.
TAXES
The Fund intends 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 Fund will not be liable for federal income
taxes on taxable net investment income and net capital gain (long term capital
gains in excess of short term capital losses) that it distributes to its
shareholders, provided that the Fund distributes annually to its shareholders at
least 90% of its net investment income and net short-term capital gain for the
taxable year ("Distribution Requirement"). For a Fund to qualify as a RIC it
must abide by all of the following requirements: (1) at least 90% of the Fund's
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) at the close of each quarter of the Fund's 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 Fund and that does
not represent more than 10% of the outstanding voting securities of such issuer;
and (3) at the close of each quarter of the Fund's 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 Fund 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 its ordinary income for that year; (2) 98% of its 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 Fund subsequent to December 31 but prior to February 1 of the
following year.
If a shareholder receives a distribution taxable as a 20% gain or a 28%
gain with respect to shares of a 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 a 20% loss or a 28% loss to the extent
of the respective capital gain distribution.
-15-
<PAGE>
As of August 31, 1997, the Fund had a net tax basis capital loss
carryforward of $5,580 and $10,856, which may be applied against any realized
net taxable gains of each succeeding year or until its expiration of August 31,
2004 and August 31, 2005, respectively, whichever occurs first. Further, as
permitted by tax regulations, the Fund intends to defer a net realized capital
loss of $19,504 incurred from November 1, 1996 to August 31, 1997, and treat it
as arising in fiscal year 1998.
Tax Exempt Income. Dividends paid by the Fund will qualify as
"exempt-interest dividends," and thus will be excludable from gross income by
its shareholders, if the Fund satisfies the requirement that, at the close of
each quarter of its taxable year, at least 50% of the value of its total assets
consists of securities the interest on which is excludable from gross income
under section 103(a) of the Code; the Fund intends to satisfy this requirement.
The aggregate dividends excludable from the shareholders' treatment of dividends
from the Fund under local and state income tax laws may differ from the
treatment thereof under the Code.
If shares of the Fund are sold at a loss after being held for six months
or less, the loss will be disallowed to the extent of any exempt-interest
dividends received on those shares.
Tax-exempt interest attributable to certain private activity bonds
("PABs") (including, in the case of a RIC receiving interest on such bonds, a
proportionate part of the exempt-interest dividends paid by that RIC) is an item
of tax preference for purposes of the alternative minimum tax. Exempt-interest
dividends received by a corporate shareholder also may be indirectly subject to
that tax without regard to whether the Fund's tax-exempt interest was
attributable to those bonds.
The Fund may purchase bonds at market discount (i.e., bonds with a
purchase price less then original issue price or adjusted issue price). If such
bonds are subsequently sold at a gain, then a portion of that gain equal to the
amount of market discount, which should have been accrued through the sale date,
will be taxable to shareholders as ordinary income.
Entities or persons who are "substantial users" (or persons related to
"substantial users") of facilities financed by PABs or industrial development
bonds ("IDBs") should consult their tax advisors before purchasing shares of the
Fund because, for users of certain of these facilities, the interest on those
bonds is not exempt from federal income tax. For these purposes, the term
"substantial user" is defined generally to include a "non-exempt person" who
regularly uses in trade or business a part of a facility financed from the
proceeds of PABs or IDBs.
Up to 85% of social security and railroad retirement benefits may be
included in taxable income for recipients whose adjusted gross income (including
income from tax-exempt sources such as the Fund) plus 50% of their benefits
exceeds certain base amounts. Exempt-interest dividends paid by the Fund still
are tax-exempt to the extent described in the Fund's Prospectus; they are only
included in the calculation of whether a recipient's income exceeds the
established amounts.
If the Fund invests in any instrument that generates taxable income, under
the circumstances described in the Prospectus, distributions of the interest
earned thereon will be taxable to the Fund's shareholders as ordinary income to
the extent of the Fund's earnings and profits. Moreover, if the Fund realizes
capital gain as a result of market transactions, any distribution of that gain
will be taxable to its shareholders. There also may be collateral federal income
tax consequences regarding the receipt of exempt-interest dividends by
shareholders such as S corporations, financial institutions and property and
casualty insurance companies. A shareholder falling into any such category
should consult its tax advisor concerning its investment in shares of the Fund.
State and Local Taxes. Under federal law, the income derived from
obligations issued by the US Government and certain of its agencies and
instrumentalities is exempt from state income taxes. All states that tax
personal income, other than Pennsylvania, permit mutual funds to pass through
this tax exemption to shareholders.
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<PAGE>
Depending upon the extent of the Fund's activities in states and
localities in which its offices are maintained, its agents or independent
contractors are located or it is otherwise deemed to be conducting business, the
Fund may be subject to the tax laws of such states or localities.
The foregoing discussion is only a summary of certain federal tax issues
generally affecting the Fund and its shareholders. Circumstances among investors
may vary and each investor is encouraged to discuss investment in the Fund with
the investor's tax advisor.
FINANCIAL STATEMENTS
The 1997 fiscal year-end financial statements of the Fund, including notes
to the financial statements and financial highlights and the report of
independent accountants, are included in the Fund's Annual Report to
shareholders. A copy of the Annual Report accompanies this Statement of
Additional Information and is incorporated herein by reference.
-17-
<PAGE>
APPENDIX
DESCRIPTION OF SECURITIES RATINGS
Ratings of Debt Instruments and Municipal Securities
- ----------------------------------------------------
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.
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<PAGE>
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.
Ratings of Short-Term Municipal Loans
- -------------------------------------
Moody's:
--------
MIG-1/VMIG-1 -- Securities rated MIG-1/VMIG-1 are of the best quality,
enjoying strong protection from established cash flows of funds for their
servicing or from established and broad-based access to the market for
refinancing, or both.
MIG-2/VMIG-2 -- Loans bearing the MIG-2/VMIG-2 designation are of high
quality, with margins of protection ample although not so large as in the
MIG-1/VMIG-1 group.
S&P:
----
SP-1 -- Short-term municipal securities bearing the SP-1 designation have
very strong or strong capacity to pay principal and interest. Those issues rated
SP-1 which are determined to possess overwhelming safety characteristics will be
given a plus (+) designation.
SP-2 -- Issues rated SP-2 have satisfactory capacity to pay principal and
interest.
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:
[bullet] 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:
[bullet] Leading market positions in well-established industries.
High rates of return on funds employed.
[bullet] Conservative capitalization structure with moderate
reliance on debt and ample asset protection.
[bullet] Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
[bullet] Well-established access to a range of financial markets and
assured sources of alternate liquidity.
[bullet] 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.
[bullet] 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.
[bullet] Issuers rated Not Prime do not fall within any of the Prime
rating categories.
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<PAGE>
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.
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Filed pursuant to Rule 485(b)
File Nos. 33-19229; 811-5430
SSgA FUNDS
----------
One International Place
Boston, Massachusetts 02110
(800) 647-7327
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
TAX FREE MONEY MARKET FUND
Class B Shares
December 24, 1997
SSgA Funds ("Investment Company") is a registered open-end investment
company organized as a Massachusetts business trust offering shares of
beneficial interest in separate investment portfolios. In addition, each series
of the Investment Company is diversified as defined in the Investment Company
Act of 1940, as amended ("1940 Act").
This Statement of Additional Information supplements or describes in
greater detail the Investment Company and the SSgA Tax Free Money Market Fund
(the "Tax Free Fund" or "Fund") as contained in the Fund's Prospectus relating
to Class B shares dated December 24, 1997. This Statement is not a Prospectus
and should be read in conjunction with the Fund's Prospectus for Class B shares,
which may be obtained by telephoning or writing Investment Company at the number
or address shown above.
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TABLE OF CONTENTS
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Page
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Structure and Governance................................................... 3
Organization and Business History................................. 3
Shareholder Meetings.............................................. 4
Controlling Shareholders.......................................... 4
Principal Shareholders............................................ 4
Trustees and Officers............................................. 4
Operation of Investment Company............................................ 6
Service Providers................................................. 6
Advisor........................................................... 6
Administrator..................................................... 7
Distributor....................................................... 7
Custodian and Transfer Agent...................................... 7
Independent Accountants........................................... 8
Distribution Plan ............................................... 8
Federal Law Affecting State Street................................ 9
Valuation of Fund Shares.......................................... 9
Brokerage Practices............................................... 9
Yield and Total Return Quotations................................. 10
Investments................................................................ 11
Investment Restrictions........................................... 11
Investment Policies............................................... 13
Taxes .................................................................. 15
Financial Statements....................................................... 17
Appendix: Description of Securities Ratings............................... 18
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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 Tax Free Money Market Fund is one such investment portfolio. The
Trustees may create additional Funds at any time without shareholder approval.
As of the date of this Statement of Additional Information, Investment
Company is comprised of the following investment portfolios, each of which
commenced operations on the date set forth opposite the portfolio's name:
SSgA Money Market Fund May 2, 1988
SSgA US Government Money Market Fund March 1, 1991
SSgA Matrix Equity Fund May 4, 1992
SSgA Small Cap Fund July 1, 1992
SSgA Yield Plus Fund November 9, 1992
SSgA S&P 500 Index Fund December 30, 1992
SSgA Growth and Income Fund September 1, 1993
SSgA Intermediate Fund September 1, 1993
SSgA US Treasury Money Market Fund December 1, 1993
SSgA Prime Money Market Fund February 22, 1994
SSgA Emerging Markets Fund March 1, 1994
SSgA Tax Free Money Market Fund December 1, 1994
SSgA Active International Fund March 7, 1995
SSgA Bond Market Fund February 7, 1996
SSgA Life Solutions Balanced Fund June 2, 1997
SSgA Life Solutions Growth Fund June 2, 1997
SSgA Life Solutions Income and Growth Fund June 2, 1997
SSgA Real Estate Equity Fund *
SSgA US Treasury Obligations Fund *
SSgA International Pacific Index Fund *
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*As of the date of this Statement of Additional Information, these
portfolios have not commenced operations.
Prospectuses for these investment portfolios may be obtained by calling
Investment Company's distributor, Russell Fund Distributors, Inc., at (800)
647-7327, or at its Internet Web Site at www.ssgafunds.com.
Investment Company is authorized to divide shares of any series into two
or more classes of shares. The shares of each 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 Fund may have
separate voting rights or no voting rights. Each class of shares of a Fund is
entitled to the same rights and privileges as all other classes of that Fund,
except that each class bears the 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 Fund's
portfolio securities. Shares of the Money Market, US Government Money Market and
Tax Free Money Market Funds are divided into Classes A, B and C.
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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 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 Fund may be held personally
liable for the obligations of a 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 Fund shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The Master Trust Agreement
also provides that the Fund shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the 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 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, 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 Investment Company
portfolios 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 November 30, 1997, State Street held of record
less than 25% of the issued and outstanding shares of Investment Company in
connection with its discretionary accounts. Consequently, State Street 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.
Frank Russell Investment Management Company, Investment Company's
administrator ("Administrator"), will be the initial sole shareholder of the Tax
Free Fund until such time as the Fund has public shareholders and therefore
Administrator may be deemed to be a controlling person for the purposes of the
1940 Act.
Principal Shareholders. As of the date of this Statement of Additional
Information, Administrator is the sole shareholder of the issued and outstanding
shares of Class B of the Fund.
The Trustees and officers of the Investment Company, as a group, own less
than 1% of Investment Company's voting securities.
Trustees and Officers. The Board of Trustees is responsible for overseeing
generally the operation of the Fund. The 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 Fund's operations.
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. Investment Company's officers and employees are paid by
Administrator or its affiliates.
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.
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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. Trustee, President and Chief Executive Officer, Russell Insurance Funds
(investment company). Director, Chief Executive Officer and Chairman of the
Board, Russell Fund Distributors, Inc. Trustee, President and Chief Executive
Officer, Frank Russell Investment Company (investment company); Director, Chief
Executive Officer and Chairman of the Board, Frank Russell Investment Management
Company; Director, Chief Executive Officer and President, Frank Russell Trust
Company; Director and Chairman, Frank Russell Investment Company Public Limited
Company; November 1995 to February 1997, Director, Frank Russell Company;
Director and Chairman of the Board, Frank Russell Company (Delaware); Director,
Frank Russell Company; March 1989 to June 1993, Director, Frank Russell Company,
Director of Frank Russell Investments (Ireland) Limited; Director and Chairman,
Frank Russell Investment Company Public Limited Company. Until September 1994,
Director and President, The Laurel Funds, Inc. (investment company).
William L. Marshall, Trustee. Born 12/12/42. 33 West Court Street,
Doylestown, PA 18901. Chief Executive Officer and President, Wm. L. Marshal
Associates, Inc. (a registered investment advisor and provider of financial and
related consulting services); Certified Financial Planner; Member, Registry of
Financial Planning 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. 350 Park Avenue, 15th Floor,
New York, NY 10022. Partner, Squire, Sanders & Dempsey (law firm). From 1994 to
1997, Partner, Brown, Rudnick, Freed & Gesmer (law firm). From 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. 1990 to 1992, President, Champions Group Resources--Business
Management and Employee Benefits Consulting; 1990, Senior Vice President,
Employee Benefits Division, Cigna Corporation (providing and insuring group
life, health and disability employee benefit products and services); from 1986
to 1990, Senior Vice President, EQUICOR-Equitable HCA Corporation (providing and
insuring group life, health and disability employee benefit products and
services).
*Bruce D. Taber, Trustee. Born 4/25/43. 26 Round Top Road, Boxford, MA
01921. Consultant, Computer Simulation, General Electric Industrial Control
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.
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George W. Weber, Senior Vice President, Fund Treasurer and Principal
Accounting Officer. Born 6/3/51. Treasurer and Chief Accounting Officer, Russell
Insurance Funds (investment company); Director of Finance and Operations, Frank
Russell Trust Company; Director, Fund Administration and Operations of Frank
Russell Investment Management Company and Russell Fund Distributors, Inc.;
Treasurer and Chief Accounting Office, Frank Russell Investment Company
(investment company); March 1993 to January 1996, Vice President, Operations,
Funds Management, J.P. Morgan; December 1985 to March 1993, Senior Vice
President, Operations, Frank Russell Investment Company, The Laurel Funds, Inc.
and The Seven Seas Series Fund (investment companies); Director of Operations,
Frank Russell Investment Management Company and Frank Russell Trust Company;
Director, Russell Fund Distributors, Inc.
Total Annual Compensation
Trustee from Investment Company
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Lynn L. Anderson $0
William L. Marshall $55,500
Steven J. Mastrovich $55,500
Patrick J. Riley $55,500
Richard D. Shirk $55,500
Bruce D. Taber $55,500
Henry W. Todd $55,500
OPERATION OF INVESTMENT COMPANY
Service Providers. Most of the 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.
Advisor. State Street Bank and Trust Company ("State Street" or "Advisor")
serves as the Fund's investment advisor pursuant to an Advisory Agreement dated
April 12, 1988. State Street Bank and Trust Company is a wholly owned subsidiary
of State Street Corporation, a publicly-held bank holding company. State
Street's address is 225 Franklin Street, Boston, MA 02110.
Under the Advisory Agreement, Advisor directs the Fund's investments in
accordance with its investment objective, policies and limitations. For these
services, the Fund pays a fee to Advisor at the rate stated in the Prospectus.
The Fund accrued expenses to Advisor of $298,042 in fiscal 1997, $123,174 in
fiscal 1996 and $63,602 from the date of inception to August 31, 1995. The
Advisory Agreement will continue from year to year provided that a majority of
the Trustees who are not interested persons of the Funds and either a majority
of all Trustees or a majority of the shareholders of the Fund approve its
continuance. The Agreement may be terminated by Advisor or the Fund without
penalty upon 60 days' notice and will terminate automatically upon its
assignment.
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Administrator. Frank Russell Investment Management Company
("Administrator") serves as the Fund's administrator, pursuant to an
Administration Agreement dated April 12, 1988. A description of the services
provided under the Administration Agreement and the basis for computing fees for
such services is provided in the Fund's Prospectus. The Fund accrued expenses to
Administrator of $34,968 in fiscal 1997, $14,213 in fiscal 1996 and $7,564 from
the date of inception to August 31, 1995. Administrator waived administration
fees of $855 from the date of inception to August 31, 1995.
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 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 a Fund without penalty upon 60 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, Winston-Salem, New
York City, Toronto, London, Tokyo, Sydney, Paris, Zurich and Auckland, and have
approximately 1,200 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 Fund shares pursuant to a Distribution Agreement dated April 12,
1988. Distributor is a wholly owned subsidiary of Administrator. Distributor's
mailing address is One International Place, Boston, MA 02110.
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
Custodian services, State Street is paid an annual fee in accordance with the
following: custody services--a fee payable monthly on a pro rata basis, based on
the following percentages of average daily net assets of each 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 domestic Funds 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 Fund 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. For Transfer and Dividend Disbursing Agent
services, State Street is paid the following annual account services fees: $9.00
open account fee; $1.50 closed account fee; fund minimum per portfolio for one
to four portfolios--$36,000, five to six portfolios--$24,000, and over six
portfolios $18,000. Portfolio fees are allocated to each fund based on the
average net asset value of each fund and are billable on a monthly basis at the
rate of 1/12 of the annual fee. State Street will apply a $5.00 fee to each
telephone transaction (purchase or redemption), which is applied against the
monthly billing. State Street is reimbursed by the Fund 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 Fund may, directly or indirectly, bear distribution and shareholder
servicing expenses. The Rule provides that the Fund may pay for such expenses
only pursuant to a plan adopted in accordance with the Rule.
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Accordingly, the Fund's sole shareholder has adopted a distribution plan
(the "Plan") for the Fund's Class B shares which is described in the Fund's
Prospectus. The Plan provides that the Fund may spend annually, directly or
indirectly, up to 0.35% of the average net asset value of its Class B shares for
distribution and shareholder servicing services. The Plan does not provide for
the Fund 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 approval of the holders of Class B shares to
increase materially the distribution or shareholder servicing costs that the
Fund 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 Fund nor have any direct or indirect
financial interest in the operation of the Plan or any related agreements.
The Fund accrued expenses in the following amount to Russell Fund
Distributors, Inc., as Distributor, for the fiscal period ended August 31:
1997 1996 1995
---- ---- ----
$166,360 $13,211 $9,234
This amount is reflective of the following individual payments:
Advertising $_____
Printing of Prospectuses
Compensation to Sales Personnel
Other*
* 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 Fund may also enter into agreements ("Service
Agreements") with financial institutions, which may include Advisor ("Service
Organizations"), to provide shareholder servicing with respect to Fund shares
held by or for the customers of the Service Organizations. Such arrangements are
more fully described in the Fund's prospectus under "Distribution Services and
Shareholder Servicing."
Similar plans have been adopted for the Class A and Class C shares of the
Fund. However, annual payment under these plans are limited to .25% and .60% of
the net asset value of Class A and Class C shares of the Fund, respectively.
The Fund accrued expenses in the following amount to Advisor, under a
Service Agreement pursuant to Rule 12b-1, for the fiscal period ended August 31:
1997 1996 1995
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$45,703 $28,584 $6,360
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 certain 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 Fund, 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 Fund contemplated under this arrangement
are consistent with its statutory and regulatory obligations.
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Valuation of Fund Shares. Net asset value per share for the Class B shares
of the Fund is calculated 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 (currently, 4:00 p.m. Eastern time). A business day is one on which
both the Boston Federal Reserve and the New York Stock Exchange are open for
business.
It is the policy of the Fund to use its best efforts to maintain a
constant price per share of $1.00, although there can be no assurance that the
$1.00 net asset value per share will be maintained. In accordance with this
effort and pursuant to Rule 2a-7 under the 1940 Act, the Fund uses the amortized
cost valuation method to value their portfolio instruments. 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 Fund would receive if it sold the instrument.
For example, in periods of declining interest rates, the daily yield on
the Fund's shares computed by dividing the annualized daily income on the Fund's
portfolio by the net asset value based upon the amortized cost valuation
technique 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 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.
The Trustees have established procedures reasonably designed to stabilize
the Fund's price per share at $1.00. These procedures include: (1) the
determination of the deviation from $1.00, if any, of the Fund's net asset value
using market values; (2) periodic review by the Trustees of the amount of and
the methods used to calculate the deviation; and (3) maintenance of records of
such determination. The Trustees will promptly consider what action, if any,
should be taken if such deviation exceeds 1/2 of one percent.
Brokerage Practices. All portfolio transactions are placed on behalf of
the Fund by Advisor. 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 Fund. Ordinarily, securities will
be purchased from primary and secondary 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 any commission or spread, if known, 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 Fund and/or Advisor (or its
affiliates). Advisor is authorized to cause the 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 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.
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The Trustees periodically review Advisor's performance of its
responsibilities in connection with the placement of portfolio transactions on
behalf of the Fund and review the prices paid by the Fund over representative
periods of time to determine if such prices are reasonable in relation to the
benefits provided to the Fund. Certain services received by Advisor attributable
to a particular Fund transaction may benefit one or more other accounts for
which Advisor exercises investment discretion or a Fund other than such Fund.
Advisor's fees are not reduced by Advisor's receipt of such brokerage and
research services.
During the fiscal year ended August 31, 1997, the Fund did not purchase
securities issued by the regular brokers or dealers of the Fund, as defined by
Rule 10b-1 of the 1940 Act.
Yield and Total Return Quotations. The Fund computes 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, five and ten year periods (or life of the funds 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-, 5- and 10-year periods at the end of
the year or period
The calculation assumes that all dividends and distributions of the Fund
are reinvested at the price calculated in the manner described in the Prospectus
on the dividend dates during the period, and includes all recurring and
nonrecurring fees that are charged to all shareholder accounts.
Total returns and other performance figures are based on historical
earnings and are not indicative of future performance.
The current annualized yield of the Fund 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
The following are the current and effective yields for the Fund for the
seven- and 30-day periods ended August 31, 1997:
7-day 30-day
Current Yield _____% _____%
Effective Yield _____% _____%
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The Fund may also, from to time to time, utilize tax-equivalent yields.
The tax-equivalent yield is calculated by dividing that portion of the Fund's
yield (as calculated above) which is generated by tax-exempt income by one minus
a stated tax rate and adding the quotient to that portion of the Fund's yield,
if any (as calculated above) that is generated by taxable income and gains. The
Fund may advertise tax-equivalency tables which compare tax-exempt yields to
their equivalent taxable yields for relevant federal income tax brackets.
The following are the current and effective tax equivalent yields based on
a tax rate of ______% during 1997 for the seven- and 30-day periods ended August
31, 1997:
7-day 30-day
----- ------
Tax Equivalent Current Yield _____% _____%
Tax Equivalent Effective Yield _____% _____%
The above yields relate to a period prior to the division of Fund shares
into multiple classes and do not reflect the distribution and shareholder
servicing expenses of Class B shares. Had such expenses been incurred, the
yields would have been approximately .25% lower.
The yields quoted are based on historical earnings and are not indicative
of future results. Yields will depend on the type, quality, maturity, and
interest rate of money market instruments held by the Fund.
INVESTMENTS
The fundamental investment objective of the Fund is set forth in the
Prospectus. In addition to that investment objective, the Fund also has certain
"fundamental" investment restrictions, which may be changed only with the
approval of a majority of the shareholders of the Fund, and certain
nonfundamental investment restrictions and policies, which may be changed by the
Fund without shareholder approval.
Investment Restrictions
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The Fund is subject to the following fundamental investment restrictions,
each of which applies at the time an investment is made. The Fund will not:
(1) Borrow money, 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 Fund's assets taken at market value, less
liabilities other than borrowings. If at any time the 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.
The Fund will not purchase investments once borrowed funds (including reverse
repurchase agreements) exceed 5% of its total assets.
(2) Pledge, mortgage or hypothecate its assets. However, the Fund may
pledge securities having a market value (on a daily marked-to-market basis) at
the time of the pledge not exceeding 33-1/3% of the value of the Fund's total
assets to secure borrowings permitted by paragraph (1) above.
(3) 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. The 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 the Fund's total
assets.
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<PAGE>
(4) Invest 25% or more of the value of its total assets in securities of
issuers located in any one state or group of public agencies primarily engaged
in any one industry (such as power generation) (other than the US Government,
its agencies and instrumentalities). Concentration may occur as a result of
changes in the market value of portfolio securities, but may not result from
investment.
(5) 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), if immediately after and as a result of such investment the
current market value of the Fund's holdings in the securities of such issuer
exceeds 5% of the value of the Fund's assets.
(6) Engage in the business of underwriting securities issued by others,
except that the Fund 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.
(7) Issue senior securities, except as permitted by its investment
objective, policies and restrictions, and except as permitted by the 1940 Act.
(8) Purchase or sell puts, calls or invest in straddles, spreads or any
combination thereof, provided however, that the Fund may purchase securities
that provide the Fund the right to put the securities back to the issuer or a
third party.
(9) 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.
(10) Purchase from or sell portfolio securities to its officers or
directors or other "interested persons" (as defined in the 1940 Act) of the
Fund, including their investment advisors and affiliates, except as permitted by
the 1940 Act and exemptive rules or orders thereunder.
(11) Purchase or sell real estate or real estate mortgage loans; provided,
however, that the Fund may invest in securities secured by real estate or
interests therein or issued by companies which invest in real estate or
interests therein.
(12) Purchase or sell commodities or commodity futures contracts.
In addition, the Fund has adopted the following non-fundamental investment
restrictions:
(1) Invest in securities of any issuer which, together with its
predecessor, has been in operation for less than three years if, as a result,
more than 5% of the Fund's total assets would be invested in such securities.
(2) Make investments for the purpose of gaining control of an issuer's
management.
(3) 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, participation
interests (including municipal leases) and floating and variable rate demand
obligations as to which the Fund cannot exercise the demand feature on seven or
fewer days notice and for which there is no secondary market.
(4) Invest in securities issued by other investment companies except in
connection with a merger, consolidation, acquisition of assets, or other
reorganization approved by the Fund's shareholders, and except to the extent
permitted by the 1940 Act.
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<PAGE>
Investment Policies
- -------------------
To the extent consistent with its fundamental investment objective and
restrictions and except as otherwise indicated, the Fund may invest in the
following instruments and utilize the following investment techniques:
Municipal Securities Generally. Municipal securities purchased by the Fund
may bear fixed, floating or variable rates of interest or may be zero coupon
securities. Municipal securities are generally of two types: general obligations
and revenue obligations. General obligations are backed by the full faith and
credit of the issuer. These securities include tax anticipation notes, bond
anticipation notes, general obligation bonds and commercial paper. Revenue
obligations are backed by the revenues generated from a specific project or
facility and include industrial development bonds and private activity bonds.
Tax anticipation notes are issued to finance working capital needs of
municipalities and are generally issued in anticipation of future tax revenues.
Bond anticipation notes are issued in expectation of the issuer obtaining
longer-term financing.
Tax Exempt Commercial Paper. Tax exempt commercial paper is a short-term
obligation with a stated maturity of 365 days or less. It is typically issued to
finance seasonal working capital needs or as short-term financing in
anticipation of longer term financing. Each instrument may be backed only by the
credit of the issuer or may be backed by some form of credit enhancement,
typically in the form of a guarantee by a commercial bank. Commercial paper
backed by guarantees of foreign banks may involve additional risk due to the
difficulty of obtaining and enforcing judgments against such banks and the
generally less restrictive regulations to which such banks are subject. The Fund
will only invest in commercial paper rated at the time of purchase not less than
Prime-1 by Moody's Investors Service, Inc., A-1 by Standard & Poor's Rating
Group or F-1 by Fitch's Investor Service.
Industrial Development and Private Activity Bonds. Industrial development
bonds are issued to finance a wide variety of capital projects including:
electric, gas, water and sewer systems; highways, bridges and tunnels; ports and
airport facilities; colleges and universities; and hospitals. The principal
security for these bonds is generally the net revenues derived from a particular
facility, group of facilities, or in some cases, the proceeds of a special
excise tax or other specific revenue sources. Although the principal security
behind these bonds may vary, many provide additional security in the form of a
debt service reserve fund whose money may be used to make principal and interest
payments on the issuer's obligations. Some authorities provide further security
in the form of a state's ability without obligation to make up deficiencies in
the debt service reserve fund.
Private activity bonds are considered municipal securities if the interest
paid thereon is exempt from federal income tax and are issued by or on behalf of
public authorities to raise money to finance various privately operated
facilities for business and manufacturing, housing, sports, and pollution
control. These bonds are also used to finance public facilities such as
airports, mass transit systems, ports and parking. The payment of the principal
and interest on such bonds is dependent solely on the ability of the facility's
user to meet its financial obligations and the value of any real or personal
property pledged as security for such payment. As noted in the Fund's Prospectus
and discussed below under "Taxes," interest income on these bonds may be an item
of tax preference subject to federal alternative minimum tax for individuals and
corporations.
US Government Obligations. The types of US Government obligations in which
the 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
which have remaining maturities or hard put dates of 397 days or less; 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 such issuers are the Federal Land Banks and the
Federal Housing Administration. 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.
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<PAGE>
When-Issued Transactions. 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 Fund will make commitments to purchase when-issued securities only
with the intention of actually acquiring the securities, but the Fund 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 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 Fund's records on a daily basis so that the market value of
the account will equal the amount of such commitments by the Fund. The Fund will
invest more than 25% of its net assets in when-issued securities.
Securities purchased on a when-issued basis and held by the Fund 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 when interest rates decline and decrease in value when interest rates
rise. Therefore, if in order to achieve higher interest income the 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 Fund's net asset value.
When payment for when-issued securities is due, the 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 Fund's payment obligation). Any gain from
the sale of securities to meet such obligations would be subject to federal
income taxes.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain financial institutions. Under repurchase agreements, these parties sell
US Treasury bills, notes and bonds to the 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 Funds in being invested fully while retaining
"overnight" flexibility in pursuit of investments of a longer-term nature. The
Fund will limit repurchase transactions to those member banks of the Federal
Reserve System and primary dealers in US Government securities whose
creditworthiness is continually monitored and found satisfactory by Advisor.
Forward Commitments. The Fund may contract to purchase securities for a
fixed price at a future date beyond customary settlement time consistent with
the Fund's ability to manage its investment portfolio, maintain a stable net
asset value and meet redemption requests. The Fund 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 Fund of a dollar amount sufficient to make
payment for the portfolio securities to be purchased will be segregated on the
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.
Section 4(2) Commercial Paper. The Fund may also invest in taxable
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 institutional investors
such as the Fund that agree that they are purchasing the paper for investment
and not with a view to public distribution. Any resale by the purchaser must be
in an exempt transaction. Section 4(2) paper normally is resold to other
institutional investors like the Fund through or with the assistance of the
issuer or investment dealers that make a market in Section 4(2) paper. Section
4(2) paper will not be subject to
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<PAGE>
the Fund's 10% limitation on illiquid securities set forth below where the Board
of Trustees of Investment Company (pursuant to guidelines adopted by the Board)
determines that a liquid trading market exists.
Zero Coupon Securities. 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.
Because the Fund accrues income from zero coupon securities without
receiving regular interest payments in cash, it 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 Fund. Investing in
these securities might also force the Fund 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.
TAXES
The Fund intends 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 Fund 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 Fund distributes annually to its shareholders at least 90% of
its net investment income and net short-term capital gain for the taxable year
("Distribution Requirement"). For a Fund to qualify as a RIC it must abide by
all of the following requirements: (1) at least 90% of the Fund's 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 Fund's 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
Fund's 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 Fund 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 Fund's
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 Fund 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 its ordinary income for that year; (2) 98% of its 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 Fund subsequent to December 31 but prior to February 1 of the
following year.
If a shareholder receives a distribution taxable as a 20% gain or a 28%
gain with respect to shares of a 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 a 20% loss or a 28% loss to the extent
of the respective capital gain distribution.
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<PAGE>
As of August 31, 1997, the Fund had a net tax basis capital loss
carryforward of $5,580 and $10,856, which may be applied against any realized
net taxable gains of each succeeding year until the expiration of August 31,
2004 and August 31, 2005, respectively, whichever occurs first. Further, as
permitted by tax regulations, the Fund intends to defer a net realized capital
loss of $19,504 incurred from November 1, 1996 to August 31, 1997, and treat it
as arising in fiscal year 1998.
Tax Exempt Income. Dividends paid by the Fund will qualify as
"exempt-interest dividends," and thus will be excludable from gross income by
its shareholders, if the Fund satisfies the requirement that, at the close of
each quarter of its taxable year, at least 50% of the value of its total assets
consists of securities the interest on which is excludable from gross income
under section 103(a) of the Code; the Fund intends to satisfy this requirement.
The aggregate dividends excludable from the shareholders' treatment of dividends
from the Fund under local and state income tax laws may differ from the
treatment thereof under the Code.
If shares of the Fund are sold at a loss after being held for six months
or less, the loss will be disallowed to the extent of any exempt-interest
dividends received on those shares.
Tax-exempt interest attributable to certain private activity bonds
("PABs") (including, in the case of a RIC receiving interest on such bonds, a
proportionate part of the exempt-interest dividends paid by that RIC) is an item
of tax preference for purposes of the alternative minimum tax. Exempt-interest
dividends received by a corporate shareholder also may be indirectly subject to
that tax without regard to whether the Fund's tax-exempt interest was
attributable to those bonds.
The Fund may purchase bonds at market discount (i.e., bonds with a
purchase price less then original issue price or adjusted issue price). If such
bonds are subsequently sold at a gain, then a portion of that gain equal to the
amount of market discount, which should have been accrued through the sale date,
will be taxable to shareholders as ordinary income.
Entities or persons who are "substantial users" (or persons related to
"substantial users") of facilities financed by PABs or industrial development
bonds ("IDBs") should consult their tax advisors before purchasing shares of the
Fund because, for users of certain of these facilities, the interest on those
bonds is not exempt from federal income tax. For these purposes, the term
"substantial user" is defined generally to include a "non-exempt person" who
regularly uses in trade or business a part of a facility financed from the
proceeds of PABs or IDBs.
Up to 85% of social security and railroad retirement benefits may be
included in taxable income for recipients whose adjusted gross income (including
income from tax-exempt sources such as the Fund) plus 50% of their benefits
exceeds certain base amounts. Exempt-interest dividends paid by the Fund still
are tax-exempt to the extent described in the Fund's Prospectus; they are only
included in the calculation of whether a recipient's income exceeds the
established amounts.
If the Fund invests in any instrument that generates taxable income, under
the circumstances described in the Prospectus, distributions of the interest
earned thereon will be taxable to the Fund's shareholders as ordinary income to
the extent of the Fund's earnings and profits. Moreover, if the Fund realizes
capital gain as a result of market transactions, any distribution of that gain
will be taxable to its shareholders. There also may be collateral federal income
tax consequences regarding the receipt of exempt-interest dividends by
shareholders such as S corporations, financial institutions and property and
casualty insurance companies. A shareholder falling into any such category
should consult its tax advisor concerning its investment in shares of the Fund.
State and Local Taxes. Under federal law, the income derived from
obligations issued by the US Government and certain of its agencies and
instrumentalities is exempt from state income taxes. All states that tax
personal income, other than Pennsylvania, permit mutual funds to pass through
this tax exemption to shareholders.
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<PAGE>
Depending upon the extent of the Fund's activities in states and
localities in which its offices are maintained, its agents or independent
contractors are located or it is otherwise deemed to be conducting business, the
Fund may be subject to the tax laws of such states or localities.
The foregoing discussion is only a summary of certain federal tax issues
generally affecting the Fund and its shareholders. Circumstances among investors
may vary and each investor is encouraged to discuss investment in the Fund with
the investor's tax advisor.
FINANCIAL STATEMENTS
The 1997 fiscal year-end financial statements of the Fund, including notes
to the financial statements and financial highlights and the report of
independent accountants, are included in the Fund's Annual Report to
shareholders. A copy of the Annual Report accompanies this Statement of
Additional Information and is incorporated herein by reference.
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APPENDIX
DESCRIPTION OF SECURITIES RATINGS
Ratings of Debt Instruments and Municipal Securities
- ----------------------------------------------------
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.
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<PAGE>
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.
Ratings of Short-Term Municipal Loans
- -------------------------------------
Moody's:
--------
MIG-1/VMIG-1 -- Securities rated MIG-1/VMIG-1 are of the best quality,
enjoying strong protection from established cash flows of funds for their
servicing or from established and broad-based access to the market for
refinancing, or both.
MIG-2/VMIG-2 -- Loans bearing the MIG-2/VMIG-2 designation are of high
quality, with margins of protection ample although not so large as in the
MIG-1/VMIG-1 group.
S&P:
----
SP-1 -- Short-term municipal securities bearing the SP-1 designation have
very strong or strong capacity to pay principal and interest. Those issues rated
SP-1 which are determined to possess overwhelming safety characteristics will be
given a plus (+) designation.
SP-2 -- Issues rated SP-2 have satisfactory capacity to pay principal and
interest.
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:
[bullet] 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:
[bullet] Leading market positions in well-established industries.
[bullet] High rates of return on funds employed.
[bullet] Conservative capitalization structure with moderate
reliance on debt and ample asset protection.
[bullet] 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.
[bullet] 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.
[bullet] 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.
[bullet] Issuers rated Not Prime do not fall within any of the Prime
rating categories.
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<PAGE>
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.
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<PAGE>
Filed pursuant to Rule 485(b)
File Nos. 33-19229; 811-5430
SSgA FUNDS
----------
One International Place
Boston, Massachusetts 02110
(800) 647-7327
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
TAX FREE MONEY MARKET FUND
Class C Shares
December 24, 1997
SSgA Funds ("Investment Company") is a registered open-end investment
company organized as a Massachusetts business trust offering shares of
beneficial interest in separate investment portfolios. In addition, each series
of the Investment Company is diversified as defined in the Investment Company
Act of 1940, as amended ("1940 Act").
This Statement of Additional Information supplements or describes in
greater detail the Investment Company and the SSgA Tax Free Money Market Fund
(the "Tax Free Fund" or "Fund") as contained in the Fund's Prospectus relating
to Class C shares dated December 24, 1997. This Statement is not a Prospectus
and should be read in conjunction with the Fund's Prospectus for Class C shares,
which may be obtained by telephoning or writing Investment Company at the number
or address shown above.
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<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
Structure and Governance.................................................. 3
Organization and Business History................................ 3
Shareholder Meetings............................................. 4
Controlling Shareholders......................................... 4
Principal Shareholders........................................... 4
Trustees and Officers............................................ 4
Operation of Investment Company........................................... 6
Service Providers .............................................. 6
Advisor ......................................................... 6
Administrator.................................................... 7
Distributor...................................................... 7
Custodian and Transfer Agent..................................... 7
Independent Accountants.......................................... 8
Distribution Plan .............................................. 8
Federal Law Affecting State Street............................... 9
Valuation of Fund Shares......................................... 9
Brokerage Practices.............................................. 9
Yield and Total Return Quotations................................ 10
Investments............................................................... 11
Investment Restrictions.......................................... 11
Investment Policies.............................................. 13
Taxes ................................................................. 15
Financial Statements...................................................... 17
Appendix: Description of Securities Ratings.............................. 18
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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 Tax Free Money Market Fund is one such investment portfolio. The
Trustees may create additional Funds at any time without shareholder approval.
As of the date of this Statement of Additional Information, Investment
Company is comprised of the following investment portfolios, each of which
commenced operations on the date set forth opposite the portfolio's name:
SSgA Money Market Fund May 2, 1988
SSgA US Government Money Market Fund March 1, 1991
SSgA Matrix Equity Fund May 4, 1992
SSgA Small Cap Fund July 1, 1992
SSgA Yield Plus Fund November 9, 1992
SSgA S&P 500 Index Fund December 30, 1992
SSgA Growth and Income Fund September 1, 1993
SSgA Intermediate Fund September 1, 1993
SSgA US Treasury Money Market Fund December 1, 1993
SSgA Prime Money Market Fund February 22, 1994
SSgA Emerging Markets Fund March 1, 1994
SSgA Tax Free Money Market Fund December 1, 1994
SSgA Active International Fund March 7, 1995
SSgA Bond Market Fund February 7, 1996
SSgA Life Solutions Balanced Fund June 2, 1997
SSgA Life Solutions Growth Fund June 2, 1997
SSgA Life Solutions Income and Growth Fund June 2, 1997
SSgA Real Estate Equity Fund *
SSgA US Treasury Obligations Fund *
SSgA International Pacific Index Fund *
----------
*As of the date of this Statement of Additional Information, these
portfolios have not commenced operations.
Prospectuses for these investment portfolios may be obtained by calling
Investment Company's distributor, Russell Fund Distributors, Inc., at (800)
647-7327, or at its Internet Web Site at www.ssgafunds.com.
Investment Company is authorized to divide shares of any series into two
or more classes of shares. The shares of each 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 Fund may have
separate voting rights or no voting rights. Each class of shares of a Fund is
entitled to the same rights and privileges as all other classes of that Fund,
except that each class bears the 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 Fund's
portfolio securities. Shares of the Money Market, US Government Money Market and
Tax Free Money Market Funds are divided into Classes A, B and C.
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<PAGE>
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 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 Fund may be held personally
liable for the obligations of a 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 Fund shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The Master Trust Agreement
also provides that the Fund shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the 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 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, 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 Investment Company
portfolios 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 November 30, 1997, State Street held of record
less than 25% of the issued and outstanding shares of Investment Company in
connection with its discretionary accounts. Consequently, State Street 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.
Frank Russell Investment Management Company, Investment Company's
administrator ("Administrator"), will be the initial sole shareholder of the Tax
Free Fund until such time as the Fund has public shareholders and therefore
Administrator may be deemed to be a controlling person for the purposes of the
1940 Act.
Principal Shareholders. As of the date of this Statement of Additional
Information, Administrator is the sole shareholder of the issued and outstanding
shares of Class C of the Fund.
The Trustees and officers of the Investment Company, as a group, own less
than 1% of Investment Company's voting securities.
Trustees and Officers. The Board of Trustees is responsible for overseeing
generally the operation of the Fund. The 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 Fund's operations.
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. Investment Company's officers and employees are paid by
Administrator or its affiliates.
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.
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<PAGE>
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. Trustee, President and Chief Executive Officer, Russell Insurance Funds
(investment company). Director, Chief Executive Officer and Chairman of the
Board, Russell Fund Distributors, Inc. Trustee, President and Chief Executive
Officer, Frank Russell Investment Company (investment company); Director, Chief
Executive Officer and Chairman of the Board, Frank Russell Investment Management
Company; Director, Chief Executive Officer and President, Frank Russell Trust
Company; Director and Chairman, Frank Russell Investment Company Public Limited
Company; November 1995 to February 1997, Director, Frank Russell Company;
Director and Chairman of the Board, Frank Russell Company (Delaware); Director,
Frank Russell Company; March 1989 to June 1993, Director, Frank Russell Company,
Director of Frank Russell Investments (Ireland) Limited; Director and Chairman,
Frank Russell Investment Company Public Limited Company. Until September 1994,
Director and President, The Laurel Funds, Inc. (investment company).
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 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. 350 Park Avenue, 15th Floor,
New York, NY 10022. Partner, Squire, Sanders & Dempsey (law firm). From 1994 to
1997, Partner, Brown, Rudnick, Freed & Gesmer (law firm). From 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. 1990 to 1992, President, Champions Group Resources--Business
Management and Employee Benefits Consulting; 1990, Senior Vice President,
Employee Benefits Division, Cigna Corporation (providing and insuring group
life, health and disability employee benefit products and services); from 1986
to 1990, Senior Vice President, EQUICOR-Equitable HCA Corporation (providing and
insuring group life, health and disability employee benefit products and
services).
*Bruce D. Taber, Trustee. Born 4/25/43. 26 Round Top Road, Boxford, MA
01921. Consultant, Computer Simulation, General Electric Industrial Control
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.
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<PAGE>
George W. Weber, Senior Vice President, Fund Treasurer and Principal
Accounting Officer. Born 6/3/51. Treasurer and Chief Accounting Officer, Russell
Insurance Funds (investment company); Director of Finance and Operations, Frank
Russell Trust Company; Director, Fund Administration and Operations of Frank
Russell Investment Management Company and Russell Fund Distributors, Inc.;
Treasurer and Chief Accounting Office, Frank Russell Investment Company
(investment company); March 1993 to January 1996, Vice President, Operations,
Funds Management, J.P. Morgan; December 1985 to March 1993, Senior Vice
President, Operations, Frank Russell Investment Company, The Laurel Funds, Inc.
and The Seven Seas Series Fund (investment companies); Director of Operations,
Frank Russell Investment Management Company and Frank Russell Trust Company;
Director, Russell Fund Distributors, Inc.
Total Annual Compensation
Trustee from Investment Company
------------------------ ===============================
Lynn L. Anderson $0
William L. Marshall $55,500
Steven J. Mastrovich $55,500
Patrick J. Riley $55,500
Richard D. Shirk $55,500
Bruce D. Taber $55,500
Henry W. Todd $55,500
OPERATION OF INVESTMENT COMPANY
Service Providers. Most of the 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.
Advisor. State Street Bank and Trust Company ("State Street" or "Advisor")
serves as the Fund's investment advisor pursuant to an Advisory Agreement dated
April 12, 1988. State Street Bank and Trust Company is a wholly owned subsidiary
of State Street Corporation, a publicly-held bank holding company. State
Street's address is 225 Franklin Street, Boston, MA 02110.
Under the Advisory Agreement, Advisor directs the Fund's investments in
accordance with its investment objective, policies and limitations. For these
services, the Fund pays a fee to Advisor at the rate stated in the Prospectus.
The Fund accrued expenses to Advisor of $298,042 in fiscal 1997, $123,174 in
fiscal 1996 and $63,602 from the date of inception to August 31, 1995.
The Advisory Agreement will continue from year to year provided that a
majority of the Trustees who are not interested persons of the Funds and either
a majority of all Trustees or a majority of the shareholders of the Fund approve
its continuance. The Agreement may be terminated by Advisor or the Fund without
penalty upon 60 days' notice and will terminate automatically upon its
assignment.
-6-
<PAGE>
Administrator. Frank Russell Investment Management Company
("Administrator") serves as the Fund's administrator, pursuant to an
Administration Agreement dated April 12, 1988. A description of the services
provided under the Administration Agreement and the basis for computing fees for
such services is provided in the Fund's Prospectus. The Fund accrued expenses to
Administrator of $34,968 in fiscal 1997, $14,213 in fiscal 1996 and $7,564 from
the date of inception to August 31, 1995. Administrator waived administration
fees of $855 from the date of inception to August 31, 1995.
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 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 a Fund without penalty upon 60 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, Winston-Salem, New
York City, Toronto, London, Tokyo, Sydney, Paris, Zurich 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 Fund shares pursuant to a Distribution Agreement dated April 12,
1988. Distributor is a wholly owned subsidiary of Administrator. Distributor's
mailing address is One International Place, Boston, MA 02110.
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
Custodian services, State Street is paid an annual fee in accordance with the
following: custody services--a fee payable monthly on a pro rata basis, based on
the following percentages of average daily net assets of each 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 domestic Funds 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 Fund 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. For Transfer and Dividend Disbursing Agent
services, State Street is paid the following annual account services fees: $9.00
open account fee; $1.50 closed account fee; fund minimum per portfolio for one
to four portfolios--$36,000, five to six portfolios--$24,000, and over six
portfolios $18,000. Portfolio fees are allocated to each fund based on the
average net asset value of each fund and are billable on a monthly basis at the
rate of 1/12 of the annual fee. State Street will apply a $5.00 fee to each
telephone transaction (purchase or redemption), which is applied against the
monthly billing. State Street is reimbursed by the Fund 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 Fund may, directly or indirectly, bear distribution and shareholder
servicing expenses. The Rule provides that the Fund may pay for such expenses
only pursuant to a plan adopted in accordance with the Rule.
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<PAGE>
Accordingly, the Fund's sole shareholder has adopted a distribution plan
(the "Plan") for the Fund's Class C shares which is described in the Fund's
Prospectus. The Plan provides that the Fund may spend annually, directly or
indirectly, up to .60% of the average net asset value of its Class C shares for
distribution and shareholder servicing services. The Plan does not provide for
the Fund 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 approval of the holders of Class C shares to
increase materially the distribution or shareholder servicing costs that the
Fund 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 Fund nor have any direct or indirect
financial interest in the operation of the Plan or any related agreements.
The Fund accrued expenses in the following amount to Russell Fund
Distributors, Inc., as Distributor, for the fiscal period ended August 31:
1997 1996 1995
---- ---- ----
$166,360 $13,211 $9,234
This amount is reflective of the following individual payments:
Advertising $_____
Printing of Prospectuses
Compensation to Sales Personnel
Other*
* 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 Fund may also enter into agreements ("Service
Agreements") with financial institutions, which may include Advisor ("Service
Organizations"), to provide shareholder servicing with respect to Fund shares
held by or for the customers of the Service Organizations. Such arrangements are
more fully described in the Fund's Prospectus under "Distribution Services and
Shareholder Servicing."
The Fund accrued expenses in the following amount to Advisor, under a
Service Agreement pursuant to Rule 12b-1, for the fiscal period ended August 31:
1997 1996 1995
---- ---- ----
$45,703 $28,584 $6,360
Similar plans have been adopted for the Class A and Class B shares of the
Fund. However, annual payment under these plans are limited to .25% and .35% of
the net asset value of Class A and Class B shares of the Fund, respectively.
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 certain 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 Fund, 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 Fund contemplated under this arrangement
are consistent with its statutory and regulatory obligations.
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<PAGE>
Valuation of Fund Shares. Net asset value per share for the Class C shares
of the Fund is calculated 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 (currently, 4:00 p.m. Eastern time). A business day is one on which
both the Boston Federal Reserve and the New York Stock Exchange are open for
business.
It is the policy of the Fund to use its best efforts to maintain a
constant price per share of $1.00, although there can be no assurance that the
$1.00 net asset value per share will be maintained. In accordance with this
effort and pursuant to Rule 2a-7 under the 1940 Act, the Fund uses the amortized
cost valuation method to value their portfolio instruments. 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 Fund would receive if it sold the instrument.
For example, in periods of declining interest rates, the daily yield on
the Fund's shares computed by dividing the annualized daily income on the Fund's
portfolio by the net asset value based upon the amortized cost valuation
technique 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 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.
The Trustees have established procedures reasonably designed to stabilize
the Fund's price per share at $1.00. These procedures include: (1) the
determination of the deviation from $1.00, if any, of the Fund's net asset value
using market values; (2) periodic review by the Trustees of the amount of and
the methods used to calculate the deviation; and (3) maintenance of records of
such determination. The Trustees will promptly consider what action, if any,
should be taken if such deviation exceeds 1/2 of one percent.
Brokerage Practices. All portfolio transactions are placed on behalf of
the Fund by Advisor. 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 Fund. Ordinarily, securities will
be purchased from primary and secondary 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 any commission or spread, if known, 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 Fund and/or Advisor (or its
affiliates). Advisor is authorized to cause the 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 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.
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<PAGE>
The Trustees periodically review Advisor's performance of its
responsibilities in connection with the placement of portfolio transactions on
behalf of the Fund and review the prices paid by the Fund over representative
periods of time to determine if such prices are reasonable in relation to the
benefits provided to the Fund. Certain services received by Advisor attributable
to a particular Fund transaction may benefit one or more other accounts for
which Advisor exercises investment discretion or a Fund other than such Fund.
Advisor's fees are not reduced by Advisor's receipt of such brokerage and
research services.
During the fiscal year ended August 31, 1997, the Fund did not purchase
securities issued by the regular brokers or dealers of the Fund, as defined by
Rule 10b-1 of the 1940 Act.
Yield and Total Return Quotations. The Fund computes 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, five and ten year periods (or life of the funds 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-, 5- and 10-year periods at the end of
the year or period
The calculation assumes that all dividends and distributions of the Fund
are reinvested at the price calculated in the manner described in the Prospectus
on the dividend dates during the period, and includes all recurring and
nonrecurring fees that are charged to all shareholder accounts.
Total returns and other performance figures are based on historical
earnings and are not indicative of future performance.
The current annualized yield of the Fund 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
The following are the current and effective yields for the Fund for the
seven- and 30-day periods ended August 31, 1997:
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<PAGE>
7-day 30-day
----- ------
Current Yield _____% _____%
Effective Yield _____% _____%
The Fund may also, from to time to time, utilize tax-equivalent yields.
The tax-equivalent yield is calculated by dividing that portion of the Fund's
yield (as calculated above) which is generated by tax-exempt income by one minus
a stated tax rate and adding the quotient to that portion of the Fund's yield,
if any (as calculated above) that is generated by taxable income and gains. The
Fund may advertise tax-equivalency tables which compare tax-exempt yields to
their equivalent taxable yields for relevant federal income tax brackets.
The following are the current and effective tax equivalent yields based on
a tax rate of _____% during 1997 for the seven- and 30-day periods ended August
31, 1997:
7-day 30-day
----- ------
Tax Equivalent Current Yield _____% _____%
Tax Equivalent Effective Yield _____% _____%
The above yields relate to a period prior to the division of Fund shares
into multiple classes and do not reflect the distribution and shareholder
servicing expenses of Class C shares. Had such expenses been incurred, the
yields would have been approximately .50% lower.
The yields quoted are based on historical earnings and are not indicative
of future results. Yields will depend on the type, quality, maturity, and
interest rate of money market instruments held by the Fund.
INVESTMENTS
The fundamental investment objective of the Fund is set forth in the
Prospectus. In addition to that investment objective, the Fund also has certain
"fundamental" investment restrictions, which may be changed only with the
approval of a majority of the shareholders of the Fund, and certain
nonfundamental investment restrictions and policies, which may be changed by the
Fund without shareholder approval.
Investment Restrictions
- -----------------------
The Fund is subject to the following fundamental investment restrictions,
each of which applies at the time an investment is made. The Fund will not:
(1) Borrow money, 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 Fund's assets taken at market value, less
liabilities other than borrowings. If at any time the 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.
The Fund will not purchase investments once borrowed funds (including reverse
repurchase agreements) exceed 5% of its total assets.
(2) Pledge, mortgage or hypothecate its assets. However, the Fund may
pledge securities having a market value (on a daily marked-to-market basis) at
the time of the pledge not exceeding 33-1/3% of the value of the Fund's total
assets to secure borrowings permitted by paragraph (1) above.
(3) 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. The 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 the Fund's total
assets.
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<PAGE>
(4) Invest 25% or more of the value of its total assets in securities of
issuers located in any one state or group of public agencies primarily engaged
in any one industry (such as power generation) (other than the US Government,
its agencies and instrumentalities). Concentration may occur as a result of
changes in the market value of portfolio securities, but may not result from
investment.
(5) 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), if immediately after and as a result of such investment the
current market value of the Fund's holdings in the securities of such issuer
exceeds 5% of the value of the Fund's assets.
(6) Engage in the business of underwriting securities issued by others,
except that the Fund 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.
(7) Issue senior securities, except as permitted by its investment
objective, policies and restrictions, and except as permitted by the 1940 Act.
(8) Purchase or sell puts, calls or invest in straddles, spreads or any
combination thereof, provided however, that the Fund may purchase securities
that provide the Fund the right to put the securities back to the issuer or a
third party.
(9) 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.
(10) Purchase from or sell portfolio securities to its officers or
directors or other "interested persons" (as defined in the 1940 Act) of the
Fund, including their investment advisors and affiliates, except as permitted by
the 1940 Act and exemptive rules or orders thereunder.
(11) Purchase or sell real estate or real estate mortgage loans; provided,
however, that the Fund may invest in securities secured by real estate or
interests therein or issued by companies which invest in real estate or
interests therein.
(12) Purchase or sell commodities or commodity futures contracts.
In addition, the Fund has adopted the following non-fundamental investment
restrictions:
(1) Invest in securities of any issuer which, together with its
predecessor, has been in operation for less than three years if, as a result,
more than 5% of the Fund's total assets would be invested in such securities.
(2) Make investments for the purpose of gaining control of an issuer's
management.
(3) 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, participation
interests (including municipal leases) and floating and variable rate demand
obligations as to which the Fund cannot exercise the demand feature on seven or
fewer days notice and for which there is no secondary market.
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<PAGE>
(4) Invest in securities issued by other investment companies except in
connection with a merger, consolidation, acquisition of assets, or other
reorganization approved by the Fund's shareholders, and except to the extent
permitted by the 1940 Act.
Investment Policies
- -------------------
To the extent consistent with its fundamental investment objective and
restrictions and except as otherwise indicated, the Fund may invest in the
following instruments and utilize the following investment techniques:
Municipal Securities Generally. Municipal securities purchased by the Fund
may bear fixed, floating or variable rates of interest or may be zero coupon
securities. Municipal securities are generally of two types: general obligations
and revenue obligations. General obligations are backed by the full faith and
credit of the issuer. These securities include tax anticipation notes, bond
anticipation notes, general obligation bonds and commercial paper. Revenue
obligations are backed by the revenues generated from a specific project or
facility and include industrial development bonds and private activity bonds.
Tax anticipation notes are issued to finance working capital needs of
municipalities and are generally issued in anticipation of future tax revenues.
Bond anticipation notes are issued in expectation of the issuer obtaining
longer-term financing.
Tax Exempt Commercial Paper. Tax exempt commercial paper is a short-term
obligation with a stated maturity of 365 days or less. It is typically issued to
finance seasonal working capital needs or as short-term financing in
anticipation of longer term financing. Each instrument may be backed only by the
credit of the issuer or may be backed by some form of credit enhancement,
typically in the form of a guarantee by a commercial bank. Commercial paper
backed by guarantees of foreign banks may involve additional risk due to the
difficulty of obtaining and enforcing judgments against such banks and the
generally less restrictive regulations to which such banks are subject. The Fund
will only invest in commercial paper rated at the time of purchase not less than
Prime-1 by Moody's Investors Service, Inc., A-1 by Standard & Poor's Rating
Group or F-1 by Fitch's Investor Service.
Industrial Development and Private Activity Bonds. Industrial development
bonds are issued to finance a wide variety of capital projects including:
electric, gas, water and sewer systems; highways, bridges and tunnels; ports and
airport facilities; colleges and universities; and hospitals. The principal
security for these bonds is generally the net revenues derived from a particular
facility, group of facilities, or in some cases, the proceeds of a special
excise tax or other specific revenue sources. Although the principal security
behind these bonds may vary, many provide additional security in the form of a
debt service reserve fund whose money may be used to make principal and interest
payments on the issuer's obligations. Some authorities provide further security
in the form of a state's ability without obligation to make up deficiencies in
the debt service reserve fund.
Private activity bonds are considered municipal securities if the interest
paid thereon is exempt from federal income tax and are issued by or on behalf of
public authorities to raise money to finance various privately operated
facilities for business and manufacturing, housing, sports, and pollution
control. These bonds are also used to finance public facilities such as
airports, mass transit systems, ports and parking. The payment of the principal
and interest on such bonds is dependent solely on the ability of the facility's
user to meet its financial obligations and the value of any real or personal
property pledged as security for such payment. As noted in the Fund's Prospectus
and discussed below under "Taxes," interest income on these bonds may be an item
of tax preference subject to federal alternative minimum tax for individuals and
corporations.
US Government Obligations. The types of US Government obligations in which
the 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
which have remaining maturities or hard put dates of 397 days or less; 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 such issuers are the Federal Land Banks and the
Federal Housing Administration. 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.
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When-Issued Transactions. 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 Fund will make commitments to purchase when-issued securities only
with the intention of actually acquiring the securities, but the Fund 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 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 Fund's records on a daily basis so that the market value of
the account will equal the amount of such commitments by the Fund. The Fund will
invest more than 25% of its net assets in when-issued securities.
Securities purchased on a when-issued basis and held by the Fund 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 when interest rates decline and decrease in value when interest rates
rise. Therefore, if in order to achieve higher interest income the 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 Fund's net asset value.
When payment for when-issued securities is due, the 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 Fund's payment obligation). Any gain from
the sale of securities to meet such obligations would be subject to federal
income taxes.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain financial institutions. Under repurchase agreements, these parties sell
US Treasury bills, notes and bonds to the 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 Funds in being invested fully while retaining
"overnight" flexibility in pursuit of investments of a longer-term nature. The
Fund will limit repurchase transactions to those member banks of the Federal
Reserve System and primary dealers in US Government securities whose
creditworthiness is continually monitored and found satisfactory by Advisor.
Forward Commitments. The Fund may contract to purchase securities for a
fixed price at a future date beyond customary settlement time consistent with
the Fund's ability to manage its investment portfolio, maintain a stable net
asset value and meet redemption requests. The Fund 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 Fund of a dollar amount sufficient to make
payment for the portfolio securities to be purchased will be segregated on the
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.
Section 4(2) Commercial Paper. The Fund may also invest in taxable
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 institutional investors
such as the Fund that agree that they are purchasing the paper for investment
and not with a view to public distribution. Any resale by the purchaser must be
in an exempt transaction.
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<PAGE>
Section 4(2) paper normally is resold to other institutional investors like the
Fund through or with the assistance of the issuer or investment dealers that
make a market in Section 4(2) paper. Section 4(2) paper will not be subject to
the Fund's 10% limitation on illiquid securities set forth below where the Board
of Trustees of Investment Company (pursuant to guidelines adopted by the Board)
determines that a liquid trading market exists.
Zero Coupon Securities. 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.
Because the Fund accrues income from zero coupon securities without
receiving regular interest payments in cash, it 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 Fund. Investing in
these securities might also force the Fund 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.
TAXES
The Fund intends 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 Fund 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 Fund distributes annually to its shareholders at least 90% of
its net investment income and net short-term capital gain for the taxable year
("Distribution Requirement"). For a Fund to qualify as a RIC it must abide by
all of the following requirements: (1) at least 90% of the Fund's 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 Fund's 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
Fund's 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 Fund 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 Fund's
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 Fund 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 its ordinary income for that year; (2) 98% of its 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 Fund subsequent to December 31 but prior to February 1 of the
following year.
If a shareholder receives a distribution taxable as a 20% gain or a 28%
gain with respect to shares of a Fund and redeems or exchanges the shares
without having held the shares for more than one year, then any loss on the
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<PAGE>
redemption or exchange will be treated as a 20% loss or a 28% loss to the extent
of the respective capital gain distribution.
As of August 31, 1997, the Fund had a net tax basis capital loss
carryforward of $5,580 and $10,856, which may be applied against any realized
net taxable gains of each succeeding year until the expiration of August 31,
2004 and August 31, 2005, respectively, whichever occurs first. Further, as
permitted by tax regulations, the Fund intends to defer a net realized capital
loss of $19,504 incurred from November 1, 1996 to August 31, 1997, and treat it
as arising in fiscal year 1998.
Tax Exempt Income. Dividends paid by the Fund will qualify as
"exempt-interest dividends," and thus will be excludable from gross income by
its shareholders, if the Fund satisfies the requirement that, at the close of
each quarter of its taxable year, at least 50% of the value of its total assets
consists of securities the interest on which is excludable from gross income
under section 103(a) of the Code; the Fund intends to satisfy this requirement.
The aggregate dividends excludable from the shareholders' treatment of dividends
from the Fund under local and state income tax laws may differ from the
treatment thereof under the Code.
If shares of the Fund are sold at a loss after being held for six months
or less, the loss will be disallowed to the extent of any exempt-interest
dividends received on those shares.
Tax-exempt interest attributable to certain private activity bonds
("PABs") (including, in the case of a RIC receiving interest on such bonds, a
proportionate part of the exempt-interest dividends paid by that RIC) is an item
of tax preference for purposes of the alternative minimum tax. Exempt-interest
dividends received by a corporate shareholder also may be indirectly subject to
that tax without regard to whether the Fund's tax-exempt interest was
attributable to those bonds.
The Fund may purchase bonds at market discount (i.e., bonds with a
purchase price less then original issue price or adjusted issue price). If such
bonds are subsequently sold at a gain, then a portion of that gain equal to the
amount of market discount, which should have been accrued through the sale date,
will be taxable to shareholders as ordinary income.
Entities or persons who are "substantial users" (or persons related to
"substantial users") of facilities financed by PABs or industrial development
bonds ("IDBs") should consult their tax advisors before purchasing shares of the
Fund because, for users of certain of these facilities, the interest on those
bonds is not exempt from federal income tax. For these purposes, the term
"substantial user" is defined generally to include a "non-exempt person" who
regularly uses in trade or business a part of a facility financed from the
proceeds of PABs or IDBs.
Up to 85% of social security and railroad retirement benefits may be
included in taxable income for recipients whose adjusted gross income (including
income from tax-exempt sources such as the Fund) plus 50% of their benefits
exceeds certain base amounts. Exempt-interest dividends paid by the Fund still
are tax-exempt to the extent described in the Fund's Prospectus; they are only
included in the calculation of whether a recipient's income exceeds the
established amounts.
If the Fund invests in any instrument that generates taxable income, under
the circumstances described in the Prospectus, distributions of the interest
earned thereon will be taxable to the Fund's shareholders as ordinary income to
the extent of the Fund's earnings and profits. Moreover, if the Fund realizes
capital gain as a result of market transactions, any distribution of that gain
will be taxable to its shareholders. There also may be collateral federal income
tax consequences regarding the receipt of exempt-interest dividends by
shareholders such as S corporations, financial institutions and property and
casualty insurance companies. A shareholder falling into any such category
should consult its tax advisor concerning its investment in shares of the Fund.
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<PAGE>
State and Local Taxes. Under federal law, the income derived from
obligations issued by the US Government and certain of its agencies and
instrumentalities is exempt from state income taxes. All states that tax
personal income, other than Pennsylvania, permit mutual funds to pass through
this tax exemption to shareholders.
Depending upon the extent of the Fund's activities in states and
localities in which its offices are maintained, its agents or independent
contractors are located or it is otherwise deemed to be conducting business, the
Fund may be subject to the tax laws of such states or localities.
The foregoing discussion is only a summary of certain federal tax issues
generally affecting the Fund and its shareholders. Circumstances among investors
may vary and each investor is encouraged to discuss investment in the Fund with
the investor's tax advisor.
FINANCIAL STATEMENTS
The 1997 fiscal year-end financial statements of the Fund, including notes
to the financial statements and financial highlights and the report of
independent accountants, are included in the Fund's Annual Report to
shareholders. A copy of the Annual Report accompanies this Statement of
Additional Information and is incorporated herein by reference.
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APPENDIX
DESCRIPTION OF SECURITIES RATINGS
Ratings of Debt Instruments and Municipal Securities
- ----------------------------------------------------
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.
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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.
Ratings of Short-Term Municipal Loans
- -------------------------------------
Moody's:
--------
MIG-1/VMIG-1 -- Securities rated MIG-1/VMIG-1 are of the best quality,
enjoying strong protection from established cash flows of funds for their
servicing or from established and broad-based access to the market for
refinancing, or both.
MIG-2/VMIG-2 -- Loans bearing the MIG-2/VMIG-2 designation are of high
quality, with margins of protection ample although not so large as in the
MIG-1/VMIG-1 group.
S&P:
----
SP-1 -- Short-term municipal securities bearing the SP-1 designation have
very strong or strong capacity to pay principal and interest. Those issues rated
SP-1 which are determined to possess overwhelming safety characteristics will be
given a plus (+) designation.
SP-2 -- Issues rated SP-2 have satisfactory capacity to pay principal and
interest.
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:
[bullet] 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:
[bullet] Leading market positions in well-established
industries.
[bullet] High rates of return on funds employed.
[bullet] Conservative capitalization structure with moderate
reliance on debt and ample asset protection.
[bullet] Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
[bullet] Well-established access to a range of financial
markets and assured sources of alternate liquidity.
[bullet] 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.
[bullet] 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.
[bullet] Issuers rated Not Prime do not fall within any of the Prime
rating categories.
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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.
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Filed pursuant to Rule 485(b)
File Nos. 33-19229; 811-5430
SSgA FUNDS
----------
One International Place
Boston, Massachusetts 02110
(800) 647-7327
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
REAL ESTATE EQUITY FUND
December 24, 1997
SSgA Funds ("Investment Company") is a registered open-end investment
company organized as a Massachusetts business trust offering shares of
beneficial interest in separate investment portfolios. In addition, each series
of the Investment Company is diversified as defined in the Investment Company
Act of 1940, as amended ("1940 Act").
This Statement of Additional Information supplements or describes in
greater detail the Investment Company and the SSgA Real Estate Equity Fund (the
"Real Estate Equity Fund" or the "Fund") as contained in the Fund's Prospectus
dated December 24, 1997. This Statement is not a Prospectus and should be read
in conjunction with the Fund's Prospectus, which may be obtained by telephoning
or writing Investment Company at the number or address shown above.
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<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
Structure and Governance............................................... 3
Organization and Business History............................. 3
Shareholder Meetings.......................................... 4
Controlling Shareholders...................................... 4
Principal Shareholders........................................ 4
Trustees and Officers......................................... 4
Operation of Investment Company........................................ 6
Service Providers ........................................... 6
Advisor .................................................... 6
Administrator................................................. 7
Distributor ................................................. 7
Custodian and Transfer Agent.................................. 7
Independent Accountants....................................... 7
Distribution Plan ........................................... 7
Federal Law Affecting State Street............................ 8
Valuation of Fund Shares...................................... 8
Brokerage Practices........................................... 9
Portfolio Turnover Policy..................................... 9
Yield and Total Return Quotations............................. 9
Investments............................................................ 10
Investment Restrictions....................................... 10
Investment Policies........................................... 12
Hedging Strategies and Related Investment Techniques.......... 13
Taxes .............................................................. 16
Financial Statements................................................... 17
Appendix: Description of Securities Ratings........................... 19
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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 Real Estate Equity Fund is one such investment portfolio. The
Trustees may create additional Funds at any time without shareholder approval.
Further, the Investment Company is authorized to divide shares of any
series into two or more classes of shares. The shares of each 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 Fund may have separate voting rights or no voting rights. Each class
of shares of a Fund is entitled to the same rights and privileges as all other
classes of that Fund, except that each class bears the 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 Fund's portfolio securities.
As of the date of this Statement of Additional Information, Investment
Company is comprised of the following investment portfolios, each of which
commenced operations on the date set forth opposite the portfolio's name:
SSgA Money Market Fund May 2, 1988
SSgA US Government Money Market Fund March 1, 1991
SSgA Matrix Equity Fund May 4, 1992
SSgA Small Cap Fund July 1, 1992
SSgA Yield Plus Fund November 9, 1992
SSgA S&P 500 Index Fund December 30, 1992
SSgA Growth and Income Fund September 1, 1993
SSgA Intermediate Fund September 1, 1993
SSgA US Treasury Money Market Fund December 1, 1993
SSgA Prime Money Market Fund February 22, 1994
SSgA Emerging Markets Fund March 1, 1994
SSgA Tax Free Money Market Fund December 1, 1994
SSgA Active International Fund March 7, 1995
SSgA Bond Market Fund February 7, 1996
SSgA Life Solutions Balanced Fund June 2, 1997
SSgA Life Solutions Growth Fund June 2, 1997
SSgA Life Solutions Income and Growth Fund June 2, 1997
SSgA Real Estate Equity Fund *
SSgA US Treasury Obligations Fund *
SSgA International Pacific Index Fund *
- ----------
*As of the date of this Statement of Additional Information, these portfolios
have not commenced operations.
Prospectuses for these Investment Portfolios may be obtained by calling
Investment Company's distributor, Russell Fund Distributors, Inc., at (800)
647-7327 or at its Internet Web Site at www.ssgafunds.com.
Investment Company is authorized to divide shares of any series into two
or more classes of shares. The shares of each 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
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dividends and distributions, liquidation rights, sinking or purchase fund
provisions and conditions under which any Fund may have separate voting rights
or no voting rights. Each class of shares of a Fund is entitled to the same
rights and privileges as all other classes of that Fund, except that each class
bears the 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 Fund's portfolio securities. Shares of
the Money Market, US Government Money Market and Tax Free Money Market Funds are
divided into Classes A, B and C.
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 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 Fund may be held personally
liable for the obligations of a 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 Fund shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The Master Trust Agreement
also provides that the Fund shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the 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 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.
State Street Bank and Trust Company ("State Street") may from time to time
have discretionary authority over accounts that invest in Investment Company
shares. These accounts include accounts maintained for securities lending
program and investment accounts which permit the use of Investment Company
portfolios 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 November 30, 1997, State Street held of record
less than 25% of the issued and outstanding shares of Investment Company in
connection with its discretionary accounts. Consequently, State Street 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.
Frank Russell Investment Management Company, Investment Company's
administrator ("Administrator"), will be the initial sole shareholder of the
Fund until such time as the Fund has public shareholders and therefore
Administrator may be deemed to be a controlling person for the purposes of the
1940 Act.
Principal Shareholders. As of the date of this Statement of Additional
Information, Administrator is the Fund's sole shareholder.
The Trustees and officers of Investment Company, as a group, own less than
1% of Investment Company's voting securities.
Trustees and Officers. The Board of Trustees is responsible for overseeing
generally the operation of the Fund. The 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 Fund's operations.
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<PAGE>
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. Investment Company's officers and employees are paid by
Administrator or its affiliates.
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. Trustee, President and Chief Executive Officer, Russell Insurance Funds
(investment company). Director, Chief Executive Officer and Chairman of the
Board, Russell Fund Distributors, Inc. Trustee, President and Chief Executive
Officer, Frank Russell Investment Company (investment company); Director, Chief
Executive Officer and Chairman of the Board, Frank Russell Investment Management
Company; Director, Chief Executive Officer and President, Frank Russell Trust
Company; Director and Chairman, Frank Russell Investment Company Public Limited
Company; November 1995 to February 1997, Director, Frank Russell Company;
Director and Chairman of the Board, Frank Russell Company (Delaware); Director,
Frank Russell Company; March 1989 to June 1993, Director, Frank Russell Company,
Director of Frank Russell Investments (Ireland) Limited; Director and Chairman,
Frank Russell Investment Company Public Limited Company. Until September 1994,
Director and President, The Laurel Funds, Inc. (investment company).
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 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. 350 Park Avenue, 15th Floor,
New York, NY 10022. Partner, Squire, Sanders & Dempsey (law firm). From 1994 to
1997, Partner, Brown, Rudnick, Freed & Gesmer (law firm). From 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. 1990 to 1992, President, Champions Group Resources--Business
Management and Employee Benefits Consulting; 1990, Senior Vice President,
Employee Benefits Division, Cigna Corporation (providing and insuring group
life, health and disability employee benefit products and services); from 1986
to 1990, Senior Vice President, EQUICOR-Equitable HCA Corporation (providing and
insuring group life, health and disability employee benefit products and
services).
*Bruce D. Taber, Trustee. Born 4/25/43. 26 Round Top Road, Boxford, MA
01921. Consultant, Computer Simulation, General Electric Industrial Control
Systems. Prior to that, President, A.B. Reed, Inc. - Engineers, Architects,
Planners. Prior to that, Vice President, Instrumentation and Controls, A.B.
Reed., Inc.
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<PAGE>
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. Treasurer and Chief Accounting Officer, Russell
Insurance Funds (investment company); Director of Finance and Operations, Frank
Russell Trust Company; Director, Fund Administration and Operations of Frank
Russell Investment Management Company and Russell Fund Distributors, Inc.;
Treasurer and Chief Accounting Office, Frank Russell Investment Company
(investment company); March 1993 to January 1996, Vice President, Operations,
Funds Management, J.P. Morgan; December 1985 to March 1993, Senior Vice
President, Operations, Frank Russell Investment Company, The Laurel Funds, Inc.
and The Seven Seas Series Fund (investment companies); Director of Operations,
Frank Russell Investment Management Company and Frank Russell Trust Company;
Director, Russell Fund Distributors, Inc.
Total Annual Compensation
Trustee from Investment Company
--------------------------------------------------------
Lynn L. Anderson $0
William L. Marshall $55,500
Steven J. Mastrovich $55,500
Patrick J. Riley $55,500
Richard D. Shirk $55,500
Bruce D. Taber $55,500
Henry W. Todd $55,500
OPERATION OF INVESTMENT COMPANY
Service Providers. Most of the 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.
Advisor. State Street serves as the Fund's investment advisor ("Advisor")
pursuant to an Advisory Agreement dated April 12, 1988. State Street Bank and
Trust Company is a wholly owned subsidiary of State Street Corporation, a
publicly held bank holding company. State Street's address is 225 Franklin
Street, Boston, MA 02110.
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<PAGE>
Under the Advisory Agreement, Advisor directs the Fund's investments in
accordance with its investment objective, policies and limitations. For these
services, the Fund pays a fee to Advisor at the rate stated in the Prospectus.
The Advisory Agreement will continue from year to year provided that a majority
of the Trustees who are not interested persons of any Investment Portfolio and
either a majority of all Trustees or a majority of the shareholders of each
Investment Portfolio approve its continuance. The Agreement may be terminated by
Advisor or a Fund without penalty upon 60 days' notice and will terminate
automatically upon its assignment.
Administrator. Frank Russell Investment Management Company
("Administrator") serves as the Fund's administrator, pursuant to an
Administration Agreement dated April 12, 1988. A description of the services
provided under the Administration Agreement and the basis for computing fees for
such services is provided in the Fund's Prospectus. 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 any Investment
Portfolio 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 a Fund
without penalty upon 60 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, Winston-Salem, New
York City, Toronto, London, Tokyo, Sydney, Paris, Zurich and Auckland, and have
approximately 1,200 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 Fund shares pursuant to a Distribution Agreement dated April 12,
1988. Distributor is a wholly owned subsidiary of Administrator. Distributor's
mailing address is One International Place, Boston, MA 02110.
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
Custodian services, State Street is paid an annual fee in accordance with the
following: custody services--a fee payable monthly on a pro rata basis, based on
the following percentages of average daily net assets of each Fund: $0 up to
$1.5 billion--0.02%, over $1.5 billion-0.015% (for purposes of calculating the
breakpoint, the assets of all domestic Funds 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 month. As of the date of this SAI,
a yield calculation will not be calculated for the Fund and therefore the
$350.00 fee will not be charged. For Transfer and Dividend Disbursing Agent
services, State Street is paid the following annual account services fees: $9.00
open account fee; $1.50 closed account fee; fund minimum per portfolio for one
to four portfolios--$36,000, five to six portfolios--$24,000, and over six
portfolios $18,000. Portfolio fees are allocated to each fund based on the
average net asset value of each fund and are billable on a monthly basis at the
rate of 1/12 of the annual fee. State Street will apply a $5.00 fee to each
telephone transaction (purchase or redemption), which is applied against the
monthly billing. State Street is reimbursed by the Fund 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.
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<PAGE>
Distribution Plan. Under the 1940 Act, the Securities and Exchange
Commission has adopted Rule 12b-1, which regulates the circumstances under which
the Fund may, directly or indirectly, bear distribution and shareholder
servicing expenses. The Rule provides that the Fund may pay for such expenses
only pursuant to a plan adopted in accordance with the Rule. Accordingly, the
Fund has adopted an active distribution plan (the "Plan"), which is described in
the Fund's Prospectus.
The Plan provides that the Fund may spend annually, directly or
indirectly, up to 0.25 of 1% of the average daily value of the net assets for
distribution and shareholder servicing services. The Plan does not provide for
the Fund 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 Fund 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 Fund nor have any direct or indirect financial interest in the
operation of the Plan or any related agreements.
Under the Plan, the Fund may also enter into agreements ("Service
Agreements") with financial institutions, which may include Advisor ("Service
Organizations"), to provide shareholder servicing with respect to Fund shares
held by or for the customers of the Service Organizations. Such arrangements are
more fully described in the Fund's Prospectus under "Distribution Services and
Shareholder Servicing."
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 certain 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 Fund, 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 Fund contemplated under this arrangement
are consistent with its statutory and regulatory obligations.
Valuation of Fund Shares. The Fund determines net asset value per share
once each "business day," as of the close of the regular trading session of 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,
Martin Luther King Jr. Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
The Fund's portfolio securities actively trade on foreign exchanges which
may trade on days that the Fund does not offer or redeem shares. The trading of
portfolio securities on foreign exchanges on such days may significantly
increase or decrease the net asset value of Fund shares when the shareholder is
not able to purchase or redeem Fund shares. Further, because foreign securities
markets may close prior to the time the Fund determines net asset value, events
affecting the value of the portfolio securities occurring between the time
prices are determined and the time the Fund calculates net asset value may not
be reflected in the calculation of net asset value unless Advisor determines
that a particular event would materially affect the net asset value.
The Fund values securities maturing within 60 days of the valuation date
at amortized cost unless the Board determines that the amortized cost method
does not represent market 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
Fund would receive if it sold the instrument.
For example, in periods of declining interest rates, the daily yield on
Fund shares computed by dividing the annualized daily income on the Fund's
portfolio by the net asset value based upon the amortized cost valuation
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<PAGE>
technique 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 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. All portfolio transactions are placed on behalf of
the 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 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 Fund and/or Advisor (or its
affiliates). Advisor is authorized to cause the 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 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 Advisor's performance of its
responsibilities in connection with the placement of portfolio transactions on
behalf of the Fund and review the prices paid by the Fund over representative
periods of time to determine if such prices are reasonable in relation to the
benefits provided to the Fund. Certain services received by Advisor attributable
to a particular Fund transaction may benefit one or more other accounts for
which Advisor exercises investment discretion or an Investment Portfolio other
than such Fund. Advisor's fees are not reduced by Advisor's receipt of such
brokerage and research services.
Portfolio Turnover Policy. Generally, securities are purchased for the
Fund for investment income and/or capital appreciation and not for short-term
trading profits.
The portfolio turnover rate for the 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.
Yield and Total Return Quotations. The Fund computes 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-, five- and ten-year periods (or life of the funds as
appropriate), that would equate the initial amount invested to the ending
redeemable value, according to the following formula:
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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-, 5- and 10-year periods
at the end of the year or period
The calculation assumes that all dividends and distributions of the Fund
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.
Total returns and other performance figures are based on historical
earnings and are not indicative of future performance.
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)/cd(6)-1]
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 yield quoted is not indicative of future results. Yields will depend
on the type, quality, maturity and interest rate of instruments held by the
Fund.
INVESTMENTS
The investment objective of the Fund is set forth in the Prospectus. The
investment objective may be changed with the approval of a majority of the
Fund's Board of Trustees, with at least 60 days' prior notice to shareholders.
In addition to that investment objective, the Fund also has certain
fundamental investment restrictions, which may be changed only with the approval
of a majority of the shareholders of the Fund, and certain nonfundamental
investment restrictions and policies, which may be changed by the Fund without
shareholder approval.
Investment Restrictions
- -----------------------
The Fund is subject to the following investment restrictions. Restrictions
1 through 9 are fundamental, and restrictions 10 through 16 are nonfundamental.
These restrictions apply at the time an investment is made. The Fund will 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 and instrumentalities, non-deposit instruments issued by European
banks, and securities of companies directly or indirectly engaged in the real
estate industry).
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<PAGE>
(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 Fund's assets
taken at market value, less liabilities other than borrowings. If at any time a
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 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, the Fund may
pledge securities having a market value at the time of the pledge not exceeding
33-1/3% of the value of the Fund's 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), if immediately after and as a result of such investment the
current market value of the Fund's holdings in the securities of such issuer
exceeds 5% of the value of the Fund's assets.
(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 a type permitted by the
Fund's investment policies, or (ii) the entry into repurchase agreements or
reverse repurchase agreements. A 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 the Fund's total
assets.
(6) Purchase or sell commodities or commodity futures contracts or options
on a futures contract except that the Fund may enter into futures contracts and
options thereon to the extent provided in its Prospectus.
(7) Purchase or sell real estate; provided, however, that the Fund may
invest in securities secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein (including public and
private real estate investment trusts, partnerships and similar companies).
(8) Engage in the business of underwriting securities issued by others,
except that the Fund 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.
This restriction shall not be deemed to prohibit the Fund from (i) making any
permitted borrowings, mortgages or pledges, or (ii) entering into repurchase
transactions.
(10) Purchase or sell puts, calls or invest in straddles, spreads or any
combination thereof, except as described herein and in the Fund's Prospectus,
and subject to the following conditions: (i) such options are written by other
persons and (ii) the aggregate premiums paid on all such options which are
purchased at any time do not 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 Fund 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
Fund, including their investment advisors and affiliates, except as permitted by
the 1940 Act and exemptive rules or orders thereunder.
(13) Invest more than 15% 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.
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<PAGE>
(14) Make investments for the purpose of gaining control of an issuer's
management.
(15) Invest in warrants, valued at the lower of cost or market, in excess
of 5% of the value of the Fund's net assets. Included in such amount, but not to
exceed 2% of the value of the Fund's net assets, may be warrants which are not
listed on the New York Stock Exchange or American Stock Exchange. Warrants
acquired by the Fund in units or attached to securities may be deemed to be
without value.
(16) Invest in securities issued by other investment companies except in
connection with a merger, consolidation, acquisition of assets, or other
reorganization approved by the Fund's shareholders, except that the Fund may
invest in such securities to the extent permitted by the 1940 Act.
To the extent these restrictions reflect matters of operating policy which
may be changed without shareholder vote, these restrictions may be amended upon
approval by the Board of Trustees and notice to shareholders.
If a percentage restriction is adhered to at the time of investment, a
subsequent increase or decrease in a percentage resulting from a change in the
values of assets will not constitute a violation of that restriction, except as
otherwise noted.
Investment Policies
- -------------------
To the extent consistent with its investment objective restrictions, the
Fund may invest in the following instruments and utilize the following
investment techniques:
US Government Obligations. The types of US Government obligations in which
the Fund 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 Fund may purchase US
Government obligations on a forward commitment basis.
Debt Securities. The Fund may also invest temporarily in investment grade
debt securities for defensive purposes. The Fund will primarily invest in equity
securities as defined under the Securities Exchange Act of 1934 (including
convertible debt securities). Other debt will typically represent less than 5%
of the Fund's assets. Please see the Appendix for a description of securities
ratings.
Asset-Backed Securities. 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.
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
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credit enhancement. The risks of investing in asset-backed securities are
ultimately dependent upon payment of the underlying instruments by the obligors,
and a 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.
Hedging Strategies and Related Investment Techniques
- ----------------------------------------------------
The Fund may seek to hedge its portfolios against movements in the equity
markets and interest rates through the use of options, futures transactions and
options on futures. The Fund has authority to write (sell) covered call and put
options on its 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 Fund 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 Fund will only engage in these transactions for
hedging purposes, the options and futures portfolio strategies of the Fund will
not subject the Fund to the risks frequently associated with the speculative use
of options and futures transactions. Although the use of hedging strategies by
the Fund is intended to reduce the volatility of the net asset value of the
Fund's shares, the Fund's net asset value will nevertheless fluctuate. There can
be no assurance that the Fund's hedging transactions will be effective.
Writing Covered Call Options. The Fund is 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 Fund 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 Fund 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 Fund
would seek to mitigate the effects of a price decline. By writing covered call
options, however, the Fund 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 Fund's ability to sell the underlying
security will be limited while the option is in effect unless the Fund effects a
closing purchase transaction.
Writing Covered Put Options. The Fund is authorized to write (sell)
covered put options on its portfolio securities and to enter into closing
transactions with respect to such options.
When the Fund 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 Fund 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 Fund 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 Fund has written,
however, the Fund 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.
The Fund may write put options as an alternative to purchasing actual
securities. If security prices rise, the Fund 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 Fund will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the Fund would expect to
suffer a loss. This loss should be less than the loss the Fund 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 Fund is authorized to purchase put options
to hedge against a decline in the market value of its portfolio securities. By
buying a put option the Fund has the right (but not the obligation) to sell the
underlying security at the exercise price, thus limiting the 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 Fund for the
put option and any related
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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
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
Fund will not purchase put options on securities (including stock index options
discussed below) if as a result of such purchase, the aggregate premiums of all
outstanding options on securities held by the Fund would exceed 5% of the market
value of the Fund's total assets.
Purchasing Call Options. The Fund is 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 Fund will purchase call options only in
connection with "closing purchase transactions."
Stock Index Options and Financial Futures. The Fund is authorized to
engage in transactions in stock index options and financial futures, and related
options. The Fund 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 Fund 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 Fund 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 Fund 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 Fund 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 Fund in stock index futures and financial
futures are subject to limitations as described below under "Restrictions on the
Use of Futures Transactions."
The Fund may sell futures contracts in anticipation of or during a
market decline to attempt to offset the decrease in market value of the Fund's
securities portfolio that might otherwise result. When a Fund is not fully
invested in the securities markets and anticipates a significant market advance,
the Fund may purchase futures in order to gain rapid market exposure that may
partially or entirely offset increases in the cost of securities that the Fund
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 Fund 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 Fund experiences a
significant amount of redemptions), a long futures position may be terminated
without the corresponding purchase of securities.
The Fund 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 Fund enters into futures transactions. The Fund
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 Fund 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 Fund
intends to purchase.
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The Fund is 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.
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 futures 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.
Regulations of the Commodity Futures Trading Commission ("CFTC")
applicable to the Fund requires that all of the Fund's futures and options on
futures transactions constitute bona fide hedging transactions and that the Fund
not enter into such transactions if, immediately thereafter, the sum of the
amount of initial margin deposits on the Fund's existing futures positions and
premiums paid for related options would exceed 5% of the market value of the
Fund's total assets.
Restrictions on OTC Options. The Fund will engage in OTC options,
including OTC stock index options 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 Fund will acquire only those OTC options for which Advisor believes the Fund
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 Fund 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 Fund; (2) the market value of the underlying
securities covered by outstanding OTC call options sold by the Fund; (3) margin
deposits on the Fund's existing OTC options on futures contracts; and (4) the
market value of all other assets of the Fund that are illiquid or are not
otherwise readily marketable, would exceed 10% of the net assets of the Fund,
taken at market value. However, if an OTC option is sold by the Fund to a
primary US Government securities dealer recognized by the Federal Reserve Bank
of New York and the Fund has the unconditional contractual right to repurchase
such OTC option from the dealer at a predetermined price, then the Fund 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 Fund will not use
leverage in its options and futures strategies. Such investments will be made
for hedging purposes only. The Fund will hold securities or other options or
futures positions whose values are expected to offset its obligations under the
hedge strategies. The Fund will not enter into an option or futures position
that exposes the Fund 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 Fund will comply with guidelines
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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 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 a Fund's assets could
impede portfolio management or the Fund's ability to meeting redemption requests
or other current obligations.
Risk Factors in Options and Futures. Utilization of options and futures
transactions to hedge the Fund's portfolios involves the risk of imperfect
correlation in movements in the price of options and futures and movements in
the price of securities 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, the
Fund 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.
To compensate for imperfect correlations, the Fund 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 Fund 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 Fund 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 Fund 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 Fund 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 a Fund's ability to
effectively hedge its portfolio. There is also the risk of loss by a 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 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 Fund intends 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 Fund 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 Fund distributes annually to its shareholders at least 90% of
its net investment income and net short-term capital gain for the taxable year
("Distribution Requirement"). For a Fund to qualify as a RIC it must abide by
all of the following requirements: (1) at least 90% of the Fund's 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 other income (including gains from options or futures
contracts) derived with respect to its business of investing in such stock or
securities ("Income Requirement"); (2) less than 30% of the Fund's gross income
each taxable year must be derived from the sale or other disposition of
securities
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and certain options and futures contracts held for less than three
months ("Short-Short Limitation"); (3) at the close of each quarter of the
Fund's 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 Fund 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 Fund's
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 Fund 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 its ordinary income for that year; (2) 98% of its 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 Fund subsequent to December 31 but prior to February 1 of the
following year.
If a shareholder receives a distribution taxable as a 20% gain or a 28%
gain with respect to shares of a 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 a 20% loss or a 28% loss to the extent
of the respective capital gain distribution.
Dividends-Received Deduction. The portion of the dividends received from
the Fund by its corporate shareholders which qualifies for the 70%
dividends-received deduction will be reduced to the extent that the Fund holds
dividend-paying stock for less than 45 days (91 days for certain preferred
stocks). In addition, distributions that the Fund receives from a REIT will not
constitute "dividends" for purposes of the dividends-received deduction.
Accordingly, only a small percentage of dividends from the Fund are expected to
qualify for the dividends-received deduction. Shareholders should consult their
tax advisor regarding dividends-received deductions and their allowance.
Issues Related to Hedging and Option Investments. The Fund's ability to
make certain investments may be limited by provisions of the Code that require
inclusion of certain unrealized gains or losses in the Fund's 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 and option contracts.
State and Local Taxes. Depending upon the extent of the Fund's activities
in states and localities in which its offices are maintained, its agents or
independent contractors are located or it is otherwise deemed to be conducting
business, the Fund 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 Funds and their shareholders. Circumstances among
investors may vary and each investor is encouraged to discuss investment in the
Funds with the investor's tax advisor.
FINANCIAL STATEMENTS
Unaudited financial statements for the Fund, 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 Fund first accepts a subscription from an
unaffiliated shareholder. Audited financial statements for the Fund will be
available within 60 days following the end of the Fund's then current fiscal
year. When available, copies of the financial statements can be obtained without
charge by calling Distributor at (800) 647-7327.
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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.
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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.
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:
[bullet] 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:
[bullet] Leading market positions in well-established
industries.
[bullet] High rates of return on funds employed.
[bullet] Conservative capitalization structure with moderate
reliance on debt and ample asset protection.
[bullet] 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.
[bullet] 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.
[bullet] 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.
[bullet] 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.
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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 U.S. 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.
-20-
<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.
-21-
<PAGE>
Filed pursuant to Rule 485(b)
File Nos. 33-19229; 811-5430
SSgASM LIFE SOLUTIONSSM FUNDS
One International Place
Boston, Massachusetts 02110
(800) 647-7327
SSgA Funds (the "Investment Company") is a registered, open-end
management investment company with multiple investment portfolios, each of which
is commonly referred to as a mutual fund. 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 December 24, 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 (www.sec.gov). You may also access the SSgA Fund's website at
www.ssgafunds.com.
<TABLE>
<S> <C> <C>
Investment Advisor, Custodian
and Transfer Agent: Distributor: Administrator:
State Street Bank and Trust Russell Fund Distributors, Inc. Frank Russell Investment
Company One International Place Management Company
225 Franklin Street Boston, Massachusetts 02110 909 A Street
Boston, Massachusetts 02110 Tacoma, Washington 98402
</TABLE>
PROSPECTUS DATED December 24, 1997
-1-
<PAGE>
TABLE OF CONTENTS
Page
----
Highlights............................................................... 3
Annual Fund Operating Expenses........................................... 5
Financial Highlights..................................................... 7
SSgA Life Solutions Funds................................................ 10
Manner of Offering....................................................... 10
Investment Objectives and Asset Allocation of the Life Solutions Funds... 10
Life Solutions Funds: Special Risk Considerations....................... 12
Portfolio Turnover....................................................... 12
Investment Restrictions.................................................. 12
Description of the Underlying Funds...................................... 13
Dividends and Distributions.............................................. 17
Taxes.................................................................... 18
Valuation of Life Solutions and Underlying Fund Shares................... 19
Purchase of Life Solutions Fund Shares................................... 20
Redemption of Life Solutions Fund Shares................................. 22
General Management....................................................... 24
Life Solutions Fund Expenses............................................. 27
Performance Calculations................................................. 28
Additional Information................................................... 28
Appendix................................................................. 31
-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 5.
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 10.
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 10.
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
12.
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 34.
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 12.
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 17.
Taxes on the Life Solutions Funds should be none. Taxable 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 18.
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 19.
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
20.
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 22.
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 24.
-3-
<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
27.
Additional Information is also included in this Prospectus concerning the
custodian, transfer agent and independent accountants; and organization,
capitalization and voting. Page 28.
-4-
<PAGE>
ANNUAL LIFE SOLUTIONS FUND OPERATING EXPENSES
(AFTER FEE REIMBURSEMENT)
LIFE SOLUTIONS BALANCED
LIFE SOLUTIONS GROWTH
LIFE SOLUTIONS INCOME AND GROWTH
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:
- ---------------------------------
<TABLE>
<CAPTION>
Income and Balanced Growth
---------- -------- ------
Growth
------
<S> <C> <C> <C>
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 Distribution Fees(1) .02% .02% .02%
12b-1 Shareholder Servicing Fees(1) .13 .13 .13
Other Expenses (After Fee Reimbursement)(1) .30 .30 .30
---- ---- ----
Total Operating Expenses (After Reimbursement)(1), (2) .45% .45% .45%
==== ==== ====
</TABLE>
- -------------------------
(1) 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 1.09%, .44%, and .49%; and
1.24%, .59% and .64%, respectively, of average daily net assets on an
annual basis. The fee reimbursement agreement will remain in effect for
the current fiscal year.
(2) The expense information in this table has been restated to reflect current
fees. 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.
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 August 31, 1997). 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.
<TABLE>
<CAPTION>
==================================================================================================
Underlying Fund Expense Ratio Before Fee Expense Ratio After Fee
Waivers and/or Expense Waivers and/or Expense
Reimbursements (%) Reimbursements (%)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
S&P 500 Index 0.26 0.16
- --------------------------------------------------------------------------------------------------
Matrix Equity 0.95 0.70
- --------------------------------------------------------------------------------------------------
Small Cap 1.05 1.05
- --------------------------------------------------------------------------------------------------
Growth and Income 1.21 0.95
- --------------------------------------------------------------------------------------------------
Active International 1.40 1.00
- --------------------------------------------------------------------------------------------------
Emerging Markets 1.51 1.25
- --------------------------------------------------------------------------------------------------
Bond Market 0.53 0.50
- --------------------------------------------------------------------------------------------------
Intermediate 1.30 0.60
- --------------------------------------------------------------------------------------------------
Yield Plus 0.38 0.38
- --------------------------------------------------------------------------------------------------
Money Market 0.39 0.39
- --------------------------------------------------------------------------------------------------
US Gov't Money Market 0.44 0.44
==================================================================================================
</TABLE>
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 indirect expense ratio
(before and after fee waivers and or expense reimbursements) of each Life
Solutions Fund:
<TABLE>
<CAPTION>
==============================================================================================
Life Solutions Fund Average Indirect Expense Ratios Before and After
Fee Waiver
and/or Expense Reimbursement (%)
- ----------------------------------------------------------------------------------------------
Before After
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Income and Growth Fund 0.81 0.60
- ----------------------------------------------------------------------------------------------
Balanced Fund 0.86 0.65
- ----------------------------------------------------------------------------------------------
Growth Fund 0.91 0.70
==============================================================================================
</TABLE>
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:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Life Solutions Income and Growth Fund $11 $33 $58 $128
Life Solutions Balanced Fund 11 35 61 134
Life Solutions Growth Fund 12 37 63 140
</TABLE>
The examples should not be considered a statement of actual past or future
expenses. Actual expenses may be greater or less than those shown.
-6-
<PAGE>
FINANCIAL HIGHLIGHTS
SSgA LIFE SOLUTIONS BALANCED
The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Fund's independent
accountants. The table includes selected data for a share outstanding throughout
each fiscal year or period ended August 31, and other performance information
derived from the financial statements. The table appears in the Fund's Annual
Report and should be read in conjunction with the Fund's financial statements
and related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand L.L.P., in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Distributor at (800) 647-7327.
1997++
----
NET ASSET VALUE,
BEGINNING OF PERIOD $ 13.69
---------
INCOME FROM INVESTMENT
OPERATIONS:
Net realized and unrealized gain
(loss) on investments .29
---------
NET ASSET VALUE, END OF PERIOD $13.98
=========
TOTAL RETURN (%)(a) 2.12
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
($000 omitted) 47,003
Ratios to average net assets (%) (b):
Operating expenses, net .35
Operating expenses, gross .49
Net investment income .07
Portfolio turnover (%) (b) 51.61
Per share amount of expense reductions
($ omitted) .0035
++ For the period July 1, 1997 (commencement of operations) to
August 31, 1997.
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended August 31, 1997 are annualized.
-7-
<PAGE>
FINANCIAL HIGHLIGHTS
SSgA LIFE SOLUTIONS GROWTH
The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Fund's independent
accountants. The table includes selected data for a share outstanding throughout
each fiscal year or period ended August 31, and other performance information
derived from the financial statements. The table appears in the Fund's Annual
Report and should be read in conjunction with the Fund's financial statements
and related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand L.L.P., in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Distributor at (800) 647-7327.
1997++
NET ASSET VALUE,
BEGINNING OF PERIOD $ 14.44
---------
INCOME FROM INVESTMENT
OPERATIONS:
Net realized and unrealized gain
(loss) on investments .35
---------
NET ASSET VALUE, END OF PERIOD $14.79
=========
TOTAL RETURN (%)(a) 2.42
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
($000 omitted) 43,603
Ratios to average net assets (%) (b):
Operating expenses, net .35
Operating expenses, gross .54
Net investment income .09
Portfolio turnover (%) (b) 39.49
Per share amount of expense reductions
($ omitted) .0048
++ For the period July 1, 1997 (commencement of operations) to
August 31, 1997.
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended August 31, 1997 are annualized.
-8-
<PAGE>
FINANCIAL HIGHLIGHTS
SSgA LIFE SOLUTIONS INCOME AND GROWTH
The following table contains important financial information relating to the
Fund and has been audited by Coopers & Lybrand L.L.P., the Fund's independent
accountants. The table includes selected data for a share outstanding throughout
each fiscal year or period ended August 31, and other performance information
derived from the financial statements. The table appears in the Fund's Annual
Report and should be read in conjunction with the Fund's financial statements
and related notes, which are incorporated by reference in the Statement of
Additional Information and which appear, along with the report of Coopers &
Lybrand L.L.P., in the Fund's Annual Report to Shareholders. More detailed
information concerning the Fund's performance, including a complete portfolio
listing and audited financial statements, is available in the Fund's Annual
Report, which may be obtained without charge by writing or calling the
Distributor at (800) 647-7327.
1997++
----
NET ASSET VALUE,
BEGINNING OF PERIOD $ 12.68
---------
INCOME FROM INVESTMENT
OPERATIONS:
Net realized and unrealized gain
(loss) on investments .25
---------
NET ASSET VALUE, END OF PERIOD $12.93
=========
TOTAL RETURN (%)(a) 1.97
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
($000 omitted) 13,979
Ratios to average net assets (%) (b):
Operating expenses, net .35
Operating expenses, gross 1.14
Net investment income .16
Portfolio turnover (%) (b) 106.68
Per share amount of expense reductions
($ omitted) .0161
++ For the period July 1, 1997 (commencement of operations) to
August 31, 1997.
(a) Periods less than one year are not annualized.
(b) The ratios for the period ended August 31, 1997 are annualized.
-9-
<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:
===============================================================================
Capital
Life Solutions Fund Appreciation Income Volatility
- -------------------------------------------------------------------------------
Income and Growth Low High Low
- -------------------------------------------------------------------------------
Balanced Medium Medium Medium
- -------------------------------------------------------------------------------
Growth High Low High
===============================================================================
-10-
<PAGE>
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, risk profile, market conditions and liquidity needs. 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.
<TABLE>
<CAPTION>
==========================================================================================================
Asset Class/Underlying Fund Income and Growth Balanced Growth
--------------------------- ----------------- -------- ------
<S> <C> <C> <C>
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
==========================================================================================================
</TABLE>
- ------------
* 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.
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.
-11-
<PAGE>
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
Portfolio turnover rates cannot be predicted, but it is expected that
each Life Solutions Fund's turnover rate should not exceed 100% annually. A high
turnover rate (over 100%) will: (1) increase transaction expenses which will
adversely affect a Fund's performance; and (2) result in increased brokerage
commissions and other transaction costs, and the possibility of realized capital
gains. A Life Solutions Fund may purchase or sell securities to: (1) accommodate
purchases and sales of its shares; (2) change the percentages of its assets
invested in each of the Underlying Funds in response to market conditions; and
(3) 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.
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.
-12-
<PAGE>
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 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.
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.
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<PAGE>
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.
Equity securities will be selected by the Fund on the basis of
proprietary analytical models of Advisor. 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.
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 Fund's 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, and equity-like, securities of emerging market countries (i.e.,
typically over 85%). Currently, the
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definition of an emerging market is that gross domestic product per capita is
less than $10,000 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 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 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 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.
-15-
<PAGE>
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 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 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.
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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 August 31, 1997.
<TABLE>
<CAPTION>
===============================================================================================================================
7-day Yield for 30-day Yield
Since period for period
Underlying Fund Assets as of Inception 1 Yr. 3 Yr. 5 Yr. Inception ended 8/31/97 ended 8/31/97
8/31/97 Date (%) (%) (%) (%) (%) (%)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
S&P 500 Index $1,299,570,686 12/30/92 40.30 26.26 -- 19.43 -- --
- -------------------------------------------------------------------------------------------------------------------------------
Matrix Equity 429,397,404 05/04/92 42.75 24.82 20.33 18.49 -- --
- -------------------------------------------------------------------------------------------------------------------------------
Small Cap 149,809,160 11/23/94 35.85 29.57 22.82 22.22 -- --
- -------------------------------------------------------------------------------------------------------------------------------
Growth and
Income 71,735,853 09/01/93 40.95 22.79 -- 18.42 -- --
- -------------------------------------------------------------------------------------------------------------------------------
Active
International 83,929,646 03/07/95 1.17 -- -- 6.54 -- --
- -------------------------------------------------------------------------------------------------------------------------------
Emerging
Markets 252,708,031 03/01/94 15.12 4.04 -- 7.53 -- --
- -------------------------------------------------------------------------------------------------------------------------------
Bond Market 87,664,391 02/07/96 9.47 -- -- 4.47 -- 6.18
- -------------------------------------------------------------------------------------------------------------------------------
Intermediate 53,833,626 09/01/93 8.00 7.36 -- 4.56 -- 5.87
- -------------------------------------------------------------------------------------------------------------------------------
Yield Plus 840,055,491 11/09/92 5.67 5.80 -- 4.97 -- 5.51
- -------------------------------------------------------------------------------------------------------------------------------
Money Market 4,278,190,700 05/02/88 5.28 5.39 4.55 5.84 5.25 5.27
- -------------------------------------------------------------------------------------------------------------------------------
Government
Money Market 904,600,986 03/01/91 5.19 5.28 4.44 4.58 5.19 5.18
===============================================================================================================================
</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.
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 Life Solutions 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
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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:
o 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.
o Income-Earned Option--Capital gain distributions will be automatically
reinvested, but a check or wire will be sent for each income dividend
distribution.
o Cash Option--A check or wire will be sent for each income dividend and
capital gain distribution.
o Direct Dividends Option--Income dividend and capital gain distributions
will be automatically invested in an identically registered SSgA 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 be subject to federal income
taxes to the extent they distribute their net investment income and net capital
gain (long-term capital gains in excess of short-term 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 20% gains and 28% gains are taxable as 20% gains or 28%
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 20% loss or a 28% 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
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<PAGE>
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 4:00 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 4:00 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 4:00 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.
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.
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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.
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:
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<PAGE>
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 on the day in which the call is placed (between 8:00 a.m. and 4:00 p.m.
Eastern time) or upon written receipt of instructions in good form by the
Transfer Agent. 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. Investors may make initial investments (minimum
$50,000) or subsequent investments 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 8:00 a.m. and 4:00 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.
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.
-21-
<PAGE>
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 in order be effective on the date
received. Shareholder servicing agents with underlying shareholders in omnibus
accounts who receive redemption requests by 4:00 p.m. Eastern time may transmit
the request to the Transfer Agent by 9:00 a.m. Eastern time the next succeeding
business day and receive the dividend as of the day the redemption request was
originally made by the underlying shareholder. 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.
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
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<PAGE>
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, o Letter of instruction, signed by all persons authorized
joint, sole to sign for the account stating general titles/capacity,
proprietorship, UGMA/UTMA exactly as the account is registered; and
(custodial accounts for
minors) or general partner o Signature guarantee, if applicable (see above).
accounts
- -----------------------------------------------------------------------------------------
Owners of corporate or o Letter of instruction signed by authorized person(s),
association accounts stating capacity as indicated by the corporate
resolution;
o Corporate resolution, certified within the
past 90 days; and
o Signature guarantee, if applicable (see above).
- -----------------------------------------------------------------------------------------
Owners or trustees of o Letter of instruction, signed by all trustees;
trust accounts
o If the trustees are not named in the
registration, please provide a copy of the
trust document certified within the past 60
days; and
o Signature guarantee, if applicable (see above).
- -----------------------------------------------------------------------------------------
Joint tenancy shareholders o Letter of instruction signed by surviving tenant(s);
whose co-tenants are
deceased o Certified copy of the death certificate; and
o Signature guarantee, if applicable (see above).
=========================================================================================
</TABLE>
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<PAGE>
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 $370 billion (US) under management as of September 30, 1997,
provides complete global investment management services from offices in Atlanta,
Boston, Brussels, Copenhagen, Dubai, Hong Kong, London, Minneapolis,
Montpellier, Montreal, Munich, Paris, San Francisco, Sydney, Tokyo, and Toronto.
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 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, 1997:
<TABLE>
<CAPTION>
==================================================================================================
Advisory Fees (% of Average Daily Net Assets) for the Fiscal
Year Ended August 31, 1997:
- --------------------------------------------------------------------------------------------------
Underlying Fund Advisory Fee Net of Waivers or Advisory Fee Absent the
Reimbursements Waivers or Reimbursements
(%) (%)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
S&P 500 Index 0.00 0.10
- --------------------------------------------------------------------------------------------------
Matrix Equity 0.50 0.75
- --------------------------------------------------------------------------------------------------
Small Cap 0.75 0.75
- --------------------------------------------------------------------------------------------------
Growth and Income 0.59 0.85
- --------------------------------------------------------------------------------------------------
Active International 0.35 0.75
- --------------------------------------------------------------------------------------------------
Emerging Markets 0.49 0.75
- --------------------------------------------------------------------------------------------------
Bond Market 0.27 0.30
- --------------------------------------------------------------------------------------------------
Intermediate 0.10 0.80
- --------------------------------------------------------------------------------------------------
Yield Plus 0.25 0.25
- --------------------------------------------------------------------------------------------------
Money Market 0.25 0.25
- --------------------------------------------------------------------------------------------------
US Gov't Money Market 0.25 0.25
==================================================================================================
</TABLE>
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
-24-
<PAGE>
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 November 30, 1997, State Street held of
record less than 25% 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 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 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. 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 are two
other portfolio managers who assist 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 32 mutual funds with assets of $11.3 billion as of October 31,
1997, and acts as administrator to 20 mutual funds, including the Life Solutions
Funds presented in this Prospectus, with assets of $10.8 billion as of October
31, 1997.
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
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<PAGE>
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:
[bullet] All Underlying Funds (except Active International and Emerging
Markets)
[bullet] To and including $500 million--.06%;
[bullet] Over $500 million to and including $1 billion--.05%; and
[bullet] Over $1 billion--.03%.
[bullet] Active International and Emerging Markets
[bullet] To and including $500 million--.07%;
[bullet] Over $500 million to and including $1 billion--.06%;
[bullet] Over $1 billion to and including $1.5 billion--.04%; and
[bullet] 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 Solutions Funds. Further, the administration fees noted above which are
paid by the Investment Company will be reduced by the sum of certain
distribution related expenses, up to certain maximum percentages, as follows:
(1) 10% from January 1, 1997 to December 31, 1997; 5% from January 1, 1998 to
December 31, 1998; and (3) 0% from January 1, 1999 thereafter.
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
-26-
<PAGE>
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 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.
The Investment Company has entered into Service Agreements with the
Advisor and the following entities related to the Advisor: State Street
Brokerage Services, Inc., Metropolitan Division of Commercial Banking,
Retirement Investment Services Division and State Street Solutions. The purpose
of the Service Agreements is to obtain shareholder services for Fund shares
owned by clients of each of these entities. In return for these services, the
Investment Company pays each of the entities a fee. These agreements are
reviewed annually by the Board of Trustees.
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.
-27-
<PAGE>
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 prescribed by the Securities and Exchange Commission 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.
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
-28-
<PAGE>
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.
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.
As of November 30, 1997, State Street Solutions owned of record the
following percentages of the issued and outstanding shares of the Life Solutions
Funds and is therefore deemed to be a controlling person for purposes of the
1940 Act:
o Income and Growth-85%;
o Balanced-97%; and
o Growth-99%
Such shares may be held pursuant to a shareholder servicing arrangement in
omnibus accounts for underlying shareholders.
-29-
<PAGE>
SSgA LIFE SOLUTIONS FUNDS
One International Place
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
-30-
<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). 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 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.
-31-
<PAGE>
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.
Section 4(2) Commercial Paper (Money Market, Yield Plus, Intermediate,
Tax Free and Bond only). The Fund may also 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 institutional investors such as the Prime Money Market Fund
that agree that they are purchasing the paper for investment and not with a view
to public distribution. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) paper normally is resold to other institutional
investors like the Fund through or with the assistance of the issuer or
investment dealers that make a market in Section 4(2) paper. Section 4(2) paper
will not be subject to the Investment Company's percentage limitations on
illiquid securities where the Board of Trustees of the Investment Company
(pursuant to guidelines adopted by the Board) determines that a liquid trading
market exists.
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 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 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 Certificates
("Fannie Maes"). Mortgage 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.
-32-
<PAGE>
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, 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. For these purposes, total assets shall include the
value of all assets received as collateral for the loan. 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.
Equity Swaps (Emerging Markets and Active International only). Equity
swap agreements are contracts between parties in which one party agrees to make
payments to the other party based on the change in market value of a specified
index or asset. In return, the other party agrees to make payments to the first
party based on the return of a different specified index or asset. Although swap
agreements entail the risk that a party will default on its payment obligations,
the portfolios will minimize this risk by entering into agreements only with
counterparties that the Advisor deems creditworthy. Swap agreements also bear
the risk that the portfolios will not be able to meet their obligation to the
counterparty. This risk will be mitigated by investing the portfolios in the
specific asset for which it is obligated to pay a return.
-33-
<PAGE>
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. 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.
-34-
<PAGE>
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 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'
-35-
<PAGE>
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.
-36-
<PAGE>
Filed pursuant to Rule 485(b)
File Nos. 33-19229; 811-5430
SSgA FUNDS
----------
One International Place
Boston, Massachusetts 02110
(800) 647-7327
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
LIFE SOLUTIONSSM FUNDS
December 24, 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 December 24, 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.
1
<PAGE>
TABLE OF CONTENTS
Page
----
STRUCTURE AND GOVERNANCE..................................................... 3
Organization and Business History........................................ 3
Shareholder Meetings..................................................... 4
Controlling Shareholders................................................. 4
Principal Shareholders................................................... 4
Trustees and Officers.................................................... 6
OPERATION OF THE INVESTMENT COMPANY.......................................... 8
Service Providers........................................................ 8
Advisor.................................................................. 8
Administrator........................................................... 10
Distributor............................................................. 11
Custodian and Transfer Agent............................................ 11
Independent Accountants................................................. 11
Distribution Plan....................................................... 12
Federal Law Affecting State Street...................................... 14
Valuation of the Life Solutions Fund Shares............................. 14
Brokerage Practices..................................................... 15
Portfolio Turnover Rates................................................ 17
Total Return Quotations................................................. 18
Yield................................................................... 19
INVESTMENTS................................................................. 19
Investment Restrictions................................................. 19
Investment Practices of the Underlying Funds............................ 21
Investment Policies..................................................... 23
Hedging Strategies and Related Investment Techniques.................... 32
TAXES....................................................................... 36
APPENDIX: DESCRIPTION OF SECURITIES RATINGS................................ 38
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 commenced operations on July 1, 1997 The
Underlying Funds commenced operations on the date set forth opposite the
respective Fund's name:
<TABLE>
<CAPTION>
===============================================================================================
Underlying Fund Inception Date
- -----------------------------------------------------------------------------------------------
<S> <C>
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
===============================================================================================
</TABLE>
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:
<TABLE>
<CAPTION>
===============================================================================================
Additional Investment Company Portfolios Inception Date
- -----------------------------------------------------------------------------------------------
<S> <C>
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 *
===============================================================================================
</TABLE>
*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 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 expenses associated with the
3
<PAGE>
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 November 30, 1997, State Street held beneficially and of
record 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.
4
<PAGE>
As of November 30, 1997, the following shareholders owned of record 5%
or more of the issued and outstanding shares of the Life Solutions Funds:
Life Solutions Income and Growth
o National Financial Services, P.O. Box 3908, Church Street Station, New
York, NY 10008 -- 15%; and
o State Street Solutions, State Street Bank and Trust Company, TTEE, P.O.
Box 1389, Boston, MA 02104--85%.
Life Solutions Balanced Fund
o State Street Solutions, State Street Bank and Trust Company, TTEE, P.O.
Box 1389, Boston, MA 02104--97%.
Life Solutions Growth Fund
o State Street Solutions, State Street Bank and Trust Company, TTEE, P.O.
Box 1389, Boston, MA 02104--99%.
Such shares may be held pursuant to a shareholder servicing arrangement
in omnibus accounts for underlying shareholders.
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 $55,500
--------------------------------------------------------
Steven J. Mastrovich $55,500
--------------------------------------------------------
Patrick J. Riley $55,500
--------------------------------------------------------
Richard D. Shirk $55,500
--------------------------------------------------------
Bruce D. Taber $55,500
--------------------------------------------------------
Henry W. Todd $55,500
========================================================
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.
6
<PAGE>
*Lynn L. Anderson, Trustee, Chairman of the Board and President. Born
4/22/39. Trustee, President and Chief Executive Officer, Russell Insurance Funds
(investment company). Director, Chief Executive Officer and Chairman of the
Board, Russell Fund Distributors, Inc. Trustee, President and Chief Executive
Officer, Frank Russell Investment Company (investment company); Director, Chief
Executive Officer and Chairman of the Board, Frank Russell Investment Management
Company; Director, Chief Executive Officer and President, Frank Russell Trust
Company; Director and Chairman, Frank Russell Investment Company Public Limited
Company; November 1995 to February 1997, Director, Frank Russell Company;
Director and Chairman of the Board, Frank Russell Company (Delaware); Director,
Frank Russell Company; March 1989 to June 1993, Director, Frank Russell Company,
Director of Frank Russell Investments (Ireland) Limited; Director and Chairman,
Frank Russell Investment Company Public Limited Company. Until September 1994,
Director and President, The Laurel Funds, Inc. (investment company).
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 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. 350 Park Avenue, 15th
Floor, New York, NY 10022. Partner, Squire, Sanders & Dempsey (law firm). From
1994 to 1997, Partner, Brown, Rudnick, Freed & Gesmer (law firm). From 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. Consultant, Computer Simulation, General Electric Industrial Control
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. Treasurer and Chief Accounting Officer, Russell
Insurance Funds (investment company); Director of Finance and Operations, Frank
Russell Trust Company; Director, Fund Administration and Operations of Frank
Russell Investment Management Company and Russell Fund Distributors, Inc.;
Treasurer and Chief Accounting Office, Frank Russell Investment Company
(investment company); March 1993 to January 1996, Vice President, Operations,
Funds Management, J.P. Morgan; December 1985 to March 1993, Senior Vice
President, Operations, Frank Russell Investment Company, The Laurel Funds, Inc.
and The Seven Seas Series Fund (investment companies); Director of Operations,
Frank Russell Investment Management Company and Frank Russell Trust Company;
Director, Russell Fund Distributors, Inc.
7
<PAGE>
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:
<TABLE>
<S> <C>
===========================================================================================================
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.
===========================================================================================================
</TABLE>
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
Corporation, a publicly held bank holding company. State Street's address is 225
Franklin Street, Boston, MA 02110.
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
Market Fund 0.25%
=====================================================
The following table shows the expenses accrued by the Underlying Funds
for Advisory services for the past three fiscal years:
8
<PAGE>
<TABLE>
<CAPTION>
==========================================================================================
Advisory Expenses Accrued by Underlying Funds
for the Fiscal Years Ended August 31:
==========================================================================================
Underlying Fund 1995 1996 1997
--------------- ---- ---- ----
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SSgA S&P 500 Index Fund $ 391,746 $ 609,089 $ 1,006,157
- ------------------------------------------------------------------------------------------
SSgA Small Cap Fund 71,087 276,229 689,684
- ------------------------------------------------------------------------------------------
SSgA Matrix Equity Fund 1,198,153 1,755,268 2,659,554
- ------------------------------------------------------------------------------------------
SSgA Growth and Income Fund 280,417 437,548 572,342
- ------------------------------------------------------------------------------------------
SSgA Emerging Markets Fund 321,920 709,651 1,363,080
- ------------------------------------------------------------------------------------------
SSgA Active International Fund 46,488 294,486 516,858
- ------------------------------------------------------------------------------------------
SSgA Bond Market Fund -- 38,564 144,230
- ------------------------------------------------------------------------------------------
SSgA Intermediate Fund 198,032 332,599 372,981
- ------------------------------------------------------------------------------------------
SSgA Yield Plus Fund 3,256,063 3,461,407 2,310,253
- ------------------------------------------------------------------------------------------
SSgA Money Market Fund 6,981,114 8,559,529 10,638,528
- ------------------------------------------------------------------------------------------
SSgA US Government Money
Market Fund 970,313 1,546,062 2,091,160
==========================================================================================
</TABLE>
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,
1997:
================================================
SSgA S&P 500 Index Fund .10%
------------------------------------------------
SSgA Small Cap Fund .09
------------------------------------------------
SSgA Matrix Equity Fund .38
------------------------------------------------
SSgA Growth and Income Fund .26
------------------------------------------------
SSgA Emerging Markets Fund .26
------------------------------------------------
SSgA Active International Fund .40
------------------------------------------------
SSgA Bond Market Fund .24
------------------------------------------------
SSgA Intermediate Fund .70
------------------------------------------------
SSgA Yield Plus Fund .00
------------------------------------------------
SSgA Money Market Fund .00
------------------------------------------------
SSgA US Government Money
Market Fund .00
================================================
The following table shows Advisory fees waived, if any, for the
Underlying Funds by the Advisor for the past three fiscal years:
<TABLE>
<CAPTION>
==========================================================================================
Advisory Expenses Waived by the Advisor for the Underlying Funds
for the Fiscal Years Ended August 31:
==========================================================================================
Underlying Fund 1995 1996 1997
--------------- ---- ---- ----
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SSgA S&P 500 Index Fund $391,746 $609,089 $1,006,157
- ------------------------------------------------------------------------------------------
SSgA Small Cap Fund 17,654 -- --
- ------------------------------------------------------------------------------------------
SSgA Matrix Equity Fund 599,077 877,634 1,329,777
- ------------------------------------------------------------------------------------------
SSgA Active International Fund 46,488 186,020 274,723
- ------------------------------------------------------------------------------------------
SSgA Bond Market Fund -- 38,564 115,024
==========================================================================================
</TABLE>
The following table shows Advisory fees reimbursed, if any, for the
Underlying Funds by the Advisor for the past three fiscal years:
9
<PAGE>
<TABLE>
<CAPTION>
==========================================================================================
Advisory Expenses Reimbursed by the Advisor for the Underlying Funds
for the Fiscal Years Ended August 31:
==========================================================================================
Underlying Fund 1995 1996 1997
--------------- ---- ---- ----
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SSgA Small Cap Fund $ 57,869 $ 66,461 $ 86,094
- ------------------------------------------------------------------------------------------
SSgA Growth and Income Fund 216,126 233,947 174,536
- ------------------------------------------------------------------------------------------
SSgA Emerging Markets Fund 169,331 366,588 478,666
- ------------------------------------------------------------------------------------------
SSgA Intermediate Fund 263,571 322,501 327,656
==========================================================================================
</TABLE>
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
("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:
<TABLE>
<CAPTION>
==========================================================================================
Administration Expenses Accrued by Underlying Funds
for the Fiscal Years Ended August 31:
==========================================================================================
Underlying Fund 1995 1996 1997
--------------- ---- ---- ----
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SSgA S&P 500 Index Fund $115,292 $171,521 $ 300,097
- ------------------------------------------------------------------------------------------
SSgA Small Cap Fund 3,463 10,629 26,966
- ------------------------------------------------------------------------------------------
SSgA Matrix Equity Fund 47,220 73,095 98,998
- ------------------------------------------------------------------------------------------
SSgA Growth and Income Fund 9,796 14,921 19,744
- ------------------------------------------------------------------------------------------
SSgA Emerging Markets Fund 25,877 57,122 113,579
- ------------------------------------------------------------------------------------------
SSgA Active International Fund 3,720 23,662 42,948
- ------------------------------------------------------------------------------------------
SSgA Bond Market Fund -- 3,000 14,790
- ------------------------------------------------------------------------------------------
SSgA Intermediate Fund 7,344 12,048 13,683
- ------------------------------------------------------------------------------------------
SSgA Yield Plus Fund 384,923 384,596 290,411
- ------------------------------------------------------------------------------------------
SSgA Money Market Fund 827,164 996,454 1,245,280
- ------------------------------------------------------------------------------------------
SSgA US Government Money
Market Fund 113,825 179,304 244,335
==========================================================================================
</TABLE>
The following table shows the Administration fees of the Underlying
Funds waived, if any, by the Administrator, for the past three fiscal years:
<TABLE>
<CAPTION>
==========================================================================================
Administration Expenses Waived by Administrator for the
Underlying Funds for the Fiscal Years Ended August 31:
==========================================================================================
Underlying Fund 1995 1996 1997
--------------- ---- ---- ----
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SSgA Active International Fund $502 -- --
- ------------------------------------------------------------------------------------------
SSgA Bond Market Fund N/A $673 --
==========================================================================================
</TABLE>
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
10
<PAGE>
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, Winston-Salem, New
York City, Toronto, London, Tokyo, Sydney, Zurich, Paris and Auckland, and have
approximately 1,200 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 One International Place, Boston, MA 02110.
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
Custodian 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. For
Transfer and Dividend Disbursing Agent services, State Street is paid the
following annual account services fees: $9.00 open account fee; $1.50 closed
account fee; fund minimum per portfolio for one to four portfolios--$36,000,
five to six portfolios--$24,000, and over six portfolios $18,000. Portfolio fees
are allocated to each fund based on the average net asset value of each fund and
are billable on a monthly basis at the rate of 1/12 of the annual fee. State
Street will apply a $5.00 fee to each telephone transaction (purchase or
redemption), which is applied against the monthly billing. 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
11
<PAGE>
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:
<TABLE>
<CAPTION>
==========================================================================================
Distribution Expenses Accrued by Underlying Funds
for the Fiscal Years Ended August 31:
==========================================================================================
Underlying Fund 1995 1996 1997
--------------- ---- ---- ----
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SSgA S&P 500 Index Fund $153,822 $134,689 $ 326,488
- ------------------------------------------------------------------------------------------
SSgA Small Cap Fund 25,754 25,184 48,647
- ------------------------------------------------------------------------------------------
SSgA Matrix Equity Fund 94,034 103,500 95,276
- ------------------------------------------------------------------------------------------
SSgA Growth and Income Fund 33,428 21,617 23,811
- ------------------------------------------------------------------------------------------
SSgA Emerging Markets Fund 95,484 210,030 330,683
- ------------------------------------------------------------------------------------------
SSgA Active International Fund 3,988 10,949 25,068
- ------------------------------------------------------------------------------------------
SSgA Bond Market Fund -- 2,738 19,299
- ------------------------------------------------------------------------------------------
SSgA Intermediate Fund 27,531 22,007 18,633
- ------------------------------------------------------------------------------------------
SSgA Yield Plus Fund 261,109 256,977 274,801
- ------------------------------------------------------------------------------------------
SSgA Money Market Fund 326,928 817,506 1,580,068
- ------------------------------------------------------------------------------------------
SSgA US Government Money
Market Fund 87,798 106,509 287,158
==========================================================================================
</TABLE>
The following table shows the expenses accrued by the Life Solutions
Funds to Russell Fund Distributors, Inc., as Distributor, for the fiscal year
ended August 31, 1997:
=====================================================
Distribution Expenses Accrued by
The Life Solutions Funds
for the Fiscal Year Ended August 31:
=====================================================
Life Solutions Fund 1997
-----------------------------------------------------
Balanced $4,243
-----------------------------------------------------
Growth 3,775
-----------------------------------------------------
Income and Growth 1,126
=====================================================
For fiscal 1997, this amount is reflective of the following individual
payments:
12
<PAGE>
<TABLE>
<CAPTION>
================================================================================================================
Printing of Compensation to Compensation to
Advertising Prospectuses Dealers Sales Personnel Other* Total
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Underlying
Fund:
- ----------------------------------------------------------------------------------------------------------------
Index $25,901 18,419 20,610 99,664 161,894 $326,488
========
- ----------------------------------------------------------------------------------------------------------------
Small Cap $2,319 7,108 8,748 8,809 21,663 $48,647
=======
- ----------------------------------------------------------------------------------------------------------------
Matrix 9,302 11,205 10 35,525 39,234 $95,276
=======
- ----------------------------------------------------------------------------------------------------------------
Growth and
Income $1,638 5,517 43 6,869 9,744 $23,811
=======
- ----------------------------------------------------------------------------------------------------------------
Emerging
Markets $4,875 7,436 42,214 17,746 258,412 $330,683
========
- ----------------------------------------------------------------------------------------------------------------
Active
International $1,694 6,192 96 6,930 10,156 $25,068
=======
- ----------------------------------------------------------------------------------------------------------------
Bond Market $1,159 5,879 -- 4,524 7,737 $19,299
=======
- ----------------------------------------------------------------------------------------------------------------
Intermediate $1,169 6,018 -- 4,769 6,677 $18,633
=======
- ----------------------------------------------------------------------------------------------------------------
Yield Plus $23,278 13,873 367 100,197 137,086 $274,801
========
- ----------------------------------------------------------------------------------------------------------------
Money
Market $119,915 51,730 226,633 437,479 744,311 $1,580,068
==========
- ----------------------------------------------------------------------------------------------------------------
Government $28,260 17,464 -- 85,224 156,210 $287,158
========
- -----------------------------------------------------------------------------------------------------------------
Life Solutions
Fund:
- ----------------------------------------------------------------------------------------------------------------
Balanced $424 212 637 1,273 1,697 $4,243
======
- ----------------------------------------------------------------------------------------------------------------
Growth $377 189 566 1,133 1,510 $3,775
======
- ----------------------------------------------------------------------------------------------------------------
Income and
Growth $113 56 169 338 450 $1,126
======
================================================================================================================
</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:
13
<PAGE>
<TABLE>
<CAPTION>
==========================================================================================
Expenses Accrued by Underlying Funds to Advisor
Pursuant to a Service Agreement
for the Fiscal Years Ended August 31:
- ------------------------------------------------------------------------------------------
Underlying Fund 1995 1996 1997
--------------- ---- ---- ----
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SSgA S&P 500 Index Fund $103,181 $199,851 $ 335,725
- ------------------------------------------------------------------------------------------
SSgA Small Cap Fund 6,245 11,505 26,732
- ------------------------------------------------------------------------------------------
SSgA Matrix Equity Fund 37,186 82,427 195,589
- ------------------------------------------------------------------------------------------
SSgA Growth and Income Fund 10,370 13,646 24,972
- ------------------------------------------------------------------------------------------
SSgA Emerging Markets Fund 11,820 26,521 54,699
- ------------------------------------------------------------------------------------------
SSgA Active International Fund 1,550 10,086 21,040
- ------------------------------------------------------------------------------------------
SSgA Bond Market Fund -- 3,214 10,607
- ------------------------------------------------------------------------------------------
SSgA Intermediate Fund 7,921 10,699 16,776
- ------------------------------------------------------------------------------------------
SSgA Yield Plus Fund 506,798 320,725 255,201
- ------------------------------------------------------------------------------------------
SSgA Money Market Fund 1,198,500 1,268,824 1,551,176
- ------------------------------------------------------------------------------------------
SSgA US Government Money
Market Fund 127,241 241,584 719,992
==========================================================================================
</TABLE>
For the fiscal year ended August 31, 1997, the Life Solutions Funds
accrued no expenses to the Advisor under a Service Agreement pursuant to Rule
12b-1.
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, Martin Luther King Jr. 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.
14
<PAGE>
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 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 Funds 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
15
<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 certain
Underlying Funds for the past three fiscal years. Underlying Funds not listed
below paid no brokerage commissions during the past three years:
<TABLE>
<CAPTION>
==========================================================================================
Brokerage Commissions Paid by Underlying Funds
for the Fiscal Years Ended August 31:
- ------------------------------------------------------------------------------------------
Underlying Fund 1995 1996 1997
--------------- ---- ---- ----
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SSgA S&P 500 Index Fund $139,786 $ 59,139 $104,796
- ------------------------------------------------------------------------------------------
SSgA Small Cap Fund 35,824 83,140 381,531
- ------------------------------------------------------------------------------------------
SSgA Matrix Equity Fund 415,381 615,372 790,356
- ------------------------------------------------------------------------------------------
SSgA Growth and Income Fund 43,993 39,435 34,566
- ------------------------------------------------------------------------------------------
SSgA Emerging Markets Fund 260,143 205,687 260,777
- ------------------------------------------------------------------------------------------
SSgA Active International Fund 21,872 66,505 145,721
==========================================================================================
</TABLE>
For the fiscal year ended August 31, 1997, the Life Solutions Funds
paid no brokerage commissions.
Of the total brokerage commissions paid by certain Underlying Funds,
the following table shows the amount of commissions received, if any, by an
affiliated broker/dealer for the past three fiscal years:
<TABLE>
<CAPTION>
==========================================================================================
Brokerage Commissions Received by Affiliated Broker/Dealers
For the Fiscal Years Ended August 31:
- ------------------------------------------------------------------------------------------
Underlying Fund 1995 1996 1997
--------------- ---- ---- ----
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SSgA S&P 500 Index Fund $ 74,061 $ 11,820 $ 40,965
- ------------------------------------------------------------------------------------------
SSgA Small Cap Fund 11,696 38,694 52,449
- ------------------------------------------------------------------------------------------
SSgA Matrix Equity Fund 116,157 143,583 175,918
- ------------------------------------------------------------------------------------------
SSgA Growth and Income Fund -- 15,495 20,282
- ------------------------------------------------------------------------------------------
SSgA Emerging Markets Fund -- 2,726 --
- ------------------------------------------------------------------------------------------
SSgA Active International Fund 306 -- --
==========================================================================================
</TABLE>
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 Funds and Life Solutions Funds); and (2) the
percentage of trading activity transactions effected through an affiliated
broker/dealer (in relation to total transactions effected by the Underlying
Funds or Life Solutions Funds) for the fiscal year ended August 31, 1997:
<TABLE>
<CAPTION>
========================================================================================================
Total Commission-Based
Transactions Effected Through
Total Brokerage Commissions Affiliated B/Ds
Fund Received by Affiliated B/Ds (%) (%)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
S&P 500 Index Fund 39.09 34.30
- --------------------------------------------------------------------------------------------------------
Small Cap Fund 13.75 9.98
- --------------------------------------------------------------------------------------------------------
Matrix Equity Fund 22.26 20.77
- --------------------------------------------------------------------------------------------------------
Growth and Income Fund 58.68 54.77
========================================================================================================
</TABLE>
During the fiscal year ended August 31, 1997, the Underlying Funds and
Life Solutions 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 or Life Solutions Funds' 10 largest brokers or
dealers by dollar amounts of
16
<PAGE>
securities executed or commissions received on behalf of each Underlying Fund or
Life Solutions Fund. The holdings of the Underlying Fund's and Life Solutions
Funds' top 10 broker/dealers as of August 31, 1997, is as follows:
<TABLE>
<CAPTION>
Broker/Dealer ($000)
=======================================================================================================================
Donaldson Lehman Merrill Morgan UBS HSBC
Fund Bear Stearns L&J Bros Lynch Stanley Securities Swiss Bank Securities
---- ------------ --- ---- ----- ------- ---------- ---------- ----------
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
S&P 500 Index -- -- -- 3,573 4,801 -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Matrix Equity 3,873 -- 1,575 -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Intermediate -- -- -- -- 300 -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Yield Plus -- -- -- -- 37,814 -- -- 14,000
- ------------------------------------------------------------------------------------------------------------------------
Money Market -- -- -- -- 139,575 -- 14,998 --
========================================================================================================================
</TABLE>
During the fiscal year ended August 31, 1997, the Active International,
Growth and Income, Small Cap, Bond Market, US Government 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 rate for each Life
Solutions Fund is calculated by dividing the lesser of purchases or sales of
underlying fund shares for the particular year by the monthly average value of
the underlying fund shares owned by the Fund during the year. Each Life
Solutions Fund's portfolio turnover rate is expected to not exceed 100%. The
Life Solutions Funds will not purchase or sell underlying fund shares to: (i)
accommodate purchases and sales of each Fund's shares; (ii) change the
percentages of each Fund's assets invested in each of the Underlying Funds in
response to market conditions; and (iii) maintain or modify the allocation of
each Fund's assets among the Underlying Funds generally within the percentage
limits described in the Prospectus.
The following table shows the portfolio turnover rate for the
Underlying Funds for each of the fiscal years ended August 31:
<TABLE>
<CAPTION>
=============================================================================
Portfolio Turnover Rates
=============================================================================
1996 1997
---- ----
Underlying Fund (%) (%)
- -----------------------------------------------------------------------------
<S> <C> <C>
S&P 500 Index Fund 28.72 7.54
- -----------------------------------------------------------------------------
Small Cap Fund 76.85 143.79
- -----------------------------------------------------------------------------
Matrix Equity Fund 150.68 117.27
- -----------------------------------------------------------------------------
Growth and Income Fund 38.34 29.88
- -----------------------------------------------------------------------------
Emerging Markets Fund 4.36 15.00
- -----------------------------------------------------------------------------
Active International Fund 22.02 48.29
- -----------------------------------------------------------------------------
Bond Market Fund 313.85* 453.14
- -----------------------------------------------------------------------------
Intermediate Fund 221.73 242.76
- -----------------------------------------------------------------------------
Yield Plus Fund 97.05 92.38
- -----------------------------------------------------------------------------
Money Market Fund N/A N/A
- -----------------------------------------------------------------------------
US Government Money
Market Fund N/A N/A
=============================================================================
</TABLE>
- ---------------
* Turnover rates of less than one year are annualized.
The following table shows the portfolio turnover rate for the Life
Solutions Funds for the fiscal year ended August 31:
17
<PAGE>
=====================================================
Portfolio Turnover Rates
-----------------------------------------------------
1997
Life Solutions Fund (%)
-----------------------------------------------------
Balanced 51.61
-----------------------------------------------------
Growth 39.49
-----------------------------------------------------
Income and Growth 106.68
=====================================================
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 and
Life Solutions Fund is as follows:
<TABLE>
<CAPTION>
=========================================================================================
Average Annual Total Return
- -----------------------------------------------------------------------------------------
One Year Ending Inception Date to August
Fund August 31, 1997 (%): 31, 1997 (%)*:
---- -------------------- --------------
- -----------------------------------------------------------------------------------------
<S> <C> <C>
S&P 500 Index Fund 40.30 19.43
- -----------------------------------------------------------------------------------------
Small Cap Fund 35.85 22.22
- -----------------------------------------------------------------------------------------
Matrix Equity Fund 42.75 18.49
- -----------------------------------------------------------------------------------------
Growth and Income Fund 40.95 18.42
- -----------------------------------------------------------------------------------------
Emerging Markets Fund 15.12 7.53
- -----------------------------------------------------------------------------------------
Active International Fund 1.17 6.54
- -----------------------------------------------------------------------------------------
Bond Market Fund 9.47 4.47
- -----------------------------------------------------------------------------------------
Intermediate Fund 8.00 4.56
- -----------------------------------------------------------------------------------------
Yield Plus Fund 5.67 4.97
- -----------------------------------------------------------------------------------------
Life Solutions Balanced Fund -- 2.12
- -----------------------------------------------------------------------------------------
Life Solutions Growth Fund -- 2.42
- -----------------------------------------------------------------------------------------
Life Solutions Income and
Growth Fund -- 1.97
=========================================================================================
</TABLE>
- ---------------
* Periods less than one year are not annualized.
18
<PAGE>
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
The following table shows the current 30-day yield (annualized), or
current and effective 7-day yields, for the period ended August 31, 1997, for
each Underlying Fund (as applicable):
<TABLE>
<CAPTION>
==========================================================================================
Current Current Effective
Underlying Fund 30-day Yield (%) 7-day Yield (%) 7-day Yield (%)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SSgA Bond Market Fund 6.18 N/A N/A
- ------------------------------------------------------------------------------------------
SSgA Intermediate Fund 5.87 N/A N/A
- ------------------------------------------------------------------------------------------
SSgA Yield Plus Fund 5.51 N/A N/A
- ------------------------------------------------------------------------------------------
SSgA Money Market Fund 5.27 5.25 5.39
- ------------------------------------------------------------------------------------------
SSgA US Government Money
Market Fund 5.18 5.19 5.33
==========================================================================================
</TABLE>
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.
19
<PAGE>
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, and non-depository instruments issued by
European banks). 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.
(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.
20
<PAGE>
(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. 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 proprietary analytical models of Advisor.
21
<PAGE>
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. Under normal market conditions, the Fund will
invest at least 65% of its assets in equity securities. However, the Fund may
invest temporarily for defensive purposes, without limitation, in certain
short-term fixed-income securities. Such securities may be used to invest
uncommitted cash balances or to maintain liquidity to meet shareholder
redemptions. (See "Investment Policies -- Cash Reserves.")
In addition to the policies noted above, the Fund may invest in
convertible securities obligations of foreign issuers which are dollar
denominated, American Depository Receipts (ADRs), corporate bonds, debentures,
notes and warrants. Investments in each of these instruments will not exceed 5%
of the Fund's total assets.
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 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.
22
<PAGE>
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, 1997 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 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 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
23
<PAGE>
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 an
Underlying Fund that invests 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, 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). 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
24
<PAGE>
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 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 (Matrix, 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, Active 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
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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, Active
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 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). The Underlying Funds may purchase Inflation-Protection Securities
("IPS"), which 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 Underlying Funds may purchase asset-backed securities.
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
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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 Securities (Money Market, Government, Bond, Yield Plus
and Intermediate only). The Underlying Funds may invest in Mortgage-related
securities. Mortgage 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 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 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 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.
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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.
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).
The Underlying Funds may invest in preferred stock. 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 (Active International and Emerging
Markets only). The Underlying Funds may invest in foreign government securities,
which 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,
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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
Underlying Funds noted above will not invest a material percentage of its assets
in sovereign debt.
Foreign Currency Transactions (Bond, Yield Plus and Intermediate only).
The Underlying 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 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 (Active International and Emerging Markets only). The
Active International and Emerging Markets Funds have 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 Funds'
dealings in forward foreign currency exchange contracts may be with respect to a
specific purchase or sale of a security, or with respect to their Fund positions
generally. The Funds are not obligated to hedge their portfolio positions and
will enter into such transactions only to the extent, if any, deemed appropriate
by the Advisor. 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 Funds 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 Funds 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.
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<PAGE>
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 Funds
will not speculate in foreign security or currency options or futures or related
options.
The Funds may not hedge their 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 their portfolios
denominated or quoted in that particular foreign currency. The Funds will not
enter into a position hedging commitment if, as a result thereof, it would have
more than 10% of the value of their respective assets committed to such
contracts. The Funds 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.
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.
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<PAGE>
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 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.
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The Russell Indexes. The Russell 2000(R) Index consists of the smallest
2,000 companies in the Russell 3000(R) Index, representing approximately 11% 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 $874 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, 1997 was 4.63 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 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 have 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.
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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.
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
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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."
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
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valuable, a process known as "marking to market." At any time prior to the
settlement date of the futures 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.
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 have 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 have 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
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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. 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 intend 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 net capital
gain (long-term capital gains in excess of short-term 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) 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 (3) 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;
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(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.
If a shareholder receives a distribution taxable as a 20% gain or a 28%
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 a 20% loss or a 28% 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, 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. 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
The 1997 fiscal year-end financial statements for the Life Solutions
Funds, including notes to the financial statements and financial highlights and
the Report of Independent Accountants are included in the Life Solutions Funds'
Annual Report to Shareholders. Copies of these reports accompany this Statement
of Additional Information and are incorporated herein by reference.
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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.
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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.
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:
o Leading market positions in well-established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate reliance
on debt and ample asset protection.
o Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
o 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.
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.
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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.
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.
40
<PAGE>
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.
41
<PAGE>
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 31, 1997 electronic filing via EDGAR on Form
N-30D.
(b) Exhibits
--------
<TABLE>
<CAPTION>
INCORPORATED BY REFERENCE
NAME OF EXHIBIT OR EXHIBIT NUMBER
<S> <C> <C>
1. First Amended and Restated
Post-Effective Amendment #35 Post-Effective Amendment #35
Master Trust Agreement Post-Effective Amendment #35
(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 #40
(i) Amendment No. 9
2. Bylaws Exhibit 2
3. Voting Trust Amendment None
4. Specimen Security None
5(a) Investment Advisory Agreement Post-Effective Amendment #35
(b) Letter agreement incorporating the Yield Plus and Bond Post-Effective Amendment #35
Market Funds within the Investment Advisory Agreement
(c) Letter agreement incorporating the US Treasury Money Post-Effective Amendment #35
Market and US Treasury Obligations Funds within the
Investment Advisory Agreement
(d) Letter agreement incorporating the Growth and Income and Post-Effective Amendment #35
Intermediate Funds within the Investment Advisory
Agreement
(e) Letter agreement incorporating the Emerging markets Fund Post-Effective Amendment #35
and the Prime Money Market Fund within the Investment
Advisory Agreement
(f) Letter agreement incorporating the Tax Free Money Market Post-Effective Amendment #35
Fund within the Investment Advisory Agreement
(g) Letter agreement incorporating the Small Cap, Active Post-Effective Amendment #35
International and Real Estate Equity Funds within the
Investment Advisory Agreement
(h) Letter agreement incorporating the Life Solutions Growth, Post-Effective Amendment #41
Balanced and Income and Growth Funds within the
Investment Advisory Agreement
6. Distribution Agreements
(a) Distribution Agreement (Class A Shares) Post-Effective Amendment #35
(a)(i) Letter agreement incorporating the Yield Plus and Bond Post-Effective Amendment #35
Market Funds within the Distribution Agreement
<PAGE>
(a)(ii) Letter agreement incorporating the US Treasury Money Post-Effective Amendment #35
Market and US Treasury Obligations Funds within the
Distribution Agreement
(a)(iii) Letter agreement incorporating the Growth and Income and
Post-Effective Amendment #35 Intermediate Funds within the
Distribution Agreement
(a)(iv) Letter agreement incorporating the Emerging Markets and Post-Effective Amendment #35
Prime Money Market Funds within the Distribution Agreement
(a)(v) Letter agreement incorporating the Class A shares of the
Post-Effective Amendment #35 Tax Free Money Market Fund within the
Distribution Agreement
(a)(vi) Letter agreement incorporating the Small Cap, Active Post-Effective Amendment #35
International and Real Estate Equity Funds within the
Distribution Agreement
(a)(vii) Letter agreement incorporating the Life Solutions Growth, Post-Effective Amendment #41
Balanced and Income and Growth Funds within the
Distribution Agreement
(b) Distribution Agreement (regarding Class B Shares of the Exhibit 6(b)
Money Market and US Government Money Market Funds)
(b)(i) Letter agreement incorporating the Class B Shares of the To be filed
by amendment Tax Free Money Market Fund within the Distribution
Agreement
(c) Distribution Agreement (regarding Class C Shares of the Exhibit 6(c)
Money Market and US Government Money Market Funds)
(c)(i) Letter Agreement incorporating the Class C Shares of the To be filed
by amendment Tax Free Money market Fund within the Distribution
Agreement
7. Bonus, profit sharing, or pension plans None
8.(a) Custodian Contract Post-Effective Amendment #35
(b) Letter agreement incorporating the Yield Plus and Bond Post-Effective Amendment #35
Market Fund into the Custodian Contract
(c) Letter agreement incorporating the US Treasury Money Post-Effective Amendment #35
Market and Us Treasury Obligations Funds into the
Custodian Contract
(d) Letter agreement incorporating the Growth and Income and
Post-Effective Amendment #35 Intermediate Funds into the Custodian
Contract
(e) Letter agreement incorporating the Emerging Markets and Post-Effective Amendment #35
Prime Money Market Funds into the Custodian Contract
(f) Fee Schedule, dated February 17, 1994, to Custodian Post-Effective Amendment #35
Contract
(g) Letter agreement incorporating the Tax Free Money Market Post-Effective Amendment #35
Fund into the Custodian Contract
(h) Letter agreement incorporating the Small Cap, Active Post-Effective Amendment #35
International and Real Estate Equity Funds into the
Custodian Contract
(i) Letter agreement incorporating the Life Solutions Growth, Post-Effective Amendment #41
Balanced and Income and Growth Funds into the Custodian
Contract
9(a)(i) Transfer Agency and Service Agreement Post-Effective Amendment #35
(a)(ii) Letter agreement incorporating the Yield Plus and Bond Post-Effective Amendment #35
Market Funds within the Transfer Agency and Service
Agreement
(a)(iii) Letter agreement incorporating the Us Treasury Money Post-Effective Amendment #35
Market and US Treasury Obligations Funds within the
Transfer Agency and Service Agreement
<PAGE>
(a)(iv) Letter agreement incorporating the Growth and Income and Post-Effective Amendment #35
Intermediate Funds within the Transfer Agency and Service
Agreement
(a)(v) Letter agreement incorporating the Emerging markets and Post-Effective Amendment #35
Prime Money Market Funds within the Transfer Agency and
Service Agreement
(a)(vi) Letter agreement incorporating the Tax Free Money Market Post-Effective Amendment #35
Fund within the Transfer Agency and Service Agreement
(a)(vii) Letter agreement incorporating the Small Cap, Active Post-Effective Amendment #35
International and Real Estate Equity Funds within the
Transfer Agency and Service Agreement
(a)(viii) Letter agreement incorporating the Life Solutions Growth, Post-Effective Amendment #41
Balanced and Income and Growth Funds within the Transfer
Agency and Service Agreement
(b)(i) Administration Agreement Post-Effective Amendment #35
(b)(ii) Letter agreement incorporating the Yield Plus and Bond Post-Effective Amendment #35
Market Funds within the Administration Agreement
(b)(iii) Letter agreement incorporating the Us Treasury Money Post-Effective Amendment #35
Market and US Treasury Obligations Funds within the
Administration Agreement
(b)(iv) Letter agreement incorporating the Growth and Income and Post-Effective Amendment #35
Intermediate Funds within the Administration Agreement
(b)(v) Letter agreement incorporating the Emerging Markets and Post-Effective Amendment #35
Prime Money Market Funds within the Administration
Agreement
(b)(vi) Letter agreement incorporating the Tax Free Money Market Post-Effective Amendment #35
Fund within the Administration Agreement
(b)(vii) Letter agreement incorporating the Small Cap, Active Post-Effective Amendment #35
International and Real Estate Equity Funds within the
Administration Agreement
(b)(viii) Letter agreement incorporating the Life Solutions Growth, Post-Effective Amendment #35
Balanced and Income and Growth Funds within the
Administration Agreement
(b)(ix) Amendment No. 4 to the Administration Agreement between Post-Effective Amendment #41
Frank Russell Investment Management Company and SSgA Funds
10. Opinion of Counsel
(a) Relating to The Seven Seas Series Money Market Fund Exhibit 10(a)
(b) Relating to The Seven Seas Series US Government Money Exhibit 10(b)
Market Fund
(c) Relating to The Seven Seas Series S&P 500 Index, S&P Exhibit 10(c)
Midcap Index, Matrix Equity, International European
Index, International Pacific Index and Short Term
Government Securities Funds
(d) Relating to The Seven Seas Series Yield Plus and Bond Exhibit 10(d)
Market Funds
(e) Relating to The Seven Seas Series US Treasury Money Exhibit 10(e)
Market and Treasury Obligations Funds
(f) Relating to The Seven Seas Series Growth and Income and Exhibit 10(f)
Intermediate Funds
(g) Relating to The Seven Seas Series Emerging Markets and Exhibit 10(g)
Prime Money Market Funds
(h) Relating to Class A, Class B and Class C Shares of The Exhibit 10(h)
Seven Seas Series Money Market and US Government Money
Market Funds
<PAGE>
(i) Relating to Class A, Class B and Class C Shares of The Exhibit 10(i)
Seven Seas Series Tax Free Money Market Funds
(j) Relating to The Seven Seas Series Real Estate Equity Fund Exhibit 10(j)
(k) Relating to the SSgA Life Solutions Growth, Balanced and Post-Effective Amendment #41
Income and Growth Funds
11. Other Opinions: Consent of Independent Accountants Exhibit 11
12. Financial Statements Omitted from Item 23 None
13. Letter of Investment Intent
(a) The Seven Seas Series Money Market Fund Exhibit 13(a)
(b) The Seven Seas Series US Government Money Market Fund Exhibit 13(b)
(c) The Seven Seas Series Government Securities, Index, Exhibit 13(c)
Midcap Index, Matrix, European Index and Pacific Index
Funds
(d) The Seven Seas Series Yield Plus and Bond Market Funds Exhibit 13(d)
(e) The Seven Seas Series US Treasury Money Market and Exhibit 13(e)
Treasury Obligations Funds
(f) The Seven Seas Series Growth and Income and Intermediate Exhibit 13(f)
Funds
(g) The Seven Seas Series Emerging Markets and Prime Money Exhibit 13(g)
Market Funds
(h) Class B and C Shares of The Seven Seas Series Money Exhibit 13(h)
Market and US Government Money Market Funds
(i) The Seven Seas Series Tax Free Money Market Fund (Class Exhibit 13(i)
A, B and C Shares)
(j) The Seven Seas Series Active International Fund Exhibit 13(j)
(k) SSgA Life Solutions Growth, Balanced and Income and Post-Effective Amendment #41
Growth Funds
14. Prototype Retirement Plan None
15. Distribution Plans pursuant to Rule 12b-1
(a) Plan of Distribution for the government Securities, Post-Effective Amendment #35
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 incorporating the Post-Effective Amendment #35
Yield Plus and Bond Market Funds into the Plan
(a)(ii) Addendum to the Plan of Distribution incorporating the Post-Effective Amendment #35
Money Market and US Government Money Market Funds into
the Plan (Class A Shares)
(a)(iii) Addendum to the Plan of Distribution incorporating the Us Post-Effective Amendment #35
Treasury Money Market and US Treasury Obligations Funds
into the Plan
(a)(iv) Addendum to the Plan of Distribution incorporating the Post-Effective Amendment #35
Growth and Income and Intermediate Funds into the Plan
(a)(v) Addendum to the Plan of Distribution incorporating the Post-Effective Amendment #35
Emerging Markets and Prime Money Market Funds into the
Plan
(a)(vi) Addendum to the Plan of Distribution incorporating the Post-Effective Amendment #35
Class A Shares of the Tax Free Money Market Fund into the
Plan
(a)(vii) Addendum to the Plan of Distribution incorporating the Post-Effective Amendment #35
Small Cap, Active International and Real Estate Equity
Funds into the Plan
<PAGE>
(a)(viii) Addendum to the Plan of Distribution incorporating the Post-Effective Amendment #41
Life Solutions Growth, Balanced and Income and Growth
Funds into the Plan
(b) Plan of Distribution for the Money Market and US Exhibit 15(b)
Government Money Market Funds (Class B Shares) as
approved by the Board of Trustees
(b)(i) Addendum to the Plan of Distribution incorporating the To be filed by amendment
Class B Shares of the Tax Free Money Market Fund
(c) Plan of Distribution for the Money Market and US Exhibit 15(c)
Government Money Market Funds (Class C Shares) as
approved by the Board of Trustees
(c)(i) Addendum to the Plan of Distribution incorporating the To be filed by amendment
Class C Shares of the Tax Free money Market Fund
(d) Shareholder Servicing Agreement, by and between SSgA Exhibit 15(d)
Funds and State Street Bank and Trust Company
(d)(i) Shareholder Servicing Agreement, by and between SSgA Post-Effective Amendment #39
Funds and State Street Brokerage Services, Inc.
(d)(ii) Shareholder Servicing Agreement, by and between SSgA Post-Effective Amendment #39
Funds and State Street Bank and Trust Company,
Metropolitan Division of Commercial Banking Services
(d)(iii) Shareholder Servicing Agreement, by and between SSgA Exhibit 15(d)(iii)
Funds and State Street Bank and Trust Company Retirement
Investment Services Division
(d)(iv) Shareholder Servicing Agreement, by and between SSgA Exhibit 15(d)(iv)
Funds and State Street Solutions
(e) Form of Agreement Pursuant to Rule 12b-1 Plan (relating To be filed
by amendment to Class B Shares) as approved by the Board of Trustees
(f) Form of Agreement Pursuant to Rule 12b-1 Plan (relating To be filed
by amendment to Class C Shares) as approved by the Board of Trustees
16. Computation of Fund Performance Quotation Exhibit 16
17. Financial Data Schedule Exhibit 17
</TABLE>
Item 25. Persons Controlled by or Under Common Control with Registrant
-------------------------------------------------------------
None
Item 26. Number of Holders of Securities
<TABLE>
<CAPTION>
NUMBER OF RECORD HOLDERS AS
TITLE OF CLASS: OF NOVEMBER 30, 1997
<S> <C>
Shares of beneficial interest
Par Value $0.001
SSgA Funds--
Money Market Fund
Class A Shares 2,122
Class B Shares 1
Class C Shares 1
US Government Money Market Fund 295
Class A Shares
Class B Shares 1
Class C Shares 1
<PAGE>
Matrix Equity Fund 785
Small Cap Fund 3,161
S&P 500 Index Fund 3,280
Active International Fund 1,004
International Pacific Index Fund 1
Yield Plus Fund 329
Bond Market Fund 366
Growth and Income Fund 426
Intermediate Fund 193
US Treasury Money Market Fund 12
US Treasury Obligations Fund 1
Prime Money Market Fund 112
Emerging Markets Fund 3,343
Tax Free Money Market Fund
Class A Shares 52
Class B Shares 1
Class C Shares 1
Real Estate Equity Fund 1
</TABLE>
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 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
<PAGE>
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 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>
NAME CAPACITY WITH ADVISOR BUSINESS NAME AND ADDRESS*
<S> <C> <C>
Tenley E. Albright, MD Director Chairman, Western Resources, Inc.
Joseph A. Baute Director Former Chairman and CEO, Markem
Corporation
I. MacAlister Booth Director Retired 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
Arthur L. Goldstein Director Chairman and CEO, Ionics, Inc.
David P. Gruber Director President and CEO, Wyman-Gordon Company
Charles F. Kaye Director President, Transportation Investments,
Inc.
John M. Kucharski Director Chairman and CEO, EG&G, Inc.
Charles R. LaMantia Director President and CEO, Arthur D. Little,
Inc.
David B. Perini Director Chairman and President, Perini
Corporation
Dennis J. Picard Director Chairman and CEO, Raytheon Company
Alfred Poe Director Former President, Meal Enhancement
Group, Campbell Soup Company
Bernard W. Reznicek Director President, Premier Group;
Retired Chairman and CEO, Boston Edison
Company
David A. Spina President and Chief Operating State Street Corporation
Officer
Diana Chapman Walsh Director President, Wellesley College
Robert E. Weissman Director Chairman and CEO, Cognizant Corporation
</TABLE>
* Address of all individuals: State Street 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:
<PAGE>
<TABLE>
<CAPTION>
NAME AND PRINCIPAL
BUSINESS ADDRESS* POSITION AND OFFICES WITH 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
Gregory J. Lyons Assistant Secretary None
Eric A. Russell Director and President None
George W. Weber Director, Fund Administration and Senior Vice President and Fund
Operations Treasurer
</TABLE>
*Address of all individuals: 909 A Street, Tacoma, Washington 98402
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) Not applicable.
(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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, The Registrant, the SSgA Funds, has duly caused this
Post-Effective Amendment No. 42 to its Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and had duly caused this 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 24th
day of December, 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 December 24, 1997.
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
NAME OF EXHIBIT EXHIBIT NUMBER
Bylaws Exhibit 2
Distribution Agreement (regarding Class B Shares of the Exhibit 6(b)
Money Market and US Government Money Market Funds)
Distribution Agreement (regarding Class C Shares of the Exhibit 6(c)
Money Market and US Government Money Market Funds)
Opinion of Counsel:
Relating to The Seven Seas Series Money Market Fund Exhibit 10(a)
Relating to The Seven Seas Series US Government Money Exhibit 10(b)
Market Fund
Relating to The Seven Seas Series S&P 500 Index, S&P Exhibit 10(c)
Midcap Index, Matrix Equity, International European
Index, International Pacific Index and Short Term
Government Securities Funds
Relating to The Seven Seas Series Yield Plus and Bond Exhibit 10(d)
Market Funds
Relating to The Seven Seas Series US Treasury Money Exhibit 10(e)
Market and Treasury Obligations Funds
Relating to The Seven Seas Series Growth and Income and Exhibit 10(f)
Intermediate Funds
Relating to The Seven Seas Series Emerging Markets and Exhibit 10(g)
Prime Money Market Funds
Relating to Class A, Class B and Class C Shares of The Exhibit 10(h)
Seven Seas Series Money Market and US Government Money
Market Funds
Relating to Class A, Class B and Class C Shares of The Exhibit 10(i)
Seven Seas Series Tax Free Money Market Funds
Relating to The Seven Seas Series Real Estate Equity Fund Exhibit 10(j)
Consent of Independent Auditors Exhibit 11
Letter of Investment Intent
The Seven Seas Series Money Market Fund Exhibit 13(a)
The Seven Seas Series US Government Money Market Fund Exhibit 13(b)
The Seven Seas Series Government Securities, Index, Exhibit 13(c)
Midcap Index, Matrix, European Index and Pacific Index
Funds
The Seven Seas Series Yield Plus and Bond Market Funds Exhibit 13(d)
<PAGE>
The Seven Seas Series US Treasury Money Market and Exhibit 13(e)
Treasury Obligations Funds
The Seven Seas Series Growth and Income and Intermediate Exhibit 13(f)
Funds
The Seven Seas Series Emerging Markets and Prime Money Exhibit 13(g)
Market Funds
Class B and C Shares of The Seven Seas Series Money Exhibit 13(h)
Market and US Government Money Market Funds
The Seven Seas Series Tax Free Money Market Fund (Class Exhibit 13(i)
A, B and C Shares)
The Seven Seas Series Active International Fund Exhibit 13(j)
Plan of Distribution for the Money Market and US Exhibit 15(b)
Government Money Market Funds (Class B Shares) as
approved by the Board of Trustees
Plan of Distribution for the Money Market and US Exhibit 15(c)
Government Money Market Funds (Class C Shares) as
approved by the Board of Trustees
Shareholder Servicing Agreement, by and between SSgA Exhibit 15(d)
Funds and State Street Bank and Trust Company
Shareholder Servicing Agreement, by and between SSgA Exhibit 15(d)(iii)
Funds and State Street Bank and Trust Company Retirement
Investment Services Division
Shareholder Servicing Agreement, by and between SSgA Exhibit 15(d)(iv)
Funds and State Street Solutions
Form of Agreement Pursuant to Rule 12b-1 Plan (relating Exhibit 15(e)
to Class B Shares) as approved by the Board of Trustees
Form of Agreement Pursuant to Rule 12b-1 Plan (relating Exhibit 15(f)
to Class C Shares) as approved by the Board of Trustees
Computation of Fund Performance Quotation Exhibit 16
Financial Data Schedule Exhibit 17
EXHIBIT 2
Amended and Restated
BYLAWS
of
THE SEVEN SEAS SERIES FUND
ARTICLE 1
Agreement and Declaration
-------------------------
of Trust and Principal Office
-----------------------------
1.1 Agreement and Declaration of Trust. These Bylaws shall be subject to the
Declaration of Trust, as from time to time in effect (the "Declaration of
Trust"), of The Seven Seas Series Fund, the Massachusetts business trust
established by the Declaration of Trust (the "Trust").
1.2 Principal Office of the Trust. The principal office of the Trust shall be
located in Tacoma, Washington.
ARTICLE 2
---------
Meetings of Trustees
--------------------
2.1 Regular Meetings. Regular meetings of the Trustees may be held without call
or notice at such places and at such times as the Trustees may from time to time
determine, provided that notice of the first regular meeting following any such
determination shall be given to absent Trustees.
2.2. Special Meetings. Special meetings of the Trustees may be held at any time
and at any place designated in the call of the meeting when called by the
Chairman of the Trustees, the President or the Treasurer or by two or more
Trustees, sufficient notice thereof being given to each Trustee by the Secretary
or an Assistant Secretary or by the officer of the Trustees calling the meeting.
2.3 Notice. It shall be sufficient notice to a Trustee of a special meeting to
send notice by mail at least forty-eight hours or by telegram at least
twenty-four hours before the meeting addressed to the Trustee at his or her
usual or last known business or residence address or to give notice to him or
her in person or by telephone at least twenty-four hours before the meeting.
Notice of a meeting need not be given to any Trustee if a written waiver of
notice, executed by him or her before or after the meeting, is filed with the
records of the meeting, or to any Trustee who attends the meeting without
protesting prior thereto or at its commencement the lack of notice to him or
her. Neither notice of a meeting nor a waiver of a notice need specify the
purposes of the meeting.
2.4 Quorum. At any meeting of the Trustees a majority of the Trustees then in
office shall constitute a quorum. Any meeting may be adjourned from time to time
by a majority of the votes cast upon the question, whether or not a quorum is
present, and the meeting may be held as adjourned without further notice.
<PAGE>
2.5 Participation by Telephone. One or more of the Trustees or of any committee
of the Trustees may participate in a meeting thereof by means of a conference
telephone or similar communications equipment allowing all persons participating
in the meeting to hear each other at the same time. Unless prohibited by the
Investment Company Act of 1940 or other applicable law, participation by such
means shall constitute presence in person at the meeting.
ARTICLE 3
---------
Officers
--------
3.1 Enumeration; Qualification. The officers of the Trust shall be a Chairman of
the Trustees, a President, a Treasurer, a Secretary and such other officers,
including Vice Presidents, if any, as the Trustees from time to time may in
their discretion elect. The Trust may also have such agents as the Trustees from
time to time in their discretion appoint. The Chairman of the Trustees shall be
a Trustee and may but need not be a shareholder; and any other officer may be
but none need be a Trustee or shareholder. Any two or more offices may be held
by the same person.
3.2 Election. The Chairman of the Trustees, the President, the Treasurer, and
the Secretary shall be elected annually by the Trustees at a meeting held within
the first four months of the Trust's fiscal year. The meeting at which the
officers are elected shall be known as the annual meeting of Trustees. Other
officers, if any, may be elected or appointed by the Trustees at said meeting or
at any other time. Vacancies in any office may be filled at any time.
3.3 Tenure. The Chairman of the Trustees, the President, the Treasurer, and the
Secretary shall hold office until the next annual meeting of the Trustees and
until their respective successors are chosen and qualified, or in each case
until he or she sooner dies, resigns, is removed or becomes disqualified. Each
other officer shall hold office and each agent shall retain authority at the
pleasure of the Trustees.
3.4 Powers. Subject to the other provisions of these Bylaws, each officer shall
have, in addition to the duties and powers herein and in the Declaration of
Trust set forth, such duties and powers as are commonly incident to the office
occupied by him or her as if the Trust were organized as a Massachusetts
business corporation and such other duties and powers as the Trustees may from
time to time designate.
3.5 Chairman; President. Unless the Trustees otherwise provide, the Chairman of
the Trustees, or, if there is none, or in the absence of the Chairman, the
President shall preside at all meetings of the shareholders and of the Trustees.
The President shall be the chief executive officer.
3.6 Vice President. The Vice President, or if there be more than one Vice
President, the Vice Presidents in the order determined by the Trustees (or if
there by no such determination, then in the order of their election) shall in
the absence of the President or in the event of his inability or refusal to act,
perform the duties of the President, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the President. The Vice
Presidents shall perform such other duties and have such other powers as the
Board of Trustees may from time to time prescribe.
<PAGE>
3.7 Treasurer. The Treasurer shall be the chief financial and accounting officer
of the Trust, and shall, subject to the provisions of the Declaration of Trust
and to any arrangement made by the Trustees with a custodian, investment adviser
or manager, or transfer, shareholder servicing or similar agent, be in charge of
the valuable papers, books of account and accounting records of the Trust, and
shall have such other duties and powers as may be designated from time to time
by the Trustees or by the President.
3.8 Assistant Treasurer. The Assistant Treasurer, or if there shall be more than
one, the Assistant Treasurers in the order determined by the Trustees (or if
there be no such determination, then in the order of their election), shall, in
the absence of the Treasurer or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the Treasurer and shall perform
such other duties and have such other powers as the Board of Trustees may from
time to time prescribe.
3.9 Secretary. The Secretary shall record all proceedings of the shareholders
and the Trustees in books to be kept therefor, which books or a copy thereof
shall be kept at the principal office of the Trust. In the absence of the
Secretary from any meeting of the shareholders or Trustees, an assistant
secretary, or if there be none or if he or she is absent, a temporary secretary
chosen at such meeting shall record the proceedings thereof in the aforesaid
books.
3.10 Assistant Secretary. The Assistant Secretary, or if there be more than one,
the Assistant Secretaries in the order determined by the Trustees (or if there
be no determination, then in the order of their election), shall, in the absence
of the Secretary or in the event of his inability or refusal to act, perform the
duties and exercise the powers of the Secretary and shall perform such other
duties and have such other powers as the Board of Trustees may from time to time
prescribe.
3.11 Resignations and Removals. Any Trustee or officer may resign at any time by
written instrument signed by him or her and delivered to the Chairman, the
President or the Secretary or to a meeting of the Trustees. Such resignation
shall be effective upon receipt unless specified to be effective at some other
time. The Trustees may remove any officer elected by them with or without cause.
Except to the extent expressly provided in a written agreement with the Trust,
no Trustee or officer resigning and no officer removed shall have any right to
any compensation for an period following his or her resignation or removal, or
any right to damages on account of such removal.
ARTICLE 4
---------
Committees
----------
4.1 General. The Trustees, by vote of a majority of the Trustees then in office,
may elect from their number an Executive Committee or other committees and may
delegate thereto some or all of their powers except those which by law, by the
Declaration of Trust, or by these Bylaws may not be delegated. Except as the
Trustees may otherwise determine, any such committee may make rules for the
conduct of its business, but unless otherwise provided by the Trustees or in
such rules, its business shall be conducted so far as possible in the same
manner as is provided by these Bylaws for the Trustees themselves. All members
of such committees shall hold such offices at the pleasure of the Trustees. The
Trustees may abolish any such committee at any time. Any committee to which the
Trustees delegate any of their powers or duties shall keep records of its
meetings and shall report its action to the Trustees. The Trustees shall have
power to rescind any action of any committee, but no such rescission shall have
retroactive effect.
<PAGE>
ARTICLE 5
---------
Reports
-------
5.1 General. The Trustees and officers shall render reports at the time and in
the manner required by the Declaration of Trust or any applicable law. Officers
and Committees shall render such additional reports as they may deem desirable
or as may from time to time be required by the Trustees.
ARTICLE 6
---------
Fiscal Year
-----------
6.1 General. The fiscal year of the Trust shall be fixed by resolution of the
Trustees.
ARTICLE 7
---------
Seal
----
7.1 General. The seal of the Trust shall consist of a flat-faced die with the
word "Massachusetts," together with the name of the Trust and the year of its
organization cut or engraved thereon, but, unless otherwise required by the
Trustees, the seal shall not be necessary to be placed on, and its absence shall
not impair the validity of, any document, instrument or other paper executed and
delivered by or on behalf of the Trust.
ARTICLE 8
---------
Execution of Papers
-------------------
8.1 General. Except as the Trustees may generally or in particular cases
authorize the execution thereof in some other manner, all deeds, leases
contracts, notes and other obligations made by the Trustees shall be signed by
the President, any Vice President, or by the Treasurer and need not bear the
seal of the Trust.
ARTICLE 9
---------
Issuance of Share Certificates
------------------------------
9.1 Share Certificates. In lieu of issuing certificates for shares, the Trustees
or the transfer agent may either issue receipts therefor or may keep accounts
upon the books of the Trust for the record holders of such shares, who shall in
either case be deemed, for all purposes hereunder, to be the holders of
certificates for such shares as if they had accepted such certificates and shall
be held to have expressly assented and agreed to the terms hereof.
<PAGE>
The Trustees may at any time authorize the issuance of share
certificates either in limited cases or to all shareholders. In that event, a
shareholder may receive a certificate stating the number of shares owned by him
in such form as shall be prescribed from time to time by the Trustees. Such
certificate shall be signed by the president or a vice president and by the
treasurer or assistant treasurer. Such signatures may be facsimiles if the
certificate is signed by a transfer agent, or by a registrar, other than a
Trustee, officer or employee of the Trust. In case any officer who has signed or
whose facsimile signature has been placed on such certificate shall cease to be
such officer before such certificate is issued, it may be issued by the Trust
with the same effect as if he were such officer at the time of its issue.
9.2 Loss of Certificates. In case of the alleged loss or destruction or the
mutilation of a share certificate, a duplicate certificate may be issued in
place thereof, upon such terms as the Trustees shall prescribe.
9.3 Issuance of New Certificate to Pledgee. A pledgee of shares transferred as
collateral security shall be entitled to a new certificate if the instrument of
transfer substantially describes the debt or duty that is intended to be secured
thereby. Such new certificate shall express on its face that it is held as
collateral security, and the name of the pledgor shall be stated thereon, who
alone shall be liable as a shareholder, and entitled to vote thereon.
9.4 Discontinuance of Issuance of Certificates. The Trustees may at any time
discontinue the issuance of share certificates and may, by written notice to
each shareholder, require the surrender of shares certificates to the Trust for
cancellation. Such surrender and cancellation shall not affect the ownership of
shares in the Trust.
ARTICLE 10
----------
Dealings with Trustees and Officers
-----------------------------------
10.1 General. Any Trustee, officer or other agent of the Trust may acquire, own
and dispose of shares of the Trust to the same extent as if he were not a
Trustee, officer or agent; and the Trustees may accept subscriptions to shares
or repurchase shares from any firm or company in which any Trustee, officer or
other agent of the Trust may have an interest.
ARTICLE 11
----------
Amendments to the Bylaws
------------------------
11.1 General. These Bylaws may be amended or repealed, in whole or in part, by a
majority of the Trustees then in office at any meeting of the Trustees, or by
one or more writings signed by such a majority.
EXHIBIT 6(B)
DISTRIBUTION AGREEMENT
OF
THE SEVEN SEAS SERIES FUND
CLASS B SHARES
This Distribution Agreement is made as of the 13th day of July, 1994 by
and between The Seven Seas Series Fund, a Massachusetts business trust
("Investment Company"), and Russell Fund Distributors, Inc., a Washington
corporation ("Distributor").
Recitals
--------
A. The Investment Company is registered as an open-end, diversified,
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"), and offers for public sale shares of common stock
representing beneficial ownership of various series of the Investment Company,
which series may be further divided into two or more classes of shares.
B. The Investment Company wishes to retain Distributor as the
Investment Company's distributor in connection with the offering and sale of the
Class B Shares of certain series of the Investment Company described in Section
1 hereof ("Shares") and to furnish certain other services to the Investment
Company as specified in this Agreement.
C. Distributor is willing to furnish such services on the terms and
conditions hereinafter set forth.
Agreement
---------
In consideration of the foregoing recitals and mutual covenants herein
contained, the parties hereby agree as follows:
1. The Investment Company hereby appoints Distributor to perform the
services described in this Agreement for Shares of The Seven Seas Series Money
Market Fund and The Seven Seas Series US Government Money Market Fund (each a
"Fund"). In the event that the Investment Company desires to retain the
Distributor to serve as distributor and principal underwriter for Shares of any
additional or future series of the Investment Company, it shall so notify the
Distributor in writing. If the Distributor is willing to render such services,
it shall so notify the Investment Company in writing, whereupon such series
shall become a Fund hereunder. In such event, a writing signed by both the
Investment Company and the Distributor shall be annexed hereto as a part hereof
indicating that such additional series has become a Fund hereunder.
2. The Investment Company authorizes Distributor as principal agent for
the Investment Company, subject to applicable federal and state law and the
Master Trust Agreement, By-Laws and current Prospectus and Statement of
Additional Information of the Investment Company:
(a) to promote and offer each Fund and the Investment Company;
<PAGE>
(b) to solicit orders for the purchase of the Shares of each
Fund subject to such terms and conditions as the Investment Company may specify;
(c) to accept orders for the purchase of the Shares of each
Fund on behalf of the Investment Company; and
(d) to incur the following expenses on behalf of the Funds:
(i) the incremental printing costs incurred in
producing for and distributing to persons other than current shareholders of the
Investment Company the reports, prospectuses, notices, and similar materials
that are prepared by the Investment Company for current shareholders;
(ii) advertising;
(iii) the costs of preparing, printing, and
distributing any literature used in connection with the offering of Shares of
each Fund and not covered by Subparagraph (i);
(iv) expenses incurred in connection with the
promotion and sale of the Shares of each Fund, including, without limitation,
Distributor's expenses for rent, office supplies, equipment, travel,
communication, compensation, and benefits for sales personnel (except as
incurred out of Distributor's principal office in Tacoma, Washington); and
(v) payments made to other broker-dealers with whom
the Distributor has entered into sales agreements to distribute Shares of any
Fund.
Distributor will be reimbursed by the Investment Company for these expenses as
set forth in any Plan of Distribution respecting Shares of the Funds adopted by
the Investment Company pursuant to Rule 12b-1 under the 1940 Act as such plan
may, from time to time, be in effect (the "Plan"). Distributor shall offer the
Shares of each Fund on an agency or "best efforts" basis under which the
Investment Company shall only issue such Shares as are actually sold.
In connection with such sales and offers of sale, the Investment Company shall
not be responsible in any way for any other information, statements, or
representations given or made by Distributor or its representatives or agents,
except such information or representations as are contained in the Current
Prospectuses or Current Statements of Additional Information.
3. The public offering price of the Shares of any Fund shall be the net
asset value per share (as determined by the Investment Company) of the
outstanding Shares of the Fund plus a sales charge (if any) as set forth in the
Current Prospectus. The Investment Company shall make available to Distributor a
statement of each computation of net asset value and of the details entering
into such computation.
4. The Investment Company agrees, at its own expense, to register the
Shares with the Securities and Exchange Commission, state and other regulatory
bodies, and to prepare and file from time to time such Prospectuses, Statements
of Additional Information, amendments, reports and other documents as may be
necessary to maintain the Registration Statement. The Investment Company shall
bear all expenses related to preparing and typesetting such Prospectuses,
Statements of Additional Information and other materials required by law and
such other expenses, including printing and mailing expenses, related to the
Investment Company's communications with persons who are shareholders of each
Fund of the Investment Company.
<PAGE>
5. The Investment Company agrees to indemnify, defend and hold harmless
Distributor, each person who has been, is, or may hereafter be an officer,
director, or employee or agent of Distributor, and any person who controls
Distributor within the meaning of Section 15 of the 1933 Act 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, its officers or
directors, or any such controlling person may incur under the 1933 Act or under
common law which arises out of or is alleged to arise out of or is based upon a
violation of any of the terms of this Agreement or otherwise arising out of or
based upon any alleged untrue statement of a material fact contained in the
Registration Statement, Prospectuses or Statements 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 in
said documents not misleading, provided that in no event shall anything
contained in the Agreement be construed so as to protect Distributor against any
liability to the Investment Company or its shareholders to which Distributor
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of its reckless
disregard of its obligations and duties under this Agreement.
6. Distributor agrees to indemnify, defend and hold harmless the
Investment Company, each person who has been, is, or may hereafter be an
officer, director, or employee or agent of the Investment Company, and any
person who controls the Investment Company within the meaning of Section 15 of
the 1933 Act 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 the
Investment Company, its officers or Trustees, or any such controlling person may
incur under the 1933 Act or under common law which arises out of or is alleged
to arise out of or is based upon a violation of any of the terms of this
Agreement or otherwise arising out of or based upon any alleged untrue statement
of a material fact contained in information furnished in writing by Distributor
to the Investment Company for use in the Registration Statement, Prospectuses or
Statements of Additional Information or arising out of or based upon any alleged
omission to state a material fact in connection with such information required
to be stated in said documents or necessary to make the statements in the
Registration Statement, Prospectuses or Statements of Additional Information, or
necessary to make such information not misleading.
7. The Investment Company reserves the right at any time to withdraw
all offerings of the Shares by written notice to the Distributor at its
principal office.
8. The services of Distributor to the Investment Company under this
Agreement are not to be deemed exclusive, and the Distributor shall be free to
render similar services or other services to others so long as its services
hereunder are not impaired thereby.
9. Distributor shall prepare reports for the Board of Trustees of the
Investment Company upon request showing information concerning expenditures
related to this Agreement.
10. As used in this Agreement, the following terms shall have the
meanings assigned:
<PAGE>
(a) "Registration Statement" shall mean any registration
statement of the Investment Company filed pursuant to Rule 485 of the Securities
Act of 1933, as amended (the "1933 Act");
(b) "Prospectus" and "Statement of Additional Information"
shall mean any prospectus or statement of additional information (including any
supplement thereto) of the Investment Company filed pursuant to Rule 497 of the
1933 Act and offering Shares of the relevant Fund;
(c) "Current Registration Statement" shall mean the
Registration Statement of the Trust most recently filed by the Investment
Company pursuant to Rule 485 under the 1933 Act and effective under the 1933
Act;
(d) "Current Prospectus" and "Current Statement of Additional
Information" shall mean the Prospectus or Statement of Additional Information
(including any supplement thereto) of the Investment Company most recently filed
pursuant to Rule 497 under the 1933 Act and offering Shares of the relevant
Fund;
(e) "Net asset value" shall have the meaning ascribed to it in
the Investment Company's Master Trust Agreement; and
(f) "Assignment," "interest person," and "majority of the
outstanding voting securities" shall have the meanings given to them by Section
2(a) of the 1940 Act, subject to such exemptions as may be granted by the
Securities and Exchange Commission by any rule, regulation or order.
11. This Agreement shall become effective with respect to each Fund on
the date which the Fund commences offering Shares to the public, so long as,
with respect to each additional Fund, the provisions of Section 1 have been
complied with. The Agreement shall continue in effect for each Fund for one year
following the effective date of this Agreement with respect to the Fund; and
thereafter only so long as its continuance is specifically approved at least
annually by: (i) a majority of the Trustees of the Investment Company; and (ii)
a majority of the Trustees of the Investment Company who are not "interested
persons" (as defined under the 1940 Act) of the Investment Company and have no
direct or indirect financial interest in the operation of the Plan or in this
Agreement (the "Independent Trustees") cast in person at a meeting called for
the purpose of voting on such approval.
12. This Agreement may be terminated at any time:
(a) By the affirmative vote of a majority of the Independent
Trustees of the Investment Company upon sixty days' notice addressed to the
Distributor at its principal place of business;
(b) As to any Fund, by the affirmative vote of the holders of
a majority of the outstanding Shares of the Fund;
(c) By the Distributor by sixty days' written notice addressed
to the Investment Company at its principal place of business; and
(d) Immediately in the event of its assignment.
<PAGE>
13. No provision of this Agreement may be changed, waived, discharged
or terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought, and no amendment of this Agreement shall be effective until approved by
vote of a majority of the Board of Trustees, by the holders of vote of a
majority of the Independent Trustees, or by vote of a majority of the
outstanding shares of each Fund affected by the amendment.
14. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors.
15. This Agreement shall be construed in accordance with laws of the
State of Washington and any applicable federal law.
16. The First Amended and Restated Master Trust Agreement dated October
13, 1993, as amended from time to time (the "Master Trust Agreement"),
establishing the Investment Company, which is hereby referred to and a copy of
which is on file with the Secretary of The Commonwealth of Massachusetts,
provides that the name The Seven Seas Series Fund means the Trustees from time
to time serving (as Trustees but not personally) under said Master Trust
Agreement. It is expressly acknowledged and agreed that the obligations of the
Investment Company hereunder shall not be binding upon any of the Shareholders,
Trustees, officers, employees or agents of the Investment Company, personally,
but shall bind only the trust property of the Investment Company, as provided in
its Master Trust Agreement. The execution and delivery of this Agreement have
been authorized by the Trustees of the Investment Company and signed by an
officer of the Investment Company, acting as such, and neither such
authorization by such Trustees nor such execution and delivery by such officer
shall be deemed to have been made by any of them individually or to impose any
liability on any of them personally, but shall bind only the trust property of
the Investment Company as provided in its Master Trust Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers thereunto duly authorized as of the date written
above.
Attest: THE SEVEN SEAS SERIES FUND
By: /s/Amy L. Osler By: /s/Lynn L. Anderson
------------------------------ -------------------------------
Amy L. Osler, Assistant Secretary Lynn L. Anderson, President
Attest: RUSSELL FUND DISTRIBUTORS, INC.
By: /s/J. David Griswold By: /s/Karl J. Ege
----------------------------- -------------------------------
J. David Griswold, Assistant Secretary Karl J. Ege, Secretary
EXHIBIT 6(C)
DISTRIBUTION AGREEMENT
OF
THE SEVEN SEAS SERIES FUND
CLASS C SHARES
This Distribution Agreement is made as of the 13th day of July, 1994 by
and between The Seven Seas Series Fund, a Massachusetts business trust
("Investment Company"), and Russell Fund Distributors, Inc., a Washington
corporation ("Distributor").
Recitals
--------
A. The Investment Company is registered as an open-end, diversified,
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"), and offers for public sale shares of common stock
representing beneficial ownership of various series of the Investment Company,
which series may be further divided into two or more classes of shares.
B. The Investment Company wishes to retain Distributor as the
Investment Company's distributor in connection with the offering and sale of the
Class C Shares of certain series of the Investment Company described in Section
1 hereof ("Shares") and to furnish certain other services to the Investment
Company as specified in this Agreement.
C. Distributor is willing to furnish such services on the terms and
conditions hereinafter set forth.
Agreement
---------
In consideration of the foregoing recitals and mutual covenants herein
contained, the parties hereby agree as follows:
1. The Investment Company hereby appoints Distributor to perform the
services described in this Agreement for Shares of The Seven Seas Series Money
Market Fund and The Seven Seas Series US Government Money Market Fund (each a
"Fund"). In the event that the Investment Company desires to retain the
Distributor to serve as distributor and principal underwriter for Shares of any
additional or future series of the Investment Company, it shall so notify the
Distributor in writing. If the Distributor is willing to render such services,
it shall so notify the Investment Company in writing, whereupon such series
shall become a Fund hereunder. In such event, a writing signed by both the
Investment Company and the Distributor shall be annexed hereto as a part hereof
indicating that such additional series has become a Fund hereunder.
2. The Investment Company authorizes Distributor as principal agent for
the Investment Company, subject to applicable federal and state law and the
Master Trust Agreement, By-Laws and current Prospectus and Statement of
Additional Information of the Investment Company:
(a) to promote and offer each Fund and the Investment Company;
<PAGE>
(b) to solicit orders for the purchase of the Shares of each
Fund subject to such terms and conditions as the Investment Company may specify;
(c) to accept orders for the purchase of the Shares of each
Fund on behalf of the Investment Company; and
(d) to incur the following expenses on behalf of the Funds:
(i) the incremental printing costs incurred in
producing for and distributing to persons other than current shareholders of the
Investment Company the reports, prospectuses, notices, and similar materials
that are prepared by the Investment Company for current shareholders;
(ii) advertising;
(iii) the costs of preparing, printing, and
distributing any literature used in connection with the offering of Shares of
each Fund and not covered by Subparagraph (i);
(iv) expenses incurred in connection with the
promotion and sale of the Shares of each Fund, including, without limitation,
Distributor's expenses for rent, office supplies, equipment, travel,
communication, compensation, and benefits for sales personnel (except as
incurred out of Distributor's principal office in Tacoma, Washington); and
(v) payments made to other broker-dealers with whom
the Distributor has entered into sales agreements to distribute Shares of any
Fund.
Distributor will be reimbursed by the Investment Company for these expenses as
set forth in any Plan of Distribution respecting Shares of the Funds adopted by
the Investment Company pursuant to Rule 12b-1 under the 1940 Act as such plan
may, from time to time, be in effect (the "Plan"). Distributor shall offer the
Shares of each Fund on an agency or "best efforts" basis under which the
Investment Company shall only issue such Shares as are actually sold.
In connection with such sales and offers of sale, the Investment Company shall
not be responsible in any way for any other information, statements, or
representations given or made by Distributor or its representatives or agents,
except such information or representations as are contained in the Current
Prospectuses or Current Statements of Additional Information.
3. The public offering price of the Shares of any Fund shall be the net
asset value per share (as determined by the Investment Company) of the
outstanding Shares of the Fund plus a sales charge (if any) as set forth in the
Current Prospectus. The Investment Company shall make available to Distributor a
statement of each computation of net asset value and of the details entering
into such computation.
4. The Investment Company agrees, at its own expense, to register the
Shares with the Securities and Exchange Commission, state and other regulatory
bodies, and to prepare and file from time to time such Prospectuses, Statements
of Additional Information, amendments, reports and other documents as may be
necessary to maintain the Registration Statement. The Investment Company shall
bear all expenses related to preparing and typesetting such Prospectuses,
Statements of Additional Information and other materials required by law and
such other expenses, including printing and mailing expenses, related to the
Investment Company's communications with persons who are shareholders of each
Fund of the Investment Company.
<PAGE>
5. The Investment Company agrees to indemnify, defend and hold harmless
Distributor, each person who has been, is, or may hereafter be an officer,
director, or employee or agent of Distributor, and any person who controls
Distributor within the meaning of Section 15 of the 1933 Act 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, its officers or
directors, or any such controlling person may incur under the 1933 Act or under
common law which arises out of or is alleged to arise out of or is based upon a
violation of any of the terms of this Agreement or otherwise arising out of or
based upon any alleged untrue statement of a material fact contained in the
Registration Statement, Prospectuses or Statements 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 in
said documents not misleading, provided that in no event shall anything
contained in the Agreement be construed so as to protect Distributor against any
liability to the Investment Company or its shareholders to which Distributor
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of its reckless
disregard of its obligations and duties under this Agreement.
6. Distributor agrees to indemnify, defend and hold harmless the
Investment Company, each person who has been, is, or may hereafter be an
officer, director, or employee or agent of the Investment Company, and any
person who controls the Investment Company within the meaning of Section 15 of
the 1933 Act 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 the
Investment Company, its officers or Trustees, or any such controlling person may
incur under the 1933 Act or under common law which arises out of or is alleged
to arise out of or is based upon a violation of any of the terms of this
Agreement or otherwise arising out of or based upon any alleged untrue statement
of a material fact contained in information furnished in writing by Distributor
to the Investment Company for use in the Registration Statement, Prospectuses or
Statements of Additional Information or arising out of or based upon any alleged
omission to state a material fact in connection with such information required
to be stated in said documents or necessary to make the statements in the
Registration Statement, Prospectuses or Statements of Additional Information, or
necessary to make such information not misleading.
7. The Investment Company reserves the right at any time to withdraw
all offerings of the Shares by written notice to the Distributor at its
principal office.
8. The services of Distributor to the Investment Company under this
Agreement are not to be deemed exclusive, and the Distributor shall be free to
render similar services or other services to others so long as its services
hereunder are not impaired thereby.
9. Distributor shall prepare reports for the Board of Trustees of the
Investment Company upon request showing information concerning expenditures
related to this Agreement.
10. As used in this Agreement, the following terms shall have the
meanings assigned:
<PAGE>
(a) "Registration Statement" shall mean any registration
statement of the Investment Company filed pursuant to Rule 485 of the Securities
Act of 1933, as amended (the "1933 Act");
(b) "Prospectus" and "Statement of Additional Information"
shall mean any prospectus or statement of additional information (including any
supplement thereto) of the Investment Company filed pursuant to Rule 497 of the
1933 Act and offering Shares of the relevant Fund;
(c) "Current Registration Statement" shall mean the
Registration Statement of the Trust most recently filed by the Investment
Company pursuant to Rule 485 under the 1933 Act and effective under the 1933
Act;
(d) "Current Prospectus" and "Current Statement of Additional
Information" shall mean the Prospectus or Statement of Additional Information
(including any supplement thereto) of the Investment Company most recently filed
pursuant to Rule 497 under the 1933 Act and offering Shares of the relevant
Fund;
(e) "Net asset value" shall have the meaning ascribed to it in
the Investment Company's Master Trust Agreement; and
(f) "Assignment," "interest person," and "majority of the
outstanding voting securities" shall have the meanings given to them by Section
2(a) of the 1940 Act, subject to such exemptions as may be granted by the
Securities and Exchange Commission by any rule, regulation or order.
11. This Agreement shall become effective with respect to each Fund on
the date which the Fund commences offering Shares to the public, so long as,
with respect to each additional Fund, the provisions of Section 1 have been
complied with. The Agreement shall continue in effect for each Fund for one year
following the effective date of this Agreement with respect to the Fund; and
thereafter only so long as its continuance is specifically approved at least
annually by: (i) a majority of the Trustees of the Investment Company; and (ii)
a majority of the Trustees of the Investment Company who are not "interested
persons" (as defined under the 1940 Act) of the Investment Company and have no
direct or indirect financial interest in the operation of the Plan or in this
Agreement (the "Independent Trustees") cast in person at a meeting called for
the purpose of voting on such approval.
12. This Agreement may be terminated at any time:
(a) By the affirmative vote of a majority of the Independent
Trustees of the Investment Company upon sixty days' notice addressed to the
Distributor at its principal place of business;
(b) As to any Fund, by the affirmative vote of the holders of
a majority of the outstanding Shares of the Fund;
(c) By the Distributor by sixty days' written notice addressed
to the Investment Company at its principal place of business; and
(d) Immediately in the event of its assignment.
<PAGE>
13. No provision of this Agreement may be changed, waived, discharged
or terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought, and no amendment of this Agreement shall be effective until approved by
vote of a majority of the Board of Trustees, by the holders of vote of a
majority of the Independent Trustees, or by vote of a majority of the
outstanding shares of each Fund affected by the amendment.
14. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors.
15. This Agreement shall be construed in accordance with laws of the
State of Washington and any applicable federal law.
16. The First Amended and Restated Master Trust Agreement dated October
13, 1993, as amended from time to time (the "Master Trust Agreement"),
establishing the Investment Company, which is hereby referred to and a copy of
which is on file with the Secretary of The Commonwealth of Massachusetts,
provides that the name The Seven Seas Series Fund means the Trustees from time
to time serving (as Trustees but not personally) under said Master Trust
Agreement. It is expressly acknowledged and agreed that the obligations of the
Investment Company hereunder shall not be binding upon any of the Shareholders,
Trustees, officers, employees or agents of the Investment Company, personally,
but shall bind only the trust property of the Investment Company, as provided in
its Master Trust Agreement. The execution and delivery of this Agreement have
been authorized by the Trustees of the Investment Company and signed by an
officer of the Investment Company, acting as such, and neither such
authorization by such Trustees nor such execution and delivery by such officer
shall be deemed to have been made by any of them individually or to impose any
liability on any of them personally, but shall bind only the trust property of
the Investment Company as provided in its Master Trust Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers thereunto duly authorized as of the date written
above.
Attest: THE SEVEN SEAS SERIES FUND
By: /s/Amy L. Osler By: /s/Lynn L. Anderson
--------------------------------- ---------------------------------
Amy L. Osler, Assistant Secretary Lynn L. Anderson, President
Attest: RUSSELL FUND DISTRIBUTORS, INC.
By: /s/J. David Griswold By: /s/Karl J. Ege
--------------------------------- ---------------------------------
J. David Griswold, Assistant Secretary Karl J. Ege, Secretary
Exhibit 10(a)
The Seven Seas Series Fund
909 A Street
Tacoma, WA 98402
Gentlemen:
As counsel to The Seven Seas Series Fund (the "Trust"), a Massachusetts business
trust, we have been asked to render our opinion with respect to the issuance of
an indefinite number of shares of beneficial interest, $.001 par value, of the
Trust (the "Shares") representing interests in The Seven Seas Series Money
Market Fund, as more fully described in the Prospectus and Statement of
Additional Information contained in Pre-Effective Amendment No. 1 (the
"Amendment") to the Trust's Registration Statement on Form N-1A (Registration
No. 33-19229) filed with the Securities and Exchange Commission.
We have examined the Master Trust Agreement of the Trust dated October 3, 1987,
as amended, the By-laws of the Trust, the records of certain meetings and
written consents of the Trustees and shareholders of the Trust, the Prospectus
and Statement of Additional Information contained in the Amendment, and such
other documents, records and certifications as we have deemed necessary for the
purposes of this opinion.
Based upon the foregoing, we are of the opinion that the Trust has been duly
organized and is validly existing pursuant to the laws of The Commonwealth of
Massachusetts, and that the Shares, when sold in accordance with the terms of
the Prospectus and Statement of Additional Information in effect at the time of
sale, will be legally issued, fully paid and non-assessable by the Trust.
We hereby consent to the filing of this opinion as an exhibit to the Amendment
and to the reference to this firm as legal counsel for the Trust in the
Prospectus contained in the Amendment.
Very truly yours,
/s/Goodwin, Procter & Hoar
- --------------------------
Goodwin, Procter & Hoar
Exhibit 10(b)
February 13, 1991
The Seven Seas Series Fund
909 A Street
Tacoma, WA 98402
Gentlemen:
As counsel to The Seven Seas Series Fund (the "Trust"), a Massachusetts business
trust, we have been asked to render our opinion with respect to the issuance of
an indefinite number of shares of beneficial interest, $.001 par value, of the
Trust (the "Shares") representing interests in The Seven Seas Series US
Government Money Market Fund, as more fully described in the Prospectus and
Statement of Additional Information contained in Post-Effective Amendment No. 5
(the "Amendment") to the Trust's Registration Statement on Form N-1A
(Registration No. 33-19229) filed with the Securities and Exchange Commission.
We have examined the Master Trust Agreement of the Trust dated October 3, 1987,
as amended, the By-laws of the Trust, the records of certain meetings and
written consents of the Trustees and shareholders of the Trust, the Prospectus
and Statement of Additional Information contained in the Amendment, and such
other documents, records and certifications as we have deemed necessary for the
purposes of this opinion.
Based upon the foregoing, we are of the opinion that the Trust has been duly
organized and is validly existing pursuant to the laws of The Commonwealth of
Massachusetts, and that the Shares, when sold in accordance with the terms of
the Prospectus and Statement of Additional Information in effect at the time of
sale, will be legally issued, fully paid and non-assessable by the Trust.
We hereby consent to the filing of this opinion as an exhibit to the Amendment
and to the reference to this firm as legal counsel for the Trust in the
Prospectus contained in the Amendment.
Very truly yours,
/s/Goodwin, Procter & Hoar
- --------------------------
Goodwin, Procter & Hoar
Exhibit 10(C)
November 21, 1991
The Seven Seas Series Fund
909 A Street
Tacoma, WA 98402
Gentlemen:
As counsel to The Seven Seas Series Fund (the "Trust"), a Massachusetts business
trust, we have been asked to render our opinion with respect to the issuance of
an indefinite number of shares of beneficial interest, $.001 par value, of the
Trust (the "Shares") representing interests in The Seven Seas Series S&P 500
Index Fund, The Seven Seas Series S&P Midcap Index Fund, The Seven Seas Series
Matrix Synthesis Fund, The Seven Seas Series International European Index Fund,
The Seven Seas Series International Pacific Index Fund and The Seven Seas Series
Short Term Government Bond Fund, as more fully described in the Prospectus and
Statement of Additional Information contained in Post-Effective Amendment No. 7
(the "Amendment") to the Trust's Registration Statement on Form N-1A
(Registration No. 33-19229) filed with the Securities and Exchange Commission.
We have examined the Master Trust Agreement of the Trust dated October 3, 1987,
as amended, the By-laws of the Trust, the records of certain meetings of the
Trustees, the Prospectus and Statement of Additional Information contained in
the Amendment, and such other documents, records and certificates as we have
deemed necessary for the purposes of this opinion.
Based upon the foregoing, we are of the opinion that the Shares, when sold in
accordance with the terms of the Prospectus and Statement of Additional
Information in effect at the time of sale, will be legally issued, fully paid
and non-assessable by the Trust.
We hereby consent to the filing of this opinion as an exhibit to the Amendment
and to the reference to this firm as legal counsel for the Trust in the
Prospectus contained in the Amendment.
Very truly yours,
/s/Goodwin, Procter & Hoar
- --------------------------
Goodwin, Procter & Hoar
Exhibit 10(d)
August 27, 1992
The Seven Seas Series Fund
909 A Street
Tacoma, WA 98402
Gentlemen:
As counsel to The Seven Seas Series Fund (the "Trust"), a Massachusetts business
trust, we have been asked to render our opinion with respect to the issuance of
an indefinite number of shares of beneficial interest, $.001 par value, of the
Trust (the "Shares") representing interests in The Seven Seas Series Bond Market
Fund and The Seven Seas Series Yield Plus Fund, as more fully described in each
Prospectus and Statement of Additional Information contained in Post-Effective
Amendment No. 11 (the "Amendment") to the Trust's Registration Statement on Form
N-1A (Registration No. 33-19229) filed with the Securities and Exchange
Commission.
We have examined the Master Trust Agreement of the Trust dated October 3, 1987,
as amended, the By-laws of the Trust, the records of certain meetings of the
Trustees, the Prospectuses and Statement of Additional Information contained in
the Amendment, and such other documents, records and certificates as we have
deemed necessary for the purposes of this opinion.
Based upon the foregoing, we are of the opinion that the Shares, when sold in
accordance with the terms of the Prospectuses and Statement of Additional
Information in effect at the time of sale, will be legally issued, fully paid
and non-assessable by the Trust.
We hereby consent to the filing of this opinion as an exhibit to the Amendment
and to the reference to this firm as legal counsel for the Trust in the
Prospectuses contained in the Amendment.
Very truly yours,
/s/Goodwin, Procter & Hoar
- --------------------------
Goodwin, Procter & Hoar
Exhibit 10(e)
November 19, 1992
The Seven Seas Series Fund
909 A Street
Tacoma, WA 98402
Gentlemen:
As counsel to The Seven Seas Series Fund (the "Trust"), a Massachusetts business
trust, we have been asked to render our opinion with respect to the issuance of
an indefinite number of shares of beneficial interest, $.001 par value, of the
Trust (the "Shares") representing interests in The Seven Seas Series US Treasury
Money Market Fund and The Seven Seas Series US Treasury Obligations Fund, as
more fully described in the Prospectus and Statement of Additional Information
contained in Post-Effective Amendment No. 13 (the "Amendment") to the Trust's
Registration Statement on Form N-1A (Registration No. 33-19229) filed with the
Securities and Exchange Commission.
We have examined the Master Trust Agreement of the Trust dated October 3, 1987,
as amended, the By-laws of the Trust, the records of certain meetings and
written consents of the Trustees and shareholders of the Trust, the Prospectus
and Statement of Additional Information contained in the Amendment, and such
other documents, records and certificates as we have deemed necessary for the
purposes of this opinion.
Based upon the foregoing, we are of the opinion that the Shares, when sold in
accordance with the terms of the Prospectus and Statement of Additional
Information in effect at the time of sale, will be legally issued, fully paid
and non-assessable by the Trust.
We hereby consent to the filing of this opinion as an exhibit to the Amendment
and to the reference to this firm as legal counsel for the Trust in the
Prospectus contained in the Amendment.
Very truly yours,
/s/Goodwin, Procter & Hoar
- --------------------------
Goodwin, Procter & Hoar
Exhibit 10(f)
April 8, 1993
The Seven Seas Series Fund
909 A Street
Tacoma, WA 98402
Gentlemen:
As counsel to The Seven Seas Series Fund (the "Trust"), a Massachusetts business
trust, we have been asked to render our opinion with respect to the issuance of
an indefinite number of shares of beneficial interest, $.001 par value, of the
Trust (the "Shares") representing interests in The Seven Seas Series Growth and
Income Fund and The Seven Seas Series Intermediate Fund, as more fully described
in each Prospectus and Statement of Additional Information contained in
Post-Effective Amendment No. 16 (the "Amendment") to the Trust's Registration
Statement on Form N-1A (Registration No. 33-19229) filed with the Securities and
Exchange Commission.
We have examined the Master Trust Agreement of the Trust dated October 3, 1987,
as amended, the By-laws of the Trust, the records of certain meetings and
written consents of the Trustees and shareholders of the Trust, the Prospectus
and Statement of Additional Information contained in the Amendment, and such
other documents, records and certificates as we have deemed necessary for the
purposes of this opinion.
Based upon the foregoing, we are of the opinion that the Shares, when sold in
accordance with the terms of the Prospectus and Statement of Additional
Information in effect at the time of sale, will be legally issued, fully paid
and non-assessable by the Trust.
We hereby consent to the filing of this opinion as an exhibit to the Amendment
and to the reference to this firm as legal counsel for the Trust in the
Prospectuses contained in the Amendment.
Very truly yours,
/s/Goodwin, Procter & Hoar
- --------------------------
Goodwin, Procter & Hoar
Exhibit 10(g)
December 22, 1993
The Seven Seas Series Fund
909 A Street
Tacoma, WA 98402
Gentlemen:
As counsel to The Seven Seas Series Fund (the "Trust"), a Massachusetts business
trust, we have been asked to render our opinion with respect to the issuance of
an indefinite number of shares of beneficial interest, $.001 par value, of the
Trust (the "Shares") representing interests in The Seven Seas Series Prime Money
Market Portfolio and The Seven Seas Series Emerging Markets Fund, as more fully
described in each Prospectus and Statements of Additional Information contained
in Post-Effective Amendment No. 19 (the "Amendment") to the Trust's Registration
Statement on Form N-1A (Registration No. 33-19229) filed with the Securities and
Exchange Commission.
We have examined the First Amended and Restated Master Trust Agreement of the
Trust dated October 13, 1993, as amended, the By-laws of the Trust, the records
of certain meetings of the Trustees, the Prospectuses and Statements of
Additional Information contained in the Amendment, and such other documents,
records and certificates as we have deemed necessary for the purposes of this
opinion.
Based upon the foregoing, we are of the opinion that the Shares, when sold in
accordance with the terms of the Prospectuses and Statements of Additional
Information in effect at the time of sale, will be legally issued, fully paid
and non-assessable by the Trust.
We hereby consent to the filing of this opinion as an exhibit to the Amendment
and to the reference to this firm as legal counsel for the Trust in the
Prospectuses contained in the Amendment.
Very truly yours,
/s/Goodwin, Procter & Hoar
- --------------------------
Goodwin, Procter & Hoar
Exhibit 10(h)
June 6, 1994
The Seven Seas Series Fund
909 A Street
Tacoma, WA 98402
Gentlemen:
As counsel to The Seven Seas Series Fund (the "Trust"), a Massachusetts business
trust, we have been asked to render our opinion with respect to the issuance of
an indefinite number of shares of beneficial interest, $.001 par value, of the
Trust (the "Shares") representing interests in The Seven Seas Series Money
Market Fund and The Seven Seas Series US Government Money Market Fund, as more
fully described in each Prospectus and the Statements of Additional Information
contained in Post-Effective Amendment No. 22 (the "Amendment") to the Trust's
Registration Statement on Form N-1A (Registration No. 33-19229) filed with the
Securities and Exchange Commission.
We have examined the First Amended and Restated Master Trust Agreement of the
Trust dated October 13, 1993, as amended, the Amended and Restated By-laws of
the Trust, the records of certain meetings of the Trustees, the Prospectuses and
Statements of Additional Information contained in the Amendment, and such other
documents, records and certificates as we have deemed necessary for the purposes
of this opinion.
Based upon the foregoing, we are of the opinion that the Shares, when sold in
accordance with the terms of the Prospectuses and Statements of Additional
Information in effect at the time of sale, will be legally issued, fully paid
and non-assessable by the Trust.
We hereby consent to the filing of this opinion as an exhibit to the Amendment
and to the reference to this firm as legal counsel for the Trust in the
Prospectuses contained in the Amendment.
Very truly yours,
/s/Goodwin, Procter & Hoar
- --------------------------
Goodwin, Procter & Hoar
Exhibit 10(i)
July 13, 1994
The Seven Seas Series Fund
909 A Street
Tacoma, WA 98402
Gentlemen:
As counsel to The Seven Seas Series Fund (the "Trust"), a Massachusetts business
trust, we have been asked to render our opinion with respect to the issuance of
an indefinite number of Class A, Class B and Class C shares of beneficial
interest, $.001 par value, of the Trust (the "Shares") representing interests in
The Seven Seas Series Tax Free Money Market Fund as more fully described in each
Prospectus and the Statement of Additional Information relating to the Shares
contained in Post-Effective Amendment No. 23 (the "Amendment") to the Trust's
Registration Statement on Form N-1A (Registration No. 33-19229) to be filed with
the Securities and Exchange Commission.
We have examined the First Amended and Restated Master Trust Agreement of the
Trust dated October 13, 1993, as amended, the Amended and Restated By-laws of
the Trust, the records of certain meetings of the Trustees, the Prospectuses and
Statements of Additional Information contained in the Amendment, and such other
documents, records and certificates as we have deemed necessary for the purposes
of this opinion.
Based upon the foregoing, we are of the opinion that the Shares, when sold in
accordance with the terms of the Prospectuses and Statements of Additional
Information in effect at the time of sale, will be legally issued, fully paid
and non-assessable by the Trust.
We hereby consent to the filing of this opinion as an exhibit to the Amendment
and to the reference to this firm as legal counsel for the Trust in the
Prospectuses contained in the Amendment.
Very truly yours,
/s/Goodwin, Procter & Hoar
- --------------------------
Goodwin, Procter & Hoar
Exhibit 10(j)
March 6, 1995
The Seven Seas Series Fund
909 A Street
Tacoma, WA 98402
Gentlemen:
As counsel to The Seven Seas Series Fund (the "Trust"), a Massachusetts business
trust, we have been asked to render our opinion with respect to the issuance of
an indefinite number of shares of beneficial interest, $.001 par value, of the
Trust (the "Shares") representing interests in The Seven Seas Series Real Estate
Equity Fund, as more fully described in each Prospectus and the Statement of
Additional Information contained in Post-Effective Amendment No. 29 (the
"Amendment") to the Trust's Registration Statement on Form N-1A (Registration
No. 33-19229) filed with the Securities and Exchange Commission.
We have examined the First Amended and Restated Master Trust Agreement of the
Trust dated October 13, 1993, as amended, the By-laws of the Trust, the records
of certain meetings of the Trustees, the Prospectus and Statement of Additional
Information contained in the Amendment, and such other documents, records and
certificates as we have deemed necessary for the purposes of this opinion.
Based upon the foregoing, we are of the opinion that the Shares, when sold in
accordance with the terms of the Prospectus and Statement of Additional
Information in effect at the time of sale, will be legally issued, fully paid
and non-assessable by the Trust.
We hereby consent to the filing of this opinion as an exhibit to the Amendment
and to the reference to this firm as legal counsel for the Trust in the
Prospectus contained in the Amendment.
Very truly yours,
/s/Goodwin, Procter & Hoar
- --------------------------
Goodwin, Procter & Hoar
Consent of Independent Accountants
To the Board of Trustees of
SSgA Funds:
We consent to the incorporation by reference in Post-effective
Amendment No. 42 to the Registration Statement of SSgA Funds on Form N-1A of our
reports dated October 7, 1997, on our audits of the financial statements and
financial highlights of the Fund (comprised of Money Market Fund, US Government
Money Market Fund, Matrix Equity Fund, Yield Plus Fund, US Treasury Money Market
Fund, Prime Money Market Fund, Growth and Income Fund, Intermediate Fund,
Emerging Markets Fund, S&P 500 Index Fund, Small Cap Fund, Tax Free Money Market
Fund, Active International Fund, Bond Market Fund and Life Solutions Funds:
Income and Growth Fund, Balanced Fund and Growth Fund), which reports are
included in the Annual Reports to shareholders for the fiscal year ended August
31, 1997, which are incorporated by reference in the Registration Statement. We
also consent to the references to our Firm under the captions "Financial
Highlights" and "Additional Information" in the Prospectus and "Independent
Accountants" in the Statements of Additional Information.
/s/ Coopers & Lybrand L.L.P.
------------------------
Coopers & Lybrand L.L.P.
Boston, Massachusetts
December 22, 1997
Exhibit 13(a)
The Seven Seas Series Fund
909 A Street
Tacoma, WA 98402
Gentlemen:
In connection with your sale to us on of ten (10) shares of The Seven Seas
Series Money Market Fund portfolio (the "Shares"), we understand that: (i) the
Shares have not been registered under the Securities Act of 1933, as amended
(the "1933 Act"); (ii) your sale of the Shares to us is made in reliance on such
sale being exempt under Section 4(2) of the 1933 Act as not involving any public
offering; and (iii) in part, your reliance on such exemption is predicated on
our representation, which we hereby confirm, that we are acquiring the Shares
for investment for our own account as the sole beneficial owner thereof, and not
with a view to or in connection with any resale or distribution of the Shares or
of any interest therein. We hereby agree that we will not sell, assign or
transfer the Shares or any interest therein, except and until the Shares have
been registered under the 1933 Act or you have received an opinion of your
counsel indicating to your satisfaction that said sale, assignment or transfer
will not violate the provisions of the 1933 Act or any rules or regulations
promulgated thereunder.
This letter is intended to take effect as an instrument under seal, shall be
construed under the laws of the State of Massachusetts, and is delivered as of
the date above written.
FRANK RUSSELL INVESTMENT MANAGEMENT COMPANY
By: /s/George W. Weber
---------------------------------------
George W. Weber
Senior Vice President - Operations
Exhibit 13(b)
February 4, 1991
The Seven Seas Series Fund
909 A Street
Tacoma, WA 98402
Gentlemen:
In connection with your sale to us on February 1, 1991 of ten (10) shares of The
Seven Seas Series US Government Money Market Fund portfolio (the "Shares"), we
understand that: (i) the Shares have not been registered under the Securities
Act of 1933, as amended (the "1933 Act"); (ii) your sale of the Shares to us is
made in reliance on such sale being exempt under Section 4(2) of the 1933 Act as
not involving any public offering; and (iii) in part, your reliance on such
exemption is predicated on our representation, which we hereby confirm, that we
are acquiring the Shares for investment for our own account as the sole
beneficial owner thereof, and not with a view to or in connection with any
resale or distribution of the Shares or of any interest therein. We hereby agree
that we will not sell, assign or transfer the Shares or any interest therein,
except and until the Shares have been registered under the 1933 Act or you have
received an opinion of your counsel indicating to your satisfaction that said
sale, assignment or transfer will not violate the provisions of the 1933 Act or
any rules or regulations promulgated thereunder.
This letter is intended to take effect as an instrument under seal, shall be
construed under the laws of the State of Massachusetts, and is delivered as of
the date above written.
FRANK RUSSELL INVESTMENT MANAGEMENT COMPANY
By: /s/George W. Weber
---------------------------------------
George W. Weber
Senior Vice President - Operations
Exhibit 13(c)
January 22, 1992
The Seven Seas Series Fund
909 A Street
Tacoma, WA 98402
Gentlemen:
In connection with your sale to us on January 22, 1992 of ten (10) shares each
of The Seven Seas Series Short Term Government Bond Fund, The Seven Seas Series
S&P 500 Index Fund, The Seven Seas Series S&P Midcap Index Fund, The Seven Seas
Series Matrix Synthesis Fund, The Seven Seas Series International European Index
Fund and The Seven Seas Series International Pacific Index Fund portfolios (the
"Shares"), we understand that: (i) the Shares have not been registered under the
Securities Act of 1933, as amended (the "1933 Act"); (ii) your sale of the
Shares to us is made in reliance on such sale being exempt under Section 4(2) of
the 1933 Act as not involving any public offering; and (iii) in part, your
reliance on such exemption is predicated on our representation, which we hereby
confirm, that we are acquiring the Shares for investment for our own account as
the sole beneficial owner thereof, and not with a view to or in connection with
any resale or distribution of the Shares or of any interest therein. We hereby
agree that we will not sell, assign or transfer the Shares or any interest
therein, except and until the Shares have been registered under the 1933 Act or
you have received an opinion of your counsel indicating to your satisfaction
that said sale, assignment or transfer will not violate the provisions of the
1933 Act or any rules or regulations promulgated thereunder.
This letter is intended to take effect as an instrument under seal, shall be
construed under the laws of the State of Massachusetts, and is delivered as of
the date above written.
FRANK RUSSELL INVESTMENT MANAGEMENT COMPANY
By: /s/George W. Weber
---------------------------------------
George W. Weber
Senior Vice President - Operations
Exhibit 13(d)
July 9, 1992
The Seven Seas Series Fund
909 A Street
Tacoma, WA 98402
Gentlemen:
In connection with your sale to us on July 8, 1992, of ten (10) shares each of
The Seven Seas Series Yield Plus Fund and The Seven Seas Series Bond Market Fund
portfolios (the "Shares"), we understand that: (i) the Shares have not been
registered under the Securities Act of 1933, as amended (the "1933 Act"); (ii)
your sale of the Shares to us is made in reliance on such sale being exempt
under Section 4(2) of the 1933 Act as not involving any public offering; and
(iii) in part, your reliance on such exemption is predicated on our
representation, which we hereby confirm, that we are acquiring the Shares for
investment for our own account as the sole beneficial owner thereof, and not
with a view to or in connection with any resale or distribution of the Shares or
of any interest therein. We hereby agree that we will not sell, assign or
transfer the Shares or any interest therein, except and until the Shares have
been registered under the 1933 Act or you have received an opinion of your
counsel indicating to your satisfaction that said sale, assignment or transfer
will not violate the provisions of the 1933 Act or any rules or regulations
promulgated thereunder.
This letter is intended to take effect as an instrument under seal, shall be
construed under the laws of the State of Massachusetts, and is delivered as of
the date above written.
FRANK RUSSELL INVESTMENT MANAGEMENT COMPANY
By: /s/George W. Weber
---------------------------------------
George W. Weber
Senior Vice President - Operations
Exhibit 13(e)
January 7, 1993
The Seven Seas Series Fund
909 A Street
Tacoma, WA 98402
Gentlemen:
In connection with your sale to us on January 6, 1993, of one hundred (100)
shares each of The Seven Seas Series US Treasury Money Market Fund and The Seven
Seas Series US Treasury Obligations Fund portfolios (the "Shares"), we
understand that: (i) the Shares have not been registered under the Securities
Act of 1933, as amended (the "1933 Act"); (ii) your sale of the Shares to us is
made in reliance on such sale being exempt under Section 4(2) of the 1933 Act as
not involving any public offering; and (iii) in part, your reliance on such
exemption is predicated on our representation, which we hereby confirm, that we
are acquiring the Shares for investment for our own account as the sole
beneficial owner thereof, and not with a view to or in connection with any
resale or distribution of the Shares or of any interest therein. We hereby agree
that we will not sell, assign or transfer the Shares or any interest therein,
except and until the Shares have been registered under the 1933 Act or you have
received an opinion of your counsel indicating to your satisfaction that said
sale, assignment or transfer will not violate the provisions of the 1933 Act or
any rules or regulations promulgated thereunder.
This letter is intended to take effect as an instrument under seal, shall be
construed under the laws of the State of Massachusetts, and is delivered as of
the date above written.
FRANK RUSSELL INVESTMENT MANAGEMENT COMPANY
By: /s/George W. Weber
---------------------------------------
George W. Weber
Senior Vice President - Operations
Exhibit 13(f)
April 8, 1993
The Seven Seas Series Fund
909 A Street
Tacoma, WA 98402
Gentlemen:
In connection with your sale to us on April 7, 1993, of ten (10) shares each of
The Seven Seas Series Growth and Income Fund and The Seven Seas Series
Intermediate Fund portfolios (the "Shares"), we understand that: (i) the Shares
have not been registered under the Securities Act of 1933, as amended (the "1933
Act"); (ii) your sale of the Shares to us is made in reliance on such sale being
exempt under Section 4(2) of the 1933 Act as not involving any public offering;
and (iii) in part, your reliance on such exemption is predicated on our
representation, which we hereby confirm, that we are acquiring the Shares for
investment for our own account as the sole beneficial owner thereof, and not
with a view to or in connection with any resale or distribution of the Shares or
of any interest therein. We hereby agree that we will not sell, assign or
transfer the Shares or any interest therein, except and until the Shares have
been registered under the 1933 Act or you have received an opinion of your
counsel indicating to your satisfaction that said sale, assignment or transfer
will not violate the provisions of the 1933 Act or any rules or regulations
promulgated thereunder.
This letter is intended to take effect as an instrument under seal, shall be
construed under the laws of the State of Massachusetts, and is delivered as of
the date above written.
FRANK RUSSELL INVESTMENT MANAGEMENT COMPANY
By: /s/Lynn L. Anderson
---------------------------------------
Lynn L. Anderson
President
Exhibit 13(g)
February 22, 1994
The Seven Seas Series Fund
909 A Street
Tacoma, WA 98402
Gentlemen:
In connection with your sale to us on February 22, 1994, of (1) one hundred
(100) shares each of The Seven Seas Series Prime Money Market Portfolio, having
a par value of $0.001 per share, at a price of $1.00 per share; and (2) 10
shares of The Seven Seas Series Emerging Markets Fund, having a par value of
$0.001 per share, at a price of $10.00 per share (the "Shares"), we understand
that: (i) the Shares have not been registered under the Securities Act of 1933,
as amended (the "1933 Act"); (ii) your sale of the Shares to us is made in
reliance on such sale being exempt under Section 4(2) of the 1933 Act as not
involving any public offering; and (iii) in part, your reliance on such
exemption is predicated on our representation, which we hereby confirm, that we
are acquiring the Shares for investment for our own account as the sole
beneficial owner thereof, and not with a view to or in connection with any
resale or distribution of the Shares or of any interest therein. We hereby agree
that we will not sell, assign or transfer the Shares or any interest therein,
except and until the Shares have been registered under the 1933 Act or you have
received an opinion of your counsel indicating to your satisfaction that said
sale, assignment or transfer will not violate the provisions of the 1933 Act or
any rules or regulations promulgated thereunder.
This letter is intended to take effect as an instrument under seal, shall be
construed under the laws of the State of Massachusetts, and is delivered as of
the date above written.
FRANK RUSSELL INVESTMENT MANAGEMENT COMPANY
By: /s/Thomas A. Early
-------------------------------------------
Thomas A. Early
Associate General Counsel and Secretary
Exhibit 13(h)
SUBSCRIPTION
Classes B and C of The Seven Seas Series Money Market Fund
Classes B and C of The Seven Seas Series US Government Money Market Fund
July 13, 1994
To: The Board of Trustees of The Seven Seas Series Fund
909 A Street
Tacoma, WA 98402
Ladies and Gentlemen:
The undersigned hereby subscribes to 100 shares each of (1) Class B of The Seven
Seas Series Money Market Fund; (2) Class C of The Seven Seas Series Money Market
Fund; (3) Class B of The Seven Seas Series US Government Money Market Fund; and
(4) Class C of The Seven Seas Series US Government Money Market Fund. Each share
shall have a par value of $0.001 per share, and a price of $1.00 per share.
In consideration for your acceptance of the foregoing subscription, we hereby
deliver to you $400.00 in full and complete payment.
Dated: July 19, 1994
FRANK RUSSELL INVESTMENT
MANAGEMENT COMPANY
By: /s/ J. David Griswold
-----------------------------------
J. David Griswold
Associate General Counsel and
Assistant Secretary
ACKNOWLEDGED AND ACCEPTED
- -------------------------
The Seven Seas Series Fund
By: /s/Lynn L. Anderson
---------------------
Lynn L. Anderson
President
Exhibit 13(i)
SUBSCRIPTION
The Seven Seas Series Tax Free Money Market Fund
July 13, 1994
To: The Board of Trustees of The Seven Seas Series Fund
909 A Street
Tacoma, WA 98402
Ladies and Gentlemen:
The undersigned hereby subscribes to 100 shares each of: (1) Class A, (2) Class
B and (3) Class C of The Seven Seas Series Tax Free Money Market Fund, with a
par value of $0.001 per share, and a price of $1.00 per share.
In consideration for your acceptance of the foregoing subscription, we hereby
deliver to you $300.00 in full and complete payment.
Dated: July 19, 1994
FRANK RUSSELL INVESTMENT
MANAGEMENT COMPANY
By: /s/J. David Griswold
---------------------------------
J. David Griswold
Associate General Counsel and
Assistant Secretary
ACKNOWLEDGED AND ACCEPTED
- -------------------------
The Seven Seas Series Fund
By: /s/Lynn L. Anderson
-----------------------
Lynn L. Anderson
President
Exhibit 13(j)
The Seven Seas Series Active International Fund
Letter of Investment Intent
October 25, 1994
The Seven Seas Series Fund
909 A Street
Tacoma, WA 98402
Ladies and Gentlemen:
In connection with your sale to us on October 25, 1994, of ten (10) shares of
The Seven Seas Series Active International Fund (the "Shares"), we understand
that: (1) the Shares have not been registered under the Securities Act of 1933,
as amended (the "1933 Act"); (2) your sale of the Shares to us is made in
reliance on such sale being exempt under Section 4(2) of the 1933 Act as not
involving any public offering; and (3) in part, your reliance on such exemption
is predicated on our representation, which we hereby confirm, that we are
acquiring the Shares for investment for our own account as the sole beneficial
owner thereof, and not with a view to or in connection with any resale or
distribution of the Shares or of any interest therein. We hereby agree that we
will not sell, assign or transfer the Shares or any interest therein, except and
until the Shares have been registered under the 1933 Act or you have received an
opinion of our counsel indicating to your satisfaction that said sale,
assignment or transfer will not violate the provisions of the 1933 Act or any
rules or regulations promulgated thereunder.
This letter is intended to take effect as an instrument under seal, shall be
construed under the laws of the State of Massachusetts, and is delivered as of
the date above written.
FRANK RUSSELL INVESTMENT
MANAGEMENT COMPANY
By: /s/Karl J. Ege
------------------------------
Karl J. Ege
Secretary and General Counsel
EXHIBIT 15(B)
THE SEVEN SEAS SERIES FUND
PLAN OF DISTRIBUTION
PURSUANT TO RULE 12b-1
CLASS B SHARES
July 13, 1994
THE SEVEN SEAS SERIES FUND, an unincorporated business trust organized
under the laws of The Commonwealth of Massachusetts (the "Trust"), engages in
business as an open-end management investment company and is registered as such
under the Investment Company Act of 1940, as amended (the "Act").
The Trust is authorized to issue multiple classes of shares of
beneficial interest in separate series, with the shares of each such series
representing the interests in a separate portfolio of securities and other
assets.
The Trust desires to adopt a Plan of Distribution pursuant to Rule
12b-1 under the Act for Class B Shares (the "Shares") of the following series of
the Trust: The Seven Seas Series Money Market Fund and The Seven Seas Series US
Government Money Market Fund (the "Initial Funds") and for Class B Shares of
such additional and future series of the Trust as may later become subject to
this Plan (collectively, the "Funds").
The Trust employs Russell Fund Distributors, Inc., (the "Distributor")
as distributor of Shares of the Initial Funds pursuant to a Distribution
Agreement (the "Agreement").
The Trustees approved this Plan of Distribution on July 13, 1994
pursuant to Rule 12b-1 under the Act.
The Board of Trustees as a whole, and the Trustees who are not
interested persons of the Trust (as defined in the Act) and who have no direct
or indirect financial interest in the operation of this Plan or the Agreement
have determined, in the exercise of their reasonable business judgment and in
light of their fiduciary duties under state law and under Section 36(a) and (b)
of the Act, that there is a reasonable likelihood that this Plan and the
Agreement will benefit the Funds and the holders of Shares, and have accordingly
approved this Plan and the Agreement by votes cast in person at a meeting called
for the purpose of voting on this Plan and the Agreement.
This Plan has been approved by the sole holder of Shares of each of the
Initial Funds.
In light of the foregoing facts, the Trust hereby adopts the Plan in
accordance with Rule 12b-1 under the Act, on the following terms and conditions:
SECTION 1. DISTRIBUTION ACTIVITIES
Subject to the supervision of the Trustees, the Trust and the Funds may
engage, directly or indirectly, in financing any activities primarily intended
to result in the sale of Shares, including, but not limited to, the following:
<PAGE>
(1) payment of commissions and/or reimbursement to underwriters,
securities dealers and others engaged in the sale of Shares (excluding
Distributor, "Sales Agents"), including payments to the Distributor to be used
to pay commissions and/or reimbursement to securities dealers and others
(including affiliates of the Distributor) engaged in the distribution and
marketing of Shares or furnishing assistance to investors on an ongoing basis;
(2) reimbursement of:
(i) direct out-of-pocket expenditures incurred by the
Distributor in connection with the distribution and marketing of Shares and the
servicing of investor accounts, including expenses relating to the formulation
and implementation of marketing strategies and promotional activities (such as
direct mail promotions and television, radio, newspaper, magazine and other mass
media advertising), the preparation, printing and distribution of sales
literature, the preparation, printing and distribution of prospectuses and
statements of additional information of the Trust and reports for recipients
other than existing shareholders of the Funds, and obtaining such information,
analyses and reports with respect to marketing and promotional activities and
investor accounts as the Trust may, from time to time, deem advisable; and
(ii) expenses incurred in connection with the promotion and
sale of Shares, including, without limitation, Distributor's expenses for rent,
office supplies, equipment, travel, communication, compensation, and benefits
for sales personnel; and
(3) payment of any fees and expenses to shareholder servicing agents,
including any investment adviser of the Trust ("Servicing Agents"), that have
entered into shareholder servicing agreements with the Trust pursuant to which
Servicing Agents may provide various shareholder services with respect to shares
of the Funds held by or for customers of Servicing Agents, including: answering
inquiries regarding the Funds; assisting customers in changing dividend options,
account designations and addresses; performing sub-accounting for such
customers; establishing and maintaining customer accounts and records;
processing purchase and redemption transactions; providing periodic statements
showing customer's account balances and integrating such statements with those
of other transactions and balances in the customers' other accounts serviced by
the Servicing Agents; arranging for bank wires transferring customers' funds;
and such other services as the customers may request in connection with the
Funds, to the extent permitted by applicable statute, rule or regulation
(collectively, "Shareholder Services").
<PAGE>
SECTION 2. MAXIMUM EXPENDITURES
The expenditures to be made pursuant to such expenditures will be made,
shall be determined by the Trust, but in no event shall such expenditures exceed
the following:
(i) with respect to distribution-related expenses of the Distributor
and distribution-related payments to Sales Agents, an annual rate of
.35 of 1% of the average daily value of the Shares of that Fund; and
(ii) with respect to payments for Shareholder Services, an annual rate
of .25 of 1% of the average daily value of Shares of that Fund;
provided, however, that the aggregate amount of payments under this Plan to all
parties shall in no event exceed .35 of 1% of the average annual value of the
Shares of the Fund.
The expenditures to be made pursuant to this Plan shall commence with
respect to each Fund as of the date on which this Plan becomes effective with
respect to such Fund.
SECTION 3. PAYMENTS
Pursuant to this Plan, the Trust shall make monthly payments to the
Distributor, Sales Agents or Servicing Agents at up to the annual rate provided
for in Section 2 with respect to Shares of each Fund. The Distributor shall
apply amounts received under Section 2: (i) to remit to and allocate among Sales
Agents and Servicing Agents (including affiliates of the Distributor), in
consideration of or as reimbursement for expenses incurred in the provision of
distribution and marketing services or furnishing assistance to investors on an
ongoing basis, such amounts are as indicated in the prospectus by which Shares
of the relevant Fund are offered; and (ii) to reimburse the Distributor for
direct out-of-pocket expenses incurred in connection with the distribution and
marketing of Shares of each Fund.
In the event that the Distributor, Sales Agent or Servicing Agent is
not fully reimbursed for payments made or expenses incurred by it in any fiscal
year, the Distributor, Sales Agent or Servicing Agent shall be entitled to carry
forward such expenses to subsequent fiscal years for submission to the
applicable Fund for payment subject always to the annual maximum expenditures
for each Fund set forth in Section 2 hereof; provided, however, that nothing
herein shall prohibit or limit the Trustees from terminating this Plan and all
payments hereunder at any time pursuant to Section 4(e) hereof.
Notwithstanding anything to the contrary herein, the aggregate of all
payments to the Distributor shall not exceed at any time the aggregate of all
payments made or expenses incurred by the Distributor pursuant to this Section
3.
<PAGE>
SECTION 4. TERM AND TERMINATION
(a) Existing Funds. This Plan shall become effective with respect to
the Shares of the Initial Funds as of the date of execution of this Plan. This
Plan shall continue in effect with respect to each Fund until one year from the
effective date, unless the continuation of this Plan shall have been approved
with respect to that Fund in accordance with the provisions of Section 4(c)
hereof.
(b) Additional Funds. This Plan shall become effective with respect to
the Shares of each additional Fund upon commencement of the initial public
offering thereof; provided that the Plan has previously been approved for
continuation by votes of a majority of both: (i) the Board of Trustees of the
Trust; and (ii) the Trustees of the Trust who are not "interested persons" (as
defined under the Act) of the Trust and have no direct or indirect financial
interest in the operation of this Plan or any agreement entered into pursuant to
this Plan (the "Qualified Trustees"), cast in person at a meeting held before
the initial public offering of such additional Fund and called for the purpose
of voting on such approval. This Plan shall continue in effect with respect to
each such additional Fund for one year after the date of such initial public
offering, unless the continuation of this Plan shall have been approved with
respect to such additional Fund in accordance with the provisions of Section
4(c) hereof. The Distributor and the Trust on behalf of each such additional
Fund shall each sign an addendum hereto agreeing to be bound hereby and setting
forth such specific and different terms as the parties may agree upon,
including, without implied limitation, the amount and purpose of payments to be
made hereunder.
(c) Continuation. This Plan and related agreements shall continue in
effect with respect to the Shares of each Fund subsequent to the initial term
specified in Section 4(a) and (b) for so long as such continuance is
specifically approved at least annually by votes of a majority of both: (i) the
Board of Trustees of the Trust; and (ii) the Qualified Trustees, cast in person
at a meeting called for the purpose of voting on this Plan and related
agreements.
(d) Shareholder Approval. Notwithstanding the foregoing provisions of
this Section 4, the continuance of this Plan with respect to the Initial Funds
and any additional Fund subsequently established by the Trust is subject to the
approval of this Plan by a majority of the outstanding voting securities (as
defined in the Act) of such Fund after this Plan becomes effective with respect
thereto.
(e) Termination.
(i) This Plan may be terminated at any time with respect to
any Fund by vote of a majority of the Qualified Trustees, or by the affirmative
vote of the holders of a majority of the outstanding Shares of that Fund, as the
case may be. The Plan may remain in effect with respect to a Fund even if it has
been terminated in accordance with this Section 4(e) with respect to one or more
other Funds.
(ii) The Agreement may be terminated at any time, without
penalty, with respect to any Fund by a vote of a majority of the Qualified
Trustees or by the affirmative vote of the holders of a majority of the
outstanding Shares of that Fund on sixty days' written notice to the
Distributor. In addition, the Agreement provides for automatic termination in
the event of its assignment.
<PAGE>
SECTION 5. AMENDMENTS
This Plan may not be amended to increase materially the amount of
distribution expenditures provided for herein unless such amendment is approved
by the affirmative vote of the holders of a majority of the outstanding Shares
of each Fund with respect to which a material increase in the amount of
distribution expenditures is proposed, and no material amendment to the Plan
shall be made unless approved in the manner provided for annual renewal in
Section 4(c) hereof. Otherwise, the Plan may be amended with respect to any Fund
by vote of a majority of the Qualified Trustees or the affirmative vote of the
holders of a majority of the outstanding Shares of that Fund.
SECTION 6. INDEPENDENT TRUSTEES
While this Plan is in effect with respect to any Fund, the selection
and nomination of Trustees who are not interested persons (as defined in the
Act) of the Trust shall be committed to the discretion of the Trustees who are
not interested persons.
SECTION 7. QUARTERLY REPORTS
The Treasurer of the Trust and the Treasurer of the Distributor shall
provide to the Trustees of the Trust and the Trustees shall review, at least
quarterly, a written report of the amounts expended for distribution pursuant to
this Plan and the purposes for which such expenditures were made.
SECTION 8. RECORDKEEPING
The Trust shall preserve copies of this Plan, the Agreement and any
related agreements and all reports made pursuant to Section 7 hereof, for a
period of not less than six years from the date of this Plan and the Agreement,
with the agreements or such reports, as the case may be, for the first two years
to be kept in an easily accessible place.
SECTION 9. LIMITATION OF LIABILITY
The term "The Seven Seas Series Fund" means and refers to the Trustees
from time to time serving under the First Amended and Restated Master Trust
Agreement, dated October 13, 1993 (the "Master Trust Agreement"), as the same
may subsequently thereto have been, or subsequently hereto be, amended. It is
expressly agreed that the obligations of the Trust hereunder shall not be
binding upon any of the Trustees, shareholders, nominees, officers, agents or
employees of the Trust, personally, but bind only the trust property of the
Trust, as provided in the Master Trust Agreement. The execution and delivery of
this Plan and the Plan have been authorized by the Trustees of the Trust and
signed by an authorized officer of the Trust, acting as such, and neither such
authorization by such Trustees nor such execution and delivery by such officer
shall be deemed to have been made by any of them individually or to impose any
liability on any of them personally, but shall bind only the trust property of
the Trust as provided in its Master Trust Agreement. The Master Trust Agreement
further provides, and it is expressly agreed, that each Fund of the Trust shall
be solely and exclusively responsible for the payment of its debts, liabilities
and obligations and that no other Fund shall be responsible or liable for the
same.
IN WITNESS WHEREOF, the Trust has executed this Plan of Distribution as
of the day and year first written above.
THE SEVEN SEAS SERIES FUND
By: /S/Lynn L. Anderson
-------------------------------------
Lynn L. Anderson,President
ATTEST:
/s/ J. David Griswold
- ----------------------------------
J. David Griswold, Secretary
EXHIBIT 15(C)
THE SEVEN SEAS SERIES FUND
PLAN OF DISTRIBUTION
PURSUANT TO RULE 12b-1
CLASS C SHARES
July 13, 1994
THE SEVEN SEAS SERIES FUND, an unincorporated business trust organized
under the laws of The Commonwealth of Massachusetts (the "Trust"), engages in
business as an open-end management investment company and is registered as such
under the Investment Company Act of 1940, as amended (the "Act").
The Trust is authorized to issue multiple classes of shares of
beneficial interest in separate series, with the shares of each such series
representing the interests in a separate portfolio of securities and other
assets.
The Trust desires to adopt a Plan of Distribution pursuant to Rule
12b-1 under the Act for Class C Shares (the "Shares") of the following series of
the Trust: The Seven Seas Series Money Market Fund and The Seven Seas Series US
Government Money Market Fund (the "Initial Funds") and for Class C Shares of
such additional and future series of the Trust as may later become subject to
this Plan (collectively, the "Funds").
The Trust employs Russell Fund Distributors, Inc., (the "Distributor")
as distributor of Shares of the Initial Funds pursuant to a Distribution
Agreement (the "Agreement").
The Trustees approved this Plan of Distribution on July 13, 1994
pursuant to Rule 12b-1 under the Act.
The Board of Trustees as a whole, and the Trustees who are not
interested persons of the Trust (as defined in the Act) and who have no direct
or indirect financial interest in the operation of this Plan or the Agreement
have determined, in the exercise of their reasonable business judgment and in
light of their fiduciary duties under state law and under Section 36(a) and (b)
of the Act, that there is a reasonable likelihood that this Plan and the
Agreement will benefit the Funds and the holders of Shares, and have accordingly
approved this Plan and the Agreement by votes cast in person at a meeting called
for the purpose of voting on this Plan and the Agreement.
This Plan has been approved by the sole holder of Shares of each of the
Initial Funds.
In light of the foregoing facts, the Trust hereby adopts the Plan in
accordance with Rule 12b-1 under the Act, on the following terms and conditions:
SECTION 1. DISTRIBUTION ACTIVITIES
Subject to the supervision of the Trustees, the Trust and the Funds may
engage, directly or indirectly, in financing any activities primarily intended
to result in the sale of Shares, including, but not limited to, the following:
<PAGE>
(1) payment of commissions and/or reimbursement to underwriters,
securities dealers and others engaged in the sale of Shares (excluding
Distributor, "Sales Agents"), including payments to the Distributor to be used
to pay commissions and/or reimbursement to securities dealers and others
(including affiliates of the Distributor) engaged in the distribution and
marketing of Shares or furnishing assistance to investors on an ongoing basis;
(2) reimbursement of:
(i) direct out-of-pocket expenditures incurred by the
Distributor in connection with the distribution and marketing of Shares and the
servicing of investor accounts, including expenses relating to the formulation
and implementation of marketing strategies and promotional activities (such as
direct mail promotions and television, radio, newspaper, magazine and other mass
media advertising), the preparation, printing and distribution of sales
literature, the preparation, printing and distribution of prospectuses and
statements of additional information of the Trust and reports for recipients
other than existing shareholders of the Funds, and obtaining such information,
analyses and reports with respect to marketing and promotional activities and
investor accounts as the Trust may, from time to time, deem advisable; and
(ii) expenses incurred in connection with the promotion and
sale of Shares, including, without limitation, Distributor's expenses for rent,
office supplies, equipment, travel, communication, compensation, and benefits
for sales personnel; and
(3) payment of any fees and expenses to shareholder servicing agents,
including any investment adviser of the Trust ("Servicing Agents"), that have
entered into shareholder servicing agreements with the Trust pursuant to which
Servicing Agents may provide various shareholder services with respect to shares
of the Funds held by or for customers of Servicing Agents, including: answering
inquiries regarding the Funds; assisting customers in changing dividend options,
account designations and addresses; performing sub-accounting for such
customers; establishing and maintaining customer accounts and records;
processing purchase and redemption transactions; providing periodic statements
showing customer's account balances and integrating such statements with those
of other transactions and balances in the customers' other accounts serviced by
the Servicing Agents; arranging for bank wires transferring customers' funds;
and such other services as the customers may request in connection with the
Funds, to the extent permitted by applicable statute, rule or regulation
(collectively, "Shareholder Services").
<PAGE>
SECTION 2. MAXIMUM EXPENDITURES
The expenditures to be made pursuant to this Plan, and the basis upon
which payment of such expenditures will be made, shall be determined by the
Trust, but in no event shall such expenditures exceed the following:
(i) with respect to distribution-related expenses of the Distributor
and distribution-related payments to Sales Agents, an annual rate of
.60 of 1% of the average daily value of the Shares of that Fund; and
(ii) with respect to payments for Shareholder Services, an annual rate
of .25 of 1% of the average daily value of Shares of that Fund;
provided, however, that the aggregate amount of payments under this Plan to all
parties shall in no event exceed .60 of 1% of the average annual value of the
Shares of the Fund.
The expenditures to be made pursuant to this Plan shall commence with
respect to each Fund as of the date on which this Plan becomes effective with
respect to such Fund.
SECTION 3. PAYMENTS
Pursuant to this Plan, the Trust shall make monthly payments to the
Distributor, Sales Agents or Servicing Agents at up to the annual rate provided
for in Section 2 with respect to Shares of each Fund. The Distributor shall
apply amounts received under Section 2: (i) to remit to and allocate among Sales
Agents and Servicing Agents (including affiliates of the Distributor), in
consideration of or as reimbursement for expenses incurred in the provision of
distribution and marketing services or furnishing assistance to investors on an
ongoing basis, such amounts are as indicated in the prospectus by which Shares
of the relevant Fund are offered; and (ii) to reimburse the Distributor for
direct out-of-pocket expenses incurred in connection with the distribution and
marketing of Shares of each Fund.
In the event that the Distributor, Sales Agent or Servicing Agent is
not fully reimbursed for payments made or expenses incurred by it in any fiscal
year, the Distributor, Sales Agent or Servicing Agent shall be entitled to carry
forward such expenses to subsequent fiscal years for submission to the
applicable Fund for payment subject always to the annual maximum expenditures
for each Fund set forth in Section 2 hereof; provided, however, that nothing
herein shall prohibit or limit the Trustees from terminating this Plan and all
payments hereunder at any time pursuant to Section 4(e) hereof.
Notwithstanding anything to the contrary herein, the aggregate of all
payments to the Distributor shall not exceed at any time the aggregate of all
payments made or expenses incurred by the Distributor pursuant to this Section
3.
<PAGE>
SECTION 4. TERM AND TERMINATION
(a) Existing Funds. This Plan shall become effective with respect to
the Shares of the Initial Funds as of the date of execution of this Plan. This
Plan shall continue in effect with respect to each Fund until one year from the
effective date, unless the continuation of this Plan shall have been approved
with respect to that Fund in accordance with the provisions of Section 4(c)
hereof.
(b) Additional Funds. This Plan shall become effective with respect to
the Shares of each additional Fund upon commencement of the initial public
offering thereof; provided that the Plan has previously been approved for
continuation by votes of a majority of both: (i) the Board of Trustees of the
Trust; and (ii) the Trustees of the Trust who are not "interested persons" (as
defined under the Act) of the Trust and have no direct or indirect financial
interest in the operation of this Plan or any agreement entered into pursuant to
this Plan (the "Qualified Trustees"), cast in person at a meeting held before
the initial public offering of such additional Fund and called for the purpose
of voting on such approval. This Plan shall continue in effect with respect to
each such additional Fund for one year after the date of such initial public
offering, unless the continuation of this Plan shall have been approved with
respect to such additional Fund in accordance with the provisions of Section
4(c) hereof. The Distributor and the Trust on behalf of each such additional
Fund shall each sign an addendum hereto agreeing to be bound hereby and setting
forth such specific and different terms as the parties may agree upon,
including, without implied limitation, the amount and purpose of payments to be
made hereunder.
(c) Continuation. This Plan and related agreements shall continue in
effect with respect to the Shares of each Fund subsequent to the initial term
specified in Section 4(a) and (b) for so long as such continuance is
specifically approved at least annually by votes of a majority of both: (i) the
Board of Trustees of the Trust; and (ii) the Qualified Trustees, cast in person
at a meeting called for the purpose of voting on this Plan and related
agreements.
(d) Shareholder Approval. Notwithstanding the foregoing provisions of
this Section 4, the continuance of this Plan with respect to the Initial Funds
and any additional Fund subsequently established by the Trust is subject to the
approval of this Plan by a majority of the outstanding voting securities (as
defined in the Act) of such Fund after this Plan becomes effective with respect
thereto.
(e) Termination.
(i) This Plan may be terminated at any time with respect to
any Fund by vote of a majority of the Qualified Trustees, or by the affirmative
vote of the holders of a majority of the outstanding Shares of that Fund, as the
case may be. The Plan may remain in effect with respect to a Fund even if it has
been terminated in accordance with this Section 4(e) with respect to one or more
other Funds.
(ii) The Agreement may be terminated at any time, without
penalty, with respect to any Fund by a vote of a majority of the Qualified
Trustees or by the affirmative vote of the holders of a majority of the
outstanding Shares of that Fund on sixty days' written notice to the
Distributor. In addition, the Agreement provides for automatic termination in
the event of its assignment.
<PAGE>
SECTION 5. AMENDMENTS
This Plan may not be amended to increase materially the amount of
distribution expenditures provided for herein unless such amendment is approved
by the affirmative vote of the holders of a majority of the outstanding Shares
of each Fund with respect to which a material increase in the amount of
distribution expenditures is proposed, and no material amendment to the Plan
shall be made unless approved in the manner provided for annual renewal in
Section 4(c) hereof. Otherwise, the Plan may be amended with respect to any Fund
by vote of a majority of the Qualified Trustees or the affirmative vote of the
holders of a majority of the outstanding Shares of that Fund.
SECTION 6. INDEPENDENT TRUSTEES
While this Plan is in effect with respect to any Fund, the selection
and nomination of Trustees who are not interested persons (as defined in the
Act) of the Trust shall be committed to the discretion of the Trustees who are
not interested persons.
SECTION 7. QUARTERLY REPORTS
The Treasurer of the Trust and the Treasurer of the Distributor shall
provide to the Trustees of the Trust and the Trustees shall review, at least
quarterly, a written report of the amounts expended for distribution pursuant to
this Plan and the purposes for which such expenditures were made.
SECTION 8. RECORDKEEPING
The Trust shall preserve copies of this Plan, the Agreement and any
related agreements and all reports made pursuant to Section 7 hereof, for a
period of not less than six years from the date of this Plan and the Agreement,
with the agreements or such reports, as the case may be, for the first two years
to be kept in an easily accessible place.
SECTION 9. LIMITATION OF LIABILITY
The term "The Seven Seas Series Fund" means and refers to the Trustees
from time to time serving under the First Amended and Restated Master Trust
Agreement, dated October 13, 1993 (the "Master Trust Agreement"), as the same
may subsequently thereto have been, or subsequently hereto be, amended. It is
expressly agreed that the obligations of the Trust hereunder shall not be
binding upon any of the Trustees, shareholders, nominees, officers, agents or
employees of the Trust, personally, but bind only the trust property of the
Trust, as provided in the Master Trust Agreement. The execution and delivery of
this Plan and the Plan have been authorized by the Trustees of the Trust and
signed by an authorized officer of the Trust, acting as such, and neither such
authorization by such Trustees nor such execution and delivery by such officer
shall be deemed to have been made by any of them individually or to impose any
liability on any of them personally, but shall bind only the trust property of
the Trust as provided in its Master Trust Agreement. The Master Trust Agreement
further provides, and it is expressly agreed, that each Fund of the Trust shall
be solely and exclusively responsible for the payment of its debts, liabilities
and obligations and that no other Fund shall be responsible or liable for the
same.
IN WITNESS WHEREOF, the Trust has executed this Plan of Distribution as
of the day and year first written above.
THE SEVEN SEAS SERIES FUND
THE SEVEN SEAS SERIES FUND
By: /S/Lynn L. Anderson
---------------------------
Lynn L. Anderson, President
ATTEST:
/s/ J. David Griswold
- ---------------------------------
J. David Griswold, Secretary
EXHIBIT 15(D)
SSgA FUNDS
SHAREHOLDER SERVICING AGREEMENT
AGREEMENT dated as of October 15, 1997 by and between SSgA
Funds (the "Trust"), a Massachusetts business trust, having its principal place
of business at 909 A Street, Tacoma, Washington 98402, and State Street
Solutions, 225 Franklin Street, Boston, MA 02110 (the "Agent"). The Agent wishes
to act as the agent of its customers (the "Customers") in performing certain
administrative functions in connection with purchases and redemptions of shares
of beneficial interest of certain series of the Trust described in Section 1
hereof ("Shares") from time to time upon the order and for the account of
Customers, and to provide related services to its Customers in connection with
their investments in the Trust. It is in the interest of the Trust to make the
services of the Agent available to Customers who are or may become shareholders
of the Trust.
In consideration of the foregoing recitals and the mutual
covenants herein contained, the Trust and the Agent hereby agree as follows:
1. Appointment. The Agent hereby agrees to perform the
services set forth below for Customers. Each series of the Trust for which the
Agent acts as a servicing agent pursuant to this Agreement is hereinafter
referred to as a "Fund." The Agent's appointment hereunder is non-exclusive, and
the parties recognize and agree that, from time to time, the Trust may enter
into other shareholder servicing agreements, with other financial institutions.
As used in this Agreement, "Shares" shall mean: (i) with respect to a Fund whose
shares have no class designation, all shares of beneficial interest in that
Fund, and (ii) with respect to a Fund whose shares do have class designations,
the Class A shares of that Fund.
2. Services to be Performed. The Agent shall be responsible
for performing shareholder account servicing functions, which shall include
without limitation:
(a) assisting in processing Customer purchase and
redemption requests;
(b) answering Customer inquiries regarding account
status and history, the manner in which purchase and redemptions of the Shares
may be effected, and certain other matters pertaining to the Trust;
(c) providing necessary personnel and facilities to
establish and maintain certain shareholder accounts and records, as requested
from time to time by the Trust;
(d) arranging for the wiring of funds;
(e) transmitting and receiving funds in connection
with Customer orders to purchase or redeem Shares;
(f) providing periodic statements showing a
Customer's account balances and, to the extent practicable, integration of such
information with other client transactions otherwise effected with or through
the Agent;
<PAGE>
(g) furnishing (either separately or on an
integrated basis with other reports sent to a Customer by the Agent) monthly and
annual statements and confirmations of all purchases and redemptions of Shares
in a Customer's account;
(h) aggregating and processing Customer purchase and
redemption requests for Shares and placing net purchase and redemption orders
with the Trust's transfer agent (currently State Street Bank and Trust Company
("SSB"), including any designee of SSB, "Transfer Agent") in the manner
described in Section 4 hereof;
(i) providing complete subaccounting services and
maintaining complete subaccounting records regarding Shares beneficially owned
by Customers;
(j) processing dividend payments;
(k) transmitting proxy statements, annual and
semi-annual reports, prospectuses and other communications from the Trust to
Customers;
(l) receiving, tabulating and transmitting to the
Trust proxies executed by Customers with respect to annual and special meetings
of shareholders of the Trust;
(m) preparing and filing U.S. Treasury Department
Forms 1099 and other appropriate forms required with respect to dividends and
distributions by federal authorities; and
(n) providing such other related services as the
Trust or a Customer may reasonably request.
The Agent shall provide all personnel, facilities and equipment necessary in
order for it to perform the functions described in this paragraph with respect
to its Customers. The Agent shall exercise reasonable care in performing all
such services and shall be liable for any failure to exercise such reasonable
care.
3. Fees.
(a) Fees from the Trust. In consideration for the
services described in Section 2 hereof, the Trust shall pay the Agent a fee as
described in Attachment A hereto. All fees shall be paid monthly in arrears.
(b) Fees from Customers. It is agreed that the Agent
may impose certain conditions on Customers, in addition to or different from
those imposed by the Trust, such as requiring a minimum initial investment or
charging Customers direct fees for the same or similar services as are provided
hereunder by the Agent as Agent (which fees may either relate specifically to
the Agent's services with respect to the Trust or generally cover services not
limited to those with respect to the Trust). The Agent shall bill Customers
directly for such fees. In the event the Agent charges Customers such fees, it
shall make appropriate prior written disclosure (such disclosure to be in
accordance with all applicable laws) to Customers both of any direct fees
charged to the Customer and of the fees received or to be received by it from
the Trust pursuant to Section 3(a) of this Agreement. It is understood, however,
that in no event shall the Agent have recourse or access to the account of any
shareholder of the Trust except to the extent expressly authorized: (i) by law;
(ii) by the Trust; or (iii) by such shareholder for payment of any direct fees
referred to in this Section 3(b).
<PAGE>
4. Purchase and Redemption Orders.
(a) Agent will open with Transfer Agent an omnibus
account. Capital gains and dividend distributions payable with respect to Shares
held in the account shall be paid in additional Shares of the Fund. Transfer
Agent shall designate an account number for the account.
(b) For each business day on which any Customer
places with Agent a purchase or redemption order for Shares of a Fund, Agent
shall aggregate all such purchase orders and aggregate all such redemption
orders and communicate to Transfer Agent, by facsimile or, where feasible, by
direct or indirect systems access, an aggregate purchase order and an aggregate
redemption order for each omnibus account. To be effective on the date received,
all orders must:
(i) be received by Agent from Customers
prior to 4:00 p.m. Eastern time and transmitted to Transfer Agent prior to 9
a.m. Eastern time on the next succeeding business day; and
(ii) in the case of an aggregate purchase
request, federal funds in the amount of the purchase request must be wired from
the custodial account of the Customer to Transfer Agent prior to 4:00 p.m.
Eastern time on the next succeeding business day. Funds should be wired to
Transfer Agent at ABA #0110-00028, Attention: SSgA Funds, Mutual Funds Services
Division.
(c) Prior to 6 p.m. Eastern time each business day,
Agent shall receive from Transfer Agent the net asset value per share of each
Share of each Fund for that business day.
(d) In the case of a redemption order, federal funds
in the amount of the redemption order shall be wired by 4:00 p.m. Eastern time
on the settlement date to the Agent at National Financial Services Corporation
("NFSC") ABA #021-000-128, attention: SSgA Funds, State Street Solutions. Each
party shall bear the cost of any wire transfer that it sends.
(e) In the event adjustments are required to correct
any error in the computation of the net asset value or public offering price of
Fund Shares, the Trust shall notify Agent prior to making any adjustments and
describe the need for such adjustments (including the date of the error, the
incorrect price and the correct price). In such case, an appropriate adjustment
shall be made to the relevant omnibus account(s) and Agent shall make
corresponding adjustments to the accounts of its Customers.
(f) The Trust may cease offering Shares at any time,
and in its sole discretion may refuse any purchase order. Further, the Trust
shall not be required to accept orders for redemption of Shares of a Fund under
this Section 4 if the Trust has suspended redemptions with respect to such Fund
in accordance with Section 22(e) of the Investment Company Act of 1940, as
amended (the "1940 Act").
(g) For the purposes of this Agreement, "business
day" shall mean:
<PAGE>
(i) with respect to a Fund that maintains
a net asset value of $1.00 per share, each day that the Boston Federal Reserve
Bank and the New York Stock Exchange are open for business; and
(ii) with respect to all other Funds, each
day that the New York Stock Exchange is open for business.
5. Dividends and Capital Gains Distributions.
(a) As to each Fund, as soon as practicable after
the announcement of a distribution, Agent shall be notified of the ex-date,
record date, payable date, distribution rate per Share, record date Share
balances and cash and reinvestment payment amounts.
(b) On the payable date, the Trust shall wire the
cash distribution from the appropriate Fund to Agent at NFSC, ABA #021-000-128
Attention: SSgA Funds, State Street Solutions.
(c) For each Fund that pays daily dividends, the
Trust shall provide on a daily basis, the following record date information:
daily rate, account share balance, account accrual dividend amount (for that
day), account accrual dividend amount (for period to date), and account
transfers and period-to-date accrual amounts. Such information shall be provided
by facsimile to (617) 664-2288.
(d) For annual tax reporting purposes, the Trust
shall inform Agent of the portion of distributions that include any of the
following: foreign source income, tax exempt income by state of origin, or
return of capital.
6. Preparation and Distribution of Written Materials.
(a) The Trust shall provide Agent with sufficient
numbers of each Fund's prospectus as requested by agent and a master copy of
each Fund's Statement of Additional Information ("SAI") offering Shares. As soon
as practicable following the filing under the Securities Act of 1933, as
amended, of an amendment to the Trust's Registration Statement or a definitive
Prospectus or SAI of any Fund or a supplement to the Prospectus or SAI of any
Fund, the Trust shall provide a master copy of the Prospectus and SAI of each
Fund affected by the amendment or a copy of such supplement. Agent shall not be
responsible for the preparing or filing with any governmental authority any
Registration Statement, Prospectus, SAI or Supplement for the Trust or any Fund.
However, upon reasonable request by the Trust or any of the Trust's service
providers, Agent shall timely provide information necessary for the Trust or any
of the Trust's service providers to: (i) prepare and file any of the written
materials mentioned in this Section 6 or (ii) otherwise comply with applicable
law regarding the Trust.
(b) Agent shall timely provide copies of the
following materials to Customers: proxy statements, annual reports and
semi-annual reports. At no expense to Agent, the Trust shall provide Agent with
as many copies of such materials as Agent may reasonably request. Such materials
shall be sent to Agent at the following address: State Street Bank and Trust
Company, State Street Solutions, One International Place, 27th Floor, Boston, MA
02110; Attention: Jessamy Burton. Agent agrees to reimburse the Trust for the
cost of materials if and to the extent required by Attachment B to this
Agreement.
<PAGE>
7. Capacity and Authority to Act. The Agent and its officers,
employees and agents are not authorized to make any representations concerning
the Trust or the Shares to Customers or prospective Customers, excepting only
accurate communication of factual information contained in the then-current
Prospectus and SAI offering Shares of the relevant Fund or such other
communications as may be expressly authorized by the Trust. In performing its
services under this Agreement, the Agent shall act as agent for the Customer and
shall have no authority to act as agent for the Trust. Upon request by the
Trust, the Agent shall provide the Trust with copies of any materials which are
generally circulated by the Agent to its Customers or prospective Customers. The
Agent and its officers and employees shall be available during normal business
hours to consult with the Trust and the Trust's other service providers
concerning the performance of the Agent's responsibilities under this Agreement.
8. Use of the Trust's Name. The Agent shall not use the name
of the Trust (other than for internal use in connection with performing its
duties under this agreement) in a manner not approved by the Trust prior thereto
in writing; provided, however, that the approval of the Trust shall not be
required for the use of the Trust's name or the name of any Fund in connection
with communications permitted by Section 7 hereof or for any use of the Trust's
name or the name of any Fund which merely refers accurately to the Agent's role
hereunder or which is required by the Securities and Exchange Commission or any
state securities authority or any other appropriate regulatory, governmental or
judicial authority' provided, further, that in no event shall such approval be
unreasonably withheld or delayed.
9. Use of the Agent's Name. The Trust shall not use the name
of the Agent in any prospectus, sales literature or other material relating to
the Trust in a manner not approved by the Agent prior thereto in writing;
provided, however, that the approval of the Agent shall not be required for any
use of its name which merely refers accurately to its appointment hereunder or
which is required by the Securities and Exchange Commission or any state
securities authority or any other appropriate regulatory, governmental or
judicial authority; provided, further, that in no event shall such approval be
unreasonably withheld or delayed.
10. Security. The Agent represents and warrants that, to the
best of its knowledge, the various procedures and systems which it has
implemented (including provision for twenty-four hours a day restricted access)
with regard to safeguarding from loss or damage attributable to fire, theft or
any other cause the Agent's records, data, equipment, facilities and other
property used in the performance of its obligations hereunder are adequate and
that it will make such changes therein from time to time as in its judgment are
required for the secure performance of its obligations hereunder. From time to
time and upon request, Agent shall permit the Trust or its designees to make a
reasonable inspection of Agent's security systems and procedures.
11. Compliance with Laws; Etc. The Agent shall comply with all
applicable federal and state laws and regulations, including securities laws.
The Agent represents and warrants to the Trust that the performance of all its
obligations hereunder will comply with all applicable laws and regulations, the
provisions of its charter documents and by-laws and all material contractual
obligations binding upon the Agent. The Agent furthermore undertakes that it
will promptly inform the Trust of any change in applicable laws or regulations
(or interpretations thereof) or in its charter or by-laws or material contracts
which would prevent or impair full performance of any of its obligations
hereunder.
<PAGE>
12. Reports. To the extent requested by the Trust from time to
time, the Agent agrees that it will provide the Trust with a written report of
the amounts expended by the Agent pursuant to this Agreement and the purposes
for which such expenditures were made. Such written reports shall be in a form
satisfactory to the Trust and shall supply all information necessary for the
Trust to discharge its responsibilities under applicable laws and regulations.
13. Record Keeping; Reporting.
(a) Section 31(a), Etc. The Agent shall maintain
records in a form acceptable to the Trust and in compliance with applicable laws
and the rules and regulations of the Securities and Exchange Commission,
including, but not limited to, the record-keeping requirements of Section 31(a)
of the 1940 Act and the rules thereunder. Such records shall be deemed to be the
property of the Trust and will be made available, at the Trust's request, for
inspection and use by the Trust representatives of the Trust and governmental
authorities. Agent shall permit the Trust and the Trust's other service
providers reasonable access to such information when necessary for the Trust or
any such person to comply with applicable law. In such case, the Trust shall
cause such information to remain confidential and shall not permit such
information to be used by any party or disclosed to any additional party except
with Agent's written consent or as required by applicable law or judicial
process. The Agent agrees that, for so long as it retains any records of the
Trust, it will meet all reporting requirements pursuant to the 1940 Act with
respect to such records. The record-keeping obligations imposed in this Section
13(a) shall survive the termination of this Agreement.
(b) Reporting of Payments. From time to time, and
upon reasonable notice from the Trust, the Agent shall provide the Trust a
written accounting of all payments that the Agent receives under this Agreement.
(c) Transfer of Customer Data. In the event this
Agreement is terminated or a successor to the Agent is appointed, the Agent
shall, at the expense of the Trust, transfer to such designee as the Trust may
direct a certified list of the shareholders of the Trust serviced by the Agent
(with name, address and tax identification or Social Security number), a
complete record of the account of each such shareholder and the status thereof,
and all other relevant books, records, correspondence and other data established
or maintained by the Agent under this Agreement. In the event this Agreement is
terminated, the Agent will use its best efforts to cooperate in the orderly
transfer of such duties and responsibilities, including assistance in the
establishment of books, records and other data by the successor.
14. Force Majeure. The Agent shall not be liable or
responsible for delays or errors by reason of circumstances beyond its control,
including, but not limited to, acts of civil or military authority, national
emergencies, labor difficulties, fire, mechanical breakdown, flood or
catastrophe, Acts of God, insurrection, war, riots or failure of communication
or power supply.
15. Indemnity.
(a) Indemnification of the Trust. The Agent shall
indemnify and hold the Trust harmless from and against any and all losses,
claims, damages, liabilities and expenses incurred by the Trust and resulting
from any Claim brought against the Trust and resulting from (i) the bad faith or
negligence of the Agent, its officers, employees or agents, or (ii) any breach
of its obligations under this Agreement or applicable law by the Agent, its
officers, employees or agents, or (iii) any false or misleading statement
contained in any communication by the Agent to any Customer or prospective
Customer not prepared by or expressly authorized by the Trust for use of the
Agent.
<PAGE>
In any case in which the Agent may be asked to
indemnify or hold the Trust harmless, the Agent shall be advised of all
pertinent facts concerning the situation in question and the Trust shall use
reasonable care to identify and notify the Agent promptly concerning any
situation which presents or appears likely to present a claim for
indemnification against the Agent. The Agent shall have the option to defend the
Trust against any Claim which may be the subject of indemnification hereunder.
In the event that the Agent elects to defend against such Claim, the defense
shall be conducted by counsel chosen by the Agent and satisfactory to the Trust.
The Trust may retain additional counsel at its expense. Except with the prior
written consent of the agent, the Trust shall not confess any Claim or make any
compromise in any case in which the Agent will be asked to indemnify the Trust.
b) Indemnification of the Agent. The Trust shall
indemnify and hold the Agent harmless from and against any and all losses,
claims, damages, liabilities and expenses incurred by the Agent and resulting
from any Claim brought against the Agent and resulting from (i) the bad faith or
negligence of the Trust, its officers, employees or agents, or (ii) any breach
of its obligations under this Agreement or applicable law by the Trust, its
officers, employees or agents, or (iii) any untrue statement, or alleged untrue
statement of a material fact including, without limitation, any such statement
or omission made in the Trust's Registration Statement or any Fund's Prospectus
or SAI, or arising out of or based upon any omission, or alleged omission, to
state a material fact required to be stated in either the Registration Statement
or any Prospectus, or necessary to make the statements in any thereof not
misleading; provided, however, that the Trust's agreement to indemnify such
persons shall not be deemed to cover any losses, claims, demands, liabilities or
expenses arising out of any untrue statement or alleged untrue statement or
omission or alleged omission made in the Registration Statement or any
Prospectus or SAI in reliance upon and in conformity with information furnished
to the Trust, or FRIMCo, by Agent specifically for use in the preparation
thereof.
In any case in which the Trust may be asked to
indemnify or hold the Agent harmless, the Trust shall be advised of all
pertinent facts concerning the situation in question and the Agent shall use
reasonable care to identify and notify the Trust promptly concerning any
situation which presents or appears likely to present a claim for
indemnification against the Trust. The Trust shall have the option to defend the
Agent against any claim which may be the subject of indemnification hereunder.
In the event that the Trust elects to defend against such claim the defense
shall be conducted by counsel chosen by the Trust and satisfactory to the Agent.
The Agent may retain additional counsel at its expense. Except with the prior
written consent of the Trust, the Agent shall not confess any claim or make any
compromise in any case in which the Trust will be asked to indemnify the Agent.
(c) Survival of Indemnities. The indemnities granted
by the parties in this Section 15 shall survive the termination of this
Agreement.
16. Insurance. The Agent shall maintain reasonable insurance
coverage against any and all liabilities which may arise in connection with the
performance of its duties hereunder. Upon request, Agent shall produce
certificates of coverage satisfactory to the Trust demonstrating compliance with
this Section 16.
17. Notices. All notices or other communications hereunder to
either party shall be in writing and shall be deemed sufficient if mailed to
such party at the address of such party set forth in the preamble of this
Agreement or at such other address as such party may have designated by written
notice to the other.
<PAGE>
18. Further Assurances. Each party agrees to perform such
further acts and execute such further documents as are necessary to effectuate
the purposes hereof.
19. Termination. This Agreement may be terminated by either
party, without the payment of any penalty, by the Trust at any time upon not
more than 60 days' nor less than 30 days' notice, by a vote of a majority of the
Board of Trustees of the Trust who are not "interested persons" of the Trust (as
defined in the 1940 Act) and have no direct or indirect financial interest in
the operation of any Plan of Distribution pursuant to Rule 12b-1 to which this
Agreement is related (a "Plan"), this Agreement or any other agreement related
to any such Plan (the "Qualified Trustees"), or (as to a particular Fund) by the
affirmative vote of the holders of a majority of the outstanding Shares (as
defined in the 1940 Act) of the Fund. The Agent may terminate this Agreement
upon not more than 60 days' nor less than 30 days' notice to the Trust.
Notwithstanding anything herein to the contrary, this Agreement may not be
assigned and shall terminate automatically without notice to either party upon
any assignment. Upon termination hereof, the Trust shall pay such compensation
as may be due the Agent as of the date of such termination. Upon and following
termination the parties shall take such steps as may be necessary or expedient
for the parties and the Trust to comply with applicable law.
20. Changes; Amendments. This Agreement may be changed or
amended only by written instrument signed by both parties.
21. Limitation of Liability. The First Amended and Restated
Master Trust Agreement, dated October 13, 1993 (the "Master Trust Agreement"),
as amended from time to time, establishing the Trust, which is hereby referred
to and a copy of which is on file with the Secretary of The Commonwealth of
Massachusetts, provides that the name SSgA Funds means the Trustees from time to
time serving (as Trustees but not personally) under said Master Trust Agreement.
It is expressly acknowledged and agreed that any and all obligations of the
Trust hereunder shall not be binding upon any of the Shareholders, Trustees,
officers, employees or agents of the Trust, personally, but shall bind only the
trust property of the Trust, as provided in its Master Trust Agreement. The
execution and delivery of this Agreement have been authorized by the Trustees of
the Trust and signed by an officer of the Trust, acting as such, and neither
such authorization by such Trustees nor such execution and delivery by such
officer shall be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but shall bind only the trust
property of the Trust as provided in its Master Trust Agreement.
22. Miscellaneous. This Agreement shall be construed and
enforced in accordance with and governed by the laws of The Commonwealth of
Massachusetts. The captions in this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which taken together shall constitute one and the same
instrument.
23. Continuation. Unless sooner terminated pursuant to Section
19 hereof, this Agreement shall continue in effect with respect to each Fund
subsequent to the initial terms specified herein for so long as such continuance
is specifically approved at least annually by votes of a majority of both (i)
the Board of Trustees of the Trust, and (ii) the Qualified Trustees, cast in
person at a meeting called for the purpose of voting on this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first set forth above.
TRUST: AGENT:
SSgA Funds State Street Solutions
By: By:
-------------------------------- -----------------------------
J. David Griswold Its:
-----------------------------
Vice President and Secretary
<PAGE>
ATTACHMENT A
TO
SHAREHOLDER SERVICING AGREEMENT
Each of the following series of SSgA Funds shall be considered
a "Fund" under Section 1 of the Shareholder Servicing Agreement, dated as of
October 15, 1997 and between SSgA Funds and State Street Solutions. The fees to
be paid pursuant to Section 3 of this Agreement are indicated opposite the Fund
name.
Fee from the Trust, based on the
average daily value of all Shares of
Portfolio Name each Fund owned by Customers:
- -------------- -------------------------------------
Matrix Equity Fund .175 of 1%
Emerging Markets Fund .175 of 1%
Active International Fund .175 of 1%
Growth and Income Fund .175 of 1%
Money Market Fund .175 of 1%
US Government Money Market Fund .175 of 1%
Tax Free Money Market Fund .175 of 1%
Yield Plus Fund .175 of 1%
Small Cap Fund .175 of 1%
Intermediate Fund .175 of 1%
Life Solutions Balanced Fund .13 of 1%
Life Solutions Growth Fund .13 of 1%
Life Solution Income and Growth .13 of 1%
S&P 500 Index Fund .10 of 1%
Bond Market Fund .10 of 1%
And such other Funds, as may be established from time to time.
<PAGE>
ATTACHMENT B
TO
SHAREHOLDER SERVICING AGREEMENT
Agent agrees to reimburse RFD as follows:
Prospectuses:
Cost Units
---- -----
@ Cost* per unit in excess of 1,000
Statements of Additional Information:
Cost Units
---- -----
@ Cost** per unit in excess of 1
Supplemental Sales Literature
As may be agreed upon in writing from time to time.
- ----------
* Est. 28(cent) per copy.
** Est. 60(cent) per copy.
EXHIBIT 15(D)(III)
THE SEVEN SEAS SERIES FUND
SHAREHOLDER SERVICING AGREEMENT
AGREEMENT dated as of April 3, 1996 by and between The Seven
Seas Series Fund (the "Trust"), a Massachusetts business trust, having its
principal place of business at 909 A Street, Tacoma, Washington 98402, and State
Street Bank and Trust Company through its Retirement Investment Services
Division, 225 Franklin Street, Boston, MA 02110 (the "Agent"). The Agent wishes
to act as the agent of its customers (the "Customers") in performing certain
administrative functions in connection with purchases and redemptions of shares
of beneficial interest of certain series of the Trust described in Section 1
hereof ("Shares") from time to time upon the order and for the account of
Customers, and to provide related services to its Customers in connection with
their investments in the Trust. It is in the interest of the Trust to make the
services of the Agent available to Customers who are or may become shareholders
of the Trust.
In consideration of the foregoing recitals and the mutual
covenants herein contained, the Trust and the Agent hereby agree as follows:
1. Appointment. The Agent hereby agrees to perform the
services set forth below for Customers. Each series of the Trust for which the
Agent acts as a servicing agent pursuant to this Agreement is hereinafter
referred to as a "Fund." The Agent's appointment hereunder is non-exclusive, and
the parties recognize and agree that, from time to time, the Trust may enter
into other shareholder servicing agreements, with other financial institutions.
As used in this Agreement, "Shares" shall mean: (i) with respect to a Fund whose
shares have no class designation, all shares of beneficial interest in that
Fund, and (ii) with respect to a Fund whose shares do have class designations,
the Class A shares of that Fund.
2. Services to be Performed. The Agent shall be responsible
for performing shareholder account servicing functions, which shall include
without limitation:
(a) assisting in processing Customer purchase and
redemption requests;
(b) answering Customer inquiries regarding account
status and history, the manner in which purchase and redemptions of the Shares
may be effected, and certain other matters pertaining to the Trust;
(c) providing necessary personnel and facilities to
establish and maintain certain shareholder accounts and records, as requested
from time to time by the Trust;
(d) arranging for the wiring of funds;
(e) transmitting and receiving funds in connection
with Customer orders to purchase or redeem Shares;
(f) providing periodic statements showing a
Customer's account balances and, to the extent practicable, integration of such
information with other client transactions otherwise effected with or through
the Agent;
<PAGE>
(g) furnishing (either separately or on an
integrated basis with other reports sent to a Customer by the Agent) monthly and
annual statements and confirmations of all purchases and redemptions of Shares
in a Customer's account;
(h) aggregating and processing Customer purchase and
redemption requests for Shares and placing net purchase and redemption orders
with the Trust's transfer agent (currently State Street Bank and Trust Company
("SSB"), including any designee of SSB, "Transfer Agent") in the manner
described in Section 4 hereof;
(i) providing complete subaccounting services and
maintaining complete subaccounting records regarding Shares beneficially owned
by Customers;
(j) processing dividend payments;
(k) transmitting proxy statements, annual and
semi-annual reports, prospectuses and other communications from the Trust to
Customers;
(l) receiving, tabulating and transmitting to the
Trust proxies executed by Customers with respect to annual and special meetings
of shareholders of the Trust;
(m) preparing and filing U.S. Treasury Department
Forms 1099 and other appropriate forms required with respect to dividends and
distributions by federal authorities; and
(n) providing such other related services as the
Trust or a Customer may reasonably request.
The Agent shall provide all personnel, facilities and equipment necessary in
order for it to perform the functions described in this paragraph with respect
to its Customers. The Agent shall exercise reasonable care in performing all
such services and shall be liable for any failure to exercise such reasonable
care.
3. Fees.
(a) Fees from the Trust. In consideration for the
services described in Section 2 hereof, the Trust shall pay the Agent a fee as
described in Attachment A hereto. All fees shall be paid monthly in arrears.
(b) Fees from Customers. It is agreed that the Agent
may impose certain conditions on Customers, in addition to or different from
those imposed by the Trust, such as requiring a minimum initial investment or
charging Customers direct fees for the same or similar services as are provided
hereunder by the Agent as Agent (which fees may either relate specifically to
the Agent's services with respect to the Trust or generally cover services not
limited to those with respect to the Trust). The Agent shall bill Customers
directly for such fees. In the event the Agent charges Customers such fees, it
shall make appropriate prior written disclosure (such disclosure to be in
accordance with all applicable laws) to Customers both of any direct fees
charged to the Customer and of the fees received or to be received by it from
the Trust pursuant to Section 3(a) of this Agreement. It is understood, however,
that in no event shall the Agent have recourse or access to the account of any
shareholder of the Trust except to the extent expressly authorized: (i) by law;
(ii) by the Trust; or (iii) by such shareholder for payment of any direct fees
referred to in this Section 3(b).
<PAGE>
4. Purchase and Redemption Orders.
(a) Agent will open with Transfer Agent an omnibus
account. Capital gains and dividend distributions payable with respect to Shares
held in the account shall be paid in additional Shares of the Fund. Transfer
Agent shall designate an account number for the account.
(b) For each business day on which any Customer
places with Agent a purchase or redemption order for Shares of a Fund, Agent
shall aggregate all such purchase orders and aggregate all such redemption
orders and communicate to Transfer Agent, by facsimile or, where feasible, by
direct or indirect systems access, an aggregate purchase order and an aggregate
redemption order for each omnibus account. To be effective on the date received,
all orders must:
(i) be received by Agent from Customers
prior to 4:00 p.m. Eastern time and transmitted to Transfer Agent prior to 9
a.m. Eastern time on the next succeeding business day; and
(ii) in the case of an aggregate purchase
request, federal funds in the amount of the purchase request must be wired from
the custodial account of the Customer to Transfer Agent prior to 4:00 p.m.
Eastern time on the next succeeding business day. Funds should be wired to
Transfer Agent at ABA #0110-00028, Attention: The Seven Seas Series Fund, Mutual
Funds Services Division.
(c) Prior to 6 p.m. Eastern time each business day,
Agent shall receive from Transfer Agent the net asset value per share of each
Share of each Fund for that business day.
(d) In the case of a redemption order, federal funds
in the amount of the redemption order shall be wired by 4:00 p.m. Eastern time
on the settlement date to the Agent at National Financial Services Corporation
("NFSC") ABA #021-000-128, attention: Seven Seas Series Fund, Retirement
Services Division. Each party shall bear the cost of any wire transfer that it
sends.
(e) In the event adjustments are required to correct
any error in the computation of the net asset value or public offering price of
Fund Shares, the Trust shall notify Agent prior to making any adjustments and
describe the need for such adjustments (including the date of the error, the
incorrect price and the correct price). In such case, an appropriate adjustment
shall be made to the relevant omnibus account(s) and Agent shall make
corresponding adjustments to the accounts of its Customers.
(f) The Trust may cease offering Shares at any time,
and in its sole discretion may refuse any purchase order. Further, the Trust
shall not be required to accept orders for redemption of Shares of a Fund under
this Section 4 if the Trust has suspended redemptions with respect to such Fund
in accordance with Section 22(e) of the Investment Company Act of 1940, as
amended (the "1940 Act").
(g) For the purposes of this Agreement, "business
day" shall mean:
<PAGE>
(i) with respect to a Fund that maintains a
net asset value of $1.00 per share, each day that the Boston Federal Reserve
Bank and the New York Stock Exchange are open for business; and
(ii) with respect to all other Funds, each
day that the New York Stock Exchange is open for business.
5. Dividends and Capital Gains Distributions.
(a) As to each Fund, as soon as practicable after
the announcement of a distribution, Agent shall be notified of the ex-date,
record date, payable date, distribution rate per Share, record date Share
balances and cash and reinvestment payment amounts.
(b) On the payable date, the Trust shall wire the
cash distribution from the appropriate Fund to Agent at NFSC, ABA #021-000-128
Attention: Seven Seas Series Fund, Retirement Services Division.
(c) For each Fund that pays daily dividends, the
Trust shall provide on a daily basis, the following record date information:
daily rate, account share balance, account accrual dividend amount (for that
day), account accrual dividend amount (for period to date), and account
transfers and period-to-date accrual amounts. Such information shall be provided
by facsimile to (617) 654-6055.
(d) For annual tax reporting purposes, the Trust
shall inform Agent of the portion of distributions that include any of the
following: foreign source income, tax exempt income by state of origin, or
return of capital.
6. Preparation and Distribution of Written Materials.
(a) The Trust shall provide Agent with sufficient
numbers of each Fund's prospectus as requested by agent and a master copy of
each Fund's Statement of Additional Information ("SAI") offering Shares. As soon
as practicable following the filing under the Securities Act of 1933, as
amended, of an amendment to the Trust's Registration Statement or a definitive
Prospectus or SAI of any Fund or a supplement to the Prospectus or SAI of any
Fund, the Trust shall provide a master copy of the Prospectus and SAI of each
Fund affected by the amendment or a copy of such supplement. Agent shall not be
responsible for the preparing or filing with any governmental authority any
Registration Statement, Prospectus, SAI or Supplement for the Trust or any Fund.
However, upon reasonable request by the Trust or any of the Trust's service
providers, Agent shall timely provide information necessary for the Trust or any
of the Trust's service providers to: (i) prepare and file any of the written
materials mentioned in this Section 6 or (ii) otherwise comply with applicable
law regarding the Trust.
(b) Agent shall timely provide copies of the
following materials to Customers: proxy statements, annual reports and
semi-annual reports. At no expense to Agent, the Trust shall provide Agent with
as many copies of such materials as Agent may reasonably request. Such materials
shall be sent to Agent at the following address: State Street Bank and Trust
Company, Retirement Services Division, ______________________________ [address];
Attention: ______________________.
<PAGE>
7. Capacity and Authority to Act. The Agent and its officers,
employees and agents are not authorized to make any representations concerning
the Trust or the Shares to Customers or prospective Customers, excepting only
accurate communication of factual information contained in the then-current
Prospectus and SAI offering Shares of the relevant Fund or such other
communications as may be expressly authorized by the Trust. In performing its
services under this Agreement, the Agent shall act as agent for the Customer and
shall have no authority to act as agent for the Trust. Upon request by the
Trust, the Agent shall provide the Trust with copies of any materials which are
generally circulated by the Agent to its Customers or prospective Customers. The
Agent and its officers and employees shall be available during normal business
hours to consult with the Trust and the Trust's other service providers
concerning the performance of the Agent's responsibilities under this Agreement.
8. Use of the Trust's Name. The Agent shall not use the name
of the Trust (other than for internal use in connection with performing its
duties under this agreement) in a manner not approved by the Trust prior thereto
in writing; provided, however, that the approval of the Trust shall not be
required for the use of the Trust's name or the name of any Fund in connection
with communications permitted by Section 7 hereof or for any use of the Trust's
name or the name of any Fund which merely refers accurately to the Agent's role
hereunder or which is required by the Securities and Exchange Commission or any
state securities authority or any other appropriate regulatory, governmental or
judicial authority' provided, further, that in no event shall such approval be
unreasonably withheld or delayed.
9. Use of the Agent's Name. The Trust shall not use the name
of the Agent in any prospectus, sales literature or other material relating to
the Trust in a manner not approved by the Agent prior thereto in writing;
provided, however, that the approval of the Agent shall not be required for any
use of its name which merely refers accurately to its appointment hereunder or
which is required by the Securities and Exchange Commission or any state
securities authority or any other appropriate regulatory, governmental or
judicial authority; provided, further, that in no event shall such approval be
unreasonably withheld or delayed.
10. Security. The Agent represents and warrants that, to the
best of its knowledge, the various procedures and systems which it has
implemented (including provision for twenty-four hours a day restricted access)
with regard to safeguarding from loss or damage attributable to fire, theft or
any other cause the Agent's records, data, equipment, facilities and other
property used in the performance of its obligations hereunder are adequate and
that it will make such changes therein from time to time as in its judgment are
required for the secure performance of its obligations hereunder. From time to
time and upon request, Agent shall permit the Trust or its designees to make a
reasonable inspection of Agent's security systems and procedures.
11. Compliance with Laws; Etc. The Agent shall comply with all
applicable federal and state laws and regulations, including securities laws.
The Agent represents and warrants to the Trust that the performance of all its
obligations hereunder will comply with all applicable laws and regulations, the
provisions of its charter documents and by-laws and all material contractual
obligations binding upon the Agent. The Agent furthermore undertakes that it
will promptly inform the Trust of any change in applicable laws or regulations
(or interpretations thereof) or in its charter or by-laws or material contracts
which would prevent or impair full performance of any of its obligations
hereunder.
<PAGE>
12. Reports. To the extent requested by the Trust from time to
time, the Agent agrees that it will provide the Trust with a written report of
the amounts expended by the Agent pursuant to this Agreement and the purposes
for which such expenditures were made. Such written reports shall be in a form
satisfactory to the Trust and shall supply all information necessary for the
Trust to discharge its responsibilities under applicable laws and regulations.
13. Record Keeping; Reporting.
(a) Section 31(a), Etc. The Agent shall maintain
records in a form acceptable to the Trust and in compliance with applicable laws
and the rules and regulations of the Securities and Exchange Commission,
including, but not limited to, the record-keeping requirements of Section 31(a)
of the 1940 Act and the rules thereunder. Such records shall be deemed to be the
property of the Trust and will be made available, at the Trust's request, for
inspection and use by the Trust representatives of the Trust and governmental
authorities. Agent shall permit the Trust and the Trust's other service
providers reasonable access to such information when necessary for the Trust or
any such person to comply with applicable law. In such case, the Trust shall
cause such information to remain confidential and shall not permit such
information to be used by any party or disclosed to any additional party except
with Agent's written consent or as required by applicable law or judicial
process. The Agent agrees that, for so long as it retains any records of the
Trust, it will meet all reporting requirements pursuant to the 1940 Act with
respect to such records. The record-keeping obligations imposed in this Section
13(a) shall survive the termination of this Agreement.
(b) Reporting of Payments. From time to time, and
upon reasonable notice from the Trust, the Agent shall provide the Trust a
written accounting of all payments that the Agent receives under this Agreement.
(c) Transfer of Customer Data. In the event this
Agreement is terminated or a successor to the Agent is appointed, the Agent
shall, at the expense of the Trust, transfer to such designee as the Trust may
direct a certified list of the shareholders of the Trust serviced by the Agent
(with name, address and tax identification or Social Security number), a
complete record of the account of each such shareholder and the status thereof,
and all other relevant books, records, correspondence and other data established
or maintained by the Agent under this Agreement. In the event this Agreement is
terminated, the Agent will use its best efforts to cooperate in the orderly
transfer of such duties and responsibilities, including assistance in the
establishment of books, records and other data by the successor.
14. Force Majeure. The Agent shall not be liable or
responsible for delays or errors by reason of circumstances beyond its control,
including, but not limited to, acts of civil or military authority, national
emergencies, labor difficulties, fire, mechanical breakdown, flood or
catastrophe, Acts of God, insurrection, war, riots or failure of communication
or power supply.
15. Indemnity.
(a) Indemnification of the Trust. The Agent shall
indemnify and hold the Trust harmless from and against any and all losses,
claims, damages, liabilities and expenses incurred by the Trust and resulting
from any Claim brought against the Trust and resulting from (i) the bad faith or
negligence of the Agent, its officers, employees or agents, or (ii) any breach
of its obligations under this Agreement or applicable law by the Agent, its
officers, employees or agents, or (iii) any false or misleading statement
contained in any communication by the Agent to any Customer or prospective
Customer not prepared by or expressly authorized by the Trust for use of the
Agent.
<PAGE>
In any case in which the Agent may be asked to
indemnify or hold the Trust harmless, the Agent shall be advised of all
pertinent facts concerning the situation in question and the Trust shall use
reasonable care to identify and notify the Agent promptly concerning any
situation which presents or appears likely to present a claim for
indemnification against the Agent. The Agent shall have the option to defend the
Trust against any Claim which may be the subject of indemnification hereunder.
In the event that the Agent elects to defend against such Claim, the defense
shall be conducted by counsel chosen by the Agent and satisfactory to the Trust.
The Trust may retain additional counsel at its expense. Except with the prior
written consent of the agent, the Trust shall not confess any Claim or make any
compromise in any case in which the Agent will be asked to indemnify the Trust.
b) Indemnification of the Agent. The Trust shall
indemnify and hold the Agent harmless from and against any and all losses,
claims, damages, liabilities and expenses incurred by the Agent and resulting
from any Claim brought against the Agent and resulting from (i) the bad faith or
negligence of the Trust, its officers, employees or agents, or (ii) any breach
of its obligations under this Agreement or applicable law by the Trust, its
officers, employees or agents, or (iii) any untrue statement, or alleged untrue
statement of a material fact including, without limitation, any such statement
or omission made in the Trust's Registration Statement or any Fund's Prospectus
or SAI, or arising out of or based upon any omission, or alleged omission, to
state a material fact required to be stated in either the Registration Statement
or any Prospectus, or necessary to make the statements in any thereof not
misleading; provided, however, that the Trust's agreement to indemnify such
persons shall not be deemed to cover any losses, claims, demands, liabilities or
expenses arising out of any untrue statement or alleged untrue statement or
omission or alleged omission made in the Registration Statement or any
Prospectus or SAI in reliance upon and in conformity with information furnished
to the Trust, or FRIMCo, by Agent specifically for use in the preparation
thereof.
In any case in which the Trust may be asked to
indemnify or hold the Agent harmless, the Trust shall be advised of all
pertinent facts concerning the situation in question and the Agent shall use
reasonable care to identify and notify the Trust promptly concerning any
situation which presents or appears likely to present a claim for
indemnification against the Trust. The Trust shall have the option to defend the
Agent against any claim which may be the subject of indemnification hereunder.
In the event that the Trust elects to defend against such claim the defense
shall be conducted by counsel chosen by the Trust and satisfactory to the Agent.
The Agent may retain additional counsel at its expense. Except with the prior
written consent of the Trust, the Agent shall not confess any claim or make any
compromise in any case in which the Trust will be asked to indemnify the Agent.
(c) Survival of Indemnities. The indemnities granted
by the parties in this Section 15 shall survive the termination of this
Agreement.
16. Insurance. The Agent shall maintain reasonable insurance
coverage against any and all liabilities which may arise in connection with the
performance of its duties hereunder. Upon request, Agent shall produce
certificates of coverage satisfactory to the Trust demonstrating compliance with
this Section 16.
17. Notices. All notices or other communications hereunder to
either party shall be in writing and shall be deemed sufficient if mailed to
such party at the address of such party set forth in the preamble of this
Agreement or at such other address as such party may have designated by written
notice to the other.
<PAGE>
18. Further Assurances. Each party agrees to perform such
further acts and execute such further documents as are necessary to effectuate
the purposes hereof.
19. Termination. This Agreement may be terminated by either
party, without the payment of any penalty, by the Trust at any time upon not
more than 60 days' nor less than 30 days' notice, by a vote of a majority of the
Board of Trustees of the Trust who are not "interested persons" of the Trust (as
defined in the 1940 Act) and have no direct or indirect financial interest in
the operation of any Plan of Distribution pursuant to Rule 12b-1 to which this
Agreement is related (a "Plan"), this Agreement or any other agreement related
to any such Plan (the "Qualified Trustees"), or (as to a particular Fund) by the
affirmative vote of the holders of a majority of the outstanding Shares (as
defined in the 1940 Act) of the Fund. The Agent may terminate this Agreement
upon not more than 60 days' nor less than 30 days' notice to the Trust.
Notwithstanding anything herein to the contrary, this Agreement may not be
assigned and shall terminate automatically without notice to either party upon
any assignment. Upon termination hereof, the Trust shall pay such compensation
as may be due the Agent as of the date of such termination. Upon and following
termination the parties shall take such steps as may be necessary or expedient
for the parties and the Trust to comply with applicable law.
20. Changes; Amendments. This Agreement may be changed or
amended only by written instrument signed by both parties.
21. Limitation of Liability. The First Amended and Restated
Master Trust Agreement, dated October 13, 1993 (the "Master Trust Agreement"),
as amended from time to time, establishing the Trust, which is hereby referred
to and a copy of which is on file with the Secretary of The Commonwealth of
Massachusetts, provides that the name The Seven Seas Series Fund means the
Trustees from time to time serving (as Trustees but not personally) under said
Master Trust Agreement. It is expressly acknowledged and agreed that any and all
obligations of the Trust hereunder shall not be binding upon any of the
Shareholders, Trustees, officers, employees or agents of the Trust, personally,
but shall bind only the trust property of the Trust, as provided in its Master
Trust Agreement. The execution and delivery of this Agreement have been
authorized by the Trustees of the Trust and signed by an officer of the Trust,
acting as such, and neither such authorization by such Trustees nor such
execution and delivery by such officer shall be deemed to have been made by any
of them individually or to impose any liability on any of them personally, but
shall bind only the trust property of the Trust as provided in its Master Trust
Agreement.
22. Miscellaneous. This Agreement shall be construed and
enforced in accordance with and governed by the laws of The Commonwealth of
Massachusetts. The captions in this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which taken together shall constitute one and the same
instrument.
23. Continuation. Unless sooner terminated pursuant to Section
19 hereof, this Agreement shall continue in effect with respect to each Fund
subsequent to the initial terms specified herein for so long as such continuance
is specifically approved at least annually by votes of a majority of both (i)
the Board of Trustees of the Trust, and (ii) the Qualified Trustees, cast in
person at a meeting called for the purpose of voting on this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first set forth above.
<PAGE>
TRUST: AGENT:
The Seven Seas Series Fund Street Bank and Trust Company,
through its Retirement Investment
Services Division
By: /s/Lynn L. Anderson By: /s/ James E. Murphy
------------------------------- ---------------------------
Lynn L. Anderson Its: Managing Director
President
<PAGE>
ATTACHMENT A
TO
SHAREHOLDER SERVICING AGREEMENT
Each of the following series of The Seven Seas Series Fund
shall be considered a "Fund" under Section 1 of the Shareholder Servicing
Agreement, dated as of _________________, by and between The Seven Seas Series
Fund and State Street Bank and Trust Company, through its Retirement Investment
Services Division. The fees to be paid pursuant to Section 3 of this Agreement
are indicated opposite the Fund name.
Portfolio Name
- --------------
Matrix Equity Fund .175% of 1% *
Emerging Markets Fund .175% of 1% *
Active International Fund .175% of 1% *
Growth and Income Fund .175% of 1% *
Money Market Fund .175% of 1% *
US Government Money Market Fund .175% of 1% *
Tax Free Money Market Fund .175% of 1% *
Yield Plus Fund .175% of 1% *
Small Cap Fund .175% of 1% *
Intermediate Fund .175% of 1% *
S&P 500 Index Fund .05% of 1% *
Bond Market Fund .05% of 1% *
* of Average Daily Value of all shares of the Trust owned by customers.
And such other Funds, as may be established from time to time.
EXHIBIT 15(E)
THE SEVEN SEAS SERIES FUND
AGREEMENT PURSUANT TO 12B-1 PLAN
CLASS B SHARES
AGREEMENT dated as of ________, 1994, by and between Russell
Fund Distributors, Inc. ("RFD"), a Washington corporation having a place of
business at Two International Place, Boston, MA, 02110, and ____________________
(the "Agent"), a _____________________________________ having its principal
place of business at ______________________________.
Recitals
--------
A. RFD is the principal underwriter and distributor for shares
of The Seven Seas Series Fund, a Massachusetts business trust (the "Trust").
B. The Agent wishes to act as the agent of its customers (the
"Customers") whose beneficial interests in the trust are held of record in
omnibus accounts maintained by Agent in performing certain distribution and/or
administrative functions in connection with purchases and redemptions of Class B
Shares of certain series of the Trust described in Section 1 hereof ("Shares")
from time to time upon the order and for the account of Customers, and to
provide related services to its Customers in connection with their investments
in the Trust.
C. It is in the interest of the Trust to make the services of
the Agent available to Customers who are or may become shareholders of the
Trust.
Agreement
---------
In consideration of the foregoing recitals and the mutual
covenants herein contained, RFD and the Agent hereby agree as follows:
1. Appointment. The Agent hereby agrees to perform the
services set forth below for Customers who beneficially own Shares of The Seven
Seas Series Money Market Fund and The Seven Seas Series US Government Money
Market Fund. The Agent shall also perform such services for Customers who hold
Shares of such additional and/or future series of the Trust as the parties may
agree in a written document signed by both parties and annexed to this
Agreement. Each series of the Trust for which the Agent acts as a servicing
agent pursuant to this Agreement is hereinafter referred to as a "Fund." The
Agent's appointment hereunder is non-exclusive, and the parties recognize and
agree that, from time to time, RFD may enter into other shareholder servicing
agreements, with other financial institutions.
2. Services to be Performed. The Agent shall be responsible
for performing shareholder account servicing functions, which shall include
without limitation:
(a) assisting in processing Customer purchase and
redemption requests;
<PAGE>
(b) answering Customer inquiries regarding account
status and history, the manner in which purchase and redemptions of the Shares
may be effected, and certain other matters pertaining to the Trust;
(c) assisting Customers in designating and changing
dividend options, account designations and addresses;
(d) verifying and guaranteeing Customer signatures
in connection with redemption orders, transfers among and changes in
Customer-designated accounts;
(e) providing periodic statements showing a
Customer's account balances and, to the extent practicable, integration of such
information with other client transactions otherwise effected with or through
the Agent;
(f) furnishing (either separately or on an
integrated basis with other reports sent to a Customer by the Agent) monthly and
annual statements and confirmations of all purchases and redemptions of Shares
in a Customer's account;
(g) aggregating and processing Customer purchase and
redemption requests for Shares and placing net purchase and redemption orders
with the Trust's transfer agent (currently State Street Bank and Trust Company
("SSB"), including any designee of SSB, "Transfer Agent") in the manner
described in Section 4 hereof;
(h) providing complete subaccounting services and
maintaining complete subaccounting records regarding Shares beneficially owned
by Customers;
(i) processing dividend payments;
(j) transmitting proxy statements, annual and
semi-annual reports, prospectuses and other communications from the Trust to
Customers;
(k) receiving, tabulating and transmitting to RFD
proxies executed by Customers with respect to annual and special meetings of
shareholders of the Trust;
(l) preparing and filing U.S. Treasury Department
Forms 1099 and other appropriate forms required with respect to dividends and
distributions by federal authorities; and
(m) providing such other related services as RFD or
a Customer may reasonably request.
The Agent shall provide all personnel, facilities and equipment necessary in
order for it to perform the functions described in this paragraph with respect
to its Customers. The Agent shall exercise reasonable care in performing all
such services and shall be liable for any failure to exercise such reasonable
care.
<PAGE>
3. Fees.
3.1 Fees from RFD. In consideration for the services
described in Section 2 hereof, RFD shall pay the Agent a fee in the amount of
.25 of 1% of the average daily value of all Shares of each Fund owned by
Customers. All fees shall be paid monthly in arrears.
3.2 Fees from Customers. It is agreed that the Agent
may impose certain conditions on Customers, in addition to or different from
those imposed by the Trust, such as requiring a minimum initial investment or
charging Customers direct fees for the same or similar services as are provided
hereunder by the Agent as Agent (which fees may either relate specifically to
the Agent's services with respect to the Trust or generally cover services not
limited to those with respect to the Trust). The Agent shall bill Customers
directly for such fees. In the event the Agent charges Customers such fees, it
shall make appropriate prior written disclosure (such disclosure to be in
accordance with all applicable laws) to Customers both of any direct fees
charged to the Customer and of the fees received or to be received by it from
RFD pursuant to Section 3.1 of this Agreement. It is understood, however, that
in no event shall the Agent have recourse or access to the account of any
shareholder of the Trust except to the extent expressly authorized by law or by
RFD or by such shareholder for payment of any direct fees referred to in this
Section 3.2.
4. Purchase and Redemption Orders.
(a) Agent will open with Transfer Agent a minimum of
two omnibus accounts per Fund: capital gains and dividend distributions payable
with respect to Shares held in one account shall be paid in cash, and capital
gains and dividend distributions payable with respect to Shares held in another
account shall be paid in additional Shares of the Fund. Transfer Agent shall
designate account numbers for each account.
(b) For each business day on which any Customer
places with Agent a purchase or redemption order for Shares of a Fund, Agent
shall aggregate all such purchase orders and aggregate all such redemption
orders and communicate to Transfer Agent, by facsimile or, where feasible, by
direct or indirect systems access, an aggregate purchase order and an aggregate
redemption order for each omnibus account. To be effective on the date received,
all orders must be received by Transfer Agent in accordance with the terms set
forth in the current Prospectus and Statement of Additional Information for the
Trust.
(c) Prior to _____ p.m. Eastern Time each business
day, Agent shall receive from Transfer Agent the net asset value per share of
each Share of each Fund for that business day.
(d) In the case of a redemption order, federal funds
in the amount of the redemption order shall be wired by
______[date/time]______________ to the Agent at
_________________________________. Each party shall bear the cost of any wire
transfer that it sends.
(e) In the event adjustments are required to correct
any error in the computation of the net asset value or public offering price of
Fund Shares, RFD shall notify Agent prior to making any adjustments and describe
the need for such adjustments (including the date of the error, the incorrect
price and the correct price). In such case, an appropriate adjustment shall be
made to the relevant omnibus account(s) and Agent shall make corresponding
adjustments to the accounts of its Customers.
<PAGE>
(f) RFD may cease offering Shares at any time, and
in its sole discretion may refuse any purchase order. Further, RFD shall not be
required to accept orders for redemption of Shares of a Fund under this Section
4 if the Trust has suspended redemptions with respect to such Fund in accordance
with Section 22(e) of the Investment Company Act of 1940, as amended (the "1940
Act").
(g) For the purposes of this Agreement, "business
day" shall mean:
(i) with respect to a Fund that maintains a
net asset value of $1.00 per share, each day that the Boston Federal Reserve
Bank and the New York Stock Exchange are open for business; and
(ii) with respect to all other Funds, each
day that the New York Stock Exchange is open for business.
5. Dividends and Capital Gains Distributions.
(a) As to each Fund, as soon as practicable after
the announcement of a distribution, Agent shall be notified of the ex-date,
record date, payable date, distribution rate per Share, record date Share
balances and cash and reinvestment payment amounts.
(b) On the payable date, the Trust shall wire the
cash distribution from the appropriate Fund to Agent at
_________________________________________________.
(c) For each Fund that pays daily dividends, RFD
shall provide on a daily basis, the following record date information: daily
rate, account share balance, account accrual dividend amount (for that day),
account accrual dividend amount (for period to date), and account transfers and
period-to-date accrual amounts. Such information shall be provided by facsimile
to (___)____________.
(d) For annual tax reporting purposes, RFD shall
inform Agent of the portion of distributions that include any of the following:
foreign source income, tax exempt income by state of origin, or return of
capital.
6. Preparation and Distribution of Written Materials.
(a) RFD shall provide Agent with a master copy of
each Fund's Prospectus and Statement of Additional Information ("SAI") offering
Shares. As soon as practicable following the filing under the Securities Act of
1933, as amended, of a definitive Prospectus or SAI of any Fund or a supplement
to the Prospectus or SAI of any Fund, RFD shall provide a master copy of the
Prospectus and SAI of each Fund affected by the amendment or a copy of such
supplement. Agent shall not be responsible for the preparing or filing with any
governmental authority any Registration Statement, Prospectus, SAI or Supplement
for the Trust or any Fund. However, upon request by RFD or any of the Trust's
service providers, Agent shall timely provide information necessary for RFD or
any of the Trust's service providers to: (i) prepare and file any of the written
materials mentioned in this Section 6 or (ii) otherwise comply with applicable
law regarding the Trust.
(b) Agent shall be responsible for preparing a
"wrapper" for the Prospectus of each Fund, which shall inform the Customer
regarding the manner in which Shares may be purchased and redeemed and any
additional information necessary to inform Customers of the services being
<PAGE>
provided by Agent and the fees received by Agent therefor. Agent also shall be
responsible for preparing any additional advertising materials that Agent wishes
to distribute to Customers. Agent shall not effect a purchase of Shares for any
Customer unless and until the Customer has received a copy of the relevant
Prospectus (including any supplement) and wrapper. Agent shall not distribute to
any Customer or other person any wrapper or other literature advertising the
purchase of Shares until the Agent has provided a copy of such advertisement to
the Trust's administrator (currently, Frank Russell Investment Management
Company ("FRIMCO")) and received written authorization from FRIMCO to distribute
the advertisement. Agent shall not be responsible for filing wrappers and other
advertising literature with the NASD. Agent shall be responsible for and bear
the cost of reproducing Prospectuses, SAIs, supplements, wrappers and all
advertising materials for Customers and potential Customers.
(c) Agent shall timely provide copies of the
following materials to Customers: proxy statements, annual reports and
semi-annual reports. At no expense to Agent, RFD shall provide Agent with as
many copies of such materials as Agent may reasonably request. Such materials
shall be sent to Agent at the following address: ___________________.
7. Compliance with Blue Sky Laws. Agent will only place
purchase orders for Shares of a Fund on behalf of Customers whose addresses
recorded on Agent's books are in jurisdictions in which RFD has notified Agent
in writing that the Shares of the Fund are registered or qualified for sale
under applicable law. Agent shall immediately cease offering Shares of a Fund in
any jurisdiction where RFD notifies Agent in writing that the Fund's
registration or qualification has terminated or if RFD otherwise wishes Agent to
cease offering Shares of such Fund in such jurisdiction. Agent shall furnish RFD
or its designee with monthly written statements of the number of Shares of each
Fund purchased on behalf of Customers resident in each jurisdiction.
8. Capacity and Authority to Act. The Agent and its officers,
employees and agents are not authorized to make any representations concerning
the Trust or the Shares to Customers or prospective Customers, excepting only
accurate communication of factual information contained in the then-current
Prospectus and Statement of Additional Information offering Shares of the
relevant Fund or such other communications as may be expressly authorized by
RFD. In performing its services under this Agreement, the Agent shall act as
agent for the Customer and shall have no authority to act as agent for RFD or
the Trust. Upon request by RFD, the Agent shall provide RFD with copies of any
materials which are generally circulated by the Agent to its Customers or
prospective Customers. The Agent and its officers and employees shall be
available during normal business hours to consult with RFD and the Trust's other
service providers concerning the performance of the Agent's responsibilities
under this Agreement.
9. Use of the Trust's Name. The Agent shall not use the name
of the Trust (other than for internal use in connection with performing its
duties under this agreement) in a manner not approved by RFD prior thereto in
writing; provided, however, that the approval of RFD shall not be required for
the use of the Trust's name or the name of any Fund in connection with
communications permitted by Section 8 hereof or for any use of the Trust's name
or the name of any Fund which merely refers accurately to the Agent's role
hereunder or which is required by the Securities and Exchange Commission or any
state securities authority or any other appropriate regulatory, governmental or
judicial authority.
<PAGE>
10. Security. The Agent represents and warrants that, to the
best of its knowledge, the various procedures and systems which it has
implemented (including provision for twenty-four hours a day restricted access)
with regard to safeguarding from loss or damage attributable to fire, theft or
any other cause the Agent's records, data, equipment, facilities and other
property used in the performance of its obligations hereunder are adequate and
that it will make such changes therein from time to time as in its judgment are
required for the secure performance of its obligations hereunder. From time to
time and upon request, Agent shall permit RFD or its designees to make a
reasonable inspection of Agent's security systems and procedures.
11. Compliance with Laws; Etc. The Agent shall comply with all
applicable federal and state laws and regulations, including securities laws.
The Agent represents and warrants to RFD that the performance of all its
obligations hereunder will comply with all applicable laws and regulations, the
provisions of its charter documents and by-laws and all material contractual
obligations binding upon the Agent. The Agent furthermore undertakes that it
will promptly inform RFD of any change in applicable laws or regulations (or
interpretations thereof) or in its charter or by-laws or material contracts
which would prevent or impair full performance of any of its obligations
hereunder.
12. Record Keeping; Reporting.
12.1 Section 31(a), Etc. The Agent shall maintain
records in a form acceptable to RFD and in compliance with applicable laws and
the rules and regulations of the Securities and Exchange Commission, including
but not limited to the record-keeping requirements of Section 31(a) of the 1940
Act and the rules thereunder. Agent shall permit RFD and the Trust's other
service providers access to such information when necessary for the Trust or any
such person to comply with applicable law. In such case, RFD shall cause such
information to remain confidential and shall not permit such information to be
used by any party or disclosed to any additional party except with Agent's
written consent or as required by applicable law or judicial process. The
record-keeping obligations imposed in this Section 12.1 shall survive the
termination of this Agreement.
12.2 Reporting of Payments. From time to time, and
upon reasonable notice from RFD, the Agent shall provide RFD a written
accounting of all payments that the Agent receives under this Agreement.
13. Indemnity. Agent shall indemnify, defend and hold RFD, the
Trust, FRIMCO, SSB, the Trust's Custodian (currently, SSB) and their respective
officers, directors and any person who may be deemed to be a controlling person
of any of them, free and harmless from and against any and all losses, claims,
damages, liabilities and expenses (including the cost of investigating or
defending such losses, claims, demands or liabilities and any court costs and
attorney's fees in connection therewith), whether joint or several, to which any
such person may become subject insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) arise out of or are
based upon, (i) any breach of any representation, warranty or covenant made by
Agent in this Agreement, or (ii) any failure by Agent to perform its obligations
under this Agreement, or (iii) any untrue statement or alleged untrue statement
of fact, or any omission or alleged omission to state a fact made by Agent in
connection with Agent's duties herein (including without limitation, any such
statement or omission made or required to be made in a "wrapper" or other
advertising literature, whether or not such literature was approved by FRIMCO),
or (iv) any misfeasance or misconduct by Agent in the performance of Agent's
duties and obligations hereunder.
<PAGE>
RFD shall indemnify, defend and hold Agent, its officers and
directors, any persons who may be deemed to be a controlling person of any of
them, free and harmless from and against any and all losses, claims, damages,
liability and expenses (including the cost of investigating or defending such
losses, claims, demands or liabilities and any court costs and counsel fees in
connection therewith), whether joint or several, to which any such person may
become subject insofar as such losses, claims, damages, liabilities or expenses
(or actions in respect thereof) arise out of or are based upon: (i) any breach
of any representation, warranty or covenants made by RFD in this Agreement, or
(ii) any failure by RFD to perform its obligations under this Agreement, or
(iii) any untrue statement, or alleged untrue statement of a material fact
contained in the Trust's Registration Statement or any Fund's Prospectus or SAI,
or arising out of or based upon any omission, or alleged omission, to state a
material fact required to be stated in either the Registration Statement or any
Prospectus, or necessary to make the statements in any thereof not misleading;
provided, however, that RFD's agreement to indemnify such persons shall not be
deemed to cover any losses, claims, demands, liabilities or expenses arising out
of any untrue statement or alleged untrue statement or omission or alleged
omission made in the Registration Statement or any Prospectus or SAI in reliance
upon and in conformity with written information furnished to the Trust, RFD,
SSB, or FRIMCO by Agent specifically for use in the preparation thereof.
14. Insurance. The Agent shall maintain reasonable insurance
coverage against any and all liabilities which may arise in connection with the
performance of its duties hereunder. Agent shall cause RFD and the Trust to
become additional named insureds under such policies. Upon request, Agent shall
produce certificates of coverage satisfactory to RFD demonstrating compliance
with this Section 14.
15. Notices. All notices or other communications hereunder to
either party shall be in writing and shall be deemed sufficient if mailed to
such party at the address of such party set forth in the preamble of this
Agreement or at such other address as such party may have designated by written
notice to the other.
16. Further Assurances. Each party agrees to perform such
further acts and execute such further documents as are necessary to effectuate
the purposes hereof.
17. Termination. This Agreement may be terminated, without the
payment of any penalty, by RFD or by the Trust at any time upon not more than 60
days' nor less than 30 days' notice, by a vote of a majority of the Board of
Trustees of the Trust who are not "interested persons" of the Trust (as defined
in the 1940 Act) and have no direct or indirect financial interest in the
operation of the Trust's Plan of Distribution regarding Class B Shares (the
"Plan") to which this Agreement is related, this Agreement or any other
agreement related to such Plan (the "Qualified Trustees"), or (as to a
particular Fund) by the affirmative vote of the holders of a majority of the
outstanding Shares (as defined in the 1940 Act) of the Fund. The Agent may
terminate this Agreement upon not more than 60 days' nor less than 30 days'
notice to RFD. Notwithstanding anything herein to the contrary, this Agreement
may not be assigned and shall terminate automatically without notice to either
party upon any assignment. Upon termination hereof, RFD shall pay such
compensation as may be due the Agent as of the date of such termination. Upon
and following termination the parties shall take such steps as may be necessary
or expedient for the parties and the Trust to comply with applicable law.
18. Changes; Amendments. This Agreement may be changed or
amended only by written instrument signed by both parties.
<PAGE>
19. Limitation of Liability. The First Amended and Restated
Master Trust Agreement, dated October 13, 1993 (the "Master Trust Agreement"),
as amended from time to time, establishing the Trust, which is hereby referred
to and a copy of which is on file with the Secretary of The Commonwealth of
Massachusetts, provides that the name The Seven Seas Series Fund means the
Trustees from time to time serving (as Trustees but not personally) under said
Master Trust Agreement. It is expressly acknowledged and agreed that any and all
obligations of the Trust hereunder shall not be binding upon any of the
Shareholders, Trustees, officers, employees or agents of the Trust, personally,
but shall bind only the trust property of the Trust, as provided in its Master
Trust Agreement.
20. Miscellaneous. This Agreement shall be construed and
enforced in accordance with and governed by the laws of The Commonwealth of
Massachusetts. The captions in this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which taken together shall constitute one and the same
instrument.
21. Continuation. Unless sooner terminated pursuant to Section
17 hereof, this Agreement shall continue in effect with respect to each Fund
subsequent to the initial terms specified herein for so long as such continuance
is specifically approved at least annually by votes of a majority of both (i)
the Board of Trustees of the Trust, and (ii) the Qualified Trustees, cast in
person at a meeting called for the purpose of voting on this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first set forth above.
RUSSELL FUND DISTRIBUTORS, INC. AGENT:
By:
------------------------------- ------------------------------------
Its: ----------------------------- ------------------------------------
By:
--------------------------------
Its:
--------------------------------
EXHIBIT 15(F)
THE SEVEN SEAS SERIES FUND
AGREEMENT PURSUANT TO 12B-1 PLAN
CLASS C SHARES
AGREEMENT dated as of ________________, 1994, by and between
Russell Fund Distributors, Inc. ("RFD"), a Washington corporation having a place
of business at Two International Place, Boston, MA, 02110 and
______________________ (the "Agent"), a _______________________________________
having its principal place of business at _____________________________________.
Recitals
--------
A. RFD is the principal underwriter and distributor for shares
of The Seven Seas Series Fund, a Massachusetts business trust (the "Trust").
B. The Agent wishes to act as the agent of its customers (the
"Customers") whose beneficial interests in the trust are held of record in
omnibus accounts maintained by Agent in performing certain distribution and/or
administrative functions in connection with purchases and redemptions of Class C
Shares of certain series of the Trust described in Section 1 hereof ("Shares")
from time to time upon the order and for the account of Customers, and to
provide related services to its Customers in connection with their investments
in the Trust.
C. It is in the interest of the Trust to make the services of
the Agent available to Customers who are or may become shareholders of the
Trust.
Agreement
---------
In consideration of the foregoing recitals and the mutual
covenants herein contained, RFD and the Agent hereby agree as follows:
1. Appointment. The Agent hereby agrees to perform the
services set forth below for Customers who beneficially own Shares of The Seven
Seas Series Money Market Fund and The Seven Seas Series US Government Money
Market Fund. The Agent shall also perform such services for Customers who hold
Shares of such additional and/or future series of the Trust as the parties may
agree in a written document signed by both parties and annexed to this
Agreement. Each series of the Trust for which the Agent acts as a servicing
agent pursuant to this Agreement is hereinafter referred to as a "Fund." The
Agent's appointment hereunder is non-exclusive, and the parties recognize and
agree that, from time to time, RFD may enter into other shareholder servicing
agreements, with other financial institutions.
2. Services to be Performed. The Agent shall be responsible
for performing shareholder account servicing functions, which shall include
without limitation:
<PAGE>
(a) assisting in processing Customer purchase and
redemption requests;
(b) answering Customer inquiries regarding account
status and history, the manner in which purchase and redemptions of the Shares
may be effected, and certain other matters pertaining to the Trust;
(c) assisting Customers in designating and changing
dividend options, account designations and addresses;
(d) verifying and guaranteeing Customer signatures
in connection with redemption orders, transfers among and changes in
Customer-designated accounts;
(e) providing periodic statements showing a
Customer's account balances and, to the extent practicable, integration of such
information with other client transactions otherwise effected with or through
the Agent;
(f) furnishing (either separately or on an
integrated basis with other reports sent to a Customer by the Agent) monthly and
annual statements and confirmations of all purchases and redemptions of Shares
in a Customer's account;
(g) aggregating and processing Customer purchase and
redemption requests for Shares and placing net purchase and redemption orders
with the Trust's transfer agent (currently State Street Bank and Trust Company
("SSB"), including any designee of SSB, "Transfer Agent") in the manner
described in Section 4 hereof;
(h) providing complete subaccounting services and
maintaining complete subaccounting records regarding Shares beneficially owned
by Customers;
(i) processing dividend payments;
(j) transmitting proxy statements, annual and
semi-annual reports, prospectuses and other communications from the Trust to
Customers;
(k) receiving, tabulating and transmitting to RFD
proxies executed by Customers with respect to annual and special meetings of
shareholders of the Trust;
(l) preparing and filing U.S. Treasury Department
Forms 1099 and other appropriate forms required with respect to dividends and
distributions by federal authorities; and
(m) providing such other related services as RFD or
a Customer may reasonably request.
The Agent shall provide all personnel, facilities and equipment necessary in
order for it to perform the functions described in this paragraph with respect
to its Customers. The Agent shall exercise reasonable care in performing all
such services and shall be liable for any failure to exercise such reasonable
care.
<PAGE>
3. Fees.
3.1 Fees from the Trust. In consideration for the
services described in Section 2 hereof, RFD shall pay Agent the following fees:
(a) for distribution-related services, a
fee in the amount of .25 of 1% of the average daily value of all Shares of each
Fund owned by Customers; and
(b) for shareholder administration
services, a fee in the amount of .25 of 1% of the average daily value of all
Shares of each Fund owned by Customers.
All fees shall be paid monthly in arrears.
3.2 Fees from Customers. It is agreed that the Agent
may impose certain conditions on Customers, in addition to or different from
those imposed by the Trust, such as requiring a minimum initial investment or
charging Customers direct fees for the same or similar services as are provided
hereunder by the Agent as Agent (which fees may either relate specifically to
the Agent's services with respect to the Trust or generally cover services not
limited to those with respect to the Trust). The Agent shall bill Customers
directly for such fees. In the event the Agent charges Customers such fees, it
shall make appropriate prior written disclosure (such disclosure to be in
accordance with all applicable laws) to Customers both of any direct fees
charged to the Customer and of the fees received or to be received by it from
RFD pursuant to Section 3.1 of this Agreement. It is understood, however, that
in no event shall the Agent have recourse or access to the account of any
shareholder of the Trust except to the extent expressly authorized by law or by
RFD or by such shareholder for payment of any direct fees referred to in this
Section 3.2.
4. Purchase and Redemption Orders.
(a) Agent will open with Transfer Agent a minimum of
two omnibus accounts per Fund: capital gains and dividend distributions payable
with respect to Shares held in one account shall be paid in cash, and capital
gains and dividend distributions payable with respect to Shares held in another
account shall be paid in additional Shares of the Fund. Transfer Agent shall
designate account numbers for each account.
(b) For each business day on which any Customer
places with Agent a purchase or redemption order for Shares of a Fund, Agent
shall aggregate all such purchase orders and aggregate all such redemption
orders and communicate to Transfer Agent, by facsimile or, where feasible, by
direct or indirect systems access, an aggregate purchase order and an aggregate
redemption order for each omnibus account. To be effective on the date received,
all orders must be received by Transfer Agent in accordance with the terms set
forth in the current Prospectus and Statement of Additional Information for the
Trust.
(c) Prior to _____ p.m. Eastern Time each business
day, Agent shall receive from Transfer Agent the net asset value per share of
each Share of each Fund for that business day.
(d) In the case of a redemption order, federal funds
in the amount of the redemption order shall be wired by
______[date/time]______________ to the Agent at -----------
. Each party shall bear the cost of any wire transfer that it sends.
<PAGE>
(e) In the event adjustments are required to correct
any error in the computation of the net asset value or public offering price of
Fund Shares, RFD shall notify Agent prior to making any adjustments and describe
the need for such adjustments (including the date of the error, the incorrect
price and the correct price). In such case, an appropriate adjustment shall be
made to the relevant omnibus account(s) and Agent shall make corresponding
adjustments to the accounts of its Customers.
(f) RFD may cease offering Shares at any time, and
in its sole discretion may refuse any purchase order. Further, RFD shall not be
required to accept orders for redemption of Shares of a Fund under this Section
4 if the Trust has suspended redemptions with respect to such Fund in accordance
with Section 22(e) of the Investment Company Act of 1940, as amended (the "1940
Act").
(g) For the purposes of this Agreement, "business
day" shall mean:
(i) with respect to a Fund that maintains a
net asset value of $1.00 per share, each day that the Boston Federal Reserve
Bank and the New York Stock Exchange are open for business; and
(ii) with respect to all other Funds, each
day that the New York Stock Exchange is open for business.
<PAGE>
5. Dividends and Capital Gains Distributions.
(a) As to each Fund, as soon as practicable after
the announcement of a distribution, Agent shall be notified of the ex-date,
record date, payable date, distribution rate per Share, record date Share
balances and cash and reinvestment payment amounts.
(b) On the payable date, the Trust shall wire the
cash distribution from the appropriate Fund to Agent at
___________________________________________.
(c) For each Fund that pays daily dividends, RFD
shall provide on a daily basis, the following record date information: daily
rate, account share balance, account accrual dividend amount (for that day),
account accrual dividend amount (for period to date), and account transfers and
period-to-date accrual amounts. Such information shall be provided by facsimile
to (___)_________.
(d) For annual tax reporting purposes, RFD shall
inform Agent of the portion of distributions that include any of the following:
foreign source income, tax exempt income by state of origin, or return of
capital.
6. Preparation and Distribution of Written Materials.
(a) RFD shall provide Agent with a master copy of
each Fund's Prospectus and Statement of Additional Information ("SAI") offering
Shares. As soon as practicable following the filing under the Securities Act of
1933, as amended, of a definitive Prospectus or SAI of any Fund or a supplement
to the Prospectus or SAI of any Fund, RFD shall provide a master copy of the
Prospectus and SAI of each Fund affected by the amendment or a copy of such
supplement. Agent shall not be responsible for the preparing or filing with any
governmental authority any Registration Statement, Prospectus, SAI or Supplement
for the Trust or any Fund. However, upon request by RFD or any of the Trust's
service providers, Agent shall timely provide information necessary for RFD or
any of the Trust's service providers to: (i) prepare and file any of the written
materials mentioned in this Section 6 or (ii) otherwise comply with applicable
law regarding the Trust.
(b) Agent shall be responsible for preparing a
"wrapper" for the Prospectus of each Fund, which shall inform the Customer
regarding the manner in which Shares may be purchased and redeemed and any
additional information necessary to inform Customers of the services being
provided by Agent and the fees received by Agent therefor. Agent also shall be
responsible for preparing any additional advertising materials that Agent wishes
to distribute to Customers. Agent shall not effect a purchase of Shares for any
Customer unless and until the Customer has received a copy of the relevant
Prospectus (including any supplement) and wrapper. Agent shall not distribute to
any Customer or other person any wrapper or other literature advertising the
purchase of Shares until the Agent has provided a copy of such advertisement to
the Trust's administrator (currently, Frank Russell Investment Management
Company ("FRIMCO")) and received written authorization from FRIMCO to distribute
the advertisement. Agent shall not be responsible for filing wrappers and other
advertising literature with the NASD. Agent shall be responsible for and bear
the cost of reproducing Prospectuses, SAIs, supplements, wrappers and all
advertising materials for Customers and potential Customers.
<PAGE>
(c) Agent shall timely provide copies of the
following materials to Customers: proxy statements, annual reports and
semi-annual reports. At no expense to Agent, RFD shall provide Agent with as
many copies of such materials as Agent may reasonably request. Such materials
shall be sent to Agent at the following address: _________________.
7. Compliance with Blue Sky Laws. Agent will only place
purchase orders for Shares of a Fund on behalf of Customers whose addresses
recorded on Agent's books are in jurisdictions in which RFD has notified Agent
in writing that the Shares of the Fund are registered or qualified for sale
under applicable law. Agent shall immediately cease offering Shares of a Fund in
any jurisdiction where RFD notifies Agent in writing that the Fund's
registration or qualification has terminated or if RFD otherwise wishes Agent to
cease offering Shares of such Fund in such jurisdiction. Agent shall furnish RFD
or its designee with monthly written statements of the number of Shares of each
Fund purchased on behalf of Customers resident in each jurisdiction.
8. Capacity and Authority to Act. The Agent and its officers,
employees and agents are not authorized to make any representations concerning
the Trust or the Shares to Customers or prospective Customers, excepting only
accurate communication of factual information contained in the then-current
Prospectus and Statement of Additional Information offering Shares of the
relevant Fund or such other communications as may be expressly authorized by
RFD. In performing its services under this Agreement, the Agent shall act as
agent for the Customer and shall have no authority to act as agent for RFD or
the Trust. Upon request by RFD, the Agent shall provide RFD with copies of any
materials which are generally circulated by the Agent to its Customers or
prospective Customers. The Agent and its officers and employees shall be
available during normal business hours to consult with RFD and the Trust's other
service providers concerning the performance of the Agent's responsibilities
under this Agreement.
9. Use of the Trust's Name. The Agent shall not use the name
of the Trust (other than for internal use in connection with performing its
duties under this agreement) in a manner not approved by RFD prior thereto in
writing; provided, however, that the approval of RFD shall not be required for
the use of the Trust's name or the name of any Fund in connection with
communications permitted by Section 8 hereof or for any use of the Trust's name
or the name of any Fund which merely refers accurately to the Agent's role
hereunder or which is required by the Securities and Exchange Commission or any
state securities authority or any other appropriate regulatory, governmental or
judicial authority.
10. Security. The Agent represents and warrants that, to the
best of its knowledge, the various procedures and systems which it has
implemented (including provision for twenty-four hours a day restricted access)
with regard to safeguarding from loss or damage attributable to fire, theft or
any other cause the Agent's records, data, equipment, facilities and other
property used in the performance of its obligations hereunder are adequate and
that it will make such changes therein from time to time as in its judgment are
required for the secure performance of its obligations hereunder. From time to
time and upon request, Agent shall permit RFD or its designees to make a
reasonable inspection of Agent's security systems and procedures.
11. Compliance with Laws; Etc. The Agent shall comply with all
applicable federal and state laws and regulations, including securities laws.
The Agent represents and warrants to RFD that the performance of all its
obligations hereunder will comply with all applicable laws and regulations, the
provisions of its charter documents and by-laws and all material contractual
obligations binding upon the Agent. The Agent furthermore undertakes that it
will promptly inform RFD of any change in applicable laws or regulations (or
interpretations thereof) or in its charter or by-laws or material contracts
which would prevent or impair full performance of any of its obligations
hereunder.
<PAGE>
12. Record Keeping; Reporting.
12.1 Section 31(a), Etc. The Agent shall maintain
records in a form acceptable to RFD and in compliance with applicable laws and
the rules and regulations of the Securities and Exchange Commission, including
but not limited to the record-keeping requirements of Section 31(a) of the 1940
Act and the rules thereunder. Agent shall permit RFD and the Trust's other
service providers access to such information when necessary for the Trust or any
such person to comply with applicable law. In such case, RFD shall cause such
information to remain confidential and shall not permit such information to be
used by any party or disclosed to any additional party except with Agent's
written consent or as required by applicable law or judicial process. The
record-keeping obligations imposed in this Section 12.1 shall survive the
termination of this Agreement.
12.2 Reporting of Payments. From time to time, and
upon reasonable notice from RFD, the Agent shall provide RFD a written
accounting of all payments that the Agent receives under this Agreement.
13. Indemnity. Agent shall indemnify, defend and hold RFD, the
Trust, FRIMCO, SSB, the Trust's Custodian (currently, SSB) and their respective
officers, directors and any person who may be deemed to be a controlling person
of any of them, free and harmless from and against any and all losses, claims,
damages, liabilities and expenses (including the cost of investigating or
defending such losses, claims, demands or liabilities and any court costs and
attorney's fees in connection therewith), whether joint or several, to which any
such person may become subject insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) arise out of or are
based upon, (i) any breach of any representation, warranty or covenant made by
Agent in this Agreement, or (ii) any failure by Agent to perform its obligations
under this Agreement, or (iii) any untrue statement or alleged untrue statement
of fact, or any omission or alleged omission to state a fact made by Agent in
connection with Agent's duties herein (including without limitation, any such
statement or omission made or required to be made in a "wrapper" or other
advertising literature, whether or not such literature was approved by FRIMCO),
or (iv) any misfeasance or misconduct by Agent in the performance of Agent's
duties and obligations hereunder.
RFD shall indemnify, defend and hold Agent, its officers and
directors, any persons who may be deemed to be a controlling person of any of
them, free and harmless from and against any and all losses, claims, damages,
liability and expenses (including the cost of investigating or defending such
losses, claims, demands or liabilities and any court costs and counsel fees in
connection therewith), whether joint or several, to which any such person may
become subject insofar as such losses, claims, damages, liabilities or expenses
(or actions in respect thereof) arise out of or are based upon: (i) any breach
of any representation, warranty or covenants made by RFD in this Agreement, or
(ii) any failure by RFD to perform its obligations under this Agreement, or
(iii) any untrue statement, or alleged untrue statement of a material fact
contained in the Trust's Registration Statement or any Fund's Prospectus or SAI,
or arising out of or based upon any omission, or alleged omission, to state a
material fact required to be stated in either the Registration Statement or any
Prospectus, or necessary to make the statements in any thereof not misleading;
provided, however, that RFD's agreement to indemnify such persons shall not be
deemed to cover any losses, claims, demands, liabilities or expenses arising out
of any untrue statement or alleged untrue statement or omission or alleged
omission made in the Registration Statement or any Prospectus or SAI in reliance
upon and in conformity with written information furnished to the Trust, RFD,
SSB, or FRIMCO by Agent specifically for use in the preparation thereof.
<PAGE>
14. Insurance. The Agent shall maintain reasonable insurance
coverage against any and all liabilities which may arise in connection with the
performance of its duties hereunder. Agent shall cause RFD and the Trust to
become additional named insureds under such policies. Upon request, Agent shall
produce certificates of coverage satisfactory to RFD demonstrating compliance
with this Section 14.
15. Notices. All notices or other communications hereunder to
either party shall be in writing and shall be deemed sufficient if mailed to
such party at the address of such party set forth in the preamble of this
Agreement or at such other address as such party may have designated by written
notice to the other.
16. Further Assurances. Each party agrees to perform such
further acts and execute such further documents as are necessary to effectuate
the purposes hereof.
17. Termination. This Agreement may be terminated, without the
payment of any penalty, by RFD or by the Trust at any time upon not more than 60
days' nor less than 30 days' notice, by a vote of a majority of the Board of
Trustees of the Trust who are not "interested persons" of the Trust (as defined
in the 1940 Act) and have no direct or indirect financial interest in the
operation of the Trust's Plan of Distribution regarding Class C Shares (the
"Plan") to which this Agreement is related, this Agreement or any other
agreement related to such Plan (the "Qualified Trustees"), or (as to a
particular Fund) by the affirmative vote of the holders of a majority of the
outstanding Shares (as defined in the 1940 Act) of the Fund. The Agent may
terminate this Agreement upon not more than 60 days' nor less than 30 days'
notice to RFD. Notwithstanding anything herein to the contrary, this Agreement
may not be assigned and shall terminate automatically without notice to either
party upon any assignment. Upon termination hereof, RFD shall pay such
compensation as may be due the Agent as of the date of such termination. Upon
and following termination the parties shall take such steps as may be necessary
or expedient for the parties and the Trust to comply with applicable law.
18. Changes; Amendments. This Agreement may be changed or
amended only by written instrument signed by both parties.
19. Limitation of Liability. The First Amended and Restated
Master Trust Agreement, dated October 13, 1993 (the "Master Trust Agreement"),
as amended from time to time, establishing the Trust, which is hereby referred
to and a copy of which is on file with the Secretary of The Commonwealth of
Massachusetts, provides that the name The Seven Seas Series Fund means the
Trustees from time to time serving (as Trustees but not personally) under said
Master Trust Agreement. It is expressly acknowledged and agreed that any and all
obligations of the Trust hereunder shall not be binding upon any of the
Shareholders, Trustees, officers, employees or agents of the Trust, personally,
but shall bind only the trust property of the Trust, as provided in its Master
Trust Agreement.
20. Miscellaneous. This Agreement shall be construed and
enforced in accordance with and governed by the laws of The Commonwealth of
Massachusetts. The captions in this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which taken together shall constitute one and the same
instrument.
<PAGE>
21. Continuation. Unless sooner terminated pursuant to Section
17 hereof, this Agreement shall continue in effect with respect to each Fund
subsequent to the initial terms specified herein for so long as such continuance
is specifically approved at least annually by votes of a majority of both (i)
the Board of Trustees of the Trust, and (ii) the Qualified Trustees, cast in
person at a meeting called for the purpose of voting on this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first set forth above.
RUSSELL FUND DISTRIBUTORS, INC. AGENT:
By:
---------------------------------- -----------------------------------
Its:
---------------------------------
By:
------------------------------
Its:
------------------------------
EXHIBIT 16
Schedule of Computations
The following illustrates the current yield calculation for the seven day base
periods for the Money Market Funds of SSgA Funds.
<TABLE>
<CAPTION>
Money Market Fund
- -----------------
08/31/97
--------
<S> <C>
Value of hypothetical pre-existing account with exactly
one share at the beginning of the base period......................... $1.000000000
Value of the same account (excluding capital changes)
at the end of the seven-day base period 1.001006651
Net change in account value .001006651
Annualized Current Net Yield
[.001006651 x (365/7)] 5.25%
Annualized Effective Net Yield
[(.001006651+1) (365/7)]-1 5.39%
05/31/97
--------
Value of hypothetical pre-existing account with exactly
one share at the beginning of the base period $1.000000000
Value of the same account (excluding capital changes)
at the end of the seven-day base period 1.001015101
Net change in account value .001015101
Annualized Current Net Yield
[.001015101 x (365/7)] 5.29%
Annualized Effective Net Yield
[(.001015101+1) (365/7)]-1 5.43%
02/28/97
--------
Value of hypothetical pre-existing account with exactly
one share at the beginning of the base period $1.000000000
Value of the same account (excluding capital changes)
at the end of the seven-day base period 1.000967563
Net change in account value .000967563
Annualized Current Net Yield
[.000967563 x (365/7)] 5.05%
Annualized Effective Net Yield
[(.000967563+1) (365/7)]-1 5.17%
11/30/96
--------
Value of hypothetical pre-existing account with exactly
one share at the beginning of the base period $1.000000000
Value of the same account (excluding capital changes)
at the end of the seven-day base period 1.000972564
Net change in account value .000972564
Annualized Current Net Yield
[.000972564 x (365/7)] 5.07%
Annualized Effective Net Yield
[(.000972564+1) (365/7)]-1 5.20%
<PAGE>
US Government Money Market Fund
- -------------------------------
08/31/97
- --------
Value of hypothetical pre-existing account with exactly
one share at the beginning of the base period $1.000000000
Value of the same account (excluding capital changes)
at the end of the seven-day base period 1.000995705
Net change in account value .000995705
Annualized Current Net Yield
[.000995705 x (365/7)] 5.19%
Annualized Effective Net Yield
[(.000995705+1) (365/7)]-1 5.33%
05/31/97
- --------
Value of hypothetical pre-existing account with exactly
one share at the beginning of the base period $1.000000000
Value of the same account (excluding capital changes)
at the end of the seven-day base period 1.000991017
Net change in account value .000991017
Annualized Current Net Yield
[.000991017 x (365/7)] 5.17%
Annualized Effective Net Yield
[(.000991017+1) (365/7)]-1 5.30%
02/28/97
- --------
Value of hypothetical pre-existing account with exactly
one share at the beginning of the base period $1.000000000
Value of the same account (excluding capital changes)
at the end of the seven-day base period 1.000961127
Net change in account value .000961127
Annualized Current Net Yield
[.000961127 x (365/7)] 5.01%
Annualized Effective Net Yield
[(.000961127+1) (365/7)]-1 5.14%
11/30/96
- --------
Value of hypothetical pre-existing account with exactly
one share at the beginning of the base period $1.000000000
Value of the same account (excluding capital changes)
at the end of the seven-day base period 1.000959633
Net change in account value .000959633
Annualized Current Net Yield
[.000959633 x (365/7)] 5.00%
Annualized Effective Net Yield
[(.000959633+1) (365/7)]-1 5.13%
<PAGE>
Prime Money Market Fund
- -----------------------
08/31/97
- --------
Value of hypothetical pre-existing account with exactly
one share at the beginning of the base period $1.000000000
Value of the same account (excluding capital changes)
at the end of the seven-day base period 1.001058505
Net change in account value .001058505
Annualized Current Net Yield
[.001058505 x (365/7)] 5.52%
Annualized Effective Net Yield
[(.001058505+1) (365/7)]-1 5.67%
05/31/97
- --------
Value of hypothetical pre-existing account with exactly
one share at the beginning of the base period $1.000000000
Value of the same account (excluding capital changes)
at the end of the seven-day base period 1.001058351
Net change in account value .001058351
Annualized Current Net Yield
[.001058351 x (365/7)] 5.52%
Annualized Effective Net Yield
[(.001058351+1) (365/7)]-1 5.67%
02/28/97
- --------
Value of hypothetical pre-existing account with exactly
one share at the beginning of the base period $1.000000000
Value of the same account (excluding capital changes)
at the end of the seven-day base period 1.001011788
Net change in account value .001011788
Annualized Current Net Yield
[.001011788 x (365/7)] 5.28%
Annualized Effective Net Yield
[(.001011788+1) (365/7)]-1 5.41%
11/30/96
- --------
Value of hypothetical pre-existing account with exactly
one share at the beginning of the base period $1.000000000
Value of the same account (excluding capital changes)
at the end of the seven-day base period 1.001012853
Net change in account value .001012853
Annualized Current Net Yield
[.001012853 x (365/7)] 5.28%
Annualized Effective Net Yield
[(.001012853+1) (365/7)]-1 5.42%
<PAGE>
US Treasury Money Market Fund
- -----------------------------
08/31/97
- --------
Value of hypothetical pre-existing account with exactly
one share at the beginning of the base period $1.000000000
Value of the same account (excluding capital changes)
at the end of the seven-day base period 1.001035336
Net change in account value .001035336
Annualized Current Net Yield
[.001035336 x (365/7)] 5.40%
Annualized Effective Net Yield
[(.001035336+1) (365/7)]-1 5.54%
05/31/97
- --------
Value of hypothetical pre-existing account with exactly
one share at the beginning of the base period $1.000000000
Value of the same account (excluding capital changes)
at the end of the seven-day base period 1.001021301
Net change in account value .001021301
Annualized Current Net Yield
[.001021301 x (365/7)] 5.33%
Annualized Effective Net Yield
[(.001021301+1) (365/7)]-1 5.47%
02/28/97
- --------
Value of hypothetical pre-existing account with exactly
one share at the beginning of the base period $1.000000000
Value of the same account (excluding capital changes)
at the end of the seven-day base period 1.000987485
Net change in account value .000987485
Annualized Current Net Yield
[.000987485 x (365/7)] 5.15%
Annualized Effective Net Yield
[(.000987485+1) (365/7)]-1 5.28%
11/30/96
- --------
Value of hypothetical pre-existing account with exactly
one share at the beginning of the base period $1.000000000
Value of the same account (excluding capital changes)
at the end of the seven-day base period 1.000991829
Net change in account value .000991829
Annualized Current Net Yield
[.000991829 x (365/7)] 5.17%
Annualized Effective Net Yield
[(.000991829+1) (365/7)]-1 5.31%
<PAGE>
Tax Free Money Market Fund
- --------------------------
08/31/97
- --------
Value of hypothetical pre-existing account with exactly
one share at the beginning of the base period $1.000000000
Value of the same account (excluding capital changes)
at the end of the seven-day base period 1.000563230
Net change in account value .000563230
Annualized Current Net Yield
[.000563230 x (365/7)] 2.94%
Annualized Current Tax Equivalent Net Yield
[2.94%/(1-0.396)] 4.86%
Annualized Effective Net Yield
[(.000563230+1) (365/7)]-1 2.98%
Annualized Effective Tax Equivalent Net Yield
[2.98%/(1-0.396)] 4.93%
30 Day Annualized Current Net Yield 2.95%
30 Day Annualized Current Tax Equivalent Net Yield 4.89%
05/31/97
- --------
Value of hypothetical pre-existing account with exactly
one share at the beginning of the base period $1.000000000
Value of the same account (excluding capital changes)
at the end of the seven-day base period 1.000602231
Net change in account value .000602231
Annualized Current Net Yield
[.000602231 x (365/7)] 3.14%
Annualized Current Tax Equivalent Net Yield
[3.14%/(1-0.396)] 5.20%
Annualized Effective Net Yield
[(.000602231+1) (365/7)]-1 3.19%
Annualized Effective Tax Equivalent Net Yield
[3.19%/(1-0.396)] 5.28%
30 Day Annualized Current Net Yield 3.19%
30 Day Annualized Current Tax Equivalent Net Yield 5.28%
<PAGE>
Tax Free Money Market Fund (continued)
- --------------------------------------
02/28/97
- --------
Value of hypothetical pre-existing account with exactly
one share at the beginning of the base period $1.000000000
Value of the same account (excluding capital changes)
at the end of the seven-day base period 1.000541809
Net change in account value .000541809
Annualized Current Net Yield
[.000541809 x (365/7)] 2.83%
Annualized Current Tax Equivalent Net Yield
[2.83%/(1-0.396)] 4.68%
Annualized Effective Net Yield
[(.000541809+1) (365/7)]-1 2.86%
Annualized Effective Tax Equivalent Net Yield
[2.86%/(1-0.396)] 4.74%
30 Day Annualized Current Net Yield 2.78%
30 Day Annualized Current Tax Equivalent Net Yield 4.60%
11/30/96
- --------
Value of hypothetical pre-existing account with exactly
one share at the beginning of the base period $1.000000000
Value of the same account (excluding capital changes)
at the end of the seven-day base period 1.000597438
Net change in account value .000597438
Annualized Current Net Yield
[.000597438 x (365/7)] 3.12%
Annualized Current Tax Equivalent Net Yield
[3.12%/(1-0.396)] 5.16%
Annualized Effective Net Yield
[(.000597438+1) (365/7)]-1 3.16%
Annualized Effective Tax Equivalent Net Yield
[3.16%/(1-0.396)] 5.23%
30 Day Annualized Current Net Yield 2.97%
30 Day Annualized Current Tax Equivalent Net Yield 4.91%
</TABLE>
<PAGE>
Schedule of Current Yield Computation
For the Period Ended 08/31/97
(Non-Money Market Funds)
The following is the yield calculation based on a 30-day period computed by
dividing the net investment income per share earned during the period by the
maximum offering price per share on the last day of the period, according to the
following formula:
a_b
YIELD = 2[(_______________ +1)6 _1]
cd
Where: a = dividends and interest earned during the 30 day period.
b = expenses accrued for the 30 day period (net of
reimbursements).
c = the average daily number of shares outstanding that were
entitled to receive dividends.
d = the maximum offering price per share on the last day
of the period.
Yield Plus
- ----------
4,035,445.6 - 266,202.55
5
YIELD = 2[(__________________________________+1)6 _1] = 5.51%
82,958,160.20 x 10.01
Intermediate
- ------------
284,802.61 - 26,373.17
YIELD = 2[(__________________________________+1)6 _1] = 5.87%
5,483,447.62 x 9.76
Bond Market
- -----------
475,077.80 - 35,413.18
YIELD = 2[(__________________________________+1)6 _1] = 6.18%
8,673,511.54 x 9.97
<PAGE>
Average Annual Total Returns
For the Period Ended 08/31/97
The following are the average annual total returns for the SSgA Funds, computed
by finding the average compounded rates of return over the periods 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 hypothetical $1,000
payment made at the beginning of the 1, 5 or 10
year periods at the end of the 1, 5 or 10 year
periods (or fractional portion thereof).
S&P 500 Index
- -------------
4.67 years $1,000 (1 + 19.43%)4.67 = $2,291
1 year $1,000 (1 + 40.30%)1 = $1,403
--------------------------------------------
Small Cap
- ---------
5.17 years $1,000 (1 + 22.22%)5.17 = $2,822
5.00 years $1,000 (1 + 21.14%)5.00 = $2,609
1 year $1,000 (1 + 35.85%)1 = $1,359
--------------------------------------------
Matrix Equity
- -------------
5.33 years $1,000 (1 + 18.49%)5.33 = $2,470
5.00 years $1,000 (1 + 15.97%)5.00 = $2,098
1 year $1,000 (1 + 42.75%)1 = $1,428
--------------------------------------------
Growth and Income
- -----------------
4.00 years $1,000 (1 + 18.42%)4.00 = $1,967
1 year $1,000 (1 + 40.95%)1 = $1,410
--------------------------------------------
Emerging Markets
- ----------------
3.50 years $1,000 (1 + 7.53%)3.50 = $1,289
1 year $1,000 (1 + 15.12%)1 = $1,151
--------------------------------------------
Active International
- --------------------
2.48 years $1,000 (1 + 6.54%)2.48 = $1,170
1 year $1,000 (1 + 1.17%)1 = $1,012
--------------------------------------------
Yield Plus
- ----------
4.81 years $1,000 (1 + 4.97%)4.81 = $1,263
1 year $1,000 (1 + 5.67%)1 = $1,057
--------------------------------------------
Intermediate
- ------------
4.00 years $1,000 (1 + 4.56%)4.00 = $1,195
1 year $1,000 (1 + 8.00%)1 = $1,080
--------------------------------------------
<PAGE>
Average Annual Total Returns (continued)
For the Period Ended 08/31/97
Bond Market
- -----------
1.56 years $1,000 (1 + 4.47%)1.56 = $1,071
1 year $1,000 (1 + 9.47%)1 = $1,095
--------------------------------------------
Life Solutions Growth
- ---------------------
0.17 years $1,000 (1 + 2.42%) = $1,024
--------------------------------------------
Life Solutions Balanced
- -----------------------
0.17 years $1,000 (1 + 2.12%) = $1,021
--------------------------------------------
Life Solutions Growth and Income
- --------------------------------
0.17 years $1,000 (1 + 1.97%) = $1,020
Periods less than one year are not annualized
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000826686
<NAME> SSgA FUNDS
<SERIES>
<NUMBER> 1
<NAME> SSgA MONEY MARKET FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 4370571
<INVESTMENTS-AT-VALUE> 4370571
<RECEIVABLES> 30196
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4400767
<PAYABLE-FOR-SECURITIES> 99964
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 22638
<TOTAL-LIABILITIES> 122602
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4280880
<SHARES-COMMON-STOCK> 4280880
<SHARES-COMMON-PRIOR> 5075578
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2715)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 4278165
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 236540
<OTHER-INCOME> 0
<EXPENSES-NET> 16673
<NET-INVESTMENT-INCOME> 219867
<REALIZED-GAINS-CURRENT> 697
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 220564
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 219867
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 59548475
<NUMBER-OF-SHARES-REDEEMED> 58940717
<SHARES-REINVESTED> 194301
<NET-CHANGE-IN-ASSETS> 802756
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2792)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 10639
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 16673
<AVERAGE-NET-ASSETS> 4255411
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .0516
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .0516
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .39
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000826686
<NAME> SSgA FUNDS
<SERIES>
<NUMBER> 2
<NAME> SSgA US GOVERNMENT MONEY MARKET FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 915438
<INVESTMENTS-AT-VALUE> 915438
<RECEIVABLES> 8731
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 924169
<PAYABLE-FOR-SECURITIES> 14977
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4709
<TOTAL-LIABILITIES> 19686
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 904480
<SHARES-COMMON-STOCK> 904480
<SHARES-COMMON-PRIOR> 788694
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 904483
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 46162
<OTHER-INCOME> 0
<EXPENSES-NET> 3659
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<NAME> SSgA FUNDS
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<NAME> SSgA MATRIX EQUITY FUND
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<CIK> 0000826686
<NAME> SSgA FUNDS
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<NAME> SSgA S&P 500 INDEX FUND
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<CIK> 0000826686
<NAME> SSgA FUNDS
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<NAME> SSgA SMALL CAP FUND
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<S> <C>
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<CIK> 0000826686
<NAME> SSgA FUNDS
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<NAME> SSgA ACTIVE INTERNATIONAL FUND
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<TABLE> <S> <C>
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<CIK> 0000826686
<NAME> SSgA FUNDS
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<NAME> SSgA INTL PACIFIC INDEX FUND
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<TABLE> <S> <C>
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<CIK> 0000826686
<NAME> SSgA FUNDS
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<NUMBER> 9
<NAME> SSgA BOND MARKET FUND
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<CIK> 0000826686
<NAME> SSgA FUNDS
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<NAME> SSgA YIELD PLUS FUND
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<CIK> 0000826686
<NAME> SSgA FUNDS
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<NAME> SSgA US TREASURY MONEY MARKET FUND
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<CIK> 0000826686
<NAME> SSgA FUNDS
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<NAME> SSgA US TREASURY OBLIGATIONS FUND
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<CIK> 0000826686
<NAME> SSgA FUNDS
<SERIES>
<NUMBER> 13
<NAME> SSgA GROWTH AND INCOME FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 47126
<INVESTMENTS-AT-VALUE> 71649
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<OTHER-ITEMS-LIABILITIES> 129
<TOTAL-LIABILITIES> 129
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 39710
<SHARES-COMMON-STOCK> 3967
<SHARES-COMMON-PRIOR> 3966
<ACCUMULATED-NII-CURRENT> 118
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 7385
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 24523
<NET-ASSETS> 71736
<DIVIDEND-INCOME> 1192
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 639
<NET-INVESTMENT-INCOME> 553
<REALIZED-GAINS-CURRENT> 7387
<APPREC-INCREASE-CURRENT> 14677
<NET-CHANGE-FROM-OPS> 22617
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 606
<DISTRIBUTIONS-OF-GAINS> 2131
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<NUMBER-OF-SHARES-SOLD> 2426
<NUMBER-OF-SHARES-REDEEMED> 2832
<SHARES-REINVESTED> 193
<NET-CHANGE-IN-ASSETS> 15913
<ACCUMULATED-NII-PRIOR> 45
<ACCUMULATED-GAINS-PRIOR> 3918
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 572
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<GROSS-EXPENSE> 814
<AVERAGE-NET-ASSETS> 67330
<PER-SHARE-NAV-BEGIN> 13.36
<PER-SHARE-NII> .12
<PER-SHARE-GAIN-APPREC> 5.18
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<PER-SHARE-NAV-END> 18.08
<EXPENSE-RATIO> .95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000826686
<NAME> SSgA FUNDS
<SERIES>
<NUMBER> 14
<NAME> SSgA INTERMEDIATE FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 54549
<INVESTMENTS-AT-VALUE> 54667
<RECEIVABLES> 999
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<SENIOR-LONG-TERM-DEBT> 0
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<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 53154
<SHARES-COMMON-STOCK> 5513
<SHARES-COMMON-PRIOR> 4566
<ACCUMULATED-NII-CURRENT> 733
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<ACCUMULATED-NET-GAINS> (171)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 118
<NET-ASSETS> 53834
<DIVIDEND-INCOME> 75
<INTEREST-INCOME> 2899
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<EXPENSES-NET> 279
<NET-INVESTMENT-INCOME> 2695
<REALIZED-GAINS-CURRENT> 95
<APPREC-INCREASE-CURRENT> 790
<NET-CHANGE-FROM-OPS> 3580
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2564
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<NUMBER-OF-SHARES-SOLD> 3454
<NUMBER-OF-SHARES-REDEEMED> 2519
<SHARES-REINVESTED> 242
<NET-CHANGE-IN-ASSETS> 12316
<ACCUMULATED-NII-PRIOR> 388
<ACCUMULATED-GAINS-PRIOR> (277)
<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-EXPENSE> 607
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<PER-SHARE-NAV-BEGIN> 9.57
<PER-SHARE-NII> .54
<PER-SHARE-GAIN-APPREC> .20
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000826686
<NAME> SSgA FUNDS
<SERIES>
<NUMBER> 15
<NAME> SSgA PRIME MONEY MARKET FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 1405106
<INVESTMENTS-AT-VALUE> 1405106
<RECEIVABLES> 8889
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<TOTAL-ASSETS> 1414004
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<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7741
<TOTAL-LIABILITIES> 7741
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1406308
<SHARES-COMMON-STOCK> 1406320
<SHARES-COMMON-PRIOR> 1172972
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (45)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1406263
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 71675
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<EXPENSES-NET> 2560
<NET-INVESTMENT-INCOME> 69115
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<NET-CHANGE-FROM-OPS> 69153
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<NUMBER-OF-SHARES-SOLD> 14602335
<NUMBER-OF-SHARES-REDEEMED> 14320400
<SHARES-REINVESTED> 28659
<NET-CHANGE-IN-ASSETS> 310632
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (55)
<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-EXPENSE> 3546
<AVERAGE-NET-ASSETS> 1279980
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .0528
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<PER-SHARE-DIVIDEND> .0528
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<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000826686
<NAME> SSgA FUNDS
<SERIES>
<NUMBER> 16
<NAME> SSgA EMERGING MARKETS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 230021
<INVESTMENTS-AT-VALUE> 249351
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<TOTAL-ASSETS> 265305
<PAYABLE-FOR-SECURITIES> 8430
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4167
<TOTAL-LIABILITIES> 12597
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 226682
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<SHARES-COMMON-PRIOR> 15261
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<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5478
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 19264
<NET-ASSETS> 252708
<DIVIDEND-INCOME> 4017
<INTEREST-INCOME> 209
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<EXPENSES-NET> 2272
<NET-INVESTMENT-INCOME> 1954
<REALIZED-GAINS-CURRENT> 5905
<APPREC-INCREASE-CURRENT> 11846
<NET-CHANGE-FROM-OPS> 19705
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<DISTRIBUTIONS-OF-GAINS> 702
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<NUMBER-OF-SHARES-SOLD> 13524
<NUMBER-OF-SHARES-REDEEMED> 4262
<SHARES-REINVESTED> 171
<NET-CHANGE-IN-ASSETS> 132492
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 2452
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<PER-SHARE-NAV-END> 12.33
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000826686
<NAME> SSgA FUNDS
<SERIES>
<NUMBER> 17
<NAME> SSgA TAX FREE MONEY MARKET FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 162752
<INVESTMENTS-AT-VALUE> 162752
<RECEIVABLES> 1083
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<TOTAL-ASSETS> 164085
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 583
<TOTAL-LIABILITIES> 583
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 163538
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<SHARES-COMMON-PRIOR> 200638
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (36)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 163502
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4236
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<EXPENSES-NET> 688
<NET-INVESTMENT-INCOME> 3548
<REALIZED-GAINS-CURRENT> (19)
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<NET-CHANGE-FROM-OPS> 3529
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<DISTRIBUTIONS-OF-INCOME> 3548
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<NUMBER-OF-SHARES-SOLD> 607205
<NUMBER-OF-SHARES-REDEEMED> 490480
<SHARES-REINVESTED> 1735
<NET-CHANGE-IN-ASSETS> 118441
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (14)
<OVERDISTRIB-NII-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 688
<AVERAGE-NET-ASSETS> 119217
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .0295
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .0295
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .58
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000826686
<NAME> SSgA FUNDS
<SERIES>
<NUMBER> 18
<NAME> SSgA REAL ESTATE EQUITY FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 0
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<TOTAL-ASSETS> 0
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<SENIOR-LONG-TERM-DEBT> 0
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<PAID-IN-CAPITAL-COMMON> 0
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<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
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<NET-INVESTMENT-INCOME> 0
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<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
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<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000826686
<NAME> SSgA FUNDS
<SERIES>
<NUMBER> 19
<NAME> SSgA LIFE SOLUTIONS BALANCED FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 49093
<INVESTMENTS-AT-VALUE> 50085
<RECEIVABLES> 16
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 50101
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<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3098
<TOTAL-LIABILITIES> 3098
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 46005
<SHARES-COMMON-STOCK> 3362
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 6
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<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 992
<NET-ASSETS> 47003
<DIVIDEND-INCOME> 35
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<OTHER-INCOME> 0
<EXPENSES-NET> 29
<NET-INVESTMENT-INCOME> 6
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 992
<NET-CHANGE-FROM-OPS> 998
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<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 3654
<NUMBER-OF-SHARES-REDEEMED> 292
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 47003
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
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<GROSS-EXPENSE> 41
<AVERAGE-NET-ASSETS> 49769
<PER-SHARE-NAV-BEGIN> 13.69
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<PER-SHARE-NAV-END> 13.98
<EXPENSE-RATIO> .35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000826686
<NAME> SSgA FUNDS
<SERIES>
<NUMBER> 20
<NAME> SSgA LIFE SOLUTIONS GROWTH FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> JUL-01-1997
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<APPREC-INCREASE-CURRENT> 984
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<NUMBER-OF-SHARES-SOLD> 3000
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<PER-SHARE-NAV-BEGIN> 14.44
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<PER-SHARE-NAV-END> 14.79
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<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000826686
<NAME> SSgA FUNDS
<SERIES>
<NUMBER> 21
<NAME> SSgA LIFE SOLUTIONS INCOME AND GROWTH FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> AUG-31-1997
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<TOTAL-LIABILITIES> 34
<SENIOR-EQUITY> 0
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<ACCUMULATED-NII-CURRENT> 4
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<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 223
<NET-ASSETS> 13979
<DIVIDEND-INCOME> 11
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<NET-INVESTMENT-INCOME> 4
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<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 1104
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</TABLE>
