SSGA FUNDS, 485BPOS, 1998-12-28

SSGA FUNDS
485BPOS, 1998-12-28

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Filed Pursuant to Rule 485(b)

As filed with the Securities and Exchange Commission on December 28, 1998

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. 49 ( X )
------ -----

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 (X )

Amendment No. 50 ( 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:
(__) immediately upon filing pursuant to paragraph (b)
( X ) on (December 29, 1998) 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.
<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)

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

(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

(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

(d) Redemption of Fund Shares

9. Pending Legal Proceedings Not Applicable

<CAPTION>
PART B ITEM NUMBER AND CAPTION STATEMENT OF ADDITIONAL INFORMATION CAPTION
<S> <C> <C>
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

15. Control Persons and Principal Holders of
Securities
(a), (b) Structure and Governance--Controlling Shareholders;
Additional Information--Organization Capitalization
and Voting (Prospectus)

16. Investment Advisory and Other Services
(a), (b) Operation of Investment Company--Advisor; General
Management--Advisory Agreement (Prospectus)

(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. 33-19229; 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 Growth and Income Emerging Markets
Yield Plus S&P 500 Index Active International
Intermediate Matrix Equity International Growth Opportunities
Bond Market Small Cap (Closed to new investors) Life Solutions Income and Growth
High Yield Bond Special Equity Life Solutions Balanced
Real Estate Equity Life Solutions Growth
Aggressive Equity
</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"). 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 A 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 29, 1998. 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 Distributor: Administrator:
Transfer Agent:
<S> <C> <C>
State Street Bank and Trust Company Russell Fund Distributors, Frank Russell Investment
225 Franklin Street Inc. Management Company
Boston, Massachusetts 02110 One International Place 909 A Street
Boston, Massachusetts 02110 Tacoma, Washington 98402
</TABLE>

PROSPECTUS DATED DECEMBER 29, 1998

-1-
<PAGE>

TABLE OF CONTENTS

<TABLE>
<S> <C>
HIGHLIGHTS..................................................................................4

INVESTMENT OBJECTIVES.......................................................................5

FUND OPERATING EXPENSES.....................................................................6

SSgA MONEY MARKET FUND...................................................................6
SSgA YIELD PLUS FUND.....................................................................7
SSgA INTERMEDIATE FUND...................................................................8
SSgA BOND MARKET FUND....................................................................9
SSgA HIGH YIELD BOND FUND...............................................................10
SSgA GROWTH AND INCOME FUND.............................................................11
SSgA S&P 500 INDEX FUND.................................................................12
SSgA MATRIX EQUITY FUND.................................................................13
SSgA SMALL CAP FUND.....................................................................14
SSgA SPECIAL EQUITY FUND................................................................15
SSgA REAL ESTATE EQUITY FUND............................................................16
SSgA AGGRESSIVE EQUITY FUND.............................................................17
SSgA EMERGING MARKETS FUND..............................................................18
SSgA ACTIVE INTERNATIONAL FUND..........................................................19
SSgA INTERNATIONAL GROWTH OPPORTUNITIES FUND............................................20
SSgA LIFE SOLUTIONS INCOME AND GROWTH FUND..............................................21
SSgA LIFE SOLUTIONS BALANCED FUND.......................................................21
SSgA LIFE SOLUTIONS GROWTH FUND.........................................................21

FINANCIAL HIGHLIGHTS.......................................................................24

SSgA MONEY MARKET FUND..................................................................24
SSgA YIELD PLUS FUND....................................................................26
SSgA INTERMEDIATE FUND..................................................................27
SSgA BOND MARKET FUND...................................................................28
SSgA HIGH YIELD BOND FUND...............................................................29
SSgA GROWTH AND INCOME FUND.............................................................30
SSgA S&P 500 INDEX FUND.................................................................31
SSgA MATRIX EQUITY FUND.................................................................32
SSgA SMALL CAP FUND.....................................................................33
SSgA SPECIAL EQUITY FUND................................................................34
SSgA REAL ESTATE EQUITY FUND............................................................35
SSgA EMERGING MARKETS FUND..............................................................36
SSgA ACTIVE INTERNATIONAL FUND..........................................................37
SSgA INTERNATIONAL GROWTH OPPORTUNITIES FUND............................................38
SSgA LIFE SOLUTIONS INCOME AND GROWTH FUND..............................................39
SSgA LIFE SOLUTIONS BALANCED FUND.......................................................40
SSgA LIFE SOLUTIONS GROWTH FUND.........................................................41

SSgA FUNDS.................................................................................42

MANNER OF OFFERING.........................................................................42

INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS...........................................43

INVESTMENT OBJECTIVES AND POLICIES (ALL FUNDS EXCEPT LIFE SOLUTIONS FUNDS)..............43
Investment Objectives and Asset Allocation of the SSgA Life Solutions Funds...........48
Investment Restrictions...............................................................50

RISK FACTORS...............................................................................58

-2-
<PAGE>

LIFE SOLUTIONS FUNDS: SPECIAL RISK FACTORS..............................................60

PORTFOLIO MATURITY AND TURNOVER............................................................60

DIVIDENDS AND DISTRIBUTIONS................................................................62

TAXES......................................................................................63

VALUATION OF FUND SHARES...................................................................64

PURCHASE OF FUND SHARES....................................................................65

REDEMPTION OF FUND SHARES..................................................................67

GENERAL MANAGEMENT.........................................................................70

PORTFOLIO MANAGEMENT....................................................................72

FUND EXPENSES..............................................................................74

PERFORMANCE CALCULATIONS...................................................................75

YIELD...................................................................................75
TOTAL RETURN............................................................................75

ADDITIONAL INFORMATION.....................................................................75

INFORMATION REGARDING STANDARD & POOR'S CORPORATION........................................78
</TABLE>

-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 7 through 23.

Financial Highlights tables include selected data for a share outstanding
throughout each fiscal year or period ended August 31, and other performance
information derived from the financial statements. Pages 24 through 41.

Per Share Income and Capital Changes summarize significant financial information
of each Fund from the commencement of operations through the period shown. Pages
24 through 41.

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 65.

Investment Objectives, Policies and Restrictions describe how what each Fund
attempts to achieve, what methods will be used to accomplish its objective, and
the restrictions imposed on various types of investment. Pages 43 through
58.

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 58.

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 62.

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 63.

Valuation of Fund Shares occurs once a day for the Money Market Fund as of the
close of the New York Stock Exchange on the basis of fair market value on days
that the Exchange or Boston Federal Reserve are open for business. The Money
Market Fund uses 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 64.

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 65.

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 67.

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 70.

Fund Expenses are borne by each Fund, with the primary expense being an
investment advisory fee paid to the Advisor. Page 74.

Additional Information is also included in this Prospectus concerning the
custodian, transfer agent and independent accountants; and organization,
capitalization and voting. Page 75.

-4-
<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 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 High Yield Bond Fund seeks to maximize total return by investing in fixed
income securities, including, but not limited to, those represented by the
Lehman Brothers High Yield 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 Special Equity Fund seeks to maximize total return through investment in
mid- and small capitalization US equity securities.

The Real Estate Equity Fund seeks to provide income and capital growth by
investing primarily in publicly traded securities of real estate companies.

The Aggressive Equity Fund seeks to maximize total return through investing
in US equity securities that are under valued relative to their growth potential
as measured by SSgA's proprietary models.

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 International Growth Opportunities Fund seeks to provide long-term capital
growth 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.

-5-
<PAGE>

FUND OPERATING EXPENSES

SSgA 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 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>
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%
Fees for 12b-1 Distribution and Shareholder Servicing(1) .09
Other Expenses .07
---
Total Operating Expenses(2) .41%
===
</TABLE>

<TABLE>
<CAPTION>
Examples: 1 year 3 years 5 years 10 years

<S> <C> <C> <C> <C>
You would pay the following expenses on a $ 4 $13 $23 $52
$1,000 investment, assuming: (i) 5% annual === === === ===
return; and (ii) redemption at the end of each
time period:
</TABLE>

- --------

(1) The ratio includes .05% for 12b-1 Distribution and .04% for 12b-1
Shareholder Servicing Fees.

(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.

-6-
<PAGE>

FUND OPERATING EXPENSES

SSgA YIELD PLUS FUND

<TABLE>
<S> <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%
Fees for 12b-1 Distribution and Shareholder Servicing(1) .08
Other Expenses .08
---
Total Operating Expenses(2) .41%
===
</TABLE>

<TABLE>
<CAPTION>
Examples: 1 year 3 years 5 years 10 years

<S> <C> <C> <C> <C>
You would pay the following expenses on a $4 $13 $23 $52
$1,000 investment, assuming: (i) 5% annual == === === ===
return; and (ii) redemption at the end of
each time period:
</TABLE>

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.

- --------

(1) The ratio includes .04% for 12b-1 Distribution and .04% for 12b-1
Shareholder Servicing Fees.

-7-
<PAGE>

FUND OPERATING EXPENSES AFTER FEE REIMBURSEMENT

SSgA INTERMEDIATE FUND

<TABLE>
<S> <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) .27%
Fees for 12b-1 Distribution and Shareholder Servicing(1, 2) .09
Other Expenses(1) .24
---
Total Operating Expenses (After Fee Reimbursement)(1, 3) .60%
===
</TABLE>

<TABLE>
<CAPTION>
Examples: 1 year 3 years 5 years 10 years

<S> <C> <C> <C> <C>
You would pay the following expenses on a $ 6 $19 $33 $75
$1,000 investment, assuming: (i) 5% annual === === === ===
return; and (ii) redemption at the end of
each time period:
</TABLE>

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.

- --------

(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 1.13% 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 ratio includes .03% for 12b-1 Distribution and .06% for 12b-1
Shareholder Servicing Fees.

(3) 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.

-8-
<PAGE>

FUND OPERATING EXPENSES AFTER FEE REIMBURSEMENT

SSgA BOND MARKET FUND

<TABLE>
<S> <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) .28%
Fees for 12b-1 Distribution and Shareholder Servicing(1, 2) .05
Other Expenses(1) .17
---
Total Operating Expense (After Fee Reimbursement)(1, 3) .50%
===
</TABLE>

<TABLE>
<CAPTION>
Examples: 1 year 3 years 5 years 10 years

<S> <C> <C> <C> <C>
You would pay the following expenses on a $5 $16 $28 $63
$1,000 investment, assuming: (i) 5% annual == === === ===
return; and (ii) redemption at the end of
each time period:
</TABLE>

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.

- --------

(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 .52% of
average daily net assets on an annual basis. The reimbursement agreement will
remain in effect for the current fiscal year.

(2) The ratio includes .03% for 12b-1 Distribution and .02% for 12b-1
Shareholder Servicing Fees

(3) The expense information 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. 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.

-9-
<PAGE>

FUND OPERATING EXPENSES AFTER FEE REIMBURSEMENT

SSgA HIGH YIELD BOND FUND

<TABLE>
<S> <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) .00%
Fees for 12b-1 Distribution and Shareholder Servicing(1, 2) .06
Other Expenses(1) .59
---
Total Operating Expenses (After Fee Reimbursement)(1, 3) .65%
===
</TABLE>

<TABLE>
<CAPTION>
Examples: 1 year 3 years

<S> <C> <C>
You would pay the following expenses on a $1,000 investment, $7 $21
assuming: (i) 5% annual return; and (ii) redemption at the == ===
end of each time period:
</TABLE>

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.

- --------

(1) The Advisor has agreed to reimburse the Fund for all expenses in excess of
.65% of average daily net assets on an annual basis. The total operating expense
of the Fund absent reimbursement would be 1.66% of average daily net assets on
an annual basis. The reimbursement agreement will remain in effect for the
current fiscal year. The gross annual Advisory fee expense before reimbursement
would be .30% of average daily net assets.

(2) The ratio includes .03% for 12b-1 Distribution and .03% for 12b-1
Shareholder Servicing Fees.

-10-
<PAGE>

FUND OPERATING EXPENSES AFTER FEE REIMBURSEMENT

SSgA GROWTH AND INCOME FUND

<TABLE>
<S> <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) .81%
Fees for 12b-1 Distribution and Shareholder Servicing(1, 2) .12
Other Expenses(1) .17
----
Total Operating Expenses (After Fee Reimbursement)(1, 3) 1.10%
====
</TABLE>

<TABLE>
<CAPTION>
Examples: 1 year 3 years 5 years 10 years

<S> <C> <C> <C> <C>
You would pay the following expenses on a $11 $35 $61 $134
$1,000 investment, assuming: (i) 5% annual === === === ====
return; and (ii) redemption at the end of
each time period:
</TABLE>

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.

- --------

(1) The Advisor has agreed to reimburse the Fund for all expenses in excess of
1.10% of average daily net assets on an annual basis. The total operating
expenses of the Fund absent reimbursement would be 1.14% 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 ratio includes .05% for 12b-1 Distribution and .07% for 12b-1
Shareholder Servicing Fees

(3) 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.

-11-
<PAGE>

FUND OPERATING EXPENSES AFTER FEE WAIVER

SSgA S&P 500 INDEX FUND

<TABLE>
<S> <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) .01%
Fees for 12b-1 Distribution and Shareholder Servicing(1, 2) .08
Other Expenses(1) .09
---
Total Operating Expenses (After Fee Waiver)(1, 3) .18%
===
</TABLE>

<TABLE>
<CAPTION>
Examples: 1 year 3 years 5 years 10 years

<S> <C> <C> <C> <C>
You would pay the following expenses on a $2 $ 6 $10 $23
$1,000 investment, assuming: (i) 5% annual == === === ===
return; and (ii) redemption at the end of
each time period:
</TABLE>

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.

- --------

(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 .18% of average daily net assets on an annual basis. The total
operating expenses of the Fund absent the fee waiver would be .27% 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 ratio includes .04% for 12b-1 Distribution and .04% for 12b-1
Shareholder Servicing Fees

-12-
<PAGE>

FUND OPERATING EXPENSES AFTER FEE WAIVER

SSgA MATRIX EQUITY FUND

<TABLE>
<S> <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) .63%
Fees for 12b-1 Distribution and Shareholder Servicing(1, 2) .13
Other Expenses(1) .09
---
Total Operating Expenses (After Fee Waiver)(1, 3) .85%
===
</TABLE>

<TABLE>
<CAPTION>
Examples: 1 year 3 years 5 years 10 years

<S> <C> <C> <C> <C>
You would pay the following expenses on a $9 $27 $47 $105
$1,000 investment, assuming: (i) 5% annual == === === ====
return; and (ii) redemption at the end of
each time period:
</TABLE>

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.

- --------

(1) The Advisor has voluntarily agreed to waive .125% 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 .98% 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 ratio includes .04% for 12b-1 Distribution and .09% for 12b-1
Shareholder Servicing Fees

-13-
<PAGE>

FUND OPERATING EXPENSES

SSgA SMALL CAP FUND

<TABLE>
<S> <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 .75%
Fees for 12b-1 Distribution and Shareholder Servicing(1) .16
Other Expenses .13
----
Total Operating Expenses(2) 1.04%
====
</TABLE>

<TABLE>
<CAPTION>
Examples: 1 year 3 years 5 years 10 years

<S> <C> <C> <C> <C>
You would pay the following expenses on a $11 $33 $57 $127
$1,000 investment, assuming: (i) 5% annual === === === ====
return; and (ii) redemption at the end of each
time period:
</TABLE>

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.

- --------

(1) The ratio includes .07% for 12b-1 Distribution and .09% for 12b-1
Shareholder Servicing Fees

(2) The expense information 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.

-14-
<PAGE>

FUND OPERATING EXPENSES AFTER FEE REIMBURSEMENT

SSgA SPECIAL EQUITY FUND

<TABLE>
<S> <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) .30%
Fees for 12b-1 Distribution and Shareholder Servicing(1, 2) .05
Other Expenses(1) .75
----
Total Operating Expenses (After Fee Reimbursement)(1, 3) 1.10%
====
</TABLE>

<TABLE>
<CAPTION>
Examples: 1 year 3 years

<S> <C> <C>
You would pay the following expenses on a $11 $35
$1,000 investment, assuming: (i) 5% annual === ===
return; and (ii) redemption at the end of
each time period:
</TABLE>

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.

- --------

(1) The Advisor has voluntarily agreed to reimburse the Fund for all expenses in
excess of 1.10% of average daily net assets on an annual basis. The total
operating expenses of the Fund absent reimbursement would be 1.55% of average
daily net assets on an annual basis. This agreement will remain in effect for
the current fiscal year. The gross annual Advisory expenses before reimbursement
would be .75% of average daily net assets.

(2) The ratio includes .02% for 12b-1 Distribution and .03% for 12b-1
Shareholder Servicing Fees.

-15-
<PAGE>

FUND OPERATING EXPENSES AFTER FEE WAIVER

SSgA REAL ESTATE EQUITY FUND

<TABLE>
<S> <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) .27%
Fees for 12b-1 Distribution and Shareholder Servicing(1, 2) .06
Other Expenses(1) .67
----
Total Operating Expenses (After Fee Waiver)(1, 3) 1.00%
====
</TABLE>

<TABLE>
<CAPTION>
Examples: 1 year 3 years

<S> <C> <C>
You would pay the following expenses on a $10 $32
$1,000 investment, assuming: (i) 5% annual === ===
return; and (ii) redemption at the end of
each time period:
</TABLE>

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.

- --------

(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. The total operating expenses of the Fund absent fee waiver would be 1.38%
of average daily net assets on an annual basis. The Advisory fee waiver will be
in effect for the current fiscal year.

(2) The ratio includes .03% for 12b-1 Distribution and .03% for 12b-1
Shareholder Servicing Fees.

-16-
<PAGE>

FUND OPERATING EXPENSES AFTER FEE REIMBURSEMENT

SSgA AGGRESSIVE EQUITY FUND

<TABLE>
<S> <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) .57%
12b-1 Distribution and Shareholder Servicing Fees(1, 2) .07
Other Expenses(1) .46
----
Total Operating Expenses (After Fee Reimbursement)(1, 3) 1.10%
====
</TABLE>

<TABLE>
<CAPTION>
Examples: 1 year 3 years

<S> <C> <C>
You would pay the following expenses on a $11 $35
$1,000 investment, assuming: (i) 5% === ===
annual return; and (ii) redemption at the
end of each time period:
</TABLE>

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.

- --------

(1) The Advisor has voluntarily agreed to reimburse the Fund for all expenses in
excess of 1.10% of average daily net assets on an annual basis. The total
operating expenses of the Fund absent reimbursement would be 1.28% of average
daily net assets on an annual basis. This agreement will remain in effect for
the current fiscal year. The gross annual Advisory expenses before reimbursement
would be .75% of average daily net assets.

(2) The Fund's Rule 12b-1 Plan permits charges of up to .25% of the average
daily value of net assets on an annual basis. Shareholder servicing payments
shall not exceed .20% of the average daily value of net assets on an annual
basis. Currently, the ratio includes .04% for 12b-1 Distribution and .03% for
12b-1 Shareholder Servicing Fees.

-17-
<PAGE>

FUND OPERATING EXPENSES AFTER FEE REIMBURSEMENT

SSgA EMERGING MARKETS FUND

<TABLE>
<S> <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) .62%
Fees for 12b-1 Distribution and Shareholder Servicing(1, 2) .12
Other Expenses(1) .51
----
Total Operating Expenses (After Fee Reimbursement)(1, 3) 1.25%
====
</TABLE>

<TABLE>
<CAPTION>
Examples: 1 year 3 years 5 years 10 years

<S> <C> <C> <C> <C>
You would pay the following expenses on a $13 $40 $69 $151
$1,000 investment, assuming: (i) 5% annual ==== === === ====
return; and (ii) redemption at the end of
each time period:
</TABLE>

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.

- --------

(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
1.38% of average daily net assets on an annual basis. This agreement will remain
in effect for the current fiscal year.

(2) The ratio includes .09% for 12b-1 Distribution and .03% for 12b-1
Shareholder Servicing Fees.

-18-
<PAGE>

FUND OPERATING EXPENSES AFTER FEE WAIVER

SSgA ACTIVE INTERNATIONAL FUND

<TABLE>
<S> <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) .46%
Fees for 12b-1 Distribution and Shareholder Servicing(1, 2) .07
Other Expenses(1) .47
----
Total Operating Expenses (After Fee Waiver)(1, 3) 1.00%
====
</TABLE>

<TABLE>
<CAPTION>
Examples: 1 year 3 years 5 years 10 years

<S> <C> <C> <C> <C>
You would pay the following expenses on a $10 $32 $55 $122
$1,000 investment, assuming: (i) 5% annual === === === ====
return; and (ii) redemption at the end of
each time period:
</TABLE>

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.

- --------

(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 1.29% of average daily net assets on an
annual basis. This agreement will remain in effect for the current fiscal year.

(2) The ratio includes .04% for 12b-1 Distribution and .03% for 12b-1
Shareholder Servicing Fees

-19-
<PAGE>

FUND OPERATING EXPENSES AFTER FEE REIMBURSEMENT

SSgA INTERNATIONAL GROWTH OPPORTUNITIES FUND

<TABLE>
<S> <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) .19%
Fees for 12b-1 Distribution and Shareholder Servicing(1, 2) .05
Other Expenses(1) .86
----
Total Operating Expenses (After Fee Reimbursement)(1, 3) 1.10%
====
</TABLE>

<TABLE>
<CAPTION>
Examples: 1 year 3 years

<S> <C> <C>
You would pay the following expenses on a $10 $32
$1,000 investment, assuming: (i) 5% annual === ===
return; and (ii) redemption at the end of
each time period:
</TABLE>

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.

- --------

(1) The Advisor has agreed to reimburse the Fund for all expenses in excess of
1.10% of average daily net assets on an annual basis. The total operating
expenses of the Fund absent reimbursement would be 1.66% of average daily net
assets on an annual basis. The reimbursement agreement will remain in effect for
the current fiscal year. The gross annual Advisory fee expense before
reimbursement would be .75% of average daily net assets.

(2) The ratio includes .02% for 12b-1 Distribution and .03% for 12b-1
Shareholder Servicing Fees.

-20-
<PAGE>

FUND OPERATING EXPENSES AFTER FEE REIMBURSEMENT

SSgA LIFE SOLUTIONS INCOME AND GROWTH FUND

SSgA LIFE SOLUTIONS BALANCED FUND

SSgA LIFE SOLUTIONS GROWTH FUND

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."

<TABLE>
<CAPTION>
Shareholder Transaction Expenses: 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
Fees for 12b-1 Distribution and Shareholder Servicing(1, 2) .15% .15% .15%
Other Expenses (After Fee Reimbursement)(1) .30 .21 .26
--- --- ---
Total Operating Expenses (After Fee Reimbursement)(1, 3) .45% .36% .41%
=== === ===
</TABLE>

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.

- --------

(1) The Advisor has voluntarily agreed to reimburse 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 .57%, .21%, and .26%; and .72%, .36% and
.41%, 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 ratio includes .02% for 12b-1 Distribution and .13% for 12b-1
Shareholder Servicing Fees

(3) 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.

-21-
<PAGE>

While the Life Solutions Funds are expected to operate at a .30% expense
level 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, 1998). 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 and After Fee Waivers and/or
Expense Reimbursements (%)
--------------------------------------------------------------------------------------------
Before After
--------------------------------------------------------------------------------------------
<S> <C> <C>
S&P 500 Index .27 .18
--------------------------------------------------------------------------------------------
Matrix Equity .98 .85
--------------------------------------------------------------------------------------------
Small Cap 1.04 1.04
--------------------------------------------------------------------------------------------
Special Equity 1.55 1.10
--------------------------------------------------------------------------------------------
Real Estate Equity 1.38 1.00
--------------------------------------------------------------------------------------------
Aggressive Equity Fund 1.28 1.10
--------------------------------------------------------------------------------------------
Growth and Income 1.14 1.10
--------------------------------------------------------------------------------------------
Active International 1.29 1.00
--------------------------------------------------------------------------------------------
Emerging Markets 1.38 1.25
--------------------------------------------------------------------------------------------
International Growth Opportunities 1.66 1.10
--------------------------------------------------------------------------------------------
Bond Market 0.52 0.50
--------------------------------------------------------------------------------------------
Intermediate 1.13 0.60
--------------------------------------------------------------------------------------------
High Yield Bond 1.66 0.65
--------------------------------------------------------------------------------------------
Yield Plus 0.41 0.41
--------------------------------------------------------------------------------------------
Money Market 0.41 0.41
--------------------------------------------------------------------------------------------
US Gov't Money Market(1) 0.42 0.42
--------------------------------------------------------------------------------------------
</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 0.72 0.45
--------------------------------------------------------------------------------------------
Balanced Fund 0.36 0.36
--------------------------------------------------------------------------------------------
Growth Fund 0.41 0.41
--------------------------------------------------------------------------------------------
</TABLE>

- --------

(1) Information about the SSgA US Government Money Market Fund is contained in
its prospectus, which may be obtained by calling (800) 647-7327.

-22-
<PAGE>

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 $10 $32 $56 $125
--------------------------------------------------------------------------------------------
Life Solutions Balanced Fund 10 32 55 122
--------------------------------------------------------------------------------------------
Life Solutions Growth Fund 11 35 60 133
--------------------------------------------------------------------------------------------
</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.

-23-
<PAGE>

FINANCIAL HIGHLIGHTS

SSgA MONEY MARKET FUND

The following table contains important financial information relating to the
Fund and has been audited by PricewaterhouseCoopers LLP, 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
PricewaterhouseCoopers LLP, 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>
1998 1997 1996 1995 1994 1993

<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .0528 .0516 .0524 .0538 .0330 .0320
LESS DISTRIBUTIONS:
Net investment income (.0528) (.0516) (.0524) (.0538) (.0330) (.0320)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= ======= =======
TOTAL RETURN (%) 5.41 5.28 5.36 5.52 3.35 3.24
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($000 omitted) 5,477,326 4,278,165 3,475,409 2,752,895 3,020,796 2,502,483
Ratios to average net assets (%):
Operating expenses .41 .39 .39 .39 .36 .33
Net investment income 5.28 5.17 5.20 5.37 3.33 3.20
</TABLE>

FINANCIAL HIGHLIGHTS ARE CONTINUED ON THE FOLLOWING PAGE

-24-
<PAGE>

FINANCIAL HIGHLIGHTS, SSgA MONEY MARKET FUND, CONTINUED:

<TABLE>
<CAPTION>
1992 1991 1990 1989
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .0458 .0686 .0817 .0883
LESS DISTRIBUTIONS:
Net investment income (.0458) (.0686) (.0817) (.0883)
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= =======
TOTAL RETURN (%) 4.68 7.08 8.48 9.19
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($000 omitted) 4,263,057 1,645,428 650,598 442,614
Ratios to average net assets (%):
Operating expenses .35 .37 .37 .43
Net investment income 4.40 6.59 8.13 8.97
</TABLE>

-25-
<PAGE>

FINANCIAL HIGHLIGHTS

SSgA YIELD PLUS FUND

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994 1993(++)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.01 $10.00 $10.00 $9.99 $10.01 $10.00
------ ------ ------ ----- ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .57 .54 .56 .56 .38 .27
Net realized and unrealized gain on
investment (.04) .01 .00 .02 (.02) .01
------ ------ ------ ----- ------ ------
Total From Investment Operations .53 .55 .56 .58 .36 .28
------ ------ ------ ----- ------ ------
LESS DISTRIBUTIONS:
Net investment income (.57) (.54) (.56) (.56) (.38) (.27)
In excess of net realized gain on
investments -- -- -- (.01) -- --
------ ------ ------ ----- ------ ------
Total Distributions (.57) (.54) (.56) (.57) (.38) (.27)
------ ------ ------ ----- ------ ------
NET ASSET VALUE, END OF PERIOD $9.97 $10.01 $10.00 $10.00 $9.99 $10.01
====== ====== ====== ====== ====== ======
TOTAL RETURN(%)(1)
RATIOS/SUPPLEMENTAL DATA 5.40 5.67 5.73 6.01 3.65 2.85
Net assets, end of period ($000 omitted) 672,465 840,055 933,485 1,447,097 1,358,464 589,594
Ratios to average net assets (%)(2):
Operating expenses .41 .38 .36 .38 .35 .38
Net investment income 5.66 5.42 5.59 5.64 3.82 3.54
Portfolio turnover rate (%)(2) 249.10 92.38 97.05 199.69 142.68 137.86
</TABLE>

- --------

(++) For the period November 9, 1992 (commencement of operations) to August 31,
1993.

(1) Periods less than one year are not annualized.

(2) The ratios for the period ended August 31, 1993 are annualized.

-26-
<PAGE>

FINANCIAL HIGHLIGHTS

SSgA INTERMEDIATE FUND

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994(++)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $9.76 $9.57 $9.72 $9.37 $10.00
------ ----- ----- ----- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .53 .54 .53 .56 .42
Net realized and unrealized gain (loss) on
investments .28 .20 (.14) .34 (.76)
------ ----- ----- ----- ------
Total From Investment Operations .81 .74 .39 .90 (.34)
------ ----- ----- ----- ------
LESS DISTRIBUTIONS:
Net investment income (.53) (.55) (.54) (.55) (.29)
------ ----- ----- ----- ------
NET ASSET VALUE, END OF PERIOD $10.04 $9.76 $9.57 $9.72 $9.37
====== ===== ===== ===== =====
TOTAL RETURN (%)(1) 8.64 8.00 4.12 10.05 (3.42)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($000 omitted) 76,691 53,834 41,518 33,893 19,963
Ratios to average net assets (%)(2):
Operating expenses, net(3) .60 .60 .60 .60 .60
Operating expenses, gross(3) 1.13 1.30 1.38 1.67 1.51
Net investment income 5.51 5.78 5.57 6.29 5.11
Portfolio turnover (%)(2) 251.17 242.76 221.73 26.31 15.70
</TABLE>

- --------

(++) For the period September 1, 1993 (commencement of operations) to August 31,
1994.

(1) Periods less than one year are not annualized.

(2) The ratios for the period August 31, 1994 are annualized.

(3) See Note 4 of the Annual Report for current period amounts.

-27-
<PAGE>

FINANCIAL HIGHLIGHTS

SSgA BOND MARKET FUND

<TABLE>
<CAPTION>
1998 1997 1996(++)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $9.97 $9.63 $10.00
------ ----- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .55 .53 .27
Net realized and unrealized gain (loss) on
investments .40 .35 (.49)
------ ----- ------
Total From Investment Operations .95 .88 (.22)
------ ----- ------
LESS DISTRIBUTIONS:
Net investment income (.54) (.54) (.15)
Net realized gain on investments (.03) -- --
------ ----- ------
Total Distributions (.57) (.54) (.15)
------ ----- ------
NET ASSET VALUE, END OF PERIOD $10.35 $9.97 $9.63
====== ===== ======
TOTAL RETURN (%)(1) 9.86 9.47 (2.19)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($000 omitted) 190,151 87,670 29,015
Ratios to average net assets (%)(2):
Operating expenses, net(3) .48 .50 .63
Operating expenses, gross(3) .52 .74 .93
Net investment income 5.74 6.05 5.66
Portfolio turnover (%)(2) 565.75 453.14 313.85
</TABLE>

- --------

(++) For the period February 7, 1996 (commencement of operations) to August 31,
1996.

(1) Periods less than one year are not annualized.

(2) Annualized.

(3) See Note 4 of the Annual Report for current period amounts.

-28-
<PAGE>

FINANCIAL HIGHLIGHTS

SSgA HIGH YIELD BOND FUND

The following table contains important financial information relating to the
Fund and has been audited by PricewaterhouseCoopers LLP, the Fund's independent
accountants. The table includes selected data for a share outstanding throughout
the fiscal 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 PricewaterhouseCoopers
LLP, 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>
1998(++)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .18
Net realized and unrealized gain (loss) on
investment (.24)
------
Total From Investment Operations (.06)
------
LESS DISTRIBUTIONS:
Net investment income (.04)
------
NET ASSET VALUE, END OF PERIOD $9.90
======
TOTAL RETURN (%)(1) (.59)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($000 omitted) 11,908
Ratios to average net assets (%)(2):
Operating expenses, net(3) .65
Operating expenses, gross(3) 1.66
Net investment income 6.38
Portfolio turnover (%)(4) 173.64
</TABLE>

- --------

(++) For the period May 5, 1998 (commencement of operations) to August 31, 1998.

(1) Periods less than one year are not annualized.

(2) The ratios for the period ended August 31, 1998 are annualized.

(3) See Note 4 of the Annual Report for current period amounts.

(4) The ratio has not been annualized due to the Fund's short period of
operation.

-29-
<PAGE>

FINANCIAL HIGHLIGHTS

SSgA GROWTH AND INCOME FUND

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994(++)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 18.08 $ 13.36 $ 11.95 $ 10.51 $10.00
------- ------- ------- ------- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .11 .12 .15 .18 .15
Net realized and unrealized gain (loss) on
investments 1.83 5.18 1.46 1.44 .47
------- ------- ------- ------- ------
Total From Investment Operations 1.94 5.30 1.61 1.62 .62
------- ------- ------- ------- ------
LESS DISTRIBUTIONS:
Net investment income (.11) (.14) (.16) (.18) (.11)
Net realized gain on investment (1.81) (.44) (.04) -- --
------- ------- ------- ------- ------
Total Distributions (1.92) (.58) (.20) (.18) (.11)
------- ------- ------- ------- ------
NET ASSET VALUE, END OF PERIOD $ 18.10 $ 18.08 $ 13.36 $ 11.95 $10.51
======= ======= ======= ======= ======
TOTAL RETURN (%)(1) 10.93 40.95 13.57 15.66 6.23
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($000 omitted) 111,626 71,736 55,823 43,884 26,747
Ratios to average net assets (%)(2):
Operating expenses, net(3) .95 .95 .95 .95 .95
Operating expenses, gross(3) 1.14 1.21 1.40 1.61 1.44
Net investment income .57 .82 1.15 1.72 1.75
Portfolio turnover (%)(2) 66.44 29.88 38.34 39.32 36.48
</TABLE>

- --------

(++) For the period September 1, 1993 (commencement of operations) to August 31,
1994.

(1) Periods less than one year are not annualized.

(2) The ratios for the period ended August 31, 1994 are annualized.

(3) See Note 4 of the Annual Report for current period amounts.

-30-
<PAGE>

FINANCIAL HIGHLIGHTS

SSgA S&P 500 INDEX FUND

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994 1993++
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $18.96 $14.41 $12.81 $10.89 $10.72 $10.00
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .31 .32 .32 .29 .26 .15
Net realized and unrealized gain (loss) on
investments 1.18 5.22 1.98 1.95 .29 .65
------ ------ ------ ------ ------ ------
Total From Investment Operations 1.49 5.54 2.30 2.24 .55 .80
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Net investment income (.32) (.32) (.31) (.29) (.26) (.08)
Net realized gain on investment (.71) (.67) (.39) (.03) (.07) --
In excess of net realized gain on investments -- -- -- -- (.05) --
------ ------ ------ ------ ------ ------
Total Distributions (1.03) (.99) (.70) (.32) (.38) (.08)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $19.42 $18.96 $14.41 $12.81 $10.89 $10.72
====== ====== ====== ====== ====== ======
TOTAL RETURN (%)(1) 7.91 40.30 18.46 21.11 5.29 8.06
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($000 omitted) 1,615,913 1,299,571 704,683 545,200 361,712 238,666
Ratios to average net assets (%)(2):
Operating expenses, net(3) .17 .16 .18 .19 .15 .15
Operating expenses, gross(3) .27 .26 .28 .29 .25 .35
Net investment income 1.50 2.00 2.32 2.76 2.69 3.02
Portfolio turnover (%)(2) 26.17 7.54 28.72 38.56 7.97 48.10
</TABLE>

- --------

(++) For the period December 30, 1992 (commencement of operations) to August 31,
1993.

(1) Periods less than one year are not annualized.

(2) The ratios for the period ended August 31, 1993 are annualized.

(3) See Note 4 of the Annual Report for current period amounts.

-31-
<PAGE>

FINANCIAL HIGHLIGHTS

SSgA MATRIX EQUITY FUND

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994 1993 1992(++)
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 18.41 $ 14.13 $13.93 $12.06 $11.95 $9.78 $10.00
------- ------- ------ ------ ------ ------- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .17 .21 .24 .28 .24 .18 .05
Net realized and unrealized gain (loss) on
investments .29 5.43 1.64 1.93 .28 2.17 (.27)
------- ------- ------ ------ ------ ------- ------
Total From Investment Operations .46 5.64 1.88 2.21 .52 2.35 (.22)
------- ------- ------ ------ ------ ------- ------
LESS DISTRIBUTIONS:
Net investment income (.19) (.22) (.24) (.28) (.23) (.18) --
Net realized gain on investment (3.00) (1.14) (1.44) (.06) (.09) -- --
In excess of net realized gain on investments -- -- -- -- (.09) -- --
------- ------- ------ ------ ------ ------- ------
Total Distributions (3.19) (1.36) (1.68) (.34) (.41) (.18) --
------- ------- ------ ------ ------ ------- ------
NET ASSET VALUE, END OF PERIOD $15.68 $18.41 $14.13 $13.93 $12.06 $ 11.95 $9.78
======= ======= ====== ====== ====== ======= ======
TOTAL RETURN (%)(1) 2.09 42.75 14.67 18.81 4.41 24.24 (2.20)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($000 omitted) 445,077 429,397 261,888 198,341 130,764 62,549 12,408
Ratios to average net assets (%)(2):
Operating expenses, net(3) .69 .58 .66 .68 .58 .60 .18
Operating expenses, gross(3) .97 .96 1.04 1.06 .96 1.25 1.90
Net investment income .97 1.33 1.76 2.25 2.16 2.13 2.69
Portfolio turnover (%)(2) 133.63 117.27 150.68 129.98 127.20 57.65 None
</TABLE>

- --------

(++) For the period May 4, 1992 (commencement of operations) to August 31, 1992.

(1) Periods less than one year are not annualized.

(2) The ratios for the period ended August 31, 1992 are annualized.

(3) See Note 4 of the Annual Report for current period amounts.

-32-
<PAGE>

FINANCIAL HIGHLIGHTS

SSgA SMALL CAP FUND

<TABLE>
<CAPTION>
1998 1997 1996 1995(+) 1994 1993 1992(++)
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $22.11 $17.44 $14.42 $11.88 $12.24 $10.09 $10.00
------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .02 .03 .04 .13 .21 .22 .04
Net realized and unrealized gain (loss)
on investments (4.54) 5.87 3.25 3.19 .24 2.14 .05
------ ------ ------ ------ ------ ------ ------
Total From Investment Operations (4.52) 5.90 3.29 3.32 .45 2.36 .09
------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Net investment income (.04) (.01) (.07) (.15) (.21) (.21) --
Net realized gain on investment (1.10) (1.22) (.20) (.58) (.60) -- --
In excess of net realized gain on
investments (.49) -- -- (.05) -- -- --
------ ------ ------ ------ ------ ------ ------
Total Distributions (1.63) (1.23) (.27) (.78) (.81) (.21) --
------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $15.96 $22.11 $17.44 $14.42 $11.88 $12.24 $10.09
====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (%)(1) (22.32) 35.85 23.14 30.04 3.90 23.66 .90
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($000 omitted) 344,630 149,808 55,208 23,301 25,716 34,815 9,392
Ratios to average net assets (%)(2):
Operating expenses, net 1.04 1.00 1.00 .97 .30 .25 .25
Operating expenses, gross 1.04 1.09 1.18 1.58 .81 1.18 1.71
Net investment income .10 .18 .26 .81 1.73 1.85 2.55
Portfolio turnover (%)(2) 86.13 143.79 76.85 192.88 44.86 81.14 4.59
</TABLE>

- --------

(+) Prior to November 22, 1994, the Fund was passively managed as the S&P Midcap
Index Fund. Effective November 23, 1994, the Fund increased the Advisory fee
from .20% to .75% of its average daily net assets.

(++) For the period July 1, 1992 (commencement of operations) to August 31,
1992.

(1) Periods less than one year are not annualized.

(2) The ratios for the period ended August 31, 1992 are annualized.

-33-
<PAGE>

FINANCIAL HIGHLIGHTS

SSgA SPECIAL EQUITY FUND

The following table contains important financial information relating to the
Fund and has been audited by PricewaterhouseCoopers LLP, the Fund's independent
accountants. The table includes selected data for a share outstanding throughout
the fiscal 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 PricewaterhouseCoopers
LLP, 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>
1998(++)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .01
Net realized and unrealized gain (loss) on
investment (2.84)
------
Total From Investment Operations (2.83)
------
NET ASSET VALUE, END OF PERIOD $7.17
======
TOTAL RETURN (%)(1) (28.30)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($000 omitted) 13,146
Ratios to average net assets (%)(2):
Operating expenses, net(3) 1.10
Operating expenses, gross(3) 1.55
Net investment income .24
Portfolio turnover (%)(2) 88.36
</TABLE>

- --------

(++) For the period May 1, 1998 (commencement of operations) to August 31, 1998.

(1) Periods less than one year are not annualized.

(2) The ratios for the period ended August 31, 1998 are annualized.

(3) See Note 4 of the Annual Report for current period amounts.

-34-
<PAGE>

FINANCIAL HIGHLIGHTS

SSgA REAL ESTATE EQUITY FUND

The following table contains important financial information relating to the
Fund and has been audited by PricewaterhouseCoopers LLP, the Fund's independent
accountants. The table includes selected data for a share outstanding throughout
the fiscal 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 PricewaterhouseCoopers
LLP, 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>
1998(++)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .15
Net realized and unrealized gain (loss) on
investment (1.94)
------
Total From Investment Operations (1.79)
------
LESS DISTRIBUTIONS:
Net investment income (.04)
------
NET ASSET VALUE, END OF PERIOD $8.17
======
TOTAL RETURN (%)(1) (17.99)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($000 omitted) 18,458
Ratios to average net assets (%)(2)
Operating expenses, net(3) 1.00
Operating expenses, gross(3) 1.38
Net investment income 5.21
Portfolio turnover (%)(2) 17.36
</TABLE>

- --------

(++) For the period May 1, 1998 (commencement of operations) to August 31, 1998.

(1) Periods less than one year are not annualized.

(2) The ratios for the period ended August 31, 1998 are annualized.

(3) See Note 4 of the Annual Report for current period amounts.

-35-
<PAGE>

FINANCIAL HIGHLIGHTS

SSgA EMERGING MARKETS FUND

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994(++)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.33 $10.87 $10.30 $11.45 $10.00
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .18 .12 .11 .14 .05
Net realized and unrealized gain (loss) on
investments (5.58) 1.51 .68 (1.19) 1.40
------ ------ ------ ------ ------
Total From Investment Operations (5.40) 1.63 .79 (1.05) 1.45
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Net investment income (.15) (.11) (.12) (.10) --
Net realized gain on investment -- (.06) (.10) -- --
In excess of net realized gain on investments (.26) -- -- -- --
------ ------ ------ ------ ------
Total Distributions (.41) (.17) (.22) (.10) --
------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $6.52 $12.33 $10.87 $10.30 $11.45
====== ====== ====== ====== ======
TOTAL RETURN (%)(1) (45.36) 15.12 7.83 (9.28) 14.50
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($000 omitted) 206,370 252,708 120,216 68,385 27,479
Ratios to average net assets (%)(2):
Operating expenses, net(3) 1.25 1.25 1.28 1.50 1.50
Operating expenses, gross(3) 1.38 1.51 1.67 1.90 2.45
Net investment income 1.85 1.07 1.10 1.74 1.31
Portfolio turnover (%) 38.94 15.00 4.36 19.77 --
</TABLE>

- --------

(++) For the period March 1, 1994 (commencement of operations) to August 31,
1994.

(1) Periods less than one year are not annualized.

(2) The ratios for the period ended August 31, 1994 are annualized.

(3) See Note 4 of the Annual Report for current period amounts.

-36-
<PAGE>

FINANCIAL HIGHLIGHTS

SSgA ACTIVE INTERNATIONAL FUND

<TABLE>
<CAPTION>
1998 1997 1996 1995(++)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.85 $10.96 $10.89 $10.00
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .16 .10 .36 .03
Net realized and unrealized gain (loss) on
investments (1.13) .03 .28 .86
------ ------ ------ ------
Total From Investment Operations (.97) .13 .64 .89
------ ------ ------ ------
LESS DISTRIBUTIONS:
Net investment income (.15) (.18) (.57) --
Net realized gain on investment (.49) (.06) -- --
------ ------ ------ ------
Total Distributions (.64) (.24) (.57) --
------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $9.24 $10.85 $10.96 $10.89
====== ====== ====== ======
TOTAL RETURN (%)(1) (9.50) 1.17 6.22 8.90
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($000 omitted) 76,565 83,930 54,595 25,186
Ratios to average net assets (%)(2):
Operating expenses, net(3) 1.00 1.00 1.00 1.79
Operating expenses, gross(3) 1.29 1.40 1.47 2.56
Net investment income 1.23 1.12 1.16 1.11
Portfolio turnover (%)(2) 74.79 48.29 22.02 7.17
</TABLE>

- --------

(++) For the period March 7, 1995 (commencement of operations) to August 31,
1995.

(1) Periods less than one year are not annualized.

(2) The ratios for the period ended August 31, 1995 are annualized.

(3) See Note 4 of the Annual Report for current period amounts.

-37-
<PAGE>

FINANCIAL HIGHLIGHTS

SSgA INTERNATIONAL GROWTH OPPORTUNITIES FUND

The following table contains important financial information relating to the
Fund and has been audited by PricewaterhouseCoopers LLP, the Fund's independent
accountants. The table includes selected data for a share outstanding throughout
the fiscal 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 PricewaterhouseCoopers
LLP, 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>
1998(++)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .03
Net realized and unrealized gain (loss) on
investment (1.61)
------
Total From Investment Operations (1.58)
------
NET ASSET VALUE, END OF PERIOD $8.42
======
TOTAL RETURN (%)(1) (15.80)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($000 omitted) 22,966
Ratios to average net assets (%)(2):
Operating expenses, net(3) 1.10
Operating expenses, gross(3) 1.66
Net investment income 1.27
Portfolio turnover (%)(2) 17.24
</TABLE>

- --------

(++) For the period May 1, 1998 (commencement of operations) to August 31, 1998.

(1) Periods less than one year are not annualized.

(2) The ratios for the period ended August 31, 1998 are annualized.

(3) See Note 4 of the Annual Report for current period amounts.

-38-
<PAGE>

FINANCIAL HIGHLIGHTS

SSgA LIFE SOLUTIONS INCOME AND GROWTH FUND

<TABLE>
<CAPTION>
1998 1997(++)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.93 $12.68
------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .46 --
Capital gain distributions from Underlying Funds .40(1) --
Net realized and unrealized gain (loss) on
investments (.41) .25
------ ------
Total Income from Investment Operations .45 .25
------ ------
LESS DISTRIBUTIONS:
Net investment income (.41) --
Net realized gain on investments (.32) --
------ ------
Total Distributions (.73) --
------ ------
NET ASSET VALUE, END OF PERIOD $12.65 $12.93
====== ======
TOTAL RETURN (%)(2) 3.53 1.97
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($000 omitted) 23,771 13,979
Ratios to average net assets (%)(3):
Operating expenses, net(4) .45 .35
Operating expenses, gross(4) .72 1.14
Net investment income 3.00 .16
Portfolio turnover (%)(3) 93.28 106.68
</TABLE>

- --------

(++) For the period July 1, 1997 (commencement of operations) to August 31,
1997.

(1) Calculation is based on average month-end shares outstanding

(2) Periods less than one year are not annualized.

(3) The ratios for the period ended August 31, 1997 are annualized.

(4) See Note 4 of the Annual Report for current period amounts.

-39-
<PAGE>

FINANCIAL HIGHLIGHTS

SSgA LIFE SOLUTIONS BALANCED FUND

<TABLE>
<CAPTION>
1998 1997(++)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $13.98 $13.69
------- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .50 --
Capital gain distributions from Underlying Funds .56(1) --
Net realized and unrealized gain (loss) on
investment (1.01) .29
------- ------
Total Income from Investment Operations .05 .29
------- ------
LESS DISTRIBUTIONS:
Net investment income (.56) --
Net realized gain on investments (.52) --
------- ------
Total Distributions (1.08) --
------- ------
NET ASSET VALUE, END OF PERIOD $12.95 $13.98
====== ======
TOTAL RETURN (%)(2) .33 2.12
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($000 omitted) 90,804 47,003
Ratios to average net assets (%)(3):
Operating expenses, net(4) .36 .35
Operating expenses, gross(4) .36 .49
Net investment income 2.07 .07
Portfolio turnover (%)(3) 101.40 51.61
</TABLE>

- --------

(++) For the period July 1, 1997 (commencement of operations) to August 31,
1997.

(1) Calculation is based on average month-end shares outstanding

(2) Periods less than one year are not annualized.

(3) The ratios for the period ended August 31, 1997 are annualized.

(4) See Note 4 of the Annual Report for current period amounts.

-40-
<PAGE>

FINANCIAL HIGHLIGHTS

SSgA LIFE SOLUTIONS GROWTH FUND

<TABLE>
<CAPTION>
1998 1997(++)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $14.79 $14.44
------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .38 --
Capital gain distributions from Underlying Funds 1.02(1) --
Net realized and unrealized gain (loss) on
investment (1.77) .35
------ ------
Total Income from Investment Operations (.37) .35
------ ------
LESS DISTRIBUTIONS:
Net investment income (.27) --
In excess of net investment income (.44) --
Net realized gain on investments (.69) --
------ ------
Total Distributions (1.40) --
------ ------
NET ASSET VALUE, END OF PERIOD $13.02 $14.79
====== ======
TOTAL RETURN (%)(2) (2.68) 2.42
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($000 omitted) 53,432 43,603
Ratios to average net assets (%)(3):
Operating expenses, net(4) .41 .35
Operating expenses, gross(4) .41 .54
Net investment income 1.52 .09
Portfolio turnover (%)(3) 67.66 39.49
</TABLE>

- --------

(++) For the period July 1, 1997 (commencement of operations) to August 31,
1997.

(1) Calculation is based on average month-end shares outstanding

(2) Periods less than one year are not annualized.

(3) The ratios for the period ended August 31, 1997 are annualized.

(4) See Note 4 of the Annual Report for current period amounts.

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<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 the following
separate, diversified funds (collectively, the "Funds"):

o SSgA Money Market Fund ("Money Market Fund")

o SSgA Yield Plus Fund ("Yield Plus Fund")

o SSgA Intermediate Fund ("Intermediate Fund")

o SSgA Bond Market Fund ("Bond Market Fund")

o SSgA High Yield Bond Fund ("High Yield Bond Fund")

o SSgA Growth and Income Fund ("Growth and Income Fund")

o SSgA S&P 500 Index Fund ("S&P 500 Index Fund")

o SSgA Matrix Equity Fund ("Matrix Equity Fund")

o SSgA Small Cap Fund ("Small Cap Fund")(1)

o SSgA Special Equity Fund ("Special Equity Fund")

o SSgA Real Estate Equity Fund ("Real Estate Fund")

o SSgA Aggressive Equity Fund ("Aggressive Equity Fund")

o SSgA Emerging Markets Fund ("Emerging Markets Fund")

o SSgA Active International Fund ("Active International Fund")

o SSgA International Growth Opportunities Fund ("International Growth
Opportunities Fund")

The Life Solutions Funds are comprised of various combinations of the Investment
Company's portfolios (the "Underlying Funds") described in this Prospectus.

o SSgA Life Solutions Income and Growth Fund ("Income and Growth Fund")

o SSgA Life Solutions Balanced Fund ("Balanced Fund")

o SSgA Life Solutions Growth Fund ("Growth Fund")

MANNER OF OFFERING

- --------

(1) Effective August 31, 1998, the SSgA Small Cap Fund is closed to purchases by
new investors except for purchases by eligible investors as described below.

o Current shareholders of the SSgA Small Cap Fund may continue to add to
the fund account.

o Participants in 401(k) plans for which the SSgA Small Cap Fund is an
option may continue to add to their Fund account.

o Participants in asset allocation programs sponsored by financial
advisors may continue to add to their Fund account.

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<PAGE>

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 OBJECTIVES, 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.

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.

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.

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<PAGE>

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, 1998 was 3.3
years. The LBIGC Index is described in more detail in "Other Investment
Policies."

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.

High Yield Bond Fund The nonfundamental investment objective is to maximize
total return by investing primarily in fixed income securities, including, but
not limited to, those represented by the Lehman Brothers High Yield Bond Index.

-44-
<PAGE>

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.

Because the Fund will invest in fixed-income securities, 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 a 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.

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 at the time of the investment.

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.

S&P 500 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

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<PAGE>

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 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.

Effective August 31, 1998, the SSgA Small Cap Fund was closed to purchases by
new investors except for purchases by eligible investors as described below:

o Current shareholders of the SSgA Small Cap Fund may continue to add to
the Fund account.

o Participants in 401(k) plans for which the SSgA Small Cap Fund is an
option may continue to add to their Fund account.

o Participants in asset allocation programs sponsored by financial
advisors may continue to add to their Fund account.

Special Equity Fund. The nonfundamental investment objective is to maximize
total return through investment in mid- and small capitalization US equity
securities.

Securities will be selected on the basis of a proprietary analytical model
developed by the Advisor. The model is tailored toward small to
mid-capitalization securities and includes both value and growth components.

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<PAGE>

Sector, industry, and security weights will be maintained at a level similar to
the Russell Special Small Company(R) Index (the "RSMALL" Index) in order to
avoid unintended exposure to factors such as the direction of the economy,
interest rates, energy prices, and inflation. See "Other Investment
Policies--Russell Special Small Company Index."

Investments in smaller companies may involve greater risks because these
companies generally have a limited track record and often experience higher
price volatility.

In addition to investments in mid- and small capitalization US equity
securities, the Fund may invest in other equity securities and may temporarily
for defensive purposes, without limitation, invest 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."

Real Estate Equity Fund. The non-fundamental investment objective is to provide
income and capital growth by investing primarily in publicly traded securities
of real estate companies.

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. See "Other Investment Policies - S&P REIT Index." The Fund will
attempt to meet its objective through the active selection of REIT securities,
across different types and regions. The selection of investments will be made
based on the fundamental research that the Advisor conducts through its strategy
and research analyst team. 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, the Fund may invest up to 35% of
its total assets in equity securities in non-REIT securities, 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."

Aggressive Equity Fund. The nonfundamental investment objective is to maximize
total return through investing in US equity securities that are under valued
relative to their growth potential as measured by SSgA's proprietary models.

The investable universe is constructed using the full constituents of the
Russell 3000(R) Index. The universe is further restricted by keeping in the
universe only those securities that have above average 5-year earnings growth
projections. All current holdings are then added to this universe to create an
investable universe.

All securities comprising the investable universe are ranked using SSgA's
proprietary growth and value measures. Each of these measures is combined to
arrive at an overall sentiment for each security.

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

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<PAGE>

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."

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.")

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."

International Growth Opportunities 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
equity securities through the fundamental analysis of companies and investment
themes. Quantitative techniques and the use of securities other than common
stock will be used primarily to control risk and to efficiently capture
opportunities of investment themes. Investments will be made in, but not limited
to, countries included in the Morgan Stanley Capital International Europe,
Australia, Far East ("MSCI EAFE") Index. See "Other Investment Policies - MSCI
EAFE Index." For additional investment policies, see "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 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 total number of fixed-income instruments in which the Fund will invest,
less than 5% will be considered below 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.

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<PAGE>

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.

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:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
Life Solutions Fund Capital Appreciation Income Volatility
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income and Growth Low High Low
----------------------------------------------------------------------------------------------------------
Balanced Medium Medium Medium
----------------------------------------------------------------------------------------------------------
Growth High Low High
----------------------------------------------------------------------------------------------------------
</TABLE>

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 Balanced Growth
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
-----------------------------------------------------------------------------------------
SSgA Special Equity Fund
-----------------------------------------------------------------------------------------
SSgA Real Estate Equity Fund
-----------------------------------------------------------------------------------------
SSgA Aggressive Equity Fund
-----------------------------------------------------------------------------------------
International Equities(1) 15%* 20%* 25%*
-----------------------------------------------------------------------------------------
SSgA Active International Fund
-----------------------------------------------------------------------------------------
SSgA Emerging Markets Fund
-----------------------------------------------------------------------------------------
SSgA International Growth
-----------------------------------------------------------------------------------------
</TABLE>

- --------

(1) International equities are included in the total equity exposure indicated
above and should not exceed the listed percentages.

-49-
<PAGE>

<TABLE>
<CAPTION>
Opportunities Fund
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bonds 40-80% 20-60% 0-40%
------------------------------------------------------------------------------------------
SSgA Bond Market Fund
------------------------------------------------------------------------------------------
SSgA Intermediate Fund
------------------------------------------------------------------------------------------
SSgA High Yield Bond Fund
------------------------------------------------------------------------------------------
SSgA Yield Plus Fund
------------------------------------------------------------------------------------------
Short Term Assets 0-20% 0-20% 0-20%
------------------------------------------------------------------------------------------
SSgA Money Market Fund
------------------------------------------------------------------------------------------
SSgA US Government Money Market Fund
------------------------------------------------------------------------------------------
</TABLE>

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, a Fund's compliance with its fundamental restrictions is determined 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 except that the Real
Estate Equity Fund may invest 25% or more of its total assets in real
estate-related industries described under "Investment Policies). With
respect to the Money Market Fund, 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.

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<PAGE>

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 a 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 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, Active
International and International Growth Opportunities). 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, Active International and
High Yield Bond). 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, High
Yield Bond and Bond Market). 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 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, High Yield Bond
and Bond Market). 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

-51-
<PAGE>

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, Active
International and International Growth Opportunities). 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 Fund will invest no more than
10% of its net assets, and the Bond, High Yield Bond, Yield Plus, Matrix, Index,
Small Cap, Special Equity, Growth and Income, Intermediate, Real Estate Equity,
Aggressive Equity, Emerging Markets, International Growth Opportunities 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 Emerging Markets,
International Growth Opportunities 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, Bond Market, High Yield Bond, Yield
Plus and Intermediate). 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, Bond Market, High Yield Bond, Yield Plus
and Intermediate). 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, Bond Market, High Yield
Bond, Yield Plus, International Growth Opportunities and Intermediate). 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. The Funds may also invest in Funding Agreements, which are privately
placed, unregistered obligations negotiated with a purchaser.

Eurodollar Certificates of Deposit (ECDs), Eurodollar Time Deposits (ETDs) and
Yankee Certificates of Deposit (YCDs) (Money Market, Bond Market, High Yield
Bond, Yield Plus and Intermediate). 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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<PAGE>

Euro Currency Conversion (Money Market, Bond Market, High Yield Bond, Yield
Plus, Intermediate, Emerging Markets, Active International and International
Growth Opportunities). The "euro" is the single European currency that will
replace the currencies of those countries in the European Union that will
implement European Economic and Monetary Union (EMU) as outlined in the
Maastricht Treaty of 1992. Existing national currencies will become
denominations of the euro at fixed rates to the euro on January 1, 1999.
Although at this time there can be no assurance that there will be no adverse
impact on the Investment Company, the Advisor, Administrator, Distributor,
Transfer Agent and Custodian have advised investment Company that they have been
actively working on systems to adapt to the euro conversion.

Securities Lending (all Funds). 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 its 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). 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.

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).
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). 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,

-53-
<PAGE>

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) (S&P 500 Index, Matrix Equity, Small Cap,
Special Equity, Aggressive Equity, Growth and Income, International Growth
Opportunities, Emerging Markets and Active International) and European
Depository Receipts (EDRs) (International Growth Opportunities, Emerging Markets
and Active International). 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, Special Equity, Aggressive Equity, Growth and Income,
Emerging Markets and Active International). 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..

Convertible Securities (Growth and Income, Small Cap, Aggressive Equity, High
Yield Bond, Special Equity, Emerging Markets and Active International). 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 Market, High Yield Bond, Yield Plus and Intermediate).
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 Market, High Yield Bond, Yield Plus and
Intermediate). 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, High Yield Bond 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

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<PAGE>

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.

Foreign Government Securities (International Growth Opportunities, Emerging
Markets and Active International). 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 (All Funds except Money Market, Yield Plus, Intermediate, High
Yield Bond and Bond Market). 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. The Advisor will cause the funds to enter into swap
agreements only with counterparties that would be eligible for consideration as
repurchase agreement counterparties uner the Funds' repurchase agreement
guidelines.

Foreign Currency Transactions (Bond Market, High Yield Bond, Yield Plus and
Intermediate). 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 against increases in the dollar cost of foreign
securities it plans to acquire. If a rise is anticipated in the dollar value of
a foreign currency in which securities to be acquired are denominated, the
increased cost of such securities may be offset in whole or in part by
purchasing calls or writing puts on that foreign currency. If a decline in the
dollar value of a foreign currency is anticipated, the decline in value of
portfolio securities denominated in that currency may be in whole or in part by
writing calls or purchasing puts on that foreign currency. However, certain
currency rate fluctuations would cause the option to expire unexercised, and
thereby cause a Fund to lose the premium it paid and its transaction costs.

Foreign Currency (International Growth Opportunities, Emerging Markets and
Active International). 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

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<PAGE>

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.

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.

Emerging Markets (International Growth Opportunities, Emerging Markets and
Active International Funds). 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. 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.

Special Situations (High Yield Bond, International Growth Opportunities and
Emerging Markets). 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.

High Risk, High Yield Bonds (High Yield Bond). The Fund may invest in debt
securities rated less than BBB- by S&P or Baa by Moody's, or in unrated
securities judged by the Advisor to be of comparable quality. Lower rated debt
securities generally offer a higher yield than that available from higher grade
issues. However, lower rated debt securities involve higher risks than
investment-grade bonds, in that they are especially subject to adverse changes
in general economic conditions and, in the industries in which the issuers are
engaged, to changes in the financial condition of the issuers and to price
fluctuation in response to changes in interest rates. Debt rated BB, B, CCC, CC
and C by S&P, and debt rated Ba, B, Caa, Ca and C by Moody's, is regarded as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. For S&P, BB
indicates the lowest degree of speculation and D the highest. For Moody's, Ba
indicates the lowest degree of speculation and C the highest. 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." For additional risk associated with high
yield bonds, please see "Certain Risk Factors - High Yield Bonds" in this
Prospectus.

Investment-Grade Bonds (all Funds). The Fund may invest in corporate notes and
bonds which 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. 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. Please see the Statement of
Additional Information for a description of the securities ratings of debt
instruments and commercial paper.

Total Rate of Return Swaps (All Funds except Money Market and Yield Plus). The
Fund may contract with a counterparty to pay a stream of cash flows and receive
the total return of an index or a security for purposes of attempting to obtain
a particular desired return at a lower cost to the Fund than if the Fund had
invested directly in an instrument that yielded that desired return. The Advisor
will cause the Fund to enter into swap agreements only with counterparties that
would be eligible for consideration as repurchase agreement counterparties under
the Fund's repurchase agreement guidelines.

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<PAGE>

Debt Securities (all Funds). The Funds may also invest temporarily in investment
grade debt securities for defensive purposes. The Funds may invest in
convertible debt securities. Please see the Statement of Additional Information
for a description of securities ratings.

Real Estate Investment Trusts (Real Estate Fund). 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 (Real Estate Fund). 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.

Purchase of Other Investment Company 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, 1998 was
4.6 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 $700 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.

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<PAGE>

S&P REIT Index. S&P launched the S&P REIT (Real Estate Investment Trust) Index
on June 26, 1997; modeled after the other highly regarded S&P Indexes. The S&P
REIT index consists of 100 REIT's and covers more than 80% of the securitized
real estate market. Each REIT security is carefully screened to insure proper
liquidity. Issues have to be traded on major US stock exchange to qualify and
must have a market value of at least $100 million. In addition to requiring a
high level of liquidity, Standard & Poor's also insists upon stringent financial
fundamentals for REIT's chosen to be in the Index. Specifically, in order to
qualify, a REIT must demonstrate a strong level of earnings performance and a
consistent record of paying dividends. The index is comprised of three major
types of REITS: equity, mortgage and hybrid. The index also reflects the
property distribution of the REIT marketplace. Roughly 25% of the REIT's in the
index are invested in retail properties such as shopping malls, strip malls, and
outlet centers. Another 23% of the index is in REIT's tied to residential
properties, such as apartment buildings. Almost 16% of the index in securities
invested is in industrial and office complexes.

Lehman Brothers High Yield Bond Index. The High Yield Bond Fund will measure its
performance against the Lehman Brothers High Yield Bond Index (the "Index"). The
duration of the Index as of August 31, 1998 was 4.8 years. The Index includes
fixed rate, public nonconvertible, noninvestment-grade issues registered with
the SEC that are rated Ba1 or lower by Moody's Investors Service ("Moody's"). If
a Moody's rating is unavailable, the bonds must be rated BB+ or lower by
Standard & Poor's Rating Group (S&P"), or by Fitch's Investors Service ("Fitch")
if an S&P rating is unavailable. A small number of unrated bonds is included in
the Index; to be eligible they must have previously held a high yield rating or
have been associated with a high yield issuer, and must trade accordingly.

Russell Special Small Company Index. The RSMALL Index is comprised of the
largest 3,000 US securities based on market capitalization (the securities
comprising the Russell 3000(R) Index), excluding all securities in the S&P 500
Index. The small capitalization segment of the RSMALL Index ranges from
approximately $25 million to $3 billion in capitalization and represents about
40% of the RSMALL Index's total capitalization weight. The mid-capitalization
segment's capitalization range is approximately $3 billion to $25 billion, and
makes up the remaining 60% of the RSMALL Index's cap weight. The capitalization
weightings of the Fund will reflect the composition of the benchmark.

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.

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.

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<PAGE>

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 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.

High Yield Bonds. (High Yield Bond Fund) During periods of economic uncertainty,
highly leveraged issuers may experience financial stress which could adversely
affect their ability to make payments of principal and interest and increase the
possibility of default. In addition the growth of the market for lower rated
debt securities paralleled a long economic expansion. The market for lower rated
debt securities is generally thinner and less active than that for higher
quality securities, which would limit the Fund's ability to sell such securities
at fair value in response to changes in the economy or the financial markets.
While such debt may have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposure to adverse conditions.
The Advisor will seek to reduce the risks associated with investing in such
securities by the depth of its own credit analysis. Investors should carefully
consider their ability to assume the risks of owning shares of a mutual fund
that invests in lower-rated securities before making an investment. For
additional information, please refer to the Fund's SAI.

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.

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

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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 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.

LIFE SOLUTIONS FUNDS: SPECIAL RISK FACTORS

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 Fund. This Fund must limit investments to securities with remaining
maturities of 397 days or less (or as otherwise provided in Rule 2a-7 of the
1940 Act), as calculated in accordance with Rule 2a-7, and must maintain a
dollar-weighted average maturity of 90 days or less. This Fund will normally
hold portfolio instruments to maturity, but may dispose of them prior to
maturity if the Advisor finds it advantageous.

S&P 500 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.

Bond Market, High Yield 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 turnover of securities having a maturity of one year or less):

o Bond Market--566% (This higher than average turnover rate is not
expected to materially affect the Fund's performance.)

o High Yield Bond--250%

o Yield Plus--100-300%

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o Intermediate--250%

Matrix, Small Cap, Special Equity, Real Estate Equity, Aggressive Equity, Growth
and Income, International Growth Opportunities, 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:

o Matrix Equity--150%

o Small Cap--200%

o Special Equity--200%

o Real Estate Equity--50%

o Aggressive Equity--200%

o Growth and Income--50%

o International Growth Opportunities--100%

o Emerging Markets--30%

o Active International--60%

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%) may: (1) increase transaction expenses which
may 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 International Growth Opportunities,
Emerging Markets and Active International Funds' 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, these 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., an 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, 1998.

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Net 7-day Yield for 30-day Yield
Assets as of Since period ended for period
8/31/98 Inception 1 Yr. 3 Yr. 5 Yr. Inception 8/31/98 ended 8/31/98
Underlying Fund (000) Date (%) (%) (%) (%) (%) (%)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
S&P 500 Index $1,615,913 12/30/92 7.91 21.50 17.99 17.31 -- --
- -------------------------------------------------------------------------------------------------------------------------------
Matrix Equity 445,077 05/04/92 2.09 18.67 15.70 15.74 -- --
- -------------------------------------------------------------------------------------------------------------------------------
Small Cap 344,630 11/23/94 (22.32) 9.12 11.91 13.56 -- --
- -------------------------------------------------------------------------------------------------------------------------------
Special Equity 13,146 05/01/98 -- -- -- (28.30) -- --
- -------------------------------------------------------------------------------------------------------------------------------
Real Estate Equity 18,458 05/01/98 -- -- -- (17.99) -- --
- -------------------------------------------------------------------------------------------------------------------------------
Growth and Income 111,626 09/01/93 10.93 21.09 16.89 16.89 -- --
- -------------------------------------------------------------------------------------------------------------------------------
Active International 76,565 03/07/95 (9.50) (0.92) -- 1.66 -- --
- -------------------------------------------------------------------------------------------------------------------------------

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<PAGE>

- -------------------------------------------------------------------------------------------------------------------------------
Emerging Markets 206,370 03/01/94 (45.36) (12.14) -- (7.49) -- --
- -------------------------------------------------------------------------------------------------------------------------------
International Growth
Opportunities 22,966 05/01/98 -- -- -- (15.80) -- --
- -------------------------------------------------------------------------------------------------------------------------------
Bond Market 190,151 02/07/96 9.86 -- -- 6.54 -- 5.44
- -------------------------------------------------------------------------------------------------------------------------------
Intermediate 76,691 09/01/93 8.64 6.90 5.36 5.36 -- 5.16
- -------------------------------------------------------------------------------------------------------------------------------
High Yield Bond 11,908 05/05/98 -- -- -- (0.59) -- 7.57
- -------------------------------------------------------------------------------------------------------------------------------
Yield Plus 672,465 11/09/92 5.40 5.60 5.29 5.04 -- 5.54
- -------------------------------------------------------------------------------------------------------------------------------
Money Market 5,477,326 05/02/88 5.41 5.35 4.98 5.80 5.35 5.30
- -------------------------------------------------------------------------------------------------------------------------------
Government Money Market 945,897 03/01/91 5.33 5.26 4.89 4.68 5.20 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 as follows:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
Fund Dividends Declared Dividends Paid
-------------------------------------------------------------------------------------
<S> <C> <C>
Money Market Daily Last business day of each month
-------------------------------------------------------------------------------------
Yield Plus Daily Last business day of each month
-------------------------------------------------------------------------------------
High Yield Bond Quarterly Quarterly
-------------------------------------------------------------------------------------
Bond Market Quarterly Quarterly
-------------------------------------------------------------------------------------
Matrix Equity Quarterly Quarterly
-------------------------------------------------------------------------------------
S&P 500 Index Quarterly Quarterly
-------------------------------------------------------------------------------------
Growth and Income Quarterly Quarterly
-------------------------------------------------------------------------------------
Intermediate Quarterly Quarterly
-------------------------------------------------------------------------------------
Real Estate Equity Monthly Monthly
-------------------------------------------------------------------------------------
Aggressive Equity Annually Annually
-------------------------------------------------------------------------------------
Special Equity Annually Annually
-------------------------------------------------------------------------------------
Small Cap Annually Annually
-------------------------------------------------------------------------------------
International Growth Annually Annually
Opportunities
-------------------------------------------------------------------------------------
Emerging Markets Annually Annually
-------------------------------------------------------------------------------------
Active International Annually Annually
-------------------------------------------------------------------------------------
Life Solutions Income and Annually Annually
Growth
-------------------------------------------------------------------------------------
Life Solutions Balanced Annually Annually
-------------------------------------------------------------------------------------
Life Solutions Growth Annually Annually
-------------------------------------------------------------------------------------
</TABLE>

The Board of Trustees intends to declare capital gain 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

-62-
<PAGE>

December if required for the Funds to avoid the imposition of a 4% federal
excise tax on undistributed capital gains. The Money Market 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 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 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, or if a check
remains uncashed for at least six months, the cash election will be changed
automatically and the future dividends and other distributions will be
reinvested in additional shares of the relevant Fund until the investor notifies
the SSgA Funds in writing of the correct address and requests in writing that
the election to receive dividends and other distributions in cash be reinstated.
In addition, following the six-month period, any undeliverable or uncashed
checks shall be cancelled and the amounts will be reinvested in the relevant
Fund at the per share net asset value determined as of the date of cancellation
of the checks. No interest will accrue on the amounts represented by the
uncashed distribution or redemption checks.

Except for the Money Market Fund, any dividend or capital gain distribution paid
by a fund shortly after a purchase of shares will reduce the per share net asset
value of a 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:

o 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.

o Income-Earned Option--Capital gain distributions will be automatically
reinvested, but a check or wire will be sent for each dividend
distribution.

o Cash Option--A check, wire or direct deposit (ACH) will be sent for
each dividend and capital gain distribution.

o Direct Dividends Option--Dividends and capital gain distribution will
be automatically invested in another identically registered SSgA Fund.

Please note that dividends will not be paid until the last business day even
if an account closes during the month. If the account, at the end of the
month, has a zero balance due to a redemption, the dividend will automatically
be sent as a check to the address of record regardless of distribution option.

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. Investors should verify with
the receiving bank, as it may charge a fee to accept this wire. Direct deposits
through the Automatic Clearing House ("ACH") are transmitted to the investor's
bank account two days after the payable date of the distributions and generally
are not charged a fee by a bank.

Dividends which are declared either quarterly or annually may transmit (if that
option is elected) the proceeds by direct deposit through ACH. ACH will transmit
the proceeds to the pre-designated bank account by the payable date. Proceeds
from a dividend or capital gains will not be wired b federal funds to a bank.

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 of 1986, 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 net capital gain.

-63-
<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
long-term gains are taxable as long-term 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 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 six months or less will be treated as a
long-term loss to the extent of capital gain dividends received with respect to
such shares.

With respect to the Money Market Fund, no capital gain or loss is anticipated
because the Fund seek 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.

Foreign Income Taxes (International Growth Opportunities, 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.

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
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.

-64-
<PAGE>

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 or Boston Federal Reserve are open for business.

Valuation of Money Market Fund Securities. The Money Market 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.

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. Some international securities trade on days that the
Fund is not open for business. As a result, the net asset value of Fund shares
may fluctuate on days when Fund shareholders may not buy or sell Fund shares.

Debt obligation securities maturing within 60 days of the valuation date are
valued at amortized cost unless the Board determines that amortized cost does
not represent their market value. The amortized cost valuation procedure
initially prices an instrument at its cost and thereafter assumes a constant
amortization to maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the instrument. While the
amortized cost method provides certainty in valuation, it may result in periods
during which value, as determined by amortized cost, is higher or lower than the
price a Fund would receive if it sold the instrument.

The Funds value securities for which market quotations are not readily available
at "fair value," as determined in good faith pursuant to procedures established
by the Board of Trustees.

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 requirement of the S&P
500 Index Fund. 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. If the Servicing Agent or broker-dealer has a
signed selling agreement with the SSgA Funds, trades may be placed for trade
date and payment made within 5 business days to be effective. With respect to
the Yield Plus Fund, purchase orders which are accepted: (1) prior to 12:00 noon
Eastern time will purchase shares based on that day's closing net asset value
and earn the dividend declared on the date of purchase; and (2) at or after
12:00 noon Eastern time will purchase shares based on that day's closing net
asset value and earn the dividend determined on the next day.

-65-
<PAGE>

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, unless the account is opened through a
third party which has a signed agreement with the SSgA Funds and does not
require a completed application to be submitted to the SSgA Funds. 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.

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 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 (Name of Fund) Fund(s)
Account Number and Registration
Dollar Amount Per Account (if one wire is to cover more than one purchase)

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. Any wires received at State Street Bank
without a corresponding call into the Customer Service Department will be
purchased as indicated on the wire at the next determined net asset value and
will earn the dividend declared on the next business day.

-66-
<PAGE>

Customer Service Department at (800) 647-7327 prior to 3:00 p.m. Eastern time
for additional automatic purchases, to change the amount of the existing
automatic purchase, or to stop it. 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 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 Advisor 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 in good order 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. If Fund shares were purchased by check or
an automatic investment program ("AIP") and the shareholder elects to redeem
shares within 15 days of such purchase, the shareholder may experience delays in
receiving redemption proceeds. The Fund will generally postpone sending
redemption proceeds from such investment until the Fund can verify that the
check or AIP investment has been collected. There will be no such delay for
redemptions following investments paid by federal funds wire or by bank
cashier's check, certified check or treasurer's check. With respect to the Yield
Plus Fund, 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 business day and receive the dividend
as of the day the redemption request was originally made by the underlying
shareholder.

Checkwriting Service (Money Market Fund 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 and Yield Plus Fund 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.

-67-
<PAGE>

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.

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 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 Yield Plus
Fund 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.

Systematic Withdrawal Plan by Check. Investors with an account balance over
$10,000 may make periodic cash withdrawals automatically paid to the investor or
to any person designated by the investor. If the checks are returned to the Fund
as undeliverable or remain uncashed for six months or more, the systematic
withdrawal plan will be cancelled and the amount will be reinvested in the
relevant Fund at the per share net asset value determined as of the date of the
cancellation of the checks. No interest will accrue on the amounts represented
by the uncashed distributions or redemption checks.

Systematic Withdrawal Plan by ACH. Investors may make automatic withdrawals of
$100 or more by completing the appropriate sections of the Application and
attaching a voided check. Investors may also choose to establish this option
with pre-designated withdrawal dates and amounts, if the account balance is over
$10,000 or by calling the Customer Service Department at (800) 647-7327, prior
to 3:00 p.m. Eastern time, requesting the withdrawal. Withdrawals by telephone
do not require a minimum account balance provided the minimum investment of
$1,000 is maintained.

Please note that proceeds from ACH withdrawals will be transmitted to the
investor's bank two days after the trade is placed or executed automatically.

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:

4. A broker or securities dealer, registered with a domestic stock exchange;

-68-
<PAGE>

5. A federal savings, cooperative or other type of bank;

6. A savings and loan or other thrift institution;

7. A credit union; or

8. 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, o Letter of instruction, signed by all persons authorized
sole proprietorship, UGMA/UTMA to sign for the account stating general
(custodial accounts for titles/capacity, exactly as the account is registered;
minors) or general partner and
accounts
o Signature guarantee, if applicable (see above).

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.

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.

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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, through its
division State Street Global Advisors, 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
Global Advisors is a division of State Street Corporation a publicly held bank
holding company. State Street, with over $441 billion (US) under management as
of September 30, 1998, provides complete global investment management services
from offices in North America, South America, Europe, Asia, Australia and the
Middle East.

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, as described on the "Fund Operating Expense" table for each Fund, under
"Advisory Fees."

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 Advisor 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, 1998:

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<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
Advisory Fees (% of Average Daily Net
Assets) for the Fiscal Year Ended
August 31, 1998:
------------------------------------------------------------------------------------------------
Advisory Fee Net of Waivers Advisory Fee Absent the
Underlying Fund or Reimbursements (%) Waivers or Reimbursements (%)
------------------------------------------------------------------------------------------------
<S> <C> <C>
S&P 500 Index 0.00 0.10
------------------------------------------------------------------------------------------------
Matrix Equity 0.46 0.75
------------------------------------------------------------------------------------------------
Small Cap 0.75 0.75
------------------------------------------------------------------------------------------------
Special Equity 0.30 0.75
------------------------------------------------------------------------------------------------
Real Estate Equity 0.27 0.65
------------------------------------------------------------------------------------------------
Growth and Income 0.66 0.85
------------------------------------------------------------------------------------------------
Active International 0.46 0.75
------------------------------------------------------------------------------------------------
Emerging Markets 0.62 0.75
------------------------------------------------------------------------------------------------
International Growth Opportunities 0.19 0.75
------------------------------------------------------------------------------------------------
Bond Market 0.26 0.30
------------------------------------------------------------------------------------------------
Intermediate 0.27 0.80
------------------------------------------------------------------------------------------------
Yield Plus 0.25 0.25
------------------------------------------------------------------------------------------------
High Yield Bond 0.00 0.30
------------------------------------------------------------------------------------------------
Money Market 0.25 0.25
------------------------------------------------------------------------------------------------
US Gov't Money Market 0.25 0.25
------------------------------------------------------------------------------------------------
Life Solutions Balanced 0.00 --
------------------------------------------------------------------------------------------------
Life Solutions Growth 0.00 --
------------------------------------------------------------------------------------------------
Life Solutions Income and Growth (0.27) --
------------------------------------------------------------------------------------------------
</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, 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 December 1, 1998, 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.

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<PAGE>

actual or potential conflict of interest to SSgA's business or fiduciary
responsibilities. In addition, the Code of Ethics establishes standards
prohibiting the trading in or recommending of securities based on material,
nonpublic information or the divulgence of such information to others.

PORTFOLIO MANAGEMENT

Bond Market and Intermediate Funds. Mr. John P. Kirby, Principal, is the
portfolio manager primarily responsible for investment decisions regarding the
SSgA Intermediate and Bond Market Funds. Prior to joining State Street Bank in
1995, 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. He has a BA from Boston college and is a CFA candidate. There
are six other portfolio managers working with Mr. Kirby.

High Yield Bond Fund. Mr. Bruce Walbridge, Principal,has been with State Street
since March 1987. Before joining the Fixed Income group in July 1993 as a credit
analyst, Mr. Walbridge was an assistant portfolio manager in the International
Equity group. Prior to the launch of the SSgA High Yield Bond Fund, he managed
several domestic bond portfolios including the $4 billion Flagship
Government/Corporate Bond Fund. Utilizing his credit analysis background, Mr.
Walbridge's focus over the last four and a half years has been on corporate bond
analysis and trading. There are three other portfolio managers who assist in
managing the Fund.

Yield Plus Fund. Mr. John Reohr, Principal, 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. Mr. Reohr began managing the SSgA Yield Plus Fund in January 1998.
Mr. Reohr began his fixed income career in 1983 working for Lehman Brothers'
Treasury Trading Desk. Until 1989, Mr. Reohr managed short and intermediate
fixed income portfolios for Continental Bank. Since then, Mr. Reohr has also
managed government, mortgage, money market and Federal funds arbitrage
portfolios for the Federal Home Loan Bank of Boston. He earned his BA in
Political Science at Dickinson College and his MBA from the University of
Chicago. There are 10 other portfolio managers working with Mr. Reohr.

Matrix Equity 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 with Mr. Stonberg in managing the Fund.

S&P 500 Index Fund. Mr. James B. May, Principal, has been the lead portfolio
manager for this Fund since May 1995. Mr. May has been a portfolio manager in
the US Structured Products Group of State Street since January 1994. He served
as an Investment Support Analyst in the US Passive Services Group from 1991 to
1993. He holds a BS in Finance from Bentley College and his MBA from Boston
College. There are four other portfolio managers who work with Mr. May in
managing the Fund.

Special Equity and Small Cap Funds. Ms. Jennifer Bardsley, Principal, is the
portfolio manager primarily responsible for investment decisions regarding the
Special Equity and Small Cap Funds. Ms. Bardsley joined State Street in March
1993. She became a member of the Investments Systems Group and moved into the US
Active Equities Group in January 1996. She holds BA degrees in Economics and
Russian from Middlebury College, and an MS degree in Computer Science from
Boston College. There are seven other portfolio managers who work with Ms.
Bardsley in managing the Funds.

Real Estate Equity Fund. Mr. David B. Smith, CFA, Principal, joined State Street
Global Advisors in 1990. As a senior equity analyst and portfolio manager, he
specialized in Real Estate Investment Trusts (REITs). Prior to his current
responsibilities, David covered REITs and the financial services market segment,
which includes banks, thrifts, insurance companies, credit card businesses, and
asset management firms. He also has experience managing portfolios for SSgA.
There are two other managers working with Mr. Smith.

Aggressive Equity Fund. Mr. Richard B. Weed, CFA, Principal, is the portfolio
manager primarily responsible for investment decisions regarding the Fund. Mr.
Weed joined SSgA in November 1995. His responsibilities include research,
product development, and portfolio management for the US Active strategy. Mr.
Weed joined State Street in March 1994. He holds an MS in Finance and Accounting
from the MIT Sloan School of Management, has an MS in Chemical Engineering from
Northeastern University, and a BS in Chemical Engineering from Worcester
Polytechnic Institute. Mr. Weed is a member of the Boston Security Analysts
Society and AIMR. There are seven other portfolio managers who assist in
managing the Fund.

Growth and Income Fund. Mr. L. Emerson Tuttle, Principal, 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,

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<PAGE>

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.

International Growth Opportunities Fund. Ms. Judith Saryan, CFA, Principal, is
the portfolio manager primarily responsible for investment decisions regarding
the Fund. Ms. Saryan joined State Street Bank and Trust Company in 1980.
Bringing over 20 years of experience, she is a senior contributor to the
investment process of the SSgA Global Fundamental research team. Ms. Saryan
received her BA degree from Wellesley College with a major in economics. There
are four other portfolio managers working with Ms. Saryan in managing the
Fund.

Emerging Markets Fund. Mr. Josh Feuerman, Principal, is the portfolio manager
primarily responsible for 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, Principal, 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. He is a graduate of Boston University's MBA program with
concentration in Finance and also holds a BA in Government and Mathematics from
Bowdoin College. There are seven other portfolio managers who work with Mr.
Rubano in managing the Fund.

Life Solutions Funds. Mr. Gus Fleites, Principal, has primary responsibility for
investment decisions regarding the SSgA Life Solutions Funds since their
inception in July 1997. 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 27 mutual funds and
4 qualified insurance mutual fund products with assets of $13.0 billion and
$50.9 million, respectively, as of October 31, 1998, and acts as administrator
to 22 mutual funds with assets of $15.1 billion as of October 31, 1998.

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 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 International Growth Opportunities, 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

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<PAGE>

certain distribution related expenses, up to certain maximum percentages, as
follows: (1) 5% from January 1, 1998 to December 31, 1998; and (2) 0%
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.

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, Global Cash Management and
Retirement Investment Services, which includes 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

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<PAGE>

of Trustees who are not affiliated with Advisor or any of its affiliates; (10)
insurance, interest, brokerage and litigation costs; (11) 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 (12) 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.

PERFORMANCE CALCULATIONS

YIELD

Money Market, Yield Plus, Bond Market, High Yield Bond, Real Estate Equity and
Intermediate Funds may from time to time advertise their yields. Yield for each
Fund is calculated as follows:

Money Market Fund. The yield of the Money Market 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 Money Market 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.

Bond, High Yield Bond, Real Estate Equity, 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, Lehman Brothers High Yield Bond Index, S&P REIT Index,
Russell Special Small Company Index, MSCI EAFE Index, Lipper Real Estate Funds
Average, Consumer Price 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.

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. PricewaterhouseCoopers LLP, Boston,
Massachusetts, is Investment Company's independent accountants.

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<PAGE>

Sub-Transfer Agents. The Fund has authorized one or more brokers to accept on
its behalf and for its clients only purchase and redemptions orders. These
sub-transfer agents are authorized to designate other intermediaries to accept
purchase and redemption orders from their clients on the Fund's behalf. The Fund
will be deemed to have received a purchase or redemption order when an
authorized broker or, if applicable, a broker's authorized designee, accepts the
order. Customer orders will be priced at the Fund's net asset value next
computed after they are accepted by an authorized broker or the broker's
designee provided that the authorized broker or the broker's designee timely
transmits the customer order to the Investment Company.

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.

Year 2000. The services provided to the Investment Company and its shareholders
by the Advisor, Administrator, Distributor, Transfer Agent, Custodian and other
service providers depend on the smooth functioning of their computer systems and
those of their outside service providers. Many computer software systems in use
today cannot distinguish the year 2000 from the year 1900 because of the way the
dates are encoded and calculated. Such event could have a negative impact of
handling securities trades, payments of interest and dividends, pricing and
account services, among other services. Although at this time there can be no
assurance that there will be no adverse impact on the Investment Company, the
Advisor, Administrator, Distributor, Transfer Agent and Custodian have advised
the Investment Company that they have been actively working on necessary changes
to their computer systems to prepare for the year 2000 and expect that their
systems, and those of their outside service providers, will be adapted in time
for the event. The obligation to make such adaptations, if any, would be the
responsibility of the service provider that maintains the system. The Investment
Company does not expect to incur any material expense in that regard.

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 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 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.

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.

Controlling Persons. As of December 1, 1998, the following shareholders owned of
record 25% or more 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:

Yield Plus Fund

[square bullet] Stock Performance Index Futures Fund CM18, a fund of State
Street Bank and Trust Company, 225 Franklin Street, Boston, MA
02110-2804 -- 70%.

Growth and Income Fund

[square bullet] State Street Solutions, State Street Bank and Trust Company,
TTEE, P.O. Box 1389, Boston, MA 02104-1389 -- 32%.

Matrix Fund

[square bullet] State Street Bank Solutions, State Street Bank and Trust
Company, TTEE, P.O. Box 1389, Boston, MA 02104-1389 -- 26%.

Special Equity

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<PAGE>

[square bullet] State Street Bank and Trust Company, State Street Retirement
Fund, Batterymarch Park 3, 3 Pinehill Drive, Quincy, MA
02169-7422 -- 99%.

Real Estate Equity Fund

[square bullet] Iceship & Company, State Street Bank and Trust Company, One
Enterprise Drive, North Quincy, MA 02171-2126 -- 41%.

Emerging Markets Fund

[square bullet] Charles Schwab & Company, Inc., 101 Montgomery Street, San
Francisco, CA 94104-4122 -- 53%.

Life Solutions Income and Growth

[square bullet] State Street Solutions, State Street Bank and Trust Company,
TTEE, P.O. Box 1389, Boston, MA 02104-1389 -- 63%.

Life Solutions Balanced Fund

[square bullet] State Street Solutions, State Street Bank and Trust Company,
TTEE, P.O. Box 1389, Boston, MA 02104-1389 -- 60%; and

[square bullet] Trustees of Alcatel Network, State Street Bank and Trust
Company, AO04, One Enterprise Drive, Quincy, MA 02171-2126
-- 38%.

Life Solutions Growth Fund

[square bullet] State Street Solutions, State Street Bank and Trust Company,
TTEE, P.O. Box 1389, Boston, MA 02104-1389 -- 91%

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<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

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<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
PricewaterhouseCoopers LLP
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

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.

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.

<TABLE>
<CAPTION>
Investment Advisor, Custodian and Distributor: Administrator:
Transfer Agent:
<S> <C> <C>
State Street Bank and Trust Company Russell Fund Distributors, Inc. Frank Russell Investment
225 Franklin Street One International Place Management Company
Boston, Massachusetts 02110 Boston, Massachusetts 02110 909 A Street
Tacoma, Washington 98402
</TABLE>

PROSPECTUS DATED DECEMBER 29, 1998

-1-
<PAGE>

TABLE OF CONTENTS

<TABLE>
<S> <C>
FUND OPERATING EXPENSES...................................................... 3

FINANCIAL HIGHLIGHTS......................................................... 4

SSgA FUNDS................................................................... 6

MANNER OF OFFERING........................................................... 6

INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS.............................. 6

INVESTMENT POLICIES....................................................... 6
INVESTMENT RESTRICTIONS................................................... 8

PORTFOLIO MATURITY........................................................... 9

DIVIDENDS AND DISTRIBUTIONS.................................................. 9

TAXES....................................................................... 10

VALUATION OF FUND SHARES.................................................... 10

PURCHASE OF FUND SHARES..................................................... 10

REDEMPTION OF FUND SHARES................................................... 12

GENERAL MANAGEMENT.......................................................... 14

FUND EXPENSES............................................................... 16

PERFORMANCE CALCULATIONS.................................................... 16

ADDITIONAL INFORMATION...................................................... 17
</TABLE>

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<PAGE>

FUND OPERATING EXPENSES

<TABLE>

<S> <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

<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, $4 $13 $23 $52
assuming: (i) 5.0% annual return; and (ii) redemption at the == === === ===
end of each time period:
</TABLE>

- ----------------
(1) The ratio includes .05% for 12b-1 Distribution and .04% for 12b-1
Shareholder Servicing Fees.

-3-

<PAGE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .0528 .0516 .0524 .0538 .0330 .0320
LESS DISTRIBUTIONS:
Net investment income (.0528) (.0516) (.0524) (.0538) (.0330) (.0320)
------- ------- ------- ------- ------- -------

NET ASSET VALUE, END OF PERIOD $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= ======= =======
TOTAL RETURN (%) 5.41 5.28 5.36 5.52 3.35 3.24
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($000 omitted) 5,477,326 4,278,165 3,475,409 2,752,895 3,020,796 2,502,483
Ratios to average net assets (%):
Operating expenses .41 .39 .39 .39 .36 .33
Net investment income 5.28 5.17 5.20 5.37 3.33 3.20
</TABLE>

FINANCIAL HIGHLIGHTS ARE CONTINUED ON THE FOLLOWING PAGE

<PAGE>

FINANCIAL HIGHLIGHTS, SSgA MONEY MARKET FUND, CONTINUED:

<TABLE>
<CAPTION>
1992 1991 1990 1989
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .0458 .0686 .0817 .0883
LESS DISTRIBUTIONS:
Net investment income (.0458) (.0686) (.0817) (.0883)
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= =======
TOTAL RETURN (%) 4.68 7.08 8.48 9.19
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($000 omitted) 4,263,057 1,645,428 650,598 442,614
Ratios to average net assets (%):
Operating expenses .35 .37 .37 .43
Net investment income 4.40 6.59 8.13 8.97
</TABLE>

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<PAGE>

SSgA FUNDS

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

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 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, 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.

-6-

<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.

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 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 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.

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. The absence of a regular trading market for
illiquid securities imposes additional risk 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 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 over
collateralization, 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

-7-

<PAGE>

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. Because zero coupon bonds do not pay current
income, their prices can be very volatile when interest rates change.

Variable and Floating Rate Securities. The Funds may purchase variable rate
securities which are instruments issued or guaranteed by entities such as the:
(1) US Government, or an agency or instrumentality thereof, (2) corporations,
(3) financial institutions or (4) insurance companies that have a rate of
interest subject to adjustment at regular intervals but less frequently than
annually. Variable rate 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. The Funds may also
invest in Funding Agreements, which are privately placed, unregistered
obligations negotiated with a purchaser. Floating Rate Securities are issued by
the same type of organizations. The terms of Floating Rate Securities provide
for the automatic adjustment of an interest rate whenever a specified interest
rate changes.

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.

Euro Currency Conversion. The "euro" is the single European currency that will
replace the currencies of those countries in the European Union that will
implement European Economic and Monetary Union (EMU) as outlined in the
Maastricht Treaty of 1992. Existing national currencies will become
denominations of the euro at fixed rates to the euro on January 1, 1999.
Although at this time there can be no assurance that there will be no adverse
impact on the Investment Company, the Advisor, Administrator, Distributor,
Transfer Agent and Custodian have advised investment Company that they have been
actively working on systems to adapt to the euro conversion.

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.

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.

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<PAGE>

INVESTMENT RESTRICTIONS

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, 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.

PORTFOLIO MATURITY

The Fund must limit investments to securities with remaining maturities of 397
days or less (or as otherwise provided in Rule 2a-7 of the 1940 Act) and 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.

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.

Distribution Option. Investors can choose from four different distribution
options as indicated on the account Application:

o 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.

o 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>

o Cash Option--A check, wire or direct deposit (ACH) will be sent for each
dividend and capital gain distribution.

o 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 by the first business day of the following month in which
the dividend is payable. Investors are urged to verify with their bank whether
it charges a fee to accept this wire. Direct deposits through ACH are
transmitted to the investor's account two business days after the payable date
of the distributions, and generally are not charged a fee by the bank.

TAXES

The Fund intends to qualify 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 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 net capital gain.

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 or 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.

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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 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.

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.

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

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<PAGE>

ABA #0110-0002-8
DDA #9904-631-0
SSgA (Name of Fund) Fund(s)
Account Number and Registration
Dollar Amount Per Account (if one wire is to cover more than one
purchase)

Automatic Investment Plan. Once the initial investment has been made, investors
may make subsequent investments of at least $100 monthly, quarterly or annually
by direct deposit through Automatic Clearing House ("ACH") by completing the
appropriate section of the Application and attaching a voided personal check.
Investors may make subsequent investments monthly, quarterly or annually by
deducting $100 or more from their bank checking accounts. An investor may elect
this option on the Application and call the Customer Service Department at (800)
647-7327 prior to 3:00 p.m. Eastern time for additional automatic purchases, to
change the amount of the existing automatic purchase, or to stop it. Shares will
be purchased at the offering price next determined following receipt of the
order by the Transfer Agent.

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 good order 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. If Fund shares were purchased by check or
an automatic investment program ("AIP") and the shareholder elects to redeem
shares within 15 days of such purchase, the shareholder may experience delays n
receiving redemption proceeds. The Fund will generally postpone sending
redemption proceeds from such investment until the Fund can verify that the
check or AIP investment has been collected. There will be no such delay for
redemptions following investments paid by federal funds wire or by bank
cashier's check, certified check or treasurer's check. 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.

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<PAGE>

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 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.

Please note that proceeds from ACH withdrawals will be transmitted to the
investor's bank two days after the trade is placed or executed automatically.

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:

4. A broker or securities dealer, registered with a domestic stock exchange;

5. A federal savings, cooperative or other type of bank;

6. A savings and loan or other thrift institution;

7. A credit union; or

8. A securities exchange or clearing agency.

-13-

<PAGE>

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>
[bullet] Letter of instruction, signed by all persons
Owner of individual, joint, authorized to sign for the account stating general
sole proprietorship, titles/capacity, exactly as the account is registered;
UGMA/UTMA (custodial and
accounts for minors) or [bullet] Signature guarantee, if applicable (see above).
general partner 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 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.

GENERAL MANAGEMENT

-14-

<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.

Under State Street Global Advisors' Code of Ethics, all employees who are deemed
to be access persons (employees who have interaction with funds or accounts
managed by SSgA as part of their job function) must pre-clear personal
securities transactions. The Code of Ethics is designed to ensure that employees
conduct their personal securities transactions in a manner that does not create
an actual or potential conflict of interest to SSgA's business or fiduciary
responsibilities. In addition, the Code of Ethics establishes standards
prohibiting the trading in or recommending of securities based on material,
nonpublic information or the divulgence of such information to others.

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) 5% from
January 1, 1998 to December 31, 1998; and (2) 0% thereafter.

-15-

<PAGE>

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) taxes, if any; (2) expenses for legal,
auditing and financial accounting services; (3) expense of preparing (including
typesetting, printing and mailing) reports, prospectuses and notices to existing
shareholders; (4) administrative fees; (5) custodian fees; (6) expense of
issuing and redeeming Fund shares; (7) the cost of registering Fund shares under
federal and state laws; (8) shareholder meetings and related proxy solicitation
expenses; (9) the fees, travel expenses and other out-of-pocket expenses of
Trustees who are not affiliated with Advisor or any of its affiliates; (10)
insurance, interest, brokerage and litigation costs; (11) 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

-16-

<PAGE>

(12) 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.

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.

ADDITIONAL INFORMATION

-17-

<PAGE>

Controlling Shareholders. As of December 1, 1998, no single shareholder owned of
record 25% or more of the issued and outstanding shares of the Fund.

-18-

<PAGE>

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
PricewaterhouseCoopers LLP
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 Yield Plus Fund

SSgA Intermediate Fund

SSgA Bond Market Fund

SSgA High Yield Bond Fund

SSgA Growth and Income Fund

SSgA S&P 500 Index Fund

SSgA Matrix Equity Fund

SSgA Small Cap Fund
(Closed to new investors as of August 31, 1998)

SSgA Special Equity Fund

SSgA Real Estate Equity Fund

SSgA Aggressive Equity Fund

SSgA Emerging Markets Fund

SSgA Active International Fund

SSgA International Growth Opportunities 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

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.

INVESTMENTS IN THE FUNDS ARE NEITHER INSURED NOR GUARANTEED BY THE US
GOVERNMENT. THERE IS NO ASSURANCE THAT A MONEY MARKET FUND WILL MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.

<TABLE>
<S> <C> <C>
Investment Advisor, Custodian and Distributor: Administrator:
Transfer Agent:
State Street Bank and Trust Company Russell Fund Distributors, Frank Russell Investment
225 Franklin Street Inc. Management Company
Boston, Massachusetts 02110 One International Place 909 A Street
Boston, Massachusetts 02110 Tacoma, Washington 98402
</TABLE>

PROSPECTUS DATED DECEMBER 29, 1998

-1-
<PAGE>

TABLE OF CONTENTS

FUND OPERATING EXPENSES........................................................3

FINANCIAL HIGHLIGHTS...........................................................4

SSgA FUNDS.....................................................................5

MANNER OF OFFERING.............................................................5

INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS................................5

INVESTMENT POLICIES.........................................................5
INVESTMENT RESTRICTIONS.....................................................7

PORTFOLIO MATURITY.............................................................7

DIVIDENDS AND DISTRIBUTIONS....................................................7

TAXES..........................................................................8

VALUATION OF FUND SHARES.......................................................8

PURCHASE OF FUND SHARES........................................................9

REDEMPTION OF FUND SHARES.....................................................10

GENERAL MANAGEMENT............................................................13

FUND EXPENSES.................................................................14

PERFORMANCE CALCULATIONS......................................................15

ADDITIONAL INFORMATION........................................................15

-2-
<PAGE>

FUND OPERATING EXPENSES

<TABLE>
<S> <C>
Annual Fund Operating Expenses: (as a percentage of
average daily net assets)
Advisory Fees .25%
Fees for 12b-1 Distribution and Shareholder Servicing(1) .09
Other Expenses .08
---

Total Operating Expenses(2) .42%
===
</TABLE>

<TABLE>
<S> <C> <C> <C> <C>
Examples: 1 year 3 years 5 years 10 years
$4 $13 $24 $53
== === === ===
</TABLE>
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) The ratio includes .04% for 12b-1 Distribution and .05% for 12b-1
Shareholder Servicing Fees

-3-
<PAGE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994 1993 1992 1991++
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- -------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .0500 .0500 .0515 .0528 .0324 .0304 .0441 .0302
LESS DISTRIBUTIONS:
Net investment income (.0500) (.0500) (.0515) (.0528) (.0324) (.0304) (.0441) (.0302)
-------- -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF
PERIOD $ 1.000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
======== ======== ======== ======== ======== ======== ======== ========
TOTAL RETURN(%)1 5.33 5.19 5.27 5.38 3.30 3.08 4.49 3.06
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period 945,897 904,483 683,210 490,138 251,165 137,136 156,707 94,646
($omitted)
Ratios to average net assets (%)(2)
Operating expenses, net .42 .44 .40 .42 .38 .39 .41 .23
Operating expenses, gross .42 .44 .40 .42 .39 .46 .42 .43
Net investment income 5.20 5.08 5.12 5.37 3.27 3.04 4.26 5.94
</TABLE>

- --------

+ For the period March 1, 1991 (commencement of operations) to August 31,
1991.
(1) Periods less than one year are not annualized.
(2) The ratios for the period ended August 31, 1991 are annualized.

-4-
<PAGE>

SSgA FUNDS

MANNER OF OFFERING

INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS

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

-5-
<PAGE>

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.

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.

-6-
<PAGE>

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.

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, 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.

PORTFOLIO MATURITY

The Fund must limit investments to securities with remaining maturities of 397
days or less (or as otherwise provided in Rule 2a-7 of the 1940 Act) and 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

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.

-7-
<PAGE>

at least six months, the cash election will be changed automatically and the
future dividends and other distributions will be reinvested in additional shares
of the relevant Fund until the investor notifies the SSgA Funds in writing of
the correct address and requests in writing that the election to receive
dividends and other distributions in cash be reinstated. In addition, following
the six-month period, any undeliverable or uncashed checks shall be cancelled
and the amounts will be reinvested in the relevant Fund at the per share net
asset value determined as of the date of cancellation of the checks. No interest
will accrue on the amounts represented by the uncashed distribution or
redemption checks.

Distribution Option. Investors can choose from four different distribution
options as indicated on the account Application:

o 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.

o Income-Earned Option--Capital gain distributions will be automatically
reinvested, but a check or wire will be sent for each dividend distribution.

o Cash Option--A check, wire or direct deposit (ACH) will be sent for each
dividend and capital gain distribution.

o Direct Dividends Option--Dividends and capital gain distribution will be
automatically invested in another identically registered SSgA Fund.

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 six months or less will be treated as a
long-term loss to the extent of capital gain dividends received with respect to
such shares.

-8-
<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, dividing by the number of shares
outstanding 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.

PURCHASE OF FUND SHARES

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.

<TABLE>
<S> <C> <C>
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
</TABLE>

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.

-9-
<PAGE>

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 may make initial or subsequent investments by
wiring federal funds to State Street, as Transfer Agent, by:

REDEMPTION OF FUND SHARES

-10-
<PAGE>

dividend will be paid according to the established dividend payment schedule on
shares redeemed if the redemption request is received by Sate 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. If Fund shares were purchased by
check or an automatic investment program ("AIP") and the shareholder elects to
redeem shares within 15 days of such purchase, the shareholder may experience
delays in receiving redemption proceeds. The Fund will generally postpone
sending redemption proceeds from such investment until the Fund can verify that
the check or AIP investment has been collected. There will be no such delay for
redemptions following investments paid by federal funds wire or by bank
cashier's check, certified check or treasurer's check.

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 business day and receive the dividend as of the day the redemption
request was originally made by the underlying shareholder.

Please note that proceeds from ACH withdrawals will be transmitted to the
investor's bank two days after the trade is placed or executed automatically.

-11-
<PAGE>

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:
4. A broker or securities dealer, registered with a domestic stock exchange;
5. A federal savings, cooperative or other type of bank;
6. A savings and loan or other thrift institution;
7. A credit union; or
8. 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> <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 titles/capacity, exactly as the account is
accounts for minors)or registered; and
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 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
whose co-tenants are deceased tenant(s);

[bullet] Certified copy of the death certificate; and

[bullet] Signature guarantee, if applicable (see above).
</TABLE>

-12-
<PAGE>

Please contact the Customer Service Department at (800) 647-7327 for questions
and further instructions.

GENERAL MANAGEMENT

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,
as described on the Fund's operating expense table.

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 December 1, 1998, 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.

-13-
<PAGE>

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 27
mutual funds and 4 qualified insurance mutual fund products with assets of $13.0
billion and $50.9 million, respectively, as of October 31, 1998, and acts as
administrator to 22 mutual funds with assets of $15.1 billion as of October 31,
1998.

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 xpenses. 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.

-14-
<PAGE>

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

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 yield will be slightly
higher than the yield prescribed by the Securities and Exchange Commission
because of the compounding effect of this assumed reinvestment.

Quoted yields, total returns and other performance figures are based on
historical earnings and are not indications of future performance.

ADDITIONAL INFORMATION

-15-
<PAGE>

authorized broker or, if applicable, a broker's authorized designee, accepts the
order. Customer orders will be priced at the Fund's net asset value next
computed after they are accepted by an authorized broker or the broker's
designee provided that the authorized broker or the broker's designee timely
transmits the customer order to the Investment Company.

Controlling Shareholders. As of December 1, 1998, no single shareholder owned of
record 25% or more of the issued and outstanding shares of the Fund.

-16-
<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
PricewaterhouseCoopers LLP
One Post Office Square
Boston, Massachusetts 02109

-17-
<PAGE>

SSgA FUNDS

SSgA Money Market Fund

SSgA US Government Money Market Fund

SSgA Tax Free Money Market Fund

SSgA Yield Plus Fund

SSgA Intermediate Fund

SSgA Bond Market Fund

SSgA High Yield Bond Fund

SSgA Growth and Income Fund

SSgA S&P 500 Index Fund

SSgA Matrix Equity Fund

SSgA Small Cap Fund
(Closed to new investors as of August 31, 1998)

SSgA Special Equity Fund

SSgA Real Estate Equity Fund

SSgA Aggressive Equity Fund

SSgA Emerging Markets Fund

SSgA Active International Fund

SSgA International Growth Opportunities Fund

SSgA Life Solutions Growth Fund

SSgA Life Solutions Balanced Fund

SSgA Life Solutions Income and Growth Fund

-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

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.

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.

<TABLE>
<CAPTION>
Investment Advisor, Custodian Distributor: Administrator:
and Transfer Agent:
<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 29, 1998

- 1 -
<PAGE>

TABLE OF CONTENTS

<TABLE>
<S> <C>
FUND OPERATING EXPENSES AFTER REIMBURSEMENT..............................................3

FINANCIAL HIGHLIGHTS.....................................................................4

SSgA FUNDS...............................................................................5

MANNER OF OFFERING.......................................................................5

INVESTMENT OBJECTIVE AND POLICIES........................................................5

INVESTMENT POLICIES....................................................................5

PURCHASE OF FUND SHARES..................................................................8

REDEMPTION OF FUND SHARES................................................................9

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION..........................................10

INVESTMENT RESTRICTIONS.................................................................10

PORTFOLIO MATURITY......................................................................11

DIVIDENDS AND DISTRIBUTIONS.............................................................11

TAXES...................................................................................12

VALUATION OF FUND SHARES................................................................12

GENERAL MANAGEMENT......................................................................12

FUND EXPENSES...........................................................................14

PERFORMANCE CALCULATIONS................................................................14

ADDITIONAL INFORMATION..................................................................15
</TABLE>

- 2 -
<PAGE>

FUND OPERATING EXPENSES AFTER REIMBURSEMENT

SSgA PRIME MONEY MARKET FUND

<TABLE>
<S> <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) .07%

Fees for 12b-1 Distribution and Shareholder Servicing(1,2) .06

Other Expenses(1) .07
---

Total Operating Expenses (After Fee Reimbursement)(1,3) .20%
===
</TABLE>

<TABLE>
<CAPTION>
Examples: 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on $2 $6 $11 $26
a $1,000 investment, assuming: (i) 5% == == === ===
annual return; and (ii) redemption at the
end of each time period:
</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 ratio includes .03% for 12b-1 Distribution and .03% for 12b-1
Shareholder Servicing Fees

(3) 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

<TABLE>

<CAPTION>
1998 1997 1996 1995 1994++

NET ASSET VALUE, BEGINNING OF PERIOD $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .0544 .0528 .0546 .0567 .0207
LESS DISTRIBUTIONS:
Net investment income (.0544) (.0528) (.0546) (.0567) (.0207)
------- ------- ------- ------- -------

NET ASSET VALUE, END OF PERIOD $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= =======

TOTAL RETURN (%)(1) 5.63 5.52 5.60 5.82 2.09

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($000 omitted) 2,125,020 1,406,263 1,095,631 1,076,630 432,224

Ratios to average net assets (%)(2):
Operating expenses, net(3) .20 .20 .20 .14 .16
Operating expenses, gross(3) .28 .28 .25 .27 .32
Net investment income 5.48 5.40 5.44 5.76 4.00
</TABLE>

- -----------

++ For the period February 22, 1994 (commencement of operations) to August 31,
1994.

(1) Periods less than one year are not annualized.

(2) The ratios for the period ended August 31, 1994 are annualized.

(3) See Note 4 of the Annual Report for current period amounts.

- 4 -
<PAGE>

SSgA FUNDS

MANNER OF OFFERING

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 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 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.

- 5 -

<PAGE>

Stripped Securities. The Fund may invest in stripped securities, which are US
Treasury bonds and notes where 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.

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

- 6 -

<PAGE>

creditworthiness of issuers of variable and floating rate instruments in
which the Investment Company invests, and their ability to repay principal and
interest.

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 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 the Investment Company (pursuant to
guidelines adopted by the Board) determines that a liquid trading market exists.

- 7 -

<PAGE>

coupons and receipts. Because zero coupon bonds do not pay current income, their
prices can be very volatile when interest rates change.

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 Funds. The
Funds require a purchase order in good form, which consists of a completed and
signed SSgA Funds' Institutional Account Application, regardless of the
investment method. For additional information, additional Applications or other
forms, call the Customer Service Department at (800) 647-7327, or write: SSgA
Funds, 1 International Place, 27th Floor, Boston, MA 02110.

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. Complete the SSgA Funds' Institutional Account Application and fax it to
(617) 664-6011.

2. 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.

3. Instruct 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 Prime Money Market Fund
Account Number and Registration

- 8 -

<PAGE>

Orders transmitted via this purchase method will be credited when federal funds
are received by State Street. The investor will not be permitted to redeem
shares from the account until an original completed application has been
received. Please send completed applications to: State Street Bank, attention
SSgA Funds, P.O. Box 8317, Boston, MA 02266-8317. Please reference the account
number on the application.

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 draft. Initial investments should be accompanied by a completed
Application, and subsequent investments are to be accompanied by the investor's
account number.

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. If Fund shares were purchased
by check or an automatic investment program ("AIP") and the shareholder elects
to redeem shares within 15 days of such purchase, the shareholder may experience
delays n receiving redemption proceeds. The Fund will generally postpone sending
redemption proceeds from such investment until the Fund can verify that the
check or AIP investment has been collected. There will be no such delay for
redemptions following investments paid by federal funds wire or by bank
cashier's check, certified check or treasurer's check. 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 business day and receive the dividend as of the day the redemption
request was originally made by the underlying shareholder.

- 9 -

<PAGE>

Mail. In certain circumstances, a shareholder will need to make a request to
sell shares in writing (please use the address for purchases by mail under
"Purchase of Fund Shares"). The redemption will be processed based on the net
asset value next determined after receipt by State Street of all required
documentation in good order. Good order means that the request must include the
following:

1. A clear letter of instruction or a stock assignment stating the Fund and
account number that the redemption is to be process from, the dollar
amount to be redeemed and where the proceeds are to be sent. The letter
must be 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

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:

- 10 -

<PAGE>

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.

PORTFOLIO MATURITY

The Fund must limit its investments to securities with remaining maturities of
397 days or less (or as otherwise provided in Rule 2a-7 of the 1940 Act) and 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

Distribution Option. Investors can choose from four different distribution
options as indicated on the account Application:

o Income-Earned Option--Capital gain distributions will be automatically
reinvested, but a check or wire will be sent for each dividend
distribution.

o Cash Option--A check, wire or direct deposit (ACH) will be sent for each
dividend and capital gain distribution.

o Direct Dividends Option--Dividends and capital gain distribution will be
automatically invested in another identically registered SSgA Fund.

- 11 -

<PAGE>

If Cash Option has been selected and the account is closed anytime during the
month, the dividends will automatically be wired the following business day
after the redemption to the bank where the redemption wire was sent. If an
account is closed during the month and dividends were to be reinvested, the
proceeds will automatically be sent by check to the address of record.

TAXES

The Fund does not expect to be subject to any state and local taxes.

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.

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.

- 12 -

<PAGE>

GENERAL MANAGEMENT

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 .15% annually of the Fund's average daily net assets.

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 December 1, 1998, 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.

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 27
mutual funds and 4 qualified insurance mutual fund products with assets of $13.0
billion and $50.9 million, respectively, as of October 31, 1998, and acts as
administrator to 22 mutual funds with assets of $15.1 billion as of October 31,
1998.

- 13 -

<PAGE>

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) 5% from January 1, 1998 to
December 31, 1998; and (2) 0% thereafter.

FUND EXPENSES

- 14 -

<PAGE>

(5) custodian fees; (6) expense of issuing and redeeming Fund shares; (7) the
cost of registering Fund shares under federal and state laws; (8) shareholder
meetings and related proxy solicitation expenses; (9) the fees, travel expenses
and other out-of-pocket expenses of Trustees who are not affiliated with Advisor
or any of its affiliates; (10) insurance, interest, brokerage and litigation
costs; (11) 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 (12) 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.

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 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 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

Sub-Transfer Agents. The Fund has authorized one or more brokers to accept
on its behalf and for its clients only purchase and redemptions orders. These
sub-transfer agents are authorized to designate other intermediaries to accept
purchase and redemption orders from their clients on the Fund's behalf. The Fund
will be deemed to have received a purchase or redemption order when an
authorized broker or, if applicable, a broker's authorized designee, accepts the
order. Customer orders will be priced at the Fund's net asset value next
computed after they are accepted by an authorized broker or the broker's
designee provided that the authorized broker or the broker's designee timely
transmits the customer order to the Investment Company.

- 15 -

<PAGE>

will be no adverse impact on the Investment Company, the Advisor, Administrator,
Distributor, Transfer Agent and Custodian have advised the Investment Company
that they have been actively working on necessary changes to their computer
systems to prepare for the year 2000 and expect that their systems, and those of
their outside service providers, will be adapted in time for the event. The
obligation to make such adaptations, if any, would be the responsibility of the
service provider that maintains the system. The Investment Company does not
expect to incur any material expense in that regard.

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
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.

Controlling Shareholders. As of December 1, 1998, the following shareholder(s)
owned of record 25% or more of the issued and outstanding shares of the Fund and
are therefore deemed to be a controlling person(s) for purposes of the 1940 Act.
Such shares may be held pursuant to a shareholder servicing arrangement in
omnibus accounts for underlying shareholders:

[square bullet] Global Financial Asset Services Omnibus Control Account MT01,
State Street Bank and Trust Company, P.O. Box 1992, North
Quincy, MA 02171 -- 52%.

- 16 -
<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
PricewaterhouseCoopers LLP
One Post Office Square
Boston, Massachusetts 02109

- 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

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.

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.

PROSPECTUS DATED DECEMBER 29, 1998

-1-
<PAGE>

TABLE OF CONTENTS

<TABLE>
<S> <C>
FUND OPERATING EXPENSES AFTER FEE REIMBURSEMENT................................3

FINANCIAL HIGHLIGHTS...........................................................4

SSgA FUNDS.....................................................................5

MANNER OF OFFERING.............................................................5

INVESTMENT OBJECTIVE AND POLICIES..............................................5

INVESTMENT POLICIES.........................................................5

PURCHASE OF FUND SHARES........................................................6

REDEMPTION OF FUND SHARES......................................................7

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.................................8

INVESTMENT RESTRICTIONS........................................................9

PORTFOLIO MATURITY.............................................................9

DIVIDENDS AND DISTRIBUTIONS....................................................9

TAXES.........................................................................10

VALUATION OF FUND SHARES......................................................10

GENERAL MANAGEMENT............................................................11

FUND EXPENSES.................................................................12

PERFORMANCE CALCULATIONS......................................................13

ADDITIONAL INFORMATION........................................................13
</TABLE>

-2-
<PAGE>

FUND OPERATING EXPENSES AFTER FEE REIMBURSEMENT

Annual Fund Operating Expenses: (as a percentage of
average daily net assets)
<TABLE>
<S> <C>
Advisory Fees (After Fee Reimbursement)1 .06%
Fees for 12b-1 Distribution and Shareholder Servicing(1,2) .05
Other Expenses(1) .09
---
Total Operating Expenses (After Fee Reimbursement)(1,3) .20%
===
</TABLE>

<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 $2 $6 $11 $26
investment, assuming: (I) 5% annual return; and (ii) === === === ===
redemption at the end of each time period:
</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 .39% 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 ratio includes .03% for 12b-1 Distribution and .02% for 12b-1
Shareholder Servicing Fees

-3-
<PAGE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994++
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
---------- ---------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .0540 .0515 .0529 .0536 .0249
LESS DISTRIBUTIONS:
Net investment income (.0540) (.0515) (.0529) (.0536) (.0249)
---------- ---------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
========== ========== ======== ======== ========

TOTAL RETURN (%)(1) 5.53 5.36 5.42 5.48 2.51
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($000 omitted) 1,000,367 916,845 189,004 160,893 154,858
Ratios to average net assets (%)(2):
Operating expenses, net(3) .20 .20 .20 .13 .13
Operating expenses, gross(3) .39 .46 .38 .39 .38
Net investment income 5.40 5.28 5.29 5.38 3.28
</TABLE>

- --------
++ For the period December 1, 1993 (commencement of operations) to August 31,
1994.

(1) Periods less than one year are not annualized.

(2) The ratios for the period ended August 31, 1994 are annualized.

(3) See Note 4 of the Annual Report for current period amounts.

-4-
<PAGE>

SSgA FUNDS

MANNER OF OFFERING

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 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

US Government Securities. US Government securities in which the Fund may invest
include US Treasury bills, notes and bonds.

-5-
<PAGE>

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.

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.

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 Funds. The
Funds require a purchase order in good form, which consists of a completed and
signed SSgA Funds' Institutional Account Application, regardless of the
investment method. For additional information, additional Applications or other
forms, call the Customer Service Department at (800) 647-7327, or write:
SSgA Funds, 1 International Place, 27th Floor, Boston, MA 02110.

-6-
<PAGE>

1. Complete the SSgA Funds' Institutional Account Application and fax it
to (617) 664-6011.

2. 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.

3. Instruct 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 Treasury Money Market Fund
Account Number and Registration

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 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.

-7-
<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 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. If Fund
shares were purchased by check or an automatic investment program ("AIP") and
the shareholder elects to redeem shares within 15 days of such purchase, the
shareholder may experience delays in receiving redemption proceeds. The Fund
will generally postpone sending redemption proceeds from such investment until
the Fund can verify that the check or AIP investment has been collected. There
will be no such delay for redemptions following investments paid by federal
funds wire or by bank cashier's check, certified check or treasurer's check. 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.

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.

1. A clear letter of instruction or a stock assignment stating the
Fund and account number that the redemption is to be process from, the
dollar amount to be redeemed and where the proceeds are to be sent. The
letter must be 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

The US 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 US 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

-8-
<PAGE>

excess of $5 million. To protect the Fund's performance and shareholders, the
Advisor discourages frequent trading in response to short-term market
fluctuations.

INVESTMENT RESTRICTIONS

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.

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.

DIVIDENDS AND DISTRIBUTIONS

-9-
<PAGE>

in additional shares of the relevant Fund until the investor notifies the SSgA
Funds in writing of the correct address and requests in writing that the
election to receive dividends and other distributions in cash be reinstated. In
addition, following the six-month period, any undeliverable or uncashed checks
shall be cancelled and the amounts will be reinvested in the relevant Fund at
the per share net asset value determined as of the date of cancellation of the
checks. No interest will accrue on the amounts represented by the uncashed
distribution or redemption checks.

Distribution Option. Investors can choose from four different distribution
options as indicated on the account Application:

o 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.

o Income-Earned Option--Capital gain distributions will be automatically
reinvested, but a check or wire will be sent for each dividend distribution.

o Cash Option--A check, wire or direct deposit (ACH) will be sent for each
dividend and capital gain distribution. o Direct Dividends Option--Dividends
and capital gain distribution will be automatically invested in another
identically registered SSgA Fund.

TAXES

-10-
<PAGE>

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 or 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.

GENERAL MANAGEMENT

-11-
<PAGE>

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 27
mutual funds and 4 qualified insurance mutual fund products with assets of $13.0
billion and $50.9 million, respectively, as of October 31, 1998, and acts as
administrator to 22 mutual funds with assets of $15.1 billion as of October 31,
1998.

-12-
<PAGE>

FUND EXPENSES

PERFORMANCE CALCULATIONS

Comparative performance information may be used from time to time in advertising
or marketing Fund shares, including data from Moody's Investors Service, Inc.,
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

-13-
<PAGE>

[square bullet] Turtle & Company, Sweep, P.O. Box 9427, Boston,
MA 02209-9427 -- 70%.

-14-
<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
PricewaterhouseCoopers LLP
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

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.

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.

<TABLE>
<CAPTION>
Investment Advisor, Distributor: Administrator:
Custodian and
Transfer Agent:
<S> <C> <C>
State Street Bank and Russell Fund Frank Russell
Trust Company Distributors, Inc. Investment
225 Franklin Street One International Management Company
Boston, Massachusetts Place 909 A Street
02110 Boston, Tacoma, Washington
Massachusetts 02110 98402
</TABLE>

PROSPECTUS DATED DECEMBER 29, 1998

-1-
<PAGE>

TABLE OF CONTENTS

FUND OPERATING EXPENSES.......................................................3

FINANCIAL HIGHLIGHTS..........................................................4

SSgA FUNDS....................................................................5

MANNER OF OFFERING............................................................5

INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS...............................5

Investment Policies.........................................................5
Investment Restrictions.....................................................8

PORTFOLIO MATURITY............................................................8

DIVIDENDS AND DISTRIBUTIONS...................................................8

TAXES.........................................................................9

VALUATION OF FUND SHARES.....................................................10

PURCHASE OF FUND SHARES......................................................10

REDEMPTION OF FUND SHARES....................................................12

GENERAL MANAGEMENT...........................................................14

FUND EXPENSES................................................................16

PERFORMANCE CALCULATIONS.....................................................16

ADDITIONAL INFORMATION.......................................................16

-2-
<PAGE>

FUND OPERATING EXPENSES

<TABLE>
<S> <C>
Shareholder Transaction Expenses:

Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested None
Dividends
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%
Fees for 12b-1 Distribution and .19
Shareholder Servicing(1)
Other Expenses .12
----
Total Operating Expenses(2) .56%
====
</TABLE>

<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 $6 $18 $31 $70
investment, assuming: (i) == === === ===
5% annual return; and (ii)
redemption at the end of each
time period:
</TABLE>

- --------
(1) The ratio includes .15% for 12b-1 Distribution and .04% for 12b-1
Shareholder Servicing Fees

(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.

-3-
<PAGE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
1998 1997 1996 1995++
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .0304 .0295 .0302 .0251
LESS DISTRIBUTIONS:
Net investment income (.0304) (.0295) (.0302) (.0251)
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= =======
TOTAL RETURN(%)(1) 3.08 2.99 3.07 2.54
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period 260,084 163,502 45,061 42,607
($omitted)
Ratios to average net assets (%)(2)
Operating expenses, net .56 .58 .57 .59
Operating expenses, gross .56 .58 .57 .60
Net investment income 3.04 2.98 3.01 3.40
</TABLE>

- --------
++ For the period December 1, 1994 (commencement of operations) to August 31,
1995.

(1) Periods less than one year are not annualized.

(2) The ratios for the period ended August 31, 1995 are annualized.

-4-
<PAGE>

SSgA FUNDS

MANNER OF OFFERING

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
(or as otherwise provided in Rule 2a-7 of the 1940 Act) and as calculated
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 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

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

-5-
<PAGE>

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.

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 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

-6-
<PAGE>

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.

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

-7-
<PAGE>

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.

INVESTMENT RESTRICTIONS

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). 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.

PORTFOLIO MATURITY

The Fund must limit investments to securities with remaining maturities of 397
days or less (or as otherwise provided in Rule 2a-7 of the 1940 Act) and as
calculated according to 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

-8-
<PAGE>

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.

Distribution Option. Investors can choose from four different
distribution options as indicated on the account Application:

o Income-Earned Option--Capital gain distributions will be automatically
reinvested, but a check or wire will be sent for each dividend
distribution.

o Cash Option--A check, wire or direct deposit (ACH) will be sent for each
dividend and capital gain distribution.

o Direct Dividends Option--Dividends and capital gain distribution will be
automatically invested in another identically registered SSgA Fund.

TAXES

Distributions by the Fund that are designated 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
gains are taxable as long-term 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.

-9-
<PAGE>

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.

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, dividing by the number of shares
outstanding and rounding to the nearest cent. 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 or the Boston Federal Reserve are open
for business.

PURCHASE OF FUND SHARES

-10-
<PAGE>

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:

<TABLE>
<S> <C>
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
</TABLE>

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.

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 (Name of Fund) Fund(s)
Account Number and Registration
Dollar Amount Per Account (if one wire is to cover more than one
purchase)

-11-
<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 in good order 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. A dividend will be paid according to the
established dividend payment schedule on shares redeemed if the redemption
request is received by Sate 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. If Fund shares were purchased by check or an automatic
investment program ("AIP") and the shareholder elects to redeem shares within 15
days of such purchase, the shareholder may experience delays in receiving
redemption proceeds. The Fund will generally postpone sending redemption
proceeds from such investment until the Fund can verify that the check or AIP
investment has been collected. There will be no such delay for redemptions
following investments paid by federal funds wire or by bank cashier's check,
certified check or treasurer's check.

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 business day and receive the dividend as of the day the redemption
request was originally made by the underlying shareholder.

By Wire. Proceeds exceeding $1,000 may be sent via wire transfer to the
investor's pre-designated bank. The shares will be redeemed from the account on
the day the redemption instructions are received and the proceeds wire will be
sent the following business 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
and the proceeds wired the same day. Requests received on or after 12:00 noon
Eastern time will have their shares redeemed and the proceeds wired the
following business day. Redemption requests received before 12:00 noon Eastern
time will not be eligible for that day's interest.

-12-
<PAGE>

Please note that proceeds from ACH withdrawals will be transmitted to the
investor's bank two days after the trade is placed or executed automatically.

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:

4. A broker or securities dealer, registered with a domestic stock exchange;

5. A federal savings, cooperative or other type of bank;

6. A savings and loan or other thrift institution;

7. A credit union; or

8. 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
joint, sole proprietorship, persons authorized to sign for the
UGMA/UTMA (custodial account stating general titles/
accounts for minors) or capacity, exactly as the account is
general partner accounts registered; and

o Signature guarantee, if applicable
(see above).

Owners of corporate or o Letter of instruction signed by
association accounts authorized person(s), stating
capacity as indicated by the
corporate resolution;

-13-
<PAGE>

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
trust accounts trustees;

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
whose co-tenants are surviving tenant(s);
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.

GENERAL MANAGEMENT

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.

-14-
<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 December 1, 1998, 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.

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 27
mutual funds and 4 qualified insurance mutual fund products with assets of $13.0
billion and $50.9 million, respectively, as of October 31, 1998, and acts as
administrator to 22 mutual funds with assets of $15.1 billion as of October 31,
1998.

-15-
<PAGE>

FUND EXPENSES

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.

-16-
<PAGE>

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 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

Sub-Transfer Agents. The Fund has authorized one or more brokers to accept
on its behalf and for its clients only purchase and redemptions orders. These
sub-transfer agents are authorized to designate other intermediaries to accept
purchase and redemption orders from their clients on the Fund's behalf. The Fund
will be deemed to have received a purchase or redemption order when an
authorized broker or, if applicable, a broker's authorized designee, accepts the
order. Customer orders will be priced at the Fund's net asset value next
computed after they are accepted by an authorized broker or the broker's
designee provided that the authorized broker or the broker's designee timely
transmits the customer order to the Investment Company.

-17-
<PAGE>

Controlling Shareholders. As of December 1, 1998, the following
shareholder(s) owned of record 25% or more of the issued and outstanding shares
of the Fund and are therefore deemed to be a controlling person(s) for purposes
of the 1940 Act. Such shares may be held pursuant to a shareholder servicing
arrangement in omnibus accounts for underlying shareholders:

[square bullet] Lazard Freres & Company LLC, 30 Rockerfeller Plaza 57th Floor,
New York, NY 10112-0002--64%.

-18-
<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
PricewaterhouseCoopers LLP
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 Yield Plus Fund

SSgA Intermediate Fund

SSgA Bond Market Fund

SSgA High Yield Bond Fund

SSgA Growth and Income Fund

SSgA S&P 500 Index Fund

SSgA Matrix Equity Fund

SSgA Small Cap Fund

(Closed to new investors as of August 31, 1998)

SSgA Special Equity Fund

SSgA Real Estate Equity Fund

SSgA Aggressive Equity Fund

SSgA Emerging Markets Fund

SSgA Active International Fund

SSgA International Growth Opportunities 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

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.

PROSPECTUS DATED DECEMBER 29, 1998

-1-
<PAGE>

TABLE OF CONTENTS

<TABLE>
<S> <C>
FUND OPERATING EXPENSES.................................................... 3

FINANCIAL HIGHLIGHTS....................................................... 4

SSgA FUNDS................................................................. 5

MANNER OF OFFERING......................................................... 5

INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS............................ 5

INVESTMENT POLICIES..................................................... 5
INVESTMENT RESTRICTIONS................................................. 9

CERTAIN RISK FACTORS....................................................... 9

PORTFOLIO TURNOVER......................................................... 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............................................................. 17

PERFORMANCE CALCULATIONS.................................................. 18

ADDITIONAL INFORMATION.................................................... 18
</TABLE>

-2-

<PAGE>

FUND OPERATING EXPENSES

The purpose of the following table is to assist the investor in understanding
the various 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."

<TABLE>
<S> <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%
Fees for 12b-1 Distribution and Shareholder Servicing(1) .08
Other Expenses .08
---

Total Operating Expenses(2) .41%
===
</TABLE>

<TABLE>
<CAPTION>
Examples: 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $4 $13 $23 $52
$1,000 investment, assuming: (i) 5% annual == === === ===
return; and (ii) redemption at the end of
each time period:
</TABLE>

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.

- ---------------
(1) The ratio includes .04% for 12b-1 Distribution and .04% for 12b-1
Shareholder Servicing Fees.

-3-
<PAGE>

FINANCIAL HIGHLIGHTS

<TABLE>

NET ASSET VALUE, BEGINNING OF PERIOD $10.01 $10.00 $10.00 $9.99 $10.01 $10.00
------ ------ ------ ----- ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .57 .54 .56 .56 .38 .27
Net realized and unrealized gain on
investment (.04) .01 .00 .02 (.02) .01
------ ------ ------ ------ ------ ------
Total From Investment Operations .53 .55 .56 .58 .36 .28
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Net investment income (.57) (.54) (.56) (.56) (.38) (.27)
In excess of net realized gain on
investments -- -- -- (.01) -- --
------ ------ ------ ------ ------ ------
Total Distributions (.57) (.54) (.56) (.57) (.38) (.27)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $9.97 $10.01 $10.00 $10.00 $9.99 $10.01
====== ====== ====== ====== ====== ------
TOTAL RETURN(%)1
RATIOS/SUPPLEMENTAL DATA
5.40 5.67 5.73 6.01 3.65 2.85
Net assets, end of period ($omitted) 672,465 840,055 933,485 1,447,097 1,358,464 589,594
Ratios to average net assets (%)2:
Operating expenses .41 .38 .36 .38 .35 .38
Net investment income 5.66 5.42 5.59 5.64 3.82 3.54

Portfolio turnover rate (%)2 249.10 92.38 97.05 199.69 142.68 137.86
</TABLE>

- --------------
++ For the period November 9, 1992 (commencement of operations) to August 31,
1993.

(1) Periods less than one year are not annualized.

(2) The ratios for the period ended August 31, 1993 are annualized.

-4-
<PAGE>

SSgA FUNDS

MANNER OF OFFERING

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 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>

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.

Illiquid Securities. The Fund will not invest more than 15% 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. The absence of a regular trading market for
illiquid securities imposes additional risk 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>

collateralization, 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."

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.

-7-
<PAGE>

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 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.

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.

-8-
<PAGE>

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.

INVESTMENT RESTRICTIONS

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.

CERTAIN RISK FACTORS

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

-9-
<PAGE>

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

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:

o 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.

o Income-Earned Option--Capital gain distributions will be automatically
reinvested, but a check or wire will be sent for each dividend distribution.

o Cash Option--A check, wire or direct deposit (ACH) will be sent for each
dividend and capital gain distribution.

o Direct Dividends Option--Dividends and capital gain distribution will be
automatically invested in another identically registered SSgA Fund.

TAXES

-10-
<PAGE>

as long-term gains regardless of the length of time a shareholder has held such
shares and whether paid in cash or additional shares.

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, dividing by the number of shares
outstanding and rounding to the nearest cent. 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.

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.

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.

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.

-11-
<PAGE>

PURCHASE OF FUND SHARES

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
exception 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. If the servicing agent or broker-dealer has a
selling agreement wit the SSgA Funds, trades may be placed for the trade date
and payment made within five business days to be effective. In addition,
purchase orders received and accepted (1) prior to 12:00 noon Eastern time will
purchase shares based on that day's closing net asset value and earn dividends
on the date of the purchase; and (2) at or after 12:00 noon Eastern time will
purchase shares based on that day's closing net asset value and earn the
dividends determined on the next business day. The Fund reserves the right to
reject any purchase order.

<TABLE>
<CAPTION>
Regular Mail: Registered, Express or Certified Mail:
<S> <C>
SSgA Funds SSgA Funds
P.O. Box 8317 2 Heritage Drive
Boston, MA 02266-8317 North Quincy, MA 02171
</TABLE>

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.

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.

-12-
<PAGE>

2. Instructing the wiring bank to wire federal funds to:

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 good order 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. A dividend will be paid according to the
established dividend payment schedule on shares redeemed if the redemption
request is received by Sate 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. If Fund shares were purchased by check or an automatic
investment program ("AIP") and the shareholder elects to redeem shares within 15
days of such purchase, the shareholder may experience delays in receiving
redemption proceeds. The Fund will generally postpone sending redemption
proceeds from such investment until the Fund can verify that the check or AIP
investment has been collected. There will be no such delay for redemptions
following investments paid by federal funds wire or by bank cashier's check,
certified check or treasurer's check.

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 business day and receive the dividend as of the day the redemption
request was originally made by the underlying shareholder.

-13-
<PAGE>

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.

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.

Please note that proceeds from ACH withdrawals will be transmitted to the
investor's bank two days after the trade is placed or executed automatically.

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:

4. A broker or securities dealer, registered with a domestic stock exchange;

5. A federal savings, cooperative or other type of bank;

-14-
<PAGE>

6. A savings and loan or other thrift institution;
7. A credit union; or
8. 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
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 [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 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
whose co-tenants are deceased tenant(s);
[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.

-15-
<PAGE>

GENERAL MANAGEMENT

Mr. John Reohr, Principal, 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. Mr.
Reohr began managing the SSgA Yield Plus Fund in January 1998. Mr. Reohr began
his fixed income career in 1983 working for Lehman Brothers' Treasury Trading
Desk. Until 1989, Mr. Reohr managed short and intermediate fixed income
portfolios for Continental Bank. Since then, Mr. Reohr has also managed
government, mortgage, money market and Federal funds arbitrage portfolios for
the Federal Home Loan Bank of Boston. He earned his BA in Political Science at
Dickinson College and his MBA from the University of Chicago. There are 10 other
portfolio managers working with Mr. Reohr.

-16-
<PAGE>

-17-
<PAGE>

FUND EXPENSES

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

-18-
<PAGE>

of the way the dates are encoded and calculated. Such event could have a
negative impact of handling securities trades, payments of interest and
dividends, pricing and account services, among other services. Although at this
time there can be no assurance that there will be no adverse impact on the
Investment Company, the Advisor, Administrator, Distributor, Transfer Agent and
Custodian have advised the Investment Company that they have been actively
working on necessary changes to their computer systems to prepare for the year
2000 and expect that their systems, and those of their outside service
providers, will be adapted in time for the event. The obligation to make such
adaptations, if any, would be the responsibility of the service provider that
maintains the system. The Investment Company does not expect to incur any
material expense in that regard.

[square box] Stock Performance Index Futures Fund CM18, a fund of State Street
Bank and Trust Company, 225 Franklin Street, Boston, MA
02110-2804 -- 70%.

-19-

<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
PricewaterhouseCoopers LLP
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 Yield Plus Fund

SSgA Intermediate Fund

SSgA Bond Market Fund

SSgA High Yield Bond Fund

SSgA Growth and Income Fund

SSgA S&P 500 Index Fund

SSgA Matrix Equity Fund

SSgA Small Cap Fund
(Closed to new investors as of August 31, 1998)

SSgA Special Equity Fund

SSgA Real Estate Equity Fund

SSgA Aggressive Equity Fund

SSgA Emerging Markets Fund

SSgA Active International Fund

SSgA International Growth Opportunities 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

"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.

PROSPECTUS DATED DECEMBER 29, 1998

-1-
<PAGE>

TABLE OF CONTENTS
<TABLE>
<S> <C>
FUND OPERATING EXPENSES AFTER FEE WAIVER.........................................3

FINANCIAL HIGHLIGHTS.............................................................4

SSgA FUNDS.......................................................................5

MANNER OF OFFERING...............................................................5

INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS..................................5

INVESTMENT POLICIES...........................................................5
INVESTMENT RESTRICTIONS.......................................................8

CERTAIN RISK FACTORS.............................................................8

PORTFOLIO TURNOVER...............................................................8

DIVIDENDS AND DISTRIBUTIONS......................................................9

TAXES............................................................................9

VALUATION OF FUND SHARES........................................................10

PURCHASE OF FUND SHARES.........................................................10

REDEMPTION OF FUND SHARES.......................................................12

GENERAL MANAGEMENT..............................................................14

FUND EXPENSES...................................................................16

PERFORMANCE CALCULATIONS........................................................16

ADDITIONAL INFORMATION..........................................................16

INFORMATION REGARDING STANDARD & POOR'S CORPORATION.............................17
</TABLE>

-2-

<PAGE>

FUND OPERATING EXPENSES AFTER FEE WAIVER

<TABLE>
<S> <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

Total Operating Expenses (After Fee Waiver)(1,3) .18%
====
</TABLE>

<TABLE>
<CAPTION>
Examples: 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $2 $ 6 $10 $23
$1,000 investment, assuming: (i) 5% annual == === === ===
return; and (ii) redemption at the end of
each time period:
</TABLE>

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.

- --------
(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 .18% of average daily net assets on an annual basis. The total
operating expenses of the Fund absent the fee waiver would be .27% 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 ratio includes .04% for 12b-1 Distribution and .04% for 12b-1
Shareholder Servicing Fees

-3-
<PAGE>

FINANCIAL HIGHLIGHTS

1998 1997 1996 1995 1994 1993++
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $18.96 $14.41 $12.81 $10.89 $10.72 $10.00
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .31 .32 .32 .29 .26 .15
Net realized and unrealized gain (loss) on 1.18 5.22 1.98 1.95 .29 .65
investments ------ ------ ------ ------ ----- -----
Total From Investment Operations 1.49 5.54 2.30 2.24 .55 .80
------ ------ ------ ------ ----- -----
LESS DISTRIBUTIONS:
Net investment income (.32) (.32) (.31) (.29) (.26) (.08)
Net realized gain on investment (.71) (.67) (.39) (.03) (.07) --
In excess of net realized gain on investments -- -- -- -- (.05) --
------ ------ ------ ------ ----- -----
Total Distributions (1.03) (.99) (.70) (.32) (.38) (.08)
NET ASSET VALUE, END OF PERIOD $19.42 $18.96 $14.41 $12.81 $10.89 $10.72
====== ====== ====== ====== ====== ======
TOTAL RETURN (%)(1) 7.91 40.30 18.46 21.11 5.29 8.06
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($000 omitted) 1,615,913 1,299,571 704,683 545,200 361,712 238,666
Ratios to average net assets (%)(2):
Operating expenses, net .17 .16 .18 .19 .15 .15
Operating expenses, gross .27 .26 .28 .29 .25 .35
Net investment income 1.50 2.00 2.32 2.76 2.69 3.02
Portfolio turnover (%)(2) 26.17 7.54 28.72 38.56 7.97 48.10
</TABLE>

- --------
++ For the period December 30, 1992 (commencement of operations) to August 31,
1993.

(1) Periods less than one year are not annualized.

(2) The ratios for the period ended August 31, 1993 are annualized.

-4-

<PAGE>

SSgA FUNDS

MANNER OF OFFERING

INVESTMENT OBJECTIVE, 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.

INVESTMENT POLICIES

-5-

<PAGE>

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:

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.

-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.

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 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.

-7-

<PAGE>

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.

Debt Securities. The Fund may also invest temporarily in investment grade debt
securities for defensive purposes. The Fund may invest in convertible debt
securities. Please see the Statement of Additional Information for a description
of securities ratings.

INVESTMENT RESTRICTIONS

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. 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.

CERTAIN RISK FACTORS

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

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

-8-
<PAGE>

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.

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.

Distribution Option. Investors can choose from four different distribution
options as indicated on the account Application:

o Income-Earned Option--Capital gain distributions will be automatically
reinvested, but a check or wire will be sent for each dividend
distribution.

o Cash Option--A check, wire or direct deposit (ACH) will be sent for
each dividend and capital gain distribution.

o 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") by the payable date.

TAXES

Dividends from net investment income and distributions of net short-term
capital gains are taxable

-9-
<PAGE>

to shareholders as ordinary income under federal income tax laws whether paid in
cash or in additional shares. Distributions from net long-term gains are taxable
as long-term gains regardless of the length of time a shareholder has held such
shares and whether paid in cash or additional shares.

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 six months or less will be treated as a
long-term loss to the extent of capital gain dividends received with respect to
such shares.

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.

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.

-10-
<PAGE>

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.

<TABLE>
<S> <C>
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
</TABLE>

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.

Federal Funds Wire. An investor may make initial or subsequent investments by
wiring federal funds to State Street, as Transfer Agent, by:

2. Instructing the wiring bank to wire federal funds to:
State Street Bank and Trust Company

-11-
<PAGE>

225 Franklin Street, Boston, MA 02110
ABA #0110-0002-8
DDA #9904-631-0
SSgA (Name of Fund) Fund(s)
Account Number and Registration
Dollar Amount Per Account (if one wire is to cover more than one purchase)

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 good form 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. If Fund shares were purchased by check or
an automatic investment program ("AIP") and the shareholder elects to redeem
shares within 15 days of such purchase, the shareholder may experience delays in
receiving redemption proceeds. The Fund will generally postpone sending
redemption proceeds from such investment until the Fund can verify that the
check or AIP investment has been collected. There will be no such delay for
redemptions following investments paid by federal funds wire or by bank
cashier's check, certified check or treasurer's check.

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 business day and receive the dividend as of the day the redemption
request was originally made by the underlying shareholder.

-12-
<PAGE>

Please note that proceeds from ACH withdrawals will be transmitted to the
investor's bank two days after the trade is placed or executed automatically.

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:

4. A broker or securities dealer, registered with a domestic stock exchange;

5. A federal savings, cooperative or other type of bank;

6. A savings and loan or other thrift institution;

7. A credit union; or

8. 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.

-13-
<PAGE>

<TABLE>
<CAPTION>
Seller Requirements for Written Requests
<S> <C>
Owner of individual, o Letter of instruction, signed by all persons
joint, sole proprietorship, authorized to sign for the account stating general
UGMA/UTMA (custodial titles/capacity, exactly as the account is registered;
accounts for minors) or and
general partner accounts
o Signature guarantee, if applicable (see above).

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).

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.

GENERAL MANAGEMENT

-14-
<PAGE>

complete global investment management services from offices in North America,
South America, Europe, Asia, Australia and the Middle East.

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, Principal, has been the portfolio manager primarily responsible
for investment decisions regarding the Fund since May 1995. Mr. May has been a
portfolio manager in the US Structured Products Group of State Street since
January 1994. He served as an Investment Support Analyst in the US Passive
Services Group from 1991 to 1993. He holds a BS in Finance from Bentley College
and an MBA from Boston College. 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.

-15-
<PAGE>

FUND EXPENSES

-16-
<PAGE>

(12) 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.

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.

ADDITIONAL INFORMATION

-17-
<PAGE>

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.

Controlling Shareholders. As of December 1, 1998, no single shareholder owned of
record 25% or more of the issued and outstanding shares of the Fund.

INFORMATION REGARDING STANDARD & POOR'S CORPORATION

-18-
<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
PricewaterhouseCoopers LLP
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 Yield Plus Fund

SSgA Intermediate Fund

SSgA Bond Market Fund

SSgA High Yield Bond Fund

SSgA Growth and Income Fund

SSgA S&P 500 Index Fund

SSgA Matrix Equity Fund

SSgA Small Cap Fund
(Closed to new investors as of August 31, 1998)

SSgA Special Equity Fund

SSgA Real Estate Equity Fund

SSgA Aggressive Equity Fund

SSgA Emerging Markets Fund

SSgA Active International Fund

SSgA International Growth Opportunities 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

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.

Effective August 31, 1998, the SSgA Small Cap Fund was closed to purchases by
new investors except for purchases by eligible investors as described below:

o Current shareholders of the SSgA Small Cap Fund may continue to
add to the Fund account.
o Participants in 401(k) plans for which the SSgA Small Cap Fund is an option
may continue to add to their Fund account.
o Participants in asset allocation programs sponsored by financial advisors
may continue to add to their Fund account.

PROSPECTUS DATED DECEMBER 29, 1998

-1-
<PAGE>

TABLE OF CONTENTS
<TABLE>
<S> <C>
FUND OPERATING EXPENSES..................................................3

FINANCIAL HIGHLIGHTS.....................................................4

SSgA FUNDS...............................................................5

MANNER OF OFFERING.......................................................5

INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS..........................5

INVESTMENT POLICIES....................................................5
INVESTMENT RESTRICTIONS................................................7

CERTAIN RISK FACTORS.....................................................8

PORTFOLIO TURNOVER.......................................................8

DIVIDENDS AND DISTRIBUTIONS..............................................8

TAXES....................................................................9

VALUATION OF FUND SHARES.................................................9

PURCHASE OF FUND SHARES.................................................10

REDEMPTION OF FUND SHARES...............................................12

GENERAL MANAGEMENT......................................................14

FUND EXPENSES...........................................................16

PERFORMANCE CALCULATIONS................................................16

ADDITIONAL INFORMATION..................................................16
</TABLE>

-2-
<PAGE>

FUND OPERATING EXPENSES

<TABLE>
<S> <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 .75%
Fees for 12b-1 Distribution and .16
Shareholder Servicing(1)
Other Expenses .13
----
Total Operating Expenses(2) 1.04%
====
</TABLE>

<TABLE>
<CAPTION>
Examples: 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following $11 $33 $57 $127
expenses on a $1,000 investment, === === === ====
assuming: (i) 5% annual return;
and (ii) redemption at the end
of each time period:
</TABLE>

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.

- --------

(1) The ratio includes .07% for 12b-1 Distribution and .09% for 12b-1
Shareholder Servicing Fees

(2) The expense information 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.

-3-
<PAGE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
1998 1997 1996 1995+ 1994 1993 1992++
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $22.11 $17.44 $14.42 $11.88 $12.24 $10.09 $10.00
------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .02 .03 .04 .13 .21 .22 .04
Net realized and unrealized (4.54) 5.87 3.25 3.19 .24 2.14 .05
gain (loss) on investments ------ ------ ------ ------ ------ ------ ------
Total From Investment (4.52) 5.90 3.29 3.32 .45 2.36 .09
Operations ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Net investment income (.04) (.01) (.07) (.15) (.21) (.21) --
Net realized gain on (1.10) (1.22) (.20) (.58) (.60) -- --
investment
In excess of net realized (.49) -- -- (.05) -- -- --
gain on investments ------ ------ ------ ------ ------ ------ ------
Total Distributions (1.63) (1.23) (.27) (.78) (.81) (.21) --
------ ------ ------ ------ ------ ------ ------
$15.96 $22.11 $17.44 $14.42 $11.88 $12.24 $10.09
====== ====== ====== ====== ====== ====== ======
NET ASSET VALUE, END OF PERIOD

TOTAL RETURN (%)(3) (22.32) 35.85 23.14 30.04 3.90 23.66 .90
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period 344,630 149,808 55,208 23,301 25,716 34,815 9,392
($000 omitted)
Ratios to average net assets(%)(4):
Operating expenses, net 1.04 1.00 1.00 .97 .30 .25 .25
Operating expenses, gross 1.04 1.09 1.18 1.58 .81 1.18 1.71
Net investment income .10 .18 .26 .81 1.73 1.85 2.55
Portfolio turnover (%)(2) 86.13 143.79 76.85 192.88 44.86 81.14 4.59
</TABLE>

- --------
+ Prior to November 22, 1994, the Fund was passively managed as the S&P Midcap
Index Fund. Effective November 23, 1994, the Fund increased the Advisory fee
from .20% to .75% of its average daily net assets.

++ For the period July 1, 1992 (commencement of operations) to August 31, 1992.

(3) Periods less than one year are not annualized.

(4) The ratios for the period ended August 31, 1992 are annualized.

-4-
<PAGE>

SSgA FUNDS

MANNER OF OFFERING

INVESTMENT OBJECTIVE, 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. 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>

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.

-6-
<PAGE>

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.

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.

-7-
<PAGE>

INVESTMENT RESTRICTIONS

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

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.

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.

-8-
<PAGE>

asset value determined as of the date of cancellation of the checks. No interest
will accrue on the amounts represented by the uncashed distribution or
redemption checks.

Distribution Option. Investors can choose from four different distribution
options as indicated on the account Application:

o 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.

o Income-Earned Option--Capital gain distributions will be automatically
reinvested, but a check or wire will be sent for each dividend
distribution.

o Cash Option--A check, wire or direct deposit (ACH) will be sent for each
dividend and capital gain distribution.

o 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") by the payable date.

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 six months or less will be treated as a
long-term loss to the extent of capital gain dividends received with respect to
such shares.

-9-
<PAGE>

VALUATION OF FUND SHARES

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

-10-

<PAGE>

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:

<TABLE>
<CAPTION>
Regular Mail: Registered, Express or Certified Mail:
<S> <C>
SSgA Funds SSgA Funds
P.O. Box 8317 2 Heritage Drive
Boston, MA 02266-8317 North Quincy, MA 02171
</TABLE>

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.

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:

-11-
<PAGE>

REDEMPTION OF FUND SHARES

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 business day and receive the dividend as of the day the redemption
request was originally made by the underlying shareholder.

Please note that proceeds from ACH withdrawals will be transmitted to the
investor's bank two days after the trade is placed or executed automatically.

-12-
<PAGE>

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:

4. A broker or securities dealer, registered with a domestic stock exchange;

5. A federal savings, cooperative or other type of bank;

6. A savings and loan or other thrift institution;

7. A credit union; or

8. 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, o Letter of instruction, signed by all
sole proprietorship, persons authorized to sign for the
UGMA/UTMA (custodial account stating general titles/capacity,
accounts for minors) or exactly as the account is registered; and
general partner accounts
o Signature guarantee, if applicable (see above).

Owners of corporate or o Letter of instruction signed by authorized
association accounts person(s), 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

-13-
<PAGE>

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.

GENERAL MANAGEMENT

Advisor, subject to Board supervision, directs the investment of the Fund in
accordance with the Fund's investment objective, policies and restrictions. Ms.
Jennifer Bardsley, Principal, is the portfolio manager primarily responsible for
investment decisions regarding the Fund. Ms. Bardsley joined State Street in
March 1993. She became a member of the Investments Systems Group and moved into
the US Active Equities Group in January 1996. She holds BA degrees in Economics
and Russian from Middlebury College, and an MS degree in Computer Science from
Boston College. There are seven other portfolio managers who work with Ms.
Bardsley in managing the Fund. For these services, the Fund pays Advisor a fee,
calculated daily and paid monthly, as described on the Fund's operating expense
table.

-14-
<PAGE>

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 December 1, 1998, 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.

-15-
<PAGE>

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.

FUND EXPENSES

PERFORMANCE CALCULATIONS

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

-16-
<PAGE>

asset value next computed after they are accepted by an authorized broker or the
broker's designee provided that the authorized broker or the broker's designee
timely transmits the customer order to the Investment Company.

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 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.

-17-
<PAGE>

Controlling Shareholders. As of December 1, 1998, no single shareholder owned of
record 25% or more of the issued and outstanding shares of the Fund.

-18-
<PAGE>

SSgA FUNDS

SSgA Money Market Fund

SSgA US Government Money Market Fund

SSgA Tax Free Money Market Fund

SSgA Yield Plus Fund

SSgA Intermediate Fund

SSgA Bond Market Fund

SSgA High Yield Bond Fund

SSgA Growth and Income Fund

SSgA S&P 500 Index Fund

SSgA Matrix Equity Fund

SSgA Small Cap Fund
(Closed to new investors as of August 31, 1998)

SSgA Special Equity Fund

SSgA Real Estate Equity Fund

SSgA Aggressive Equity Fund

SSgA Emerging Markets Fund

SSgA Active International Fund

SSgA International Growth Opportunities 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

EMERGING MARKETS FUND

<TABLE>
<CAPTION>
Investment Advisor, Custodian Distributor: Administrator:
and Transfer Agent:

<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 29, 1998

-1-
<PAGE>

TABLE OF CONTENTS

<TABLE>
<S> <C>
FUND OPERATING EXPENSES AFTER FEE REIMBURSEMENT...............3

FINANCIAL HIGHLIGHTS..........................................4

SSgA FUNDS....................................................5

MANNER OF OFFERING............................................5

INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS...............5

INVESTMENT POLICIES........................................5
INVESTMENT RESTRICTIONS....................................8

RISK FACTORS..................................................8

PORTFOLIO TURNOVER............................................9

DIVIDENDS AND DISTRIBUTIONS..................................10

TAXES........................................................10

VALUATION OF FUND SHARES.....................................11

PURCHASE OF FUND SHARES......................................12

REDEMPTION OF FUND SHARES....................................13

GENERAL MANAGEMENT...........................................15

FUND EXPENSES................................................17

PERFORMANCE CALCULATIONS.....................................18

ADDITIONAL INFORMATION.......................................18
</TABLE>

-2-
<PAGE>

FUND OPERATING EXPENSES AFTER FEE REIMBURSEMENT

<TABLE>
<S> <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) .62%
Fees for 12b-1 Distribution and Shareholder Servicing(1,2) .12
Other Expenses(1) .51
----
Total Operating Expenses (After Fee Reimbursement)(1,3) 1.25%
====
</TABLE>

<TABLE>
<CAPTION>
Examples: 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $13 $40 $69 $151
$1,000 investment, assuming: (i) 5% annual === === === ====
return; and (ii) redemption at the end of
each time period:
</TABLE>

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.

- --------
(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
1.38% of average daily net assets on an annual basis. This agreement will remain
in effect for the current fiscal year.

(2) The ratio includes .09% for 12b-1 Distribution and .03% for 12b-1
Shareholder Servicing Fees.

-3-

<PAGE>

FINANCIAL HIGHLIGHTS

SSgA EMERGING MARKETS FUND

<TABLE>

<CAPTION>
1998 1997 1996 1995 1994++
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.33 $10.87 $10.30 $11.45 $10.00
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .18 .12 .11 .14 .05
Net realized and unrealized gain (loss) on (5.58) 1.51 .68 (1.19) 1.40
investments ------ ------ ------ ------ ------
Total From Investment Operations (5.40) 1.63 .79 (1.05) 1.45
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Net investment income (.15) (.11) (.12) (.10) --
Net realized gain on investment -- (.06) (.10) -- --
In excess of net realized gain on investments (.26) -- -- -- --
------ ------ ------ ------ ------
Total Distributions (.41) (.17) (.22) (.10) --
------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $6.52 $12.33 $10.87 $10.30 $11.45
====== ====== ====== ====== ======
TOTAL RETURN (%)(1) (45.36) 15.12 7.83 (9.28) 14.50
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($000 omitted) 206,370 252,708 120,216 68,385 27,479
Ratios to average net assets (%)(2):
Operating expenses, net(3) 1.25 1.25 1.28 1.50 1.50
Operating expenses, gross(3) 1.38 1.51 1.67 1.90 2.45
Net investment income 1.85 1.07 1.10 1.74 1.31
Portfolio turnover (%) 38.94 15.00 4.36 19.77 --
</TABLE>

- --------
++ For the period March 1, 1994 (commencement of operations) to August 31, 1994.

(1) Periods less than one year are not annualized.

(2) The ratios for the period ended August 31, 1994 are annualized.

(3) See Note 4 of the Annual Report for current period amounts.

- 4 -
<PAGE>

SSgA FUNDS

MANNER OF OFFERING

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

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>

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.
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 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.

-6-

<PAGE>

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.

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.

-7-

<PAGE>

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.

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.

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). 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

-8-

<PAGE>

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. 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.

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.

-9-

<PAGE>

DIVIDENDS AND DISTRIBUTIONS

Distribution Option. Investors can choose from four different distribution
options as indicated on the account Application:

o Income-Earned Option--Capital gain distributions will be automatically
reinvested, but a check or wire will be sent for each dividend
distribution.

o Cash Option--A check, wire or direct deposit (ACH) will be sent for each
dividend and capital gain distribution.

o 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") by the payable date.

TAXES

-10-

<PAGE>

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 six months or less will be treated as a
long-term loss to the extent of capital gain dividends received with respect to
such shares.

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.

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.

-11-

<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 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

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.

-12-

<PAGE>

2. Instructing the wiring bank to wire federal funds to:

-13-

<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 in good order 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. If Fund shares were purchased by check or
an automatic investment program ("AIP") and the shareholder elects to redeem
shares within 15 days of such purchase, the shareholder may experience delays n
receiving redemption proceeds. The Fund will generally postpone sending
redemption proceeds from such investment until the Fund can verify that the
check or AIP investment has been collected. There will be no such delay for
redemptions following investments paid by federal funds wire or by bank
cashier's check, certified check or treasurer's check.

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 business day and receive the dividend as of the day the redemption
request was originally made by the underlying shareholder.

Please note that proceeds from ACH withdrawals will be transmitted to the
investor's bank two days after the trade is placed or executed automatically.

1. The shareholder's address of record has changed within the past 60 days;

-14-

<PAGE>

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:

4. A broker or securities dealer, registered with a domestic stock exchange;

5. A federal savings, cooperative or other type of bank;

6. A savings and loan or other thrift institution;

7. A credit union; or

8. 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, o 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
o Signature guarantee, if applicable (see above).

Owners of corporate or o Letter of instruction signed by authorized
association accounts person(s), 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.

-15-

<PAGE>

GENERAL MANAGEMENT

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, Principal, is the portfolio manager primarily responsible for
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.
Fuerman in managing the Fund. For these services, the Fund pays Advisor a fee,
calculated daily and paid monthly, as described on the Fund's operating expense
table.

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 December 1, 1998, 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.

-16-

<PAGE>

insurance mutual fund products with assets of $13.0 billion and $50.9 million,
respectively, as of October 31, 1998, and acts as administrator to 22 mutual
funds with assets of $15.1 billion as of October 31, 1998.

-17-

<PAGE>

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

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

Sub-Transfer Agents. The Fund has authorized one or more brokers to accept
on its behalf and for its clients only purchase and redemptions orders. These
sub-transfer agents are authorized to designate other intermediaries to accept
purchase and redemption orders from their clients on the Fund's behalf. The Fund
will be deemed to have received a purchase or redemption order when an
authorized broker or, if applicable, a broker's authorized designee, accepts the
order. Customer orders will be priced at the Fund's net asset value next
computed after they are accepted by an authorized broker or the broker's
designee provided that the authorized broker or the broker's designee timely
transmits the customer order to the Investment Company.

-18-

<PAGE>

the year 2000 and expect that their systems, and those of their outside service
providers, will be adapted in time for the event. The obligation to make such
adaptations, if any, would be the responsibility of the service provider that
maintains the system. The Investment Company does not expect to incur any
material expense in that regard.

[square bullet] Charles Schwab & Company, Inc., 101 Montgomery Street, San
Francisco, CA 94104-4122 -- 53%.

-19-
<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
PricewaterhouseCoopers LLP
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 Yield Plus Fund

SSgA Intermediate Fund

SSgA Bond Market Fund

SSgA High Yield Bond Fund

SSgA Growth and Income Fund

SSgA S&P 500 Index Fund

SSgA Matrix Equity Fund

SSgA Small Cap Fund
(Closed to new investors as of August 31, 1998)

SSgA Special Equity Fund

SSgA Real Estate Equity Fund

SSgA Aggressive Equity Fund

SSgA Emerging Markets Fund

SSgA Active International Fund

SSgA International Growth Opportunities 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

STATEMENT OF ADDITIONAL INFORMATION

MONEY MARKET FUND

U.S. GOVERNMENT MONEY MARKET FUND

DECEMBER 29, 1998

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").

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, dated December 29, 1998. 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-
<PAGE>

TABLE OF CONTENTS
<TABLE>
<S> <C>
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....................................................7
ADMINISTRATOR..............................................7
DISTRIBUTOR................................................8
CUSTODIAN AND TRANSFER AGENT...............................8
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........................................................16

FINANCIAL STATEMENTS.........................................17

APPENDIX: DESCRIPTION OF SECURITIES RATINGS.................18

RATINGS OF DEBT INSTRUMENTS...............................18
RATINGS OF COMMERCIAL PAPER...............................18
</TABLE>

-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, one of which is the Fund. The Investment Company share
evidences pro rata ownership interest in a different investment portfolio, or
Fund. Each of the 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 below the portfolio's name:

<TABLE>
<S> <C>
------------------------------------------------------------------------------------
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 July 1, 1997
------------------------------------------------------------------------------------
SSgA Life Solutions Growth Fund July 1, 1997
------------------------------------------------------------------------------------
SSgA Life Solutions Income and Growth Fund July 1, 1997
------------------------------------------------------------------------------------
SSgA Special Equity Fund May 1, 1998
------------------------------------------------------------------------------------
SSgA High Yield Bond Fund May 5, 1998
------------------------------------------------------------------------------------
SSgA International Growth Opportunities Fund May 1, 1998
------------------------------------------------------------------------------------
SSgA Real Estate Equity Fund May 1, 1998
------------------------------------------------------------------------------------
SSgA Aggressive Equity Fund December 29, 1998
------------------------------------------------------------------------------------
</TABLE>

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.

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
the Fund and that every written agreement, obligation, or other undertaking of a
Fund shall contain a provision to the effect that the shareholders are not
personally liable thereunder. The Master Trust Agreement also

-3-

<PAGE>

provides that a 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 December 1, 1998, 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.

The Trustees and officers of Investment Company, as a group, own less than 1% of
Investment Company's voting securities.

PRINCIPAL SHAREHOLDERS

As of December 1, 1998, the following shareholders owned of record 5% or
more of the issued and outstanding shares of the Fund. Such shares may be held
pursuant to a shareholder servicing arrangement in omnibus accounts for
underlying shareholders:

Money Market Fund

[square bullet] Lazard Freres & Company LLC, 30 Rockefeller Plaza 57th Floor,
New York, NY 10112-0002--6%.

Government Money Market Fund

[square bullet] Government of Singapore, Q5ME, State Street Bank and Trust
Company, One Newport Avenue, North Quincy, MA 02171-2605 -- 14%;

[square bullet] Turtle & Company, Sweep, P.O. Box 9427, Boston, MA 02209-9427 --
12%; and

[square bullet] State Street Bank and Trust Company, Newport Office Park, 108
Myrtle Street AH3, North Quincy, MA 02171-1753 -- 10%.

TRUSTEES AND OFFICERS

The Board of Trustees is responsible for overseeing generally the operation of
each 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 $55,500 each fiscal year 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. However, the Trustees have approved a deferred compensation plan by
which they would be allowed to invest a portion of their annual trustee fee in
shares of the SSgA Funds. The Investment Company has obtained an exemptive order
from the SEC to enable it to offer this benefit. Participation by the Trustees
is optional. 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.

-4-

<PAGE>

Lynn L. Anderson(1), Trustee, Chairman of the Board, President and Treasurer.
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; Director, Frank Russell Company; Director and
Chairman of the Board, Frank Russell Company (Delaware); 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(1), Trustee. Born 11/3/56. 176 Federal Street, 3rd Floor,
Boston, MA 02110. President, Key Global Capital, Inc. From 1997 to 1998,
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. One Corporate Place, 55 Ferncroft
Road, Danvers, MA 01923. Partner, Riley, Burke & Donahue, L.L.P. (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.

Mark E. Swanson, Assistant Secretary and Principal Accounting Officer. Born
11/26/63. Treasurer, and Chief Accounting Officer, Frank Russell Investment
Company Funds; Treasurer and Chief Accounting Officer, Russell Insurance Funds;
Interim Director, Finance and Operations, Frank Russell Trust Company; Interim
Director of Fund Administration and Accounting, Frank Russell Investment
Management Company; Manager, Funds Accounting and Taxes, Russell Fund
Distributors, Inc. April 1996 to August 1998, Assistant Treasurer, Frank Russell
Investment Company; August 1996 to August 1998, Assistant Treasurer, Russell
Insurance Funds. November 1995 to July 1998, Assistant Secretary, the SSgA
Funds. February 1997 to July 1998, Manager, Funds Accounting and Taxes, Frank
Russell Investment Management Company.

<TABLE>
<CAPTION>
--------------------------------------------------------

Trustee Total Annual Compensation
from Investment Company per
Fiscal Year
--------------------------------------------------------
<S> <C>
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
----------------------------------------------------------
</TABLE>

- --------
(1) "Interested Person" of the Investment Company, as defined in the 1940 Act.

-5-

<PAGE>

<TABLE>
<CAPTION>
----------------------------------------- ---------------------------------------

Name of SSgA Fund Portfolio Amount of Total Annual Trustee
Compensation (Including Out of Pocket
Expenses) Attributable to Portfolio
For the Fiscal Year Ending August 31,
1998
----------------------------------------- ---------------------------------------
<S> <C>
Money Market Fund $141,247
----------------------------------------- ---------------------------------------
US Government Money Market 26,375
----------------------------------------- ---------------------------------------
Matrix Equity 19,405
----------------------------------------- ---------------------------------------
S&P 500 Index 40,384
----------------------------------------- ---------------------------------------
Small Cap 10,062
----------------------------------------- ---------------------------------------
Yield Plus 19,075
----------------------------------------- ---------------------------------------
Bond Market 3,995
----------------------------------------- ---------------------------------------
Emerging Markets 8,119
----------------------------------------- ---------------------------------------
US Treasury Money Market 30,263
----------------------------------------- ---------------------------------------
Growth & Income 2,928
----------------------------------------- ---------------------------------------
Intermediate 1,986
----------------------------------------- ---------------------------------------
Prime Money Market 51,054
----------------------------------------- ---------------------------------------
Tax Free Money Market 6,463
----------------------------------------- ---------------------------------------
Active International 3,338
----------------------------------------- ---------------------------------------
International Growth Opportunities(1) 62
----------------------------------------- ---------------------------------------
Real Estate Equity(1) 82
----------------------------------------- ---------------------------------------
High Yield Bond(1) 67
----------------------------------------- ---------------------------------------
Special Equity(1) 78
----------------------------------------- ---------------------------------------
Aggressive Equity(1) 0
----------------------------------------- ---------------------------------------
</TABLE>

OPERATION OF INVESTMENT COMPANY

SERVICE PROVIDERS

Each 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: PricewaterhouseCoopers LLP
</TABLE>

- --------

(1) These portfolios were either not operational or did not operate a full year
during fiscal 1998.

-6-

<PAGE>

ADVISOR

State Street Bank and Trust Company ("State Street" or "Advisor") serves as each
Fund's investment advisor pursuant to an Advisory Agreement dated April 12, 1988
("Advisory Agreement"). State Street 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.

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.

Under the Advisory Agreement, Advisor directs each 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 Money Market Fund accrued the following expenses to Advisor in the fiscal
years ended August 31:

The Government Money Market Fund accrued the following expenses to Advisor in
the fiscal years ended August 31:

ADMINISTRATOR

Frank Russell Investment Management Company ("Administrator") serves as each
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 each 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 each 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 1,400 officers and employees. Administrator's and Frank Russell
Company's mailing address is 909 A Street, Tacoma, WA 98402.

On August 10, 1998, Frank Russell Company and The Northwestern Mutual Life
Insurance Company ("Northwestern Mutual") announced that they had agreed that
Northwestern Mutual would acquire Frank Russell Company, the sole shareholder of
Frank Russell Investment Management Company. Frank Russell Company and
Northwestern Mutual have signed a definitive purchase agreement, and it is
expected that the transaction will be finalized at the end of 1998. Frank
Russell Company will retain its identity and operating independence, and will
continue to operate globally as a separate company.

The Money Market and Government Money Market Funds accrued the following
expenses to Administrator for the fiscal years ended August 31:

-7-
<PAGE>

<TABLE>
<CAPTION>
------------------------------------------------------------------------
1998 1997 1996
------------------------------------------------------------------------
<S> <C> <C> <C>
Money Market $1,532,523 $1,245,280 $996,454
------------------------------------------------------------------------
Government Money Market $262,785 $244,335 $179,304
------------------------------------------------------------------------
</TABLE>

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 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

PricewaterhouseCoopers LLP serves as the Investment Company's independent
accountants. PricewaterhouseCoopers LLP 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 PricewaterhouseCoopers LLP 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 a Fund may, directly or
indirectly, bear distribution and shareholder servicing expenses. The Rule
provides that a Fund may pay for such expenses only pursuant to a plan adopted
in accordance with the Rule. Accordingly, each Fund has adopted an active
distribution plan (the "Plan"), which is described in each Fund's Prospectus.

The Plan provides that a 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 a 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.

Each Fund accrued the following expenses to Distributor for the fiscal years
ended August 31:

-8-

<PAGE>

<TABLE>
<CAPTION>
--------------------------------------------------------------------------
1998 1997 1996
--------------------------------------------------------------------------
<S> <C> <C> <C>
Money Market Fund $2,327,851 $1,580,068 $817,506
--------------------------------------------------------------------------
Government Money Market Fund 309,505 287,158 106,509
--------------------------------------------------------------------------
</TABLE>

For fiscal 1998, these amounts are reflective of the following individual
payments:

<TABLE>
<CAPTION>
Money Market Government Money
Market
<S> <C> <C>
Advertising $ 49,203 $ 7,732
Printing of Prospectuses 112,552 17,625
Compensation to Dealers 880,916 4
Compensation to Sales Personnel 514,386 85,502
Other(1) 770,794 198,642
---------- --------
$2,327,851 $309,505
========== ========
</TABLE>

Under the Plan, each 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 each Fund's Prospectus under "Distribution Services and
Shareholder Servicing."

Each Fund accrued expenses in the following amounts to Advisor, under Service
Agreements pursuant to Rule 12b-1, for fiscal year ended August 31:

<TABLE>
<CAPTION>
---------------------------------------------------------------------
1998 1997 1996
---------------------------------------------------------------------
<S> <C> <C> <C>
Money Market Fund $2,028,062 $1,551,176 $1,268,824
---------------------------------------------------------------------
Government Money
Market Fund 454,700 719,992 241,584
---------------------------------------------------------------------
</TABLE>

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 a 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 each Fund
contemplated under this arrangement are consistent with its statutory and
regulatory obligations.

VALUATION OF FUND SHARES

Net asset value per share 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 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

- --------
(1) Other expenses may include such items as compensation for travel,
conferences and seminars for staff, subscriptions, office charges and
professional fees.

-9-

<PAGE>

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 each 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 Funds use the amortized cost
valuation method to value 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 a Fund's
shares computed by dividing the annualized daily income on a 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 each
Fund's 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 each 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 a 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 a Fund and/or the Advisor (or its
affiliates). Advisor is authorized to cause each 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. Each Fund or
the 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 each
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, 1998, the Government Money Market Fund
did not purchase securities issued by regular broker dealers of the Fund, as
defined by Rule 10b-10 of the 1940 Act. During the fiscal year ended August 31,
1998, the Money Market 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 Funds' ten largest brokers or dealers by dollar amounts of securities
executed or commissions received on behalf of the Fund.

-10-

<PAGE>

The value of broker-dealer securities held as of August 31, 1998, is as follows:

<TABLE>
<CAPTION>
Money Market Fund
($000)
------------------------
<S> <C>
Arnhold & S. Bleichroeder(1) 0
State Street Brokerage Services, Inc.(1) 0
Investment Technology Group Inc.(1) 0
Broadcort Capital Corp.(1) 0
Lehman Brothers Inc. 0
Fidelity Capital Markets(1) 0
First Boston Corp.(1) 0
Bear, Stearns & Co., Inc.(1) 0
Morgan Stanley & Co., Inc.(1) 90,000
Smith Barney, Inc.(1) 0
Goldman Sachs & Co.(2) 173,606
Merrill Lynch, Inc.(2) 169,502
Swiss Bank Corp.(2) 0
Salomon Brothers, Inc.(2) 0
Prebon Securities(2) 0
Donaldson, Lufkin & Jenrette Corp.(2) 0
J.P. Morgan, Inc.(2) 154,924
Lummis & Co.(2) 0
UBS Securities, Inc.(2) 0
</TABLE>

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-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:

(n)
P(1+T) = 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

- --------

(1) Broker commissions only.

(2) Broker principal transaction only.

-11-

<PAGE>

The calculation assumes that all dividends and distributions of the 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. 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, 1998:

Money Market Fund

Current Yield 5.35%

Effective Yield 5.49%

Government Fund

Current Yield 5.20%

Effective Yield 5.34%

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 the
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 Fund 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 ). 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, 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.

-12-

<PAGE>

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.

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, on an ongoing
basis, 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.

With respect to the industry concentration outlined in Investment Restriction
No. 1, the Advisor treats US domestic banks and foreign branches of US banks as
a separate industry from foreign banks. 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

Except as otherwise indicated, each Fund may invest in the following
instruments:

US Government Obligations. The types of US Government obligations in which each
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,

-13-

<PAGE>

(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. Each Fund may purchase
US Government obligations on a forward commitment basis.

Treasury Inflation-Protection Securities. Each 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
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 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 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. Each 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 each Fund may decline below the price at which it is obligated to repurchase
the securities.

Forward Commitments. Each Fund may contract to purchase securities for a fixed
price at a future date beyond customary settlement time consistent with each
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.

-14-

<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 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.

Variable and Floating Rate Securities. Variable rate securities are instruments
issued or guaranteed by entities such as the: (1) US Government, or an agency or
instrumentality thereof, (2) corporations, (3) financial institutions or (4)
insurance companies that have a rate of interest subject to adjustment at
regular intervals but less frequently than annually. Variable rate 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. The Funds may also invest in Funding Agreements which are
privately placed, unregistered obligations negotiated with a purchaser. Floating
Rate Securities are issued by the same type of organizations. The terms of
Floating Rate Securities provide for the automatic adjustment of an interest
rate whenever a specified interest rate changes.

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. 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 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 by issuer.

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.

-15-

<PAGE>

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.

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.

-16-

<PAGE>

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 long-term gain with
respect to shares of a Fund and redeems or exchanges the shares, and has held
the shares for six months or less, then any loss on the redemption or exchange
will be treated as a long-term loss to the extent of the respective capital gain
distribution.

As of August 31, 1998, the Money Market Fund had a net tax basis capital loss
carryforward of $1,917,639, which may be applied against any realized net
taxable gains in each succeeding year or until its 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.

FINANCIAL STATEMENTS

The 1998 fiscal year-end financial statements for each Fund, including notes to
the financial statements and financial highlights and the Report of Independent
Accountants, are included in each 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

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.

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:

-18-

<PAGE>

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.

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.

o 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.

-19-
<PAGE>

o 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.

o 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.

o 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.

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.

-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

STATEMENT OF ADDITIONAL INFORMATION

PRIME MONEY MARKET FUND

DECEMBER 29, 1998

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 29, 1998. 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.

-1-
<PAGE>

TABLE OF CONTENTS
<TABLE>
<S> <C>
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...........................................................7
ADMINISTRATOR.....................................................7
DISTRIBUTOR.......................................................7
CUSTODIAN AND TRANSFER AGENT......................................8
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...............................................................16

FINANCIAL STATEMENTS................................................17

APPENDIX - DESCRIPTION OF SECURITIES RATINGS........................18
</TABLE>

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<PAGE>

STRUCTURE AND GOVERNANCE

Organization and Business History

<TABLE>
<S> <C>
------------------------------------------------------------------------------
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 July 1, 1997
------------------------------------------------------------------------------
SSgA Life Solutions Growth Fund July 1, 1997
------------------------------------------------------------------------------
SSgA Life Solutions Income and Growth Fund July 1, 1997
------------------------------------------------------------------------------
SSgA Special Equity Fund May 1, 1998
------------------------------------------------------------------------------
SSgA High Yield Bond Fund May 5, 1998
------------------------------------------------------------------------------
SSgA International Growth Opportunities Fund May 1, 1998
------------------------------------------------------------------------------
SSgA Real Estate Equity Fund May 1, 1998
------------------------------------------------------------------------------
SSgA Aggressive Equity Fund December 29, 1998
------------------------------------------------------------------------------
</TABLE>

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<PAGE>

SHAREHOLDER MEETINGS

CONTROLLING SHAREHOLDERS

The Trustees and officers of Investment Company, as a group, own less than 1% of
Investment Company's voting securities.

PRINCIPAL SHAREHOLDERS

[filled box] Global Financial Asset Services Omnibus Control Account MT01, State
Street Bank and Trust Company, P.O. Box 1992, North Quincy, MA
02171 -- 52%.

TRUSTEES AND OFFICERS

- --------
(1) "Interested Person" of the Investment Company, as defined in the 1940 Act.

-4-

<PAGE>

Limited Company; Director, Frank Russell Company; Director and Chairman of the
Board, Frank Russell Company (Delaware); 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).

Patrick J. Riley, Trustee. Born 11/30/48. One Corporate Place, 55 Ferncroft
Road, Danvers, MA 01923. Partner, Riley, Burke & Donahue, L.L.P. (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.

<TABLE>
<CAPTION>
---------------------------------------------------------
Trustee Total Annual Compensation
from Investment Company per
Fiscal Year
---------------------------------------------------------
<S> <C>
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
---------------------------------------------------------
</TABLE>

-5-

<PAGE>

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
Name of SSgA Fund Portfolio Amount of Total Annual Trustee
Compensation (Including Out of Pocket
Expenses) Attributable to Portfolio
For the Fiscal Year Ending August 31,
1998
-----------------------------------------------------------------------------
<S> <C>
Money Market Fund $141,247
-----------------------------------------------------------------------------
US Government Money Market 26,375
-----------------------------------------------------------------------------
Matrix Equity 19,405
-----------------------------------------------------------------------------
S&P 500 Index 40,384
-----------------------------------------------------------------------------
Small Cap 10,062
-----------------------------------------------------------------------------
Yield Plus 19,075
-----------------------------------------------------------------------------
Bond Market 3,995
-----------------------------------------------------------------------------
Emerging Markets 8,119
-----------------------------------------------------------------------------
US Treasury Money Market 30,263
-----------------------------------------------------------------------------
Growth & Income 2,928
-----------------------------------------------------------------------------
Intermediate 1,986
-----------------------------------------------------------------------------
Prime Money Market 51,054
-----------------------------------------------------------------------------
Tax Free Money Market 6,463
-----------------------------------------------------------------------------
Active International 3,338
-----------------------------------------------------------------------------
International Growth Opportunities(1) 62
-----------------------------------------------------------------------------
Real Estate Equity(1) 82
-----------------------------------------------------------------------------
High Yield Bond(1) 67
-----------------------------------------------------------------------------
Special Equity(1) 78
-----------------------------------------------------------------------------
Aggressive Equity(1) 0
-----------------------------------------------------------------------------
</TABLE>

OPERATION OF INVESTMENT COMPANY

SERVICE PROVIDERS

Each Fund's necessary day-to-day operations are performed by separate business
organizations under contract to Investment Company. The principal service
providers are:

- --------

(1) These portfolios were either not operational or did not operate a full year
during fiscal 1998.

-6-

<PAGE>

ADVISOR

The Fund accrued the following expenses to Advisor for the fiscal years ended
August 31:

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
$1,437,500 in fiscal 1998, $986,421 in fiscal 1997 and $809,259 in fiscal 1996.

ADMINISTRATOR

The Fund accrued the following expenses to Administrator for the fiscal years
ended August 31:

-7-

<PAGE>

DISTRIBUTOR

CUSTODIAN AND TRANSFER AGENT

INDEPENDENT ACCOUNTANTS

DISTRIBUTION PLAN

Under the 1940 Act, the Securities and Exchange Commission has adopted Rule
12b-1, which regulates the circumstances under which a Fund may, directly or
indirectly, bear distribution and shareholder servicing expenses. The Rule
provides that a Fund may pay for such expenses only pursuant to a plan adopted
in accordance with the Rule.
Accordingly, each Fund has adopted an active distribution plan (the "Plan"),
which is described in each Fund's Prospectus.

The Fund accrued the following expenses to Russell Fund Distributors for the
fiscal years ended August 31:

For fiscal 1998, these amounts are reflective of the following individual
payments:

-8-

<PAGE>

<TABLE>
<S> <C>
Advertising $ 16,238
Printing of Prospectuses 32,772
Compensation to Dealers --
Compensation to Sales Personnel 179,907
Other(1) 241,516
--------
$470,433
========
</TABLE>

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:

--------------------------------------------------

1998 1997 1996
-------------------------------------------------
<S> <C> <C>
$431,218 $319,995 $369,950
--------------------------------------------------
</TABLE>

FEDERAL LAW AFFECTING STATE STREET

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.

- --------
(1) Other expenses may include such items as compensation for travel,
conferences and seminars for staff, subscriptions, office charges and
professional fees.

-9-

<PAGE>

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

During the fiscal year ended August 31, 1998, 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, 1998, is
as follows:

-10-
<PAGE>

<TABLE>
<CAPTION>
($000)
--------------------
<S> <C>
Arnhold & S. Bleichroeder(1) 0
State Street Brokerage Services, Inc.(1) 0
Investment Technology Group Inc.(1) 0
Broadcort Capital Corp.(1) 0
Lehman Brothers Inc. 0
Fidelity Capital Markets(1) 0
First Boston Corp.(1) 0
Bear, Stearns & Co., Inc.(1) 0
Morgan Stanley & Co., Inc.(1) 30,007
Smith Barney, Inc.(1) 0
Goldman Sachs & Co.(2) 53,763
Merrill Lynch, Inc.(2) 54,728
Swiss Bank Corp.(2) 0
Salomon Brothers, Inc.(2) 19,788
Prebon Securities(2) 0
Donaldson, Lufkin & Jenrette Corp.(2) 0
J.P. Morgan, Inc.(2) 54,842
Lummis & Co.(2) 0
UBS Securities, Inc.(2) 0
</TABLE>

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:

(n)
P(1+T) = ERV

- --------

(1) Broker commissions only.

(2) Broker principal transaction only.

-11-

<PAGE>

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, 1998:

Current Yield 5.48%

Effective Yield 5.63%

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

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.

-12-

<PAGE>

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, on an ongoing
basis, 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.

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,
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, 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").

-13-
<PAGE>

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.

-14-

<PAGE>

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.

-15-

<PAGE>

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.

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.

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

-16-

<PAGE>

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.

As of August 31, 1998, the Fund had a net tax basis capital loss carryover
of $48,676, which may be applied against any realized net taxable gains in each
succeeding year or until its expiration date of August 31, 2005, whichever
occurs first. As permitted by tax regulations, the Fund intends to defer a net
realized capital loss of $2,976 incurred from November 1, 1997 to August 31,
1998, and treat it as arising in fiscal 1999.

FINANCIAL STATEMENTS

The 1998 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.

-17-
<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.

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

-18-
<PAGE>

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.

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.

-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

STATEMENT OF ADDITIONAL INFORMATION

US TREASURY MONEY MARKET FUND

DECEMBER 29, 1998

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 29, 1998. 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.

-1-
<PAGE>

TABLE OF CONTENTS
<TABLE>
<S> <C>
STRUCTURE AND GOVERNANCE....................................................3

ORGANIZATION AND BUSINESS HISTORY.........................................3
SHAREHOLDER MEETINGS......................................................4
CONTROLLING SHAREHOLDERS..................................................4
PRINCIPAL SHAREHOLDERS....................................................4

OPERATION OF INVESTMENT COMPANY.............................................4

TRUSTEES AND OFFICERS.....................................................4
SERVICE PROVIDERS.........................................................6
ADVISOR...................................................................7
ADMINISTRATOR.............................................................7
CUSTODIAN AND TRANSFER AGENT..............................................8
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........................................10

INVESTMENTS................................................................11

INVESTMENT RESTRICTIONS..................................................11
INVESTMENT POLICIES......................................................12

TAXES......................................................................13

FINANCIAL STATEMENTS.......................................................13

APPENDIX - DESCRIPTION OF SECURITIES RATINGS...............................15
</TABLE>

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<PAGE>

STRUCTURE AND GOVERNANCE

ORGANIZATION AND BUSINESS HISTORY

<TABLE>
<S> <C>
-------------------------------------------------------------------
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 July 1, 1997
-------------------------------------------------------------------
SSgA Life Solutions Growth Fund July 1, 1997
-------------------------------------------------------------------
SSgA Life Solutions Income and Growth Fund July 1, 1997
-------------------------------------------------------------------
SSgA Special Equity Fund May 1, 1998
-------------------------------------------------------------------
SSgA High Yield Bond Fund May 5, 1998
-------------------------------------------------------------------
SSgA International Growth Opportunities Fund May 1, 1998
-------------------------------------------------------------------
SSgA Real Estate Equity Fund May 1, 1998
-------------------------------------------------------------------
SSgA Aggressive Equity Fund December 29, 1998
-------------------------------------------------------------------
</TABLE>

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<PAGE>

shall contain a provision to the effect that the shareholders are not personally
liable thereunder. The Master Trust Agreement also provides that a 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

CONTROLLING SHAREHOLDERS

The Trustees and officers of Investment Company, as a group, own less than 1% of
Investment Company's voting securities.

PRINCIPAL SHAREHOLDERS

As of December 1, 1998, the following shareholders owned of record 5% or more of
the issued and outstanding shares of the Fund. Such shares may be held pursuant
to a shareholder servicing arrangement in omnibus accounts for underlying
shareholders:

[square bullet] Turtle & Company, Sweep, P.O. Box 9427, Boston, MA 02209-9427 --
70%;

[square bullet] State Street Bank and Trust Company, Newport Office Park, 108
Myrtle Street AH3, North Quincy, MA 02171-1753 -- 6%;

[square bullet] Global Financial Asset Services Omnibus Control Account MT01,
State Street Bank and Trust Company, P.O. Box 1992, North
Quincy, MA 02171 -- 10%, and

[square bullet] New Covenant Trust Company, Short Term Fund, 200 East 12th
Street Suite B, Jeffersonville, IN 47130-3854 -- 8%.

OPERATION OF INVESTMENT COMPANY

TRUSTEES AND OFFICERS

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<PAGE>

Patrick J. Riley, Trustee. Born 11/30/48. One Corporate Place, 55 Ferncroft
Road, Danvers, MA 01923. Partner, Riley, Burke & Donahue, L.L.P. (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.

<TABLE>
<CAPTION>
----------------------------------------
Trustee Total Annual
Compensation
from Investment
Company per Fiscal
Year
----------------------------------------
<S> <C>
Lynn L. Anderson $0
----------------------------------------
William L. Marshall $55,500
----------------------------------------
</TABLE>

- --------
(1) "Interested Person" of the Investment Company, as defined in the 1940
Act.

-5-

<PAGE>

<TABLE>
<S> <C>
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
----------------------------------------
</TABLE>

<TABLE>
<CAPTION>
--------------------------------------------------------
Name of SSgA Fund Portfolio Amount of Total Annual
Trustee Compensation
(Including Out of Pocket
Expenses) Attributable to
Portfolio For the Fiscal
Year Ending August 31, 1998
--------------------------------------------------------
<S> <C>
Money Market Fund $141,247
--------------------------------------------------------
US Government Money Market 26,375
--------------------------------------------------------
Matrix Equity 19,405
--------------------------------------------------------
S&P 500 Index 40,384
--------------------------------------------------------
Small Cap 10,062
--------------------------------------------------------
Yield Plus 19,075
--------------------------------------------------------
Bond Market 3,995
--------------------------------------------------------
Emerging Markets 8,119
--------------------------------------------------------
US Treasury Money Market 30,263
--------------------------------------------------------
Growth & Income 2,928
--------------------------------------------------------
Intermediate 1,986
--------------------------------------------------------
Prime Money Market 51,054
--------------------------------------------------------
Tax Free Money Market 6,463
--------------------------------------------------------
Active International 3,338
--------------------------------------------------------
International Growth Opportunities(1) 62
--------------------------------------------------------
Real Estate Equity(1) 82
--------------------------------------------------------
High Yield Bond(1) 67
--------------------------------------------------------
Special Equity(1) 78
--------------------------------------------------------
Aggressive Equity(1) 0
--------------------------------------------------------
</TABLE>

SERVICE PROVIDERS

Each 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: PricewaterhouseCoopers LLP
</TABLE>

- --------
(1) These portfolios were either not operational or did not operate a full year
during fiscal 1998.

-6-
<PAGE>

ADVISOR

The Fund accrued the following expenses to Advisor for the fiscal years ended
August 31:

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
$1,983,638 in fiscal 1998, $921,450 in fiscal 1997 and $335,610 for fiscal 1996.

ADMINISTRATOR

The Fund accrued the following expenses to Administrator for the fiscal years
ended August 31:

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<PAGE>

DISTRIBUTOR

CUSTODIAN AND TRANSFER AGENT

INDEPENDENT ACCOUNTANTS

DISTRIBUTION PLAN

The Fund accrued the following expenses to Distributor for the fiscal years
ended August 31:

-8-
<PAGE>

For fiscal 1998, these amounts are reflective of the following individual
payments:

<TABLE>
<S> <C>
Advertising $ 10,748
Printing of Prospectuses 22,640
Compensation to Dealers --
Compensation to Sales Personnel 110,609
Other(1) 150,066
--------
$294,063
========
</TABLE>

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:

FEDERAL LAW AFFECTING STATE STREET

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.

- --------
(1) Other expenses may include such items as compensation for travel,
conferences and seminars for staff, subscriptions, office charges and
professional fees.

-9-
<PAGE>

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

During the fiscal year ended August 31, 1998, the Fund did not purchase
securities issued by regular broker dealers of the Fund, as defined by Rule
10b-10 of the 1940 Act.

YIELD AND TOTAL RETURN QUOTATIONS

(n)
P(1+T) = 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

-10-
<PAGE>

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 31,1998:

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.

INVESTMENTS

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:

-11-
<PAGE>

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.

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.

10. Make investments for the purpose of gaining control of an issuer's
management.

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

-12-
<PAGE>

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.

TAXES

-13-
<PAGE>

FINANCIAL STATEMENTS

-14-
<PAGE>

APPENDIX - DESCRIPTION OF SECURITIES RATINGS

Long-Term Corporation and Tax-Exempt Debt Ratings

Short-Term Corporate and Tax-Exempt Debt Ratings

-15-
<PAGE>

Tax-Exempt Note Ratings

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.

-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

STATEMENT OF ADDITIONAL INFORMATION

TAX FREE MONEY MARKET FUND

DECEMBER 29, 1998

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 dated December 29,
1998. 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.

-1-
<PAGE>

TABLE OF CONTENTS
<TABLE>
<S> <C>
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.......................................................................7
ADMINISTRATOR.................................................................7
DISTRIBUTOR...................................................................7
CUSTODIAN AND TRANSFER AGENT..................................................8
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............................................10

INVESTMENTS.....................................................................11

INVESTMENT RESTRICTIONS......................................................11
INVESTMENT POLICIES..........................................................12

TAXES...........................................................................14

FINANCIAL STATEMENTS............................................................16

APPENDIX-DESCRIPTION OF SECURITIES RATINGS......................................17
</TABLE>

-2-
<PAGE>

STRUCTURE AND GOVERNANCE

ORGANIZATION AND BUSINESS HISTORY

<TABLE>
<S> <C>
----------------------------------------------------------------------------------------
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 July 1, 1997
----------------------------------------------------------------------------------------
SSgA Life Solutions Growth Fund July 1, 1997
----------------------------------------------------------------------------------------
SSgA Life Solutions Income and Growth Fund July 1, 1997
----------------------------------------------------------------------------------------
SSgA Special Equity Fund May 1, 1998
----------------------------------------------------------------------------------------
SSgA High Yield Bond Fund May 5, 1998
----------------------------------------------------------------------------------------
SSgA International Growth Opportunities Fund May 1, 1998
----------------------------------------------------------------------------------------
SSgA Real Estate Equity Fund May 1, 1998
----------------------------------------------------------------------------------------
SSgA Aggressive Equity Fund December 29, 1998
----------------------------------------------------------------------------------------
</TABLE>

-3-
<PAGE>

SHAREHOLDER MEETINGS

CONTROLLING SHAREHOLDERS

The Trustees and officers of Investment Company, as a group, own less than 1% of
Investment Company's voting securities.

PRINCIPAL SHAREHOLDERS

As of December 1, 1998, the following shareholders owned of record
5% or more of the issued and outstanding shares of the Fund. Such
shares may be held pursuant to a shareholder servicing arrangement in
omnibus accounts for underlying shareholders:

[square bullet] Lazard Freres & Company LLC, 30 Rockefeller Plaza 57th
Floor, New York, NY 10112-0002-- 64%;

[square bullet] State Street Bank and Trust Company, Newport Office
Park, 108 Myrtle St. AH3, North Quincy, MA 02171-1753 -- 15%;
and

[square bullet] Turtle & Company, Sweep, P.O. Box 9427, Boston, MA 02209-9427
-- 14%.

TRUSTEES AND OFFICERS

- --------
(1) "Interested Person" of the Investment Company, as defined in the 1940 Act.

-4-
<PAGE>

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; Director, Frank Russell Company; Director and
Chairman of the Board, Frank Russell Company (Delaware); 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).

Patrick J. Riley, Trustee. Born 11/30/48. One Corporate Place, 55 Ferncroft
Road, Danvers, MA 01923. Partner, Riley, Burke & Donahue, L.L.P. (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.

-5-
<PAGE>

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------

Name of SSgA Fund Portfolio Amount of Total Annual Trustee
Compensation (Including Out of Pocket
Expenses) Attributable to Portfolio
For the Fiscal Year Ending August 31,
1998
--------------------------------------------------------------------------------
<S> <C>
Money Market Fund $141,247
--------------------------------------------------------------------------------
US Government Money Market 26,375
--------------------------------------------------------------------------------
Matrix Equity 19,405
--------------------------------------------------------------------------------
S&P 500 Index 40,384
--------------------------------------------------------------------------------
Small Cap 10,062
--------------------------------------------------------------------------------
Yield Plus 19,075
--------------------------------------------------------------------------------
Bond Market 3,995
--------------------------------------------------------------------------------
Emerging Markets 8,119
--------------------------------------------------------------------------------
US Treasury Money Market 30,263
--------------------------------------------------------------------------------
Growth & Income 2,928
--------------------------------------------------------------------------------
Intermediate 1,986
--------------------------------------------------------------------------------
Prime Money Market 51,054
--------------------------------------------------------------------------------
Tax Free Money Market 6,463
--------------------------------------------------------------------------------
Active International 3,338
--------------------------------------------------------------------------------
International Growth Opportunities(1) 62
--------------------------------------------------------------------------------
Real Estate Equity(1) 82
--------------------------------------------------------------------------------
High Yield Bond(1) 67
--------------------------------------------------------------------------------
Special Equity(1) 78
--------------------------------------------------------------------------------
Aggressive Equity(1) 0
--------------------------------------------------------------------------------
</TABLE>

OPERATION OF INVESTMENT COMPANY

SERVICE PROVIDERS

Each Fund's necessary day-to-day operations are performed by separate business
organizations under contract to Investment Company. The principal service
providers are:

- --------
1 These portfolios were either not operational or did not operate a full year
during fiscal 1998.

-6-
<PAGE>

ADVISOR

The Fund accrued the following expenses to Advisor for the fiscal years ended
August 31:

ADMINISTRATOR

The Fund accrued the following expenses to Administrator for the fiscal years
ended August 31:

DISTRIBUTOR

-7-
<PAGE>

CUSTODIAN AND TRANSFER AGENT

INDEPENDENT ACCOUNTANTS

DISTRIBUTION PLAN

The Fund accrued the following expenses to Distributor for the fiscal years
ended August 31:

For fiscal 1998, these amounts are reflective of the following individual
payments:

-8-
<PAGE>

<TABLE>
<S> <C>
Advertising $ 1,988
Printing of Prospectuses 6,641
Compensation to Dealers 292,401
Compensation to Sales Personnel 21,950
Other(1) 14,241
--------
$337,221
========
</TABLE>

The Fund accrued expenses in the following amount to Advisor, under Service
Agreements pursuant to Rule 12b-1, for the fiscal periods ended August 31:

FEDERAL LAW AFFECTING STATE STREET

VALUATION OF FUND SHARES

The Fund determines net asset value per share twice each business day, as of 12
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.

- --------

(1) Other expenses may include such items as compensation for travel,
conferences and seminars for staff, subscriptions, office charges and
professional fees.

-9-
<PAGE>

BROKERAGE PRACTICES

YIELD AND TOTAL RETURN QUOTATIONS

(n)
P(1+T) = ERV

-10-
<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 31,1998:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------
7-day 30-day
--------------------------------------------------------------------------
<S> <C> <C>
Current Yield 3.05% 2.90%
--------------------------------------------------------------------------
Effective Yield 3.10 2.94
--------------------------------------------------------------------------
</TABLE>

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,
1998:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
7-day 30-day
---------------------------------------------------------------------------------
<S> <C> <C>
Tax Equivalent Current Yield 5.05% 4.81%
---------------------------------------------------------------------------------
Tax Equivalent Effective Yield 5.13 5.29
---------------------------------------------------------------------------------
</TABLE>

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

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:

-11-
<PAGE>

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.

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, on an ongoing
basis, 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.

INVESTMENT POLICIES

-12-
<PAGE>

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.

-13-
<PAGE>

TAXES

-14-
<PAGE>

As of August 31, 1998, the Fund had a net tax basis capital loss
carryforward of $5,580, $10,856 and $11,279, which may be applied against any
realized net taxable gains of each succeeding year or until its expiration of
August 31, 2004, 2005 and 2006, respectively, whichever occurs first.

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.

-15-
<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.

FINANCIAL STATEMENTS

-16-
<PAGE>

APPENDIX-DESCRIPTION OF SECURITIES RATINGS

Ratings of Debt Instruments and Municipal Securities

Moody's Investors Service, Inc. ("Moody's") -- Long Term Debt
Ratings.

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.

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.

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.

-17-
<PAGE>

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

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.

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.

-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

STATEMENT OF ADDITIONAL INFORMATION

YIELD PLUS FUND

DECEMBER 29, 1998

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 29,
1998. 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.

-1-
<PAGE>

TABLE OF CONTENTS

<TABLE>
<S> <C>
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.....................................................................7
ADMINISTRATOR...............................................................7
DISTRIBUTOR.................................................................7
CUSTODIAN AND TRANSFER AGENT................................................8
INDEPENDENT ACCOUNTANTS.....................................................8
DISTRIBUTION PLAN...........................................................8
FEDERAL LAW AFFECTING STATE STREET..........................................9
VALUATION OF FUND SHARES....................................................9
BROKERAGE PRACTICES........................................................10
PORTFOLIO TURNOVER RATE....................................................11
YIELD AND TOTAL RETURN QUOTATIONS..........................................11

INVESTMENTS...................................................................12

INVESTMENT RESTRICTIONS....................................................13
INVESTMENT POLICIES........................................................14
HEDGING STRATEGIES AND RELATED INVESTMENT TECHNIQUES.......................17

TAXES.........................................................................20

FINANCIAL STATEMENTS..........................................................21

APPENDIX: DESCRIPTION OF SECURITIES RATINGS..................................22

RATINGS OF DEBT INSTRUMENTS................................................22
RATINGS OF COMMERCIAL PAPER................................................22
</TABLE>

-2-
<PAGE>

STRUCTURE AND GOVERNANCE

ORGANIZATION AND BUSINESS HISTORY

<TABLE>
<S> <C>
----------------------------------------------------------------------------
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 July 1, 1997
----------------------------------------------------------------------------
SSgA Life Solutions Growth Fund July 1, 1997
----------------------------------------------------------------------------
SSgA Life Solutions Income and Growth Fund July 1, 1997
----------------------------------------------------------------------------
SSgA Special Equity Fund May 1, 1998
----------------------------------------------------------------------------
SSgA High Yield Bond Fund May 5, 1998
----------------------------------------------------------------------------
SSgA International Growth Opportunities Fund May 1, 1998
----------------------------------------------------------------------------
SSgA Real Estate Equity Fund May 1, 1998
----------------------------------------------------------------------------
SSgA Aggressive Equity Fund December 29, 1998
----------------------------------------------------------------------------
</TABLE>

-3-
<PAGE>

SHAREHOLDER MEETINGS

CONTROLLING SHAREHOLDERS

The Trustees and officers of Investment Company, as a group, own less than 1% of
Investment Company's voting securities.

PRINCIPAL SHAREHOLDERS

As of December 1, 1998, the following shareholders owned of record 5% or more of
the issued and outstanding shares of the Fund. Such shares may be held pursuant
to a shareholder servicing arrangement in omnibus accounts for underlying
shareholders:

[square bullet] Stock Performance Index Futures Fund CM18, a fund of State
Street Bank and Trust Company, 225 Franklin Street, Boston, MA
02110-2804 -- 70%; and

[square bullet] State Street Solutions, State Street Bank and Trust Company,
TTE, P.O. Box 1389, Boston, MA 02104-1389 -- 7%.

TRUSTEES AND OFFICERS

- --------
1 "Interested Person" of the Investment Company, as defined in the 1940 Act.

-4-
<PAGE>

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; Director,
Frank Russell Company; Director and Chairman of the Board, Frank Russell Company
(Delaware); 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).

Patrick J. Riley, Trustee. Born 11/30/48. One Corporate Place, 55 Ferncroft
Road, Danvers, MA 01923. Partner, Riley, Burke & Donahue, L.L.P. (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.

<TABLE>
<CAPTION>
----------------------------------------------------------
Trustee Total Annual Compensation
from Investment Company per
Fiscal Year
----------------------------------------------------------
<S> <C>
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
----------------------------------------------------------
</TABLE>

-5-
<PAGE>

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Name of SSgA Fund Portfolio Amount of Total Annual Trustee
Compensation (Including Out of Pocket
Expenses) Attributable to Portfolio
For the Fiscal Year Ending August 31,
1998
--------------------------------------------------------------------------------
<S> <C>
Money Market Fund $141,247
--------------------------------------------------------------------------------
US Government Money Market 26,375
--------------------------------------------------------------------------------
Matrix Equity 19,405
--------------------------------------------------------------------------------
S&P 500 Index 40,384
--------------------------------------------------------------------------------
Small Cap 10,062
--------------------------------------------------------------------------------
Yield Plus 19,075
--------------------------------------------------------------------------------
Bond Market 3,995
--------------------------------------------------------------------------------
Emerging Markets 8,119
--------------------------------------------------------------------------------
US Treasury Money Market 30,263
--------------------------------------------------------------------------------
Growth & Income 2,928
--------------------------------------------------------------------------------
Intermediate 1,986
--------------------------------------------------------------------------------
Prime Money Market 51,054
--------------------------------------------------------------------------------
Tax Free Money Market 6,463
--------------------------------------------------------------------------------
Active International 3,338
--------------------------------------------------------------------------------
International Growth Opportunities(1) 62
--------------------------------------------------------------------------------
Real Estate Equity(1) 82
--------------------------------------------------------------------------------
High Yield Bond(1) 67
--------------------------------------------------------------------------------
Special Equity(1) 78
--------------------------------------------------------------------------------
Aggressive Equity(1) 0
--------------------------------------------------------------------------------
</TABLE>

OPERATION OF INVESTMENT COMPANY

SERVICE PROVIDERS

Each Fund's necessary day-to-day operations are performed by separate business
organizations under contract to Investment Company. The principal service
providers are:

- --------

(1) These portfolios were either not operational or did not operate a full year
during fiscal 1998.

-6-
<PAGE>

ADVISOR

The Fund accrued the following expenses to Advisor for the fiscal years ended
August 31:

ADMINISTRATOR

The Fund accrued the following expenses to Administrator for the fiscal years
ended August 31:

DISTRIBUTOR

-7-
<PAGE>

CUSTODIAN AND TRANSFER AGENT

INDEPENDENT ACCOUNTANTS

DISTRIBUTION PLAN

The Fund accrued expenses in the following amounts to Distributor for the fiscal
years ended August 31:

For fiscal 1998, these amounts are reflective of the following individual
payments:

<TABLE>
<S> <C>
Advertising $ 22,148
Printing of Prospectuses 14,939
Compensation to Dealers 23,540
Compensation to Sales Personnel 69,861

-8-

<PAGE>

Other(1) 110,469
--------
$240,957
========
</TABLE>

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:

FEDERAL LAW AFFECTING STATE STREET

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.

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 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 the Board of Trustees determine 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.

With the exceptions noted below, the Fund values portfolio securities at fair
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 value of such securities.

- --------

(1) Other expenses may include such items as compensation for travel,
conferences and seminars for staff, subscriptions, office charges and
professional fees.

-9-
<PAGE>

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. Some international
securities trade on days that the Fund is not open for business. As a result,
the net asset value of Fund shares may fluctuate on days when Fund shareholders
may not buy or sell Fund shares.

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

-10-
<PAGE>

<TABLE>
<CAPTION>
($000)
--------------------
<S> <C>
Arnhold & S. Bleichroeder(1) 0
State Street Brokerage Services, Inc.(1) 0
Investment Technology Group Inc.(1) 0
Broadcort Capital Corp.(1) 0
Lehman Brothers Inc. 7,475
Fidelity Capital Markets(1) 0
First Boston Corp.(1) 0
Bear, Stearns & Co., Inc.(1) 0
Morgan Stanley & Co., Inc.(1) 0
Smith Barney, Inc.(1) 0
Goldman Sachs & Co.(2) 4,988
Merrill Lynch, Inc.(2) 19,967
Swiss Bank Corp.(2) 0
Salomon Brothers, Inc.(2) 0
Prebon Securities(2) 0
Donaldson, Lufkin & Jenrette Corp.(2) 0
J.P. Morgan, Inc.(2) 0
Lummis & Co.(2) 0
UBS Securities, Inc.(2) 0
</TABLE>

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 following were the portfolio turnover rates for the Fund for the fiscal
years ended August 31:

YIELD AND TOTAL RETURN QUOTATIONS

(n)
P(1+T) = 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

- --------

(1) Broker commissions only.

(2) Broker principal transaction only.

-11-
<PAGE>

The average annual total return for the Fund is as follows:

<TABLE>
<CAPTION>
----------------------------------------------
One Year Ending August Inception to August
31, 1998 31, 1998(1)
----------------------------------------------
<S> <C>
5.40% 5.04%
----------------------------------------------
</TABLE>

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 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. The
yield quoted is not indicative of future results. Total return and other
performance figures are based on historical earnings and are not indicative of
future performance.

The following is the current 30-day yield for the Yield Plus Fund for the period
ended August 31, 1998:

o 30-day Yield (Annualized) .46%

INVESTMENTS

- --------

(1) Periods less than one year are not annualized. The Fund commenced operations
on November 9, 1992.

-12-
<PAGE>

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:

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.

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.

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, on an ongoing
basis, 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.

-13-

<PAGE>

INVESTMENT POLICIES

The Fund may invest in the following instruments:

-14-
<PAGE>

-15-
<PAGE>

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.

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.

-16-
<PAGE>

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.

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.

-17-
<PAGE>

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.

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."

The Fund will not purchase call options 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.

Stock Index Options and Financial Futures. The Fund may invest in interest rate
futures contracts, foreign currency futures contracts, or stock index futures
contracts, and options thereon that are traded on a US or foreign exchange or
board of trade, as specified in the Prospectuses. An interest rate, foreign
currency or index futures contract provides for the future sale by one party and
purchase by another party of a specified quantity of a financial instruments
(such as GNMA certificates or Treasury bonds) or foreign currency or the cash
value of an index at a specified price at a future date. A futures contract on
an index (such as the S&P 500) is an agreement between two parties (buyer and
seller) to take or make delivery of an amount of cash equal to the difference
between the value of the index at the close of the last trading day of the
contract and the price at which the index contract was originally written. In
the case of futures contracts traded on US exchanges, the exchange itself or an
affiliated clearing corporation assumes the opposite side of each transaction
(i.e., as buyer or seller). A futures contract may be satisfied or closed out by
delivery or purchase, as the case may be, of the financial instrument or by
payment of the change in the cash value of the index. Frequently, using futures
to effect a particular strategy instead of using the underlying or related
security or index will result in lower transaction costs being incurred.
Although the value of an index may be a function of the value of certain
specified securities, no physical delivery of these securities is made. A public
market exists in futures contracts covering interest rates, several indexes and
a number of financial instruments and foreign currencies. For example: the S&P
500; the Russell 2000(R); Nikkei 225; CAC-40; FT-SE 100; the NYSE composite; US
Treasury bonds; US Treasury notes; GNMA Certificates; three-month US Treasury
bills; Eurodollar certificates of deposit; the Australian Dollar; the Canadian
Dollar; the British Pound; the German Mark; the Japanese Yen; the French Franc;
the Swiss Franc; the Mexican

-18-
<PAGE>

Peso; and certain multinational currencies, such as the European Currency Unit
("ECU"). It is expected that other futures contracts will be developed and
traded in the future.

Each Fund may also purchase and write call and put options on futures contracts.
Options on futures contracts possess many of the same characteristics as options
on securities and indexes (discussed above). A futures option gives the holder
the right, in return for the premium paid, to assume a long position (in the
case of a call) or short position (in the case of a put) in a futures contract
at a specified exercise price at any time during the period of the option. Upon
exercise of a call option, the holder acquires a long position in the futures
contract and the writer is assigned the opposite short position. In the case of
a put option, the opposite is true. An option on a futures contract may be
closed out (before exercise or expiration) by an offsetting purchase or sale of
an option on a futures contract of the same series.

As long as required by regulatory authorities, each Fund will limit its use of
futures contracts and options on futures contracts to hedging transactions. For
example, a Fund might use futures contracts to hedge against anticipated changes
in interest rates that might adversely affect either the value of the Fund's
securities or the price of the securities which the Fund intends to purchase.
Additionally, a Fund may use futures contracts to create equity exposure for its
cash reserves for liquidity purposes.

A Fund will only enter into futures contracts and options on futures contracts
which are standardized and traded on a US or foreign exchange, board of trade,
or similar entity, or quoted on an automated quotation system. A Fund will enter
into a futures contract only if the contract is "covered" or if the Fund at all
times maintains with the Custodian liquid assets equal to or greater than the
fluctuating value of the contract (less any margin or deposit). A Fund will
write a call or put option on a futures contract only if the option is
"covered."

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."

-19-
<PAGE>

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.

TAXES

-20-
<PAGE>

As of August 31, 1998, the Fund had a net tax basis capital loss carryover of
$1,086,433, which may be applied against any realized net taxable gains of each
succeeding year until the expiration of August 31, 2004. As permitted by tax
regulations, the Fund intends to defer a net realized capital loss of $842,006
incurred from November 1, 1997 to August 31, 1998 and treat it as arising in
fiscal year 1999.

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.

FINANCIAL STATEMENTS

-21-
<PAGE>

APPENDIX: DESCRIPTION OF SECURITIES RATINGS

RATINGS OF DEBT INSTRUMENTS

Moody's Investors Service, Inc. ("Moody's") -- Long Term Debt Ratings.

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.

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

-22-
<PAGE>

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 Not Prime do not fall within any of the Prime rating
categories.

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.

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 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.

o 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.

-23-
<PAGE>

o 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.

o 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.

o Default. Duff 5--Issuer failed to meet scheduled principal and/or interest
payments.

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.

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.

-24-
<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

INTERMEDIATE FUND

DECEMBER 29, 1998

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 29,
1998. 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.

-1-
<PAGE>

TABLE OF CONTENTS

<TABLE>
<S> <C>
STRUCTURE AND GOVERNANCE.......................................................3

OPERATION OF INVESTMENT COMPANY................................................6

SERVICE PROVIDERS...........................................................6
ADVISOR.....................................................................7
ADMINISTRATOR...............................................................7
DISTRIBUTOR.................................................................8
CUSTODIAN AND TRANSFER AGENT................................................8
INDEPENDENT ACCOUNTANTS.....................................................8
DISTRIBUTION PLAN...........................................................8
FEDERAL LAW AFFECTING STATE STREET..........................................9
VALUATION OF FUND SHARES....................................................9
BROKERAGE PRACTICES........................................................10
PORTFOLIO TURNOVER RATE....................................................11
YIELD AND TOTAL RETURN QUOTATIONS..........................................11

INVESTMENTS...................................................................12

TAXES.........................................................................21

FINANCIAL STATEMENTS..........................................................21

APPENDIX: DESCRIPTION OF SECURITIES RATINGS..................................22

RATINGS OF DEBT INSTRUMENTS................................................22
RATINGS OF COMMERCIAL PAPER................................................22
</TABLE>

-2-
<PAGE>

STRUCTURE AND GOVERNANCE

ORGANIZATION AND BUSINESS HISTORY

<TABLE>
-----------------------------------------------------------------------------------------
<S> <C>
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 July 1, 1997
-----------------------------------------------------------------------------------------
SSgA Life Solutions Growth Fund July 1, 1997
-----------------------------------------------------------------------------------------
SSgA Life Solutions Income and Growth Fund July 1, 1997
-----------------------------------------------------------------------------------------
SSgA Special Equity Fund May 1, 1998
-----------------------------------------------------------------------------------------
SSgA High Yield Bond Fund May 5, 1998
-----------------------------------------------------------------------------------------
SSgA International Growth Opportunities Fund May 1, 1998
-----------------------------------------------------------------------------------------
SSgA Real Estate Equity Fund May 1, 1998
-----------------------------------------------------------------------------------------
SSgA Aggressive Equity Fund December 29, 1998
-----------------------------------------------------------------------------------------
</TABLE>

-3-
<PAGE>

SHAREHOLDER MEETINGS

CONTROLLING SHAREHOLDERS

The Trustees and officers of Investment Company, as a group, own less than 1% of
Investment Company's voting securities.

PRINCIPAL SHAREHOLDERS

As of December 1, 1998, the following shareholders owned of record 5% or more of
the issued and outstanding shares of the Fund. Such shares may be held pursuant
to a shareholder servicing arrangement in omnibus accounts for underlying
shareholders:

[squarebullet] State Street Solutions, State Street Bank and Trust Company,
TTEE, P.O. Box 1389, Boston, MA 02104-1389 -- 17%; and

[squarebullet] Windachor, 1776 Heritage Drive 4th Floor, Adams Building 4W,
North Quincy, MA 02171-2119 -- 10%.

TRUSTEES AND OFFICERS

- --------
(1) "Interested Person" of the Investment Company, as defined in the 1940 Act.

-4-
<PAGE>

Patrick J. Riley, Trustee. Born 11/30/48. One Corporate Place, 55 Ferncroft
Road, Danvers, MA 01923. Partner, Riley, Burke & Donahue, L.L.P. (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.

-5-
<PAGE>

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
Name of SSgA Fund Portfolio Amount of Total Annual Trustee
Compensation (Including Out of Pocket
Expenses) Attributable to Portfolio
For the Fiscal Year Ending August 31,
1998
---------------------------------------------------------------------------------
<S> <C>
Money Market Fund $141,247
---------------------------------------------------------------------------------
US Government Money Market 26,375
---------------------------------------------------------------------------------
Matrix Equity 19,405
---------------------------------------------------------------------------------
S&P 500 Index 40,384
---------------------------------------------------------------------------------
Small Cap 10,062
---------------------------------------------------------------------------------
Yield Plus 19,075
---------------------------------------------------------------------------------
Bond Market 3,995
---------------------------------------------------------------------------------
Emerging Markets 8,119
---------------------------------------------------------------------------------
US Treasury Money Market 30,263
---------------------------------------------------------------------------------
Growth & Income 2,928
---------------------------------------------------------------------------------
Intermediate 1,986
---------------------------------------------------------------------------------
Prime Money Market 51,054
---------------------------------------------------------------------------------
Tax Free Money Market 6,463
---------------------------------------------------------------------------------
Active International 3,338
---------------------------------------------------------------------------------
International Growth Opportunities(1) 62
---------------------------------------------------------------------------------
Real Estate Equity(1) 82
---------------------------------------------------------------------------------
High Yield Bond(1) 67
---------------------------------------------------------------------------------
Special Equity(1) 78
---------------------------------------------------------------------------------
Aggressive Equity(1) 0
---------------------------------------------------------------------------------
</TABLE>

OPERATION OF INVESTMENT COMPANY

SERVICE PROVIDERS

Each Fund's necessary day-to-day operations are performed by separate business
organizations under contract to Investment Company. The principal service
providers are:

- --------

(1) These portfolios were either not operational or did not operate a full year
during fiscal 1998.

-6-
<PAGE>

ADVISOR

The Fund accrued the following expenses to Advisor for the fiscal period ended
August 31:

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 $349,406
in fiscal 1998, $327,656 in fiscal 1997 and $322,501 in fiscal 1996.

ADMINISTRATOR

The Fund accrued the following expenses to Administrator for the fiscal period
ended August 31:

-7-
<PAGE>

DISTRIBUTOR

CUSTODIAN AND TRANSFER AGENT

INDEPENDENT ACCOUNTANTS

DISTRIBUTION PLAN

The Fund accrued expenses to Distributors for the fiscal period ended August 31:

For fiscal 1998, these amounts are reflective of the following individual
payments:

-8-
<PAGE>

<TABLE>
<S> <C>
Advertising $ 894
Printing of Prospectuses 3,832
Compensation to Dealers 169
Compensation to Sales Personnel 6,527
Other(1) 11,496
-------
$22,918
=======
</TABLE>

The Fund accrued expenses to State Street, as Advisor, under a Service Agreement
pursuant to Rule 12b-1, for the fiscal period ended August 31:

FEDERAL LAW AFFECTING STATE STREET

VALUATION OF FUND SHARES

- --------

(1) Other expenses may include such items as compensation for travel,
conferences and seminars for staff, subscriptions, office charges and
professional fees.

-9-
<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 fair
value of such securities. Some international securities trade on days that the
Fund is not open for business. As a result, the net asset value of Fund shares
may fluctuate on days when Fund shareholders may not buy or sell Fund shares.

BROKERAGE PRACTICES

-10-
<PAGE>

securities executed or commissions received on behalf of the Fund. The value of
broker-dealer securities held as of August 31, 1998, is as follows:

<TABLE>
<CAPTION>
($000)
--------------------
<S> <C>
Arnhold & S. Bleichroeder(1) 0
State Street Brokerage Services, Inc.(1) 0
Investment Technology Group Inc.(1) 0
Broadcort Capital Corp.(1) 0
Lehman Brothers Inc. 1,162
Fidelity Capital Markets(1) 0
First Boston Corp.(1) 0
Bear, Stearns & Co., Inc.(1) 0
Morgan Stanley & Co., Inc.(1) 0
Smith Barney, Inc.(1) 0
Goldman Sachs & Co.(2) 0
Merrill Lynch, Inc.(2) 1,011
Swiss Bank Corp.(2) 0
Salomon Brothers, Inc.(2) 0
Prebon Securities(2) 0
Donaldson, Lufkin & Jenrette Corp.(2) 0
J.P. Morgan, Inc.(2) 0
Lummis & Co.(2) 0
UBS Securities, Inc.(2) 0
</TABLE>

PORTFOLIO TURNOVER RATE

The portfolio turnover rate for the Fund for each of the fiscal periods ended
August 31, was:

YIELD AND TOTAL RETURN QUOTATIONS

- --------

(1) Broker commissions only.

(2) Broker principal transaction only.

(3) The turnover rate includes monthly "To Be Announced" trades.

-11-
<PAGE>

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:

(n)
P(1+T) = 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 average annual total return for the Fund is as follows:

<TABLE>
<CAPTION>
One Year Ending August 31, Inception to
1998 August 31,1998(1)
<S> <C>
8.64% 5.36%
</TABLE>

Total returns and other performance figures are based on historical earnings and
are not indicative of future performance.

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 30-day yield (annualized) for the Fund for the period ended August
31, 1998 was 5.16%.

- --------

(1) Periods less than one year are not annualized. The Fund commenced operations
on September 1, 1993.

-12-
<PAGE>

INVESTMENTS

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:

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.

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.

9. Issue senior securities, except as permitted by its investment
objective, policies and restrictions, and except as permitted by the
1940 Act.

-13-
<PAGE>

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.

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:

-14-
<PAGE>

-15-
<PAGE>

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.

-16-
<PAGE>

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.

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

-17-
<PAGE>

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."

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.

-18-
<PAGE>

(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.

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 (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.

-19-
<PAGE>

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.

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.

-20-
<PAGE>

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.

TAXES

-21-
<PAGE>

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.

Foreign shareholders should consult with their tax advisors asn to if and how
the federal income tax and its withholding requirements applies to them.

FINANCIAL STATEMENTS

-22-
<PAGE>

APPENDIX: DESCRIPTION OF SECURITIES RATINGS

RATINGS OF DEBT INSTRUMENTS

Moody's Investors Service, Inc. ("Moody's") -- Long Term Debt Ratings.

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.

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

-23-
<PAGE>

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.