N-30D 1 0001.txt SSGA 2000 N-30D N-30D TABLE OF CONTENTS SSgA Fund Name N-30D Page -------------- ---------- SSgA-SM-Life Solutions-SM- Funds .................................. Income and Growth Fund ....................................... Balanced Fund ................................................ Growth Fund .................................................. Money Market Fund ................................................. Matrix Equity Fund ................................................ Prime Money Market Fund ........................................... Small Cap Fund .................................................... US Treasury Money Market Fund ..................................... Yield Plus Fund ................................................... Bond Market Fund .................................................. S&P 500 Index Fund ................................................ Active International Fund ......................................... Tax Free Money Market Fund ........................................ US Government Money Market Fund ................................... Growth and Income Fund ............................................ Intermediate Fund ................................................. Intermediate Municipal Bond Fund................................... Emerging Markets Fund ............................................. Tuckerman Active REIT Fund ........................................ International Growth Opportunities ................................ High Yield Bond ................................................... Special Equity .................................................... Aggressive Equity Fund ............................................ IAM Shares Fund ................................................... [COVER GRAPHIC] SSgA(R) funds ANNUAL REPORT Life Solutions Funds August 31, 2000 SSgA(R) Life Solutions(sm) Funds Income and Growth Fund Balanced Fund Growth Fund Annual Report August 31, 2000 Table of Contents Page Chairman's Letter ................................................... 4 Portfolio Management Discussion and Analysis ........................ 6 Report of Independent Accountants ................................... 11 Income and Growth Fund Financial Statements ......................... 12 Financial Highlights ................................................ 16 Balanced Fund Financial Statements .................................. 18 Financial Highlights .............................................. 22 Growth Fund Financial Statements .................................... 24 Financial Highlights .............................................. 28 Notes to Financial Statements ....................................... 29 Tax Information ..................................................... 37 Fund Management and Service Providers ............................... 38 "SSgA(R)" is a registered trademark and "Life Solutions(sm)" is a registered service mark of State Street Corporation and is licensed for use by the SSgA Funds. This report is prepared from the books and records of the Funds and it is submitted for the general information of shareholders. This information is for distribution to prospective investors only when preceded or accompanied by a SSgA Funds Prospectus containing more complete information concerning the investment objectives and operations of the Funds, charges and expenses. The Prospectus should be read carefully before an investment is made. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. International markets entail different risks than those typically associated with domestic markets, including currency fluctuations, political and economic instability, accounting changes and foreign taxation. Securities may be less liquid and more volatile. Please see the Prospectus for further details. Russell Fund Distributors, Inc., is the distributor of the SSgA Funds. SSgA Life Solutions Funds -------------------------------------------------------------------------------- Letter From the Chairman of State Street Global Advisors -------------------------------------------------------------------------------- Dear Shareholders, It is our pleasure to provide you with the SSgA Funds annual report for the fiscal year ended August 31, 2000. The SSgA Fund Family has grown to include twenty-four portfolios with over $21 billion in assets as of August 31, 2000. The Fund Family provides a wide range of strategies covering the world's major markets. The enclosed information provides an overview of the investment process for the SSgA Life Solutions Funds. This overview contains the portfolio management discussion, performance updates and financial information for the Fund. In an ongoing effort to develop competitive products and services that provide investment solutions for our clients, we have added the SSgA Intermediate Municipal Bond Fund to the SSgA Fund Family. This Fund's investment objective seeks to provide federally tax-exempt current income by investing primarily in a diversified portfolio of municipal debt securities with a dollar-weighted average maturity between three and ten years. We are also pleased with the success of our SSgA Emerging Markets and SSgA Growth and Income Funds as they were included in Money(R) Magazine's June 2000 issue listing of the 'Top 100 Mutual Funds'. This is the second year in a row that these funds have been selected. Additionally, the SSgA Tax Free Money Market and the SSgA Active International Funds have achieved five-year performance history during the 2000 fiscal year. Currently, all of our SSgA Money Market Funds have at least a five-year performance history. We strive to meet our clients' needs by providing funds with long-term records and competitive performance. We would like to thank you for choosing the SSgA Funds. Our reputation is based on our tradition of designing and delivering exceptional financial services to our clients. We look forward to continue sharing the benefit of our experience with you. Sincerely, /s/ Nicholas A. Lopardo Nicholas A. Lopardo State Street Global Advisors Chairman and Chief Executive Officer /s/ Timothy B. Harbert Timothy B. Harbert State Street Global Advisors President and Chief Operating Officer, SSgA 4 Annual Report SSgA Life Solutions Funds -------------------------------------------------------------------------------- Management of the Funds -------------------------------------------------------------------------------- [PHOTO] Nicholas A. Lopardo Chairman and Chief Executive Officer [PHOTO] Timothy B. Harbert President and Chief Operating Officer A Team Approach to Investment Management Our investment strategies are the product of the combined experience of our professional staff. Portfolio Managers work together to develop and enhance the techniques that drive our investment processes. As a result, the portfolios we manage benefit from the knowledge of the entire team. Mr. Heydon Traub, CFA, Principal, has been the portfolio manager primarily responsible for investment decisions regarding the SSgA Life Solutions Funds since April 1999. He joined the firm in 1987, and currently leads a team responsible for the management of client assets in excess of $10 billion invested in 50 developed and emerging markets. He is one of the developers of the firm's country, stock, and currency selection processes and continues to lead the research effort to enhance those strategies. Mr. Traub has written several articles which have been published in leading investment journals and he currently writes a monthly column on global investing for the Boston Business Journal. He holds a BA in Economics and an MBA in Finance and Accounting from the University if Chicago. There are two other portfolio managers working with Mr. Traub. Annual Report 5 SSgA Life Solutions Funds -------------------------------------------------------------------------------- Portfolio Management Discussion and Analysis -------------------------------------------------------------------------------- Strategy: Each Life Solutions Fund allocates its assets by investing in shares of a combination of underlying SSgA funds. By investing in the underlying component funds, each Life Solutions Fund seeks to maintain different allocations among 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 seek to optimize performance consistent with its investment objective. Objective: Life Solutions Income and Growth Fund seeks income and, secondarily, long-term growth of capital. -------------------------------------------------------------------------------- GROWTH OF A $10,000 INVESTMENT
Life Solutions Lehman Brothers Dates Income and Growth Fund Russell 3000(R) Index++ Aggregate Bond Index+++ Composite Market Index** Inception* $10,000 $10,000 $10,000 $10,000 1997 $10,197 $10,351 $11,057 $10,204 1998 $10,558 $10,709 $11,258 $11,032 1999 $11,747 $14,839 $11,350 $12,606 2000 $13,125 $17,890 $12,205 $14,160
================================================================================ -------------------------------------------------------------------------------- SSgA Life Solutions Income and Growth Fund -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return ---------------------- ------------- ------------ 1 Year $ 11,173 11.73% Inception $ 13,125 8.97%+ -------------------------------------------------------------------------------- Composite Market Index ** -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return ---------------------- ------------- ------------ 1 Year $ 11,237 12.37% Inception $ 14,160 11.61%+ -------------------------------------------------------------------------------- Russell 3000(R) Index ++ -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return ---------------------- ------------- ------------ 1 Year $ 12,063 20.63% Inception $ 17,890 20.16%+ -------------------------------------------------------------------------------- Lehman Brothers Aggregate Bond Index +++ -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return ---------------------- ------------- ------------ 1 Year $ 10,756 7.56% Inception $ 12,205 6.50%+ ** 35% Russell 3000(R) Index 5% MSCI EAFE Index 60% Lehman Brothers Aggregate Bond Index See related Notes for Index definitions. 6 Annual Report SSgA Life Solutions Funds -------------------------------------------------------------------------------- Portfolio Management Discussion and Analysis -------------------------------------------------------------------------------- Objective: Life Solutions Balanced Fund seeks a balance of growth of capital and income. -------------------------------------------------------------------------------- GROWTH OF A $10,000 INVESTMENT
Life Solutions Lehman Brothers Dates Balanced Fund Russell 3000(R) Index++ Aggregate Bond Index+++ Composite Market Index** Inception* $10,000 $10,000 $10,000 $10,000 1997 $10,212 $10,351 $11,057 $10,189 1998 $10,246 $10,709 $11,258 $10,855 1999 $12,079 $14,839 $11,350 $13,160 2000 $13,841 $17,890 $12,205 $15,059
================================================================================ -------------------------------------------------------------------------------- SSgA Life Solutions Balanced Fund -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return ---------------------- ------------- ------------ 1 Year $ 11,459 14.59% Inception $ 13,841 10.81%+ -------------------------------------------------------------------------------- Composite Market Index ** -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return ---------------------- ------------- ------------ 1 Year $ 11,446 14.46% Inception $ 15,059 13.80%+ -------------------------------------------------------------------------------- Russell 3000(R) Index ++ -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return ---------------------- ------------- ------------ 1 Year $ 12,063 20.63% Inception $ 17,890 20.16%+ -------------------------------------------------------------------------------- Lehman Brothers Aggregate Bond Index +++ -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return ---------------------- ------------- ------------ 1 Year $ 10,756 7.56% Inception $ 12,205 6.50%+ ** 50% Russell 3000(R) Index 10% MSCI EAFE Index 40% Lehman Brothers Aggregate Bond Index See related Notes for Index definitions. Annual Report 7 SSgA Life Solutions Funds -------------------------------------------------------------------------------- Portfolio Management Discussion and Analysis -------------------------------------------------------------------------------- Objective: Life Solutions Growth Fund seeks long-term growth of capital. -------------------------------------------------------------------------------- GROWTH OF A $10,000 INVESTMENT
Life Solutions Lehman Brothers Dates Growth Fund Russell 3000(R) Index++ Aggregate Bond Index+++ Composite Market Index** Inception* $10,000 $10,000 $10,000 $10,000 1997 $10,242 $10,351 $11,057 $10,173 1998 $9,968 $10,709 $11,258 $10,661 1999 $12,432 $14,839 $11,350 $13,702 2000 $14,564 $17,890 $12,205 $15,956
================================================================================ -------------------------------------------------------------------------------- SSgA Life Solutions Growth Fund -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return ---------------------- ------------- ------------ 1 Year $ 11,715 17.15% Inception $ 14,564 12.61%+ -------------------------------------------------------------------------------- Composite Market Index ** -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return ---------------------- ------------- ------------ 1 Year $ 11,650 16.50% Inception $ 15,956 15.90%+ -------------------------------------------------------------------------------- Russell 3000(R) Index ++ -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return ---------------------- ------------- ------------ 1 Year $ 12,063 20.63% Inception $ 17,890 20.16%+ -------------------------------------------------------------------------------- Lehman Brothers Aggregate Bond Index +++ -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return ---------------------- ------------- ------------ 1 Year $ 10,756 7.56% Inception $ 12,205 6.50%+ ** 65% Russell 3000(R) Index 15% MSCI EAFE Index 20% Lehman Brothers Aggregate Bond Index See related Notes for Index definitions. 8 Annual Report SSgA Life Solutions Funds -------------------------------------------------------------------------------- Portfolio Management Discussion and Analysis -------------------------------------------------------------------------------- Performance Review The SSgA Life Solutions Funds is a family of balanced funds targeted to meet the investment objectives of investors with varying degrees of risk tolerance. The family consists of three Funds with distinct risk/return profiles. The most conservative, the Life Solutions Income and Growth Fund, is targeted to investors with limited tolerance for equity market volatility. The Life Solutions Balanced Fund is targeted at those individuals willing to undertake greater equity exposure, but who are also looking for fixed income exposure to balance return patterns. The Life Solutions Growth Fund is designed for those investors aggressively seeking return. The Fund is designed to provide broadly diversified equity exposure with the ability to have limited exposure to fixed income and cash securities. For the fiscal year ended August 31, 2000, the Life Solutions Funds returned 11.73%, 14.59%, and 17.15% for the Income and Growth, Balanced, and Growth Funds, respectively. The composite benchmarks over the last twelve months for the three Funds returned 12.37%, 14.46%, and 16.50%, respectively. The Funds' performance is net of operating expenses, whereas Index results do not include expenses of any kind. The US equity component of the composite benchmark is the Russell 3000(R) Index, an unmanaged index of US equities representing approximately the largest 3000 US companies by market value. The international component is comprised of the Morgan Stanley Capital International Europe, Australia, Far East (MSCI EAFE) Index, an unmanaged index reflecting the performance of international markets around the globe. The fixed income component of the composite benchmark is the Lehman Brothers Aggregate Bond Index, an unmanaged index capturing the performance of the broad US bond markets, including government, investment grade corporate, and mortgage-backed securities. Market and Portfolio Highlights Returns for the Funds were assisted over the past year by strong equity markets in the US, including a long awaited surge from the small-cap sector. In particular, the more aggressive Funds (Balanced and Growth) benefited from having the majority of their assets in equities. Returns were driven by large US stocks, which make up a substantial portion of the Funds, as the S&P 500(R) returned over 16% for the past fiscal year. The Funds also gained from their exposure to small cap US stocks, as they returned 27% as measured by the Russell 2000(R) Index. Overall Fund returns were curtailed slightly by their respective allocations in fixed income issues, which rose around 7% as measured by the Lehman Brothers Aggregate Bond Index. Performance relative to the composite benchmarks was helped dramatically by the holding of the SSgA Aggressive Equity Fund, which soared over 112% for the fiscal year. This Fund benefited from the surge in small cap growth stocks, and specifically, its investment in Initial Public Offerings (IPOs). Although participating in IPOs is within the Aggressive Equity Fund's investment guidelines, there is no guarantee that this Fund will continue to participate in the IPO market in the future. Additionally, due to their inherent volatility, there can be no assurance that IPOs will continue to have a positive impact on the Aggressive Equity Fund's performance. The continued strong performance of growth stocks caused the SSgA Matrix Fund and the SSgA Active International Fund to lag their benchmarks. Ironically, the Managers' focus on companies which have improved earnings outlooks and lower price multiples than the market has hurt stock selection over the last year. Despite the difficulties in the large-cap Funds, strong performance in small-cap stocks overcame these issues to help the Balanced and the Growth Funds to outperform their respective benchmarks. The Funds continue to be positioned somewhat defensively as the Manager views large-cap US stocks to be less attractive than international stocks or bonds. International stocks have had disappointing performance recently, due primarily to a dramatic decline in the Euro. The Manager believes there will not be a repeat of this kind of decline, making for a more appealing climate for European stocks. Japan also has had its recent problems, but important economic and earnings growth expectations call for a strong improvement in both Japan and Europe. Annual Report 9 SSgA Life Solutions Funds -------------------------------------------------------------------------------- Portfolio Management Discussion and Analysis -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Portfolio Allocation by Asset Class as of 08/31/00 -------------------------------------------------------------------------------- Income and Growth Balanced Growth Fund Fund Fund ---------- -------- -------- Equities: Domestic 28.4% 43.6% 58.7% International 7.7 12.6 17.6 ---------- -------- -------- 36.1 56.2 76.3 Bonds 61.9 42.0 22.1 Cash, net 2.0 1.8 1.6 ---------- -------- -------- 100.0% 100.0% 100.0% ========== ======== ======== -------------------------------------------------------------------------------- ---------------------- Notes: The following notes relate to the Growth of $10,000 graph and table on the preceding pages. * The Life Solutions Funds commenced operations on July 1, 1997. Index comparisons also began on July 1, 1997. + Annualized. Index Definitions: ++ The Russell 3000(R) Index is comprised of the 3,000 largest US companies based on total market capitalization, representing approximately 98% of the investable US equity market. +++ The Lehman Brothers Aggregate Bond Index is composed of all bonds covered by the Lehman Brothers Government/Corporate Bond Index, Mortgage-Backed Securities Index, and the Asset-Backed Securities Index. Total returns comprises price appreciation/depreciation and income as a percentage of the original investment. The Morgan Stanley Capital International Europe, Australia, Far East Index is an index composed of an arithmetic, market value-weighted average of the performance of over 1,100 securities listed on the stock exchanges of the countries of Europe, Australia, and the Far East. The Index is calculated on a total-return basis, which includes reinvestment of net dividends after deduction of withholding taxes. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. 10 Annual Report Report of Independent Accountants To the Shareholders and Board of Trustees of the SSgA Funds: In our opinion, the accompanying statements of net assets, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of SSgA Life Solutions Funds (in this report, comprised of SSgA Life Solutions Income and Growth Fund, SSgA Life Solutions Balanced Fund, and SSgA Life Solutions Growth Fund)(the "Funds") at August 31, 2000, the results of their operations for the fiscal year then ended, and the changes in their net assets for each of the two fiscal years in the period then ended, and the financial highlights for each of the three fiscal years in the period then ended and for the period July 1, 1997 (commencement of operations) to August 31, 1997, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Funds' management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 2000 by correspondence with the transfer agent, provide a reasonable basis for our opinion. Boston, Massachusetts October 11, 2000 /s/ PricewaterhouseCoopers LLP Annual Report 11 SSgA Life Solutions Income and Growth Fund Statement of Net Assets August 31, 2000 Number Value of (000) Shares $ ---------- --------- Investments Domestic Equities - 28.4% SSgA Aggressive Equity Fund............................. 32,377 646 SSgA Matrix Equity Fund................................. 181,822 3,093 SSgA S&P 500 Index Fund................................. 61,989 1,637 SSgA Small Cap Fund..................................... 27,989 635 ------ 6,011 ------ International Equities - 7.7% SSgA Active International Fund.......................... 140,014 1,522 SSgA Emerging Markets Fund.............................. 9,032 103 ------ 1,625 ------ Bonds - 61.9% SSgA Bond Market Fund................................... 1,214,027 11,776 SSgA High Yield Bond Fund............................... 130,594 1,324 ------ 13,100 ------ Short-Term Assets - 2.0% SSgA Money Market Fund (a).............................. 422,561 423 ------ Total Investments - 100.0% (identified cost $20,774)......................................... 21,159 ------ Other Assets and Liabilities Deferred organization expenses.................................... 16 Receivables from Advisor.......................................... 34 Other assets...................................................... 11 Liabilities....................................................... (70) ------ Total Other Assets and Liabilities, Net - (0.0%)...................................................... (9) ------ Net Assets - 100.0%............................................... 21,150 ====== 12 Annual Report SSgA Life Solutions Income and Growth Fund Statement of Net Assets, continued August 31, 2000 Value (000) $ --------- Net Assets Consist of: Undistributed net investment income.................................. 346 Accumulated net realized gain (loss)................................. 95 Unrealized appreciation (depreciation) on investments................ 385 Shares of beneficial interest........................................ 2 Additional paid-in capital........................................... 20,322 ------ Net Assets........................................................... 21,150 ====== Net Asset Value, offering and redemption price per share: ($21,149,852 divided by 1,600,487 shares of $.001 par value shares of beneficial interest outstanding)........................ 13.21 ====== (a) At amortized cost, which approximates market. See accompanying notes which are an integral part of the financial statements. Annual Report 13 SSgA Life Solutions Income and Growth Fund Statement of Operations Amounts in thousands For the Fiscal Year Ended August 31, 2000
Investment Income Income distributions from Underlying Funds ......................................... $ 983 Expenses Distribution fees ........................................................ $ 3 Transfer agent fees ...................................................... 23 Bookkeeping service fees ................................................. 15 Professional fees ........................................................ 9 Registration fees ........................................................ 30 Shareholder servicing fees ............................................... 31 Amortization of deferred organization expenses ........................... 5 Miscellaneous ............................................................ 12 ------- Expenses before reductions ............................................... 128 Expense reductions ....................................................... (22) ------- Expenses, net ................................................................... 106 ------- Net investment income ................................................................. 877 ------- Net Realized and Unrealized Gain (Loss) Net realized gain (loss) on: Investments .............................................................. 617 Capital gain distributions from Underlying Funds ......................... 761 1,378 ------- Net change in unrealized appreciation (depreciation) on investments ................... 360 ------- Net realized and unrealized gain (loss) ............................................... 1,738 ------- Net increase (decrease) in net assets from operations ................................. $ 2,615 =======
See accompanying notes which are an integral part of the financial statements. 14 Annual Report SSgA Life Solutions Income and Growth Fund Statement of Changes in Net Assets Amounts in thousands For the Fiscal Year Ended August 31,
2000 1999 -------- -------- Increase (Decrease) in Net Assets Operations Net investment income ............................................ $ 877 $ 922 Net realized gain (loss) ......................................... 1,378 1,066 Net change in unrealized appreciation (depreciation) ............. 360 758 -------- -------- Net increase (decrease) in net assets from operations ......... 2,615 2,746 -------- -------- Distributions From net investment income ....................................... (1,449) (1,186) From net realized gain ........................................... (690) (983) -------- -------- Net decrease in net assets from distributions ................. (2,139) (2,169) -------- -------- Share Transactions Net increase (decrease) in net assets from share transactions .... (5,068) 1,394 -------- -------- Total net increase (decrease) in net assets ......................... (4,592) 1,971 Net Assets Beginning of period .............................................. 25,742 23,771 -------- -------- End of period (including undistributed net investment income of $346 and $574, respectively) .................................. $ 21,150 $ 25,742 ======== ========
See accompanying notes which are an integral part of the financial statements. Annual Report 15 SSgA Life Solutions Income and Growth Fund Financial Highlights The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
Fiscal Years Ended August 31, ---------------------------------------- 2000 1999 1998 1997* ------- ------- ------- ------- Net Asset Value, Beginning of Period .......... $ 12.93 $ 12.65 $ 12.93 $ 12.68 ------- ------- ------- ------- Income From Operations Net investment income (a) .................. .47 .44 .46 -- Net realized and unrealized gain (loss) .... .94 .95 (.01) .25 ------- ------- ------- ------- Total income from operations ............ 1.41 1.39 .45 .25 ------- ------- ------- ------- Distributions From net investment income ................. (.77) (.61) (.41) -- From net realized gain ..................... (.36) (.50) (.32) -- ------- ------- ------- ------- Total distributions ..................... (1.13) (1.11) (.73) -- ------- ------- ------- ------- Net Asset Value, End of Period ................ $ 13.21 $ 12.93 $ 12.65 $ 12.93 ======= ======= ======= ======= Total Return (%)(b) ........................... 11.73 11.27 3.53 1.97 Ratios/Supplemental Data: Net Assets, end of period (in thousands) ... 21,150 25,742 23,771 13,979 Ratios to average net assets (%)(c): Operating expenses, net (d) ............. .45 .45 .45 .35 Operating expenses, gross (d) ........... .55 .50 .72 1.14 Net investment income ................... 3.71 3.37 3.00 .16 Portfolio turnover rate (%)(c) ............. 31.07 93.34 93.28 106.68
* For the period July 1, 1997 (commencement of operations) to August 31, 1997. (a) For the periods subsequent to August 31, 1997, average month-end shares outstanding were used for this calculation. (b) Periods less than one year are not annualized. (c) The ratios for the period ended August 31, 1997 are annualized. (d) See Note 4 for current period amounts and Underlying Funds. 16 Annual Report SSgA Life Solutions Balanced Fund Statement of Net Assets August 31, 2000 Number Value of (000) Shares $ ---------- --------- Investments Domestic Equities - 43.6% SSgA Aggressive Equity Fund........................ 164,871 3,292 SSgA Matrix Equity Fund............................ 1,123,735 19,115 SSgA S&P 500 Index Fund............................ 374,549 9,892 SSgA Small Cap Fund................................ 144,399 3,276 ------ 35,575 ------ International Equities - 12.6% SSgA Active International Fund..................... 873,547 9,495 SSgA Emerging Markets Fund......................... 71,490 813 ------ 10,308 ------ Bonds - 42.0% SSgA Bond Market Fund.............................. 3,181,204 30,858 SSgA High Yield Bond Fund.......................... 342,207 3,470 ------ 34,328 ------ Short-Term Assets - 2.0% SSgA Money Market Fund (a)......................... 1,625,720 1,626 ------ Total Investments - 100.2% (identified cost $77,911)...................................... 81,837 ------ Other Assets and Liabilities Deferred organization expenses................................. 16 Other assets................................................... 69 Liabilities.................................................... (211) ------ Total Other Assets and Liabilities, Net - (0.2%)................................................... (126) ------ Net Assets - 100.0%............................................ 81,711 ====== 18 Annual Report SSgA Life Solutions Balanced Fund Statement of Net Assets, continued August 31, 2000 Value (000) $ --------- Net Assets Consist of: Undistributed net investment income................................. 1,248 Accumulated net realized gain (loss)................................ 2,864 Unrealized appreciation (depreciation) on investments............... 3,926 Shares of beneficial interest....................................... 6 Additional paid-in capital.......................................... 73,667 ------ Net Assets.......................................................... 81,711 ====== Net Asset Value, offering and redemption price per share: ($81,710,618 divided by 5,601,620 shares of $.001 par value shares of beneficial interest outstanding)....................... 14.59 ====== (a) At amortized cost, which approximates market. See accompanying notes which are an integral part of the financial statements. Annual Report 19 SSgA Life Solutions Balanced Fund Statement of Operations Amounts in thousands For the Fiscal Year Ended August 31, 2000 Investment Income Income distributions from Underlying Funds ........................................ $ 3,507 Expenses Distribution fees ........................................................ $ 12 Transfer agent fees ...................................................... 28 Bookkeeping service fees ................................................. 15 Professional fees ........................................................ 10 Registration fees ........................................................ 30 Shareholder servicing fees ............................................... 136 Amortization of deferred organization expenses ........................... 5 Miscellaneous ............................................................ 28 ------ Total expenses ................................................................. 264 --------- Net investment income ................................................................ 3,243 --------- Net Realized and Unrealized Gain (Loss) Net realized gain (loss) on: Investments .............................................................. 4,829 Capital gain distributions from Underlying Funds ......................... 5,501 10,330 ------ Net change in unrealized appreciation (depreciation) on investments .................. 1,532 --------- Net realized and unrealized gain (loss) .............................................. 11,862 --------- Net increase (decrease) in net assets from operations ................................ $ 15,105 =========
See accompanying notes which are an integral part of the financial statements. 20 Annual Report SSgA Life Solutions Balanced Fund Statement of Changes in Net Assets Amounts in thousands For the Fiscal Years Ended August 31,
2000 1999 -------- -------- Increase (Decrease) in Net Assets Operations Net investment income .......................................... $ 3,243 $ 2,837 Net realized gain (loss) ....................................... 10,330 5,339 Net change in unrealized appreciation (depreciation) ........... 1,532 7,816 -------- -------- Net increase (decrease) in net assets from operations ....... 15,105 15,992 -------- -------- Distributions From net investment income ..................................... (6,007) (4,311) From net realized gain ......................................... (3,568) (5,336) -------- -------- Net decrease in net assets from distributions ............... (9,575) (9,647) -------- -------- Share Transactions Net increase (decrease) in net assets from share transactions .. (22,911) 1,943 -------- -------- Total net increase (decrease) in net assets ....................... (17,381) 8,288 Net Assets Beginning of period ............................................ 99,092 90,804 -------- -------- End of period (including undistributed net investment income of $1,248 and $1,531, respectively) ........................ $ 81,711 $ 99,092 ======== ========
See accompanying notes which are an integral part of the financial statements. Annual Report 21 SSgA Life Solutions Balanced Fund Financial Highlights The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
Fiscal years Ended August 31, -------------------------------------------- 2000 1999 1998 1997* -------- -------- -------- -------- Net Asset Value, Beginning of Period .......... $ 13.80 $ 12.95 $ 13.98 $ 13.69 -------- -------- -------- -------- Income From Operations Net investment income (a) .................. .42 .38 .50 -- Net realized and unrealized gain (loss) .... 1.47 1.84 (.45) .29 -------- -------- -------- -------- Total income from operations ............ 1.89 2.22 .05 .29 -------- -------- -------- -------- Distributions From net investment income ................. (.70) (.61) (.56) -- From net realized gain ..................... (.40) (.76) (.52) -- -------- -------- -------- -------- Total distributions ..................... (1.10) (1.37) (1.08) -- -------- -------- -------- -------- Net Asset Value, End of Period ................ $ 14.59 $ 13.80 $ 12.95 $ 13.98 ======== ======== ======== ======== Total Return (%)(b) ........................... 14.59 17.89 .33 2.12 Ratios/Supplemental Data: Net Assets, end of period (in thousands) ... 81,711 99,092 90,804 47,003 Ratios to average net assets (%)(c): Operating expenses, net ................. .24 .28 .36 .35 Operating expenses, gross ............... .24 .28 .36 .49 Net investment income ................... 3.01 2.83 2.07 .07 Portfolio turnover rate (%)(c) ............. 42.47 51.09 101.40 51.61
* For the period July 1, 1997 (commencement of operations) to August 31, 1997. (a) For the periods subsequent to August 31, 1997, average month-end shares outstanding were used for this calculation. (b) Periods less than one year are not annualized. (c) The ratios for the period ended August 31, 1997 are annualized. 22 Annual Report SSgA Life Solutions Growth Fund Statement of Net Assets August 31, 2000 Number Value of (000) Shares $ ---------- ---------- Investments Domestic Equities - 58.7% SSgA Aggressive Equity Fund ......................... 132,382 2,644 SSgA Matrix Equity Fund ............................. 1,001,785 17,040 SSgA S&P 500 Index Fund ............................. 298,663 7,888 SSgA Small Cap Fund ................................. 115,810 2,628 ------- 30,200 ------- International Equities - 17.6% SSgA Active International Fund ...................... 765,462 8,320 SSgA Emerging Markets Fund .......................... 65,897 749 ------- 9,069 ------- Bonds - 22.1% SSgA Bond Market Fund ............................... 1,049,939 10,184 SSgA High Yield Bond Fund ........................... 115,167 1,168 ------- 11,352 ------- Short-Term Assets - 1.9% SSgA Money Market Fund (a) .......................... 957,714 958 ------- Total Investments - 100.3% (identified cost $47,252) ........................................ 51,579 ------- Other Assets and Liabilities Deferred organization expenses ................................... 16 Other assets ..................................................... 33 Liabilities ...................................................... (217) ------- Total Other Assets and Liabilities, Net - (0.3%) ..................................................... (168) ------- Net Assets - 100.0% .............................................. 51,411 ======= 24 Annual Report SSgA Life Solutions Growth Fund Statement of Net Assets, continued August 31, 2000 Value (000) $ --------- Net Assets Consist of: Undistributed net investment income ................................. 357 Accumulated net realized gain (loss) ................................ 1,864 Unrealized appreciation (depreciation) on investments ............... 4,327 Shares of beneficial interest ....................................... 3 Additional paid-in capital .......................................... 44,860 ------- Net Assets .......................................................... 51,411 ======= Net Asset Value, offering and redemption price per share: ($51,411,282 divided by 3,267,551 shares of $.001 par value shares of beneficial interest outstanding) ....................... 15.73 ======= (a) At amortized cost, which approximates market. See accompanying notes which are an integral part of the financial statements. Annual Report 25 SSgA Life Solutions Growth Fund Statement of Operations Amounts in thousands For the Fiscal Year Ended August 31, 2000 Investment Income Income distributions from Underlying Funds ........................................ $ 1,307 Expenses Distribution fees ......................................................... $ 16 Transfer agent fees ....................................................... 23 Bookkeeping service fees .................................................. 15 Professional fees ......................................................... 10 Registration fees ......................................................... 30 Shareholder servicing fees ................................................ 83 Amortization of deferred organization expenses ............................ 5 Miscellaneous ............................................................. 34 ------- Total expenses ................................................................. 216 --------- Net investment income ................................................................ 1,091 --------- Net Realized and Unrealized Gain (Loss) Net realized gain (loss) on: Investments ............................................................... 2,872 Capital gain distributions from Underlying Funds .......................... 4,212 7,084 ------- Net change in unrealized appreciation (depreciation) on investments .................. 2,029 --------- Net realized and unrealized gain (loss) .............................................. 9,113 --------- Net increase (decrease) in net assets from operations ................................ $ 10,204 =========
See accompanying notes which are an integral part of the financial statements. 26 Annual Report SSgA Life Solutions Growth Fund Statement of Changes in Net Assets Amounts in thousands For the Fiscal Years Ended August 31,
2000 1999 -------- -------- Increase (Decrease) in Net Assets Operations Net investment income .......................................... $ 1,091 $ 1,215 Net realized gain (loss) ....................................... 7,084 4,065 Net change in unrealized appreciation (depreciation) ........... 2,029 8,203 -------- -------- Net increase (decrease) in net assets from operations ....... 10,204 13,483 -------- -------- Distributions From net investment income ..................................... (3,157) (2,340) From net realized gain ......................................... (2,360) (3,927) -------- -------- Net decrease in net assets from distributions ............... (5,517) (6,267) -------- -------- Share Transactions Net increase (decrease) in net assets from share transactions .. (18,294) 4,370 -------- -------- Total net increase (decrease) in net assets ....................... (13,607) 11,586 Net Assets Beginning of period ............................................ 65,018 53,432 -------- -------- End of period (including undistributed net investment income of $357 and $513, respectively) ...................... $ 51,411 $ 65,018 ======== ========
See accompanying notes which are an integral part of the financial statements. Annual Report 27 SSgA Life Solutions Growth Fund Financial Highlights The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
Fiscal Years Ended August 31, -------------------------------------------- 2000 1999 1998 1997* -------- -------- -------- -------- Net Asset Value, Beginning of Period .......... $ 14.62 $ 13.02 $ 14.79 $ 14.44 -------- -------- -------- -------- Income From Operations Net investment income (a) .................. .26 .26 .38 -- Net realized and unrealized gain (loss) .... 2.13 2.81 (.75) .35 -------- -------- -------- -------- Total income from operations ............ 2.39 3.07 (.37) .35 -------- -------- -------- -------- Distributions From net investment income ................. (.72) (.55) (.71) -- From net realized gain ..................... (.56) (.92) (.69) -- -------- -------- -------- -------- Total distributions ..................... (1.28) (1.47) (1.40) -- -------- -------- -------- -------- Net Asset Value, End of Period ................ $ 15.73 $ 14.62 $ 13.02 $ 14.79 ======== ======== ======== ======== Total Return (%)(b) ........................... 17.15 24.72 (2.68) 2.42 Ratios/Supplemental Data: Net Assets, end of period (in thousands) ... 51,411 65,018 53,432 43,603 Ratios to average net assets (%)(c): Operating expenses, net ................. .35 .38 .41 .35 Operating expenses, gross ............... .35 .38 .41 .54 Net investment income ................... 1.78 1.89 1.52 .09 Portfolio turnover rate (%)(c) ............. 33.00 43.15 67.66 39.49
* For the period July 1, 1997 (commencement of operations) to August 31, 1997. (a) For the periods subsequent to August 31, 1997, average month-end shares outstanding were used for this calculation. (b) Periods less than one year are not annualized. (c) The ratios for the period ended August 31, 1997 are annualized. 28 Annual Report SSgA Life Solutions Funds Notes to Financial Statements August 31, 2000 1. Organization The SSgA Funds (the "Investment Company") is a series mutual fund, currently comprised of 24 investment portfolios which are in operation as of August 31, 2000. These financial statements report on three portfolios, the SSgA Life Solutions Income and Growth Fund, Balanced Fund and Growth Fund (the "Funds"). The Investment Company is a registered and diversified open-end investment company, as defined in the Investment Company Act of 1940, as amended (the "1940 Act"), that was organized as a Massachusetts business trust on October 3, 1987 and operates under a First Amended and Restated Master Trust Agreement, dated October 13, 1993, as amended (the "Agreement"). The Investment Company's Agreement permits the Board of Trustees to issue an unlimited number of full and fractional shares of beneficial interest at a $.001 par value. The Funds are designed primarily for tax-advantaged retirement accounts and other long-term investment strategies. Each Fund allocates its assets by investing in shares of a combination of the Investment Company's portfolios (the "Underlying Funds"). The table below illustrates the equity, bond and short-term fund asset allocation ranges for each Fund.
Asset Class/Underlying Fund Asset Allocation Ranges ------------------------------------------------ Income and Balanced Growth Growth Fund Fund Fund -------------- ------------- ------------ Equities US Equities 20 - 60% 40 - 80% 60 - 100% SSgA S&P 500 Index Fund SSgA Matrix Equity Fund SSgA Small Cap Fund SSgA Growth and Income Fund SSgA Special Equity Fund SSgA Tuckerman Active REIT Fund SSgA Aggressive Equity Fund International Equities* 15% 20% 25% SSgA Active International Fund SSgA Emerging Markets Fund SSgA International Growth Opportunities Fund 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
* International equities are included in the total equity exposure indicated above and should not exceed the listed percentages. Annual Report 29 SSgA Life Solutions Funds Notes to Financial Statements, continued August 31, 2000 Objectives of the Underlying Funds: The Life Solutions Funds are comprised of various combinations of the Underlying Funds. Each of the Life Solutions Funds will invest in at least six of the Underlying Funds. The Board of Trustees has approved investment in all of the Underlying Funds presented above. The fundamental investment objectives of the Underlying Funds utilized by the Life Solutions Funds are listed below. SSgA S&P 500 Index Fund: To seek to replicate the total return of the S&P 500 Index. SSgA Matrix Equity Fund: To provide total returns that exceed over time the S&P 500 Index through investment in equity securities. SSgA Small Cap Fund: 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. SSgA Growth and Income Fund: To achieve long-term capital growth, current income and growth of income primarily through investments in equity securities. SSgA Special Equity Fund: To maximize total return through investment in mid- and small capitalization US equity securities. SSgA Tuckerman Active REIT Fund: To provide income and capital growth by investing primarily in publicly traded securities of real estate companies. SSgA Aggressive Equity Fund: 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. SSgA Active International Fund: To provide long-term capital growth by investing primarily in securities of foreign issuers. SSgA Emerging Markets Fund: To provide maximum total return, primarily through capital appreciation, by investing in securities of foreign issuers. SSgA International Growth Opportunities Fund: To provide long-term capital growth by investing primarily in securities of foreign issuers. SSgA Bond Market Fund: 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"). SSgA Intermediate Fund: 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. SSgA High Yield Bond Fund: 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. 30 Annual Report SSgA Life Solutions Funds Notes to Financial Statements, continued August 31, 2000 SSgA Yield Plus Fund: To seek high current income and liquidity by investing in a diversified portfolio of high-quality debt securities and by maintaining a portfolio duration of one year or less. SSgA Money Market Fund: 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 dominated securities with remaining maturities of one year or less. SSgA US Government Money Market Fund: 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. 2. Significant Accounting Policies The Funds' financial statements are prepared in accordance with accounting principles generally accepted in the United States which require the use of management estimates. The following is a summary of the significant accounting policies consistently followed by the Funds in the preparation of their financial statements. Security valuation: Investments in Underlying Funds are valued at the net asset value per share of each Underlying Fund as of the close of regular trading on the New York Stock Exchange. Securities transactions: Securities transactions of the Underlying Funds are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the basis of identified cost. Investment income: Distributions of income and capital gains are recorded from the Underlying Funds on the ex-dividend date. Federal income taxes: Since the Investment Company is a Massachusetts business trust, each Fund is a separate corporate taxpayer and determines its net investment income and capital gains (or losses) and the amounts to be distributed to each Fund's shareholders without regard to the income and capital gains (or losses) of the other funds. It is each Fund's intention to qualify as a regulated investment company, as defined by the Internal Revenue Code of 1986, as amended. This requires the Funds to distribute all of their taxable income. Therefore, the Funds paid no federal income taxes and no federal income tax provision was required. Annual Report 31 SSgA Life Solutions Funds Notes to Financial Statements, continued August 31, 2000 The Funds' aggregate cost of investments and the composition of unrealized appreciation and depreciation of investment securities for federal income tax purposes as of August 31, 2000 are as follows:
Net Unrealized Federal Tax Unrealized Unrealized Appreciation Cost Appreciation (Depreciation) (Depreciation) ----------- ------------ -------------- -------------- Income and Growth Fund 21,118,377 63,245 (22,568) 40,677 Balanced Fund 79,213,453 2,697,581 (73,901) 2,623,680 Growth Fund 48,432,773 3,219,891 (73,466) 3,146,425
Dividends and distributions to shareholders: Income dividends and capital gain distributions, if any, are recorded on the ex-dividend date. Dividends are generally declared and paid quarterly. Capital gain distributions are generally declared and paid annually. An additional distribution may be paid by the Funds to avoid imposition of federal income tax on any remaining undistributed net investment income and capital gains. The timing and characterization of certain income and capital gain distributions are determined in accordance with federal tax regulations which may differ from generally accepted accounting principles ("GAAP"). As a result, net investment income and net realized gain (or loss) from investment transactions for a reporting year may differ significantly from distributions during such year. The differences between tax regulations and GAAP relate primarily to certain securities sold at a loss. Accordingly, the Funds may periodically make reclassifications among certain of their capital accounts without impacting their net asset value. Expenses: The Funds will pay all of their expenses other than those expressly assumed by the Adviser and the Administrator. Certain expenses of the investment company 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. Expenses included in the accompanying statements of operations reflect the expenses of each Fund and do not include any expenses associated with the Underlying Funds. Deferred organization expenses: The Funds have incurred expenses in connection with their organization. These costs were deferred and are being amortized over 60 months on a straight-line basis. 3. Securities Transactions Investment transactions: During the year ended August 31, 2000, purchases and sales of the Underlying Funds aggregated to the following: Purchases Sales ------------ ------------- Income and Growth Fund $ 7,263,296 $ 15,302,389 Balanced Fund 44,928,938 86,060,032 Growth Fund 20,088,573 45,123,408 32 Annual Report SSgA Life Solutions Funds Notes to Financial Statements, continued August 31, 2000 4. Related Parties Adviser: The Investment Company has an investment advisory agreement with State Street Bank and Trust Company (the "Adviser") under which the Adviser, through State Street Global Advisors, the investment management group of the Adviser, directs the investments of the Fund in accordance with its investment objectives, policies, and limitations. The Funds will not be charged a fee by the Adviser. However, each 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 Adviser 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. For the year ended August 31, 2000, the Adviser voluntarily agreed to reimburse the Funds for all expenses (except 12b-1 distribution and shareholder servicing expenses) in excess of .30% of average daily net assets on an annual basis. The total amount of reimbursement for the Income and Growth Fund for the year ended August 31, 2000 was $22,478. As of August 31, 2000, the receivable due from the Adviser for reimbursed expenses in excess of the expense cap has been netted against the Advisory fee payable. Administrator: The Investment Company has an administration agreement with Frank Russell Investment Management Company (the "Administrator"), a wholly-owned subsidiary of The Northwestern Mutual Life Insurance Company, under which the Administrator supervises all non-portfolio investment aspects of the Investment Company's operations and provides adequate office space and all necessary office equipment and services, including telephone service, utilities, stationery supplies, and similar items. For these services, the Underlying Funds pay the Administrator a combined fee that on an annual basis is equal to the percentages, stated below, of their average aggregate daily net assets. The Funds will not be charged a fee by the Administrator. Instead, the Administrator will assess administration fees on the Underlying Funds. For the period September 1, 1999 to April 30, 2000, each Underlying Fund will pay indirectly its proportionate share of the following: All Underlying Funds combined (except Active International, Emerging Markets and International Growth Opportunities) up to and including $500 million - .06%; over $500 million up to and including $1 billion - .05%; and over $1 billion - .03%. Active International, Emerging Markets and International Growth Opportunities up to and including $500 million - .07%; over $500 million up to and including $1 billion - .06%; over $1 billion up to and including $1.5 billion - .04%; and over $1.5 billion - .03%. Effective May 1, 2000, each fund will pay indirectly its proportionate share of the following: Money Market Portfolios $0 up to and including $15 billion .0315% over $15 billion .0290% U.S. Equity Portfolios $0 up to and including $2 billion .0315% over $2 billion .0290% U.S. Fixed Income Portfolios $0 up to and including $1 billion .0315% over $1 billion .0290% International Portfolios $0 up to and including $1 billion .0700% over $1 billion .0500% Feeder Portfolios $0 up to and including $1 billion .0315% over $1 billion .0100%
Annual Report 33 SSgA Life Solutions Funds Notes to Financial Statements, continued August 31, 2000 The percentage of the fee paid by the each Underlying Fund is equal to the percentage of average aggregate daily net assets that are attributable to that Underlying Fund. The Administrator will also receive reimbursement of expenses it incurs in connection with establishing new investment portfolios, including the Funds. Distributor and Shareholder Servicing: Pursuant to the Distribution Agreement with Investment Company, Russell Fund Distributors, Inc. ("Distributor"), a wholly-owned subsidiary of the Administrator, serves as distributor for all Investment Company portfolio shares, including the Funds. The Funds and Underlying Funds have 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 Funds and Underlying Funds' average annual net assets for distribution-related and shareholder servicing expenses. Payments under the Plan will be made to Distributor to finance activity that is intended to result in the sale and retention of the Funds and Underlying Fund shares including: (1) payments made to certain broker-dealers, investments advisors and other third party intermediaries; (2) the costs of prospectuses, reports to shareholders and sales literature; (3) advertising; and (4) expenses incurred in connection with the promotion and sale of shares, including Distributor's overhead expenses for rent, office supplies, equipment, travel, communication, compensation and benefits of sales personnel. Payments to Distributor, as well as payments to Service Organizations from a Fund, are not permitted by the Plan to exceed .25% of a Fund's average net asset value per year. Any payments that are required to be made by the Distribution Agreement and any Service Agreement but could not be made because of the .25% limitation may be carried forward and paid in subsequent years so long as the Plan is in effect. A Fund's liability for any such expenses carried forward shall terminate at the end of two years following the year in which the expenditure was incurred. The Trustees or a majority of the Fund's shareholders have the right, however, to terminate the Plan and all payments thereunder at anytime. The Fund will not be obligated to reimburse the Distributor for carryover expenses subsequent to the Plan's termination or noncontinuance. There were no expenses carried over as of August 31, 2000. Service Organizations will be responsible for prompt transmission of purchase and redemption orders and may charge fees for their services. The Funds have entered into Shareholder Service Agreements with State Street Solutions ("Solutions"), State Street Brokerage Services, Inc. ("SSBSI"), the State Street Retirement Investment Services Division ("RIS"), (collectively the "Agents"), as well as other non-related third party service providers. For these services, the Fund pays .13% each, based upon the average daily net asset value of all Fund shares held by or for customers of these Agents. For the year ended August 31, 2000, the Funds were charged shareholder servicing expenses by Solutions, SSBSI and RIS as follows: Solutions SSBSI RIS --------- --------- --------- Income and Growth Fund $ 23,380 $ 528 $ 4,032 Balanced Fund 107,679 558 34,799 Growth Fund 75,489 301 5,703 34 Annual Report SSgA Life Solutions Funds Notes to Financial Statements, continued August 31, 2000 Board of Trustees: The Investment Company paid each Trustee not affiliated with the Investment Company an annual retainer, plus specified amounts for board and committee meetings attended. These expenses are allocated among all of the funds based upon their relative net assets. Accrued fees payable to affiliates and trustees as of August 31, 2000 were as follows: Income and Growth Fund Balanced Fund Growth Fund ----------- ------------- ----------- Administration fees $ 78 $ 100 $ 145 Bookkeeping service fees 4,035 7,672 14,491 Distribution 4,356 18,297 24,607 Shareholder servicing fees 4,870 2,174 13,688 Transfer agent fees 403 780 2,135 ----------- ------------- ----------- $ 13,742 $ 29,023 $ 55,066 =========== ============= =========== Beneficial Interest: In the Income and Growth Fund, as of August 31, 2000, two shareholders (who were also affiliates of the Investment Company) were record owners of approximately 70% and 12%, respectively, of the total outstanding shares of the Fund. In the Balanced Fund, as of August 31, 2000, two shareholders (who were also affiliates of the Investment Company) were record owners of approximately 85% and 11%, respectively, of the total outstanding shares of the Fund. In the Growth Fund, as of August 31, 2000, two shareholders (who were also affiliates of the Investment Company) were record owners of approximately 80% and 16% respectively, of the total outstanding shares of the Fund. Transactions with Affiliated Companies: An affiliated company is a company in which a Fund has ownership of at least 5% of the voting securities. Transactions during the year ended August 31, 2000 with Underlying Funds which are or were affiliates are as follows:
Dividend and Distribution Affiliate Purchase Cost Sales Cost Income ---------------------------------- ------------- ---------- ------------ Income and Growth Fund SSgA Aggressive Equity Fund $ 513,322 $ 508,125 $ 162,704 ----------- ----------- ---------- $ 513,322 $ 508,125 $ 162,704 =========== =========== ========== Balanced Fund SSgA Aggressive Equity Fund $ 2,539,689 $ 3,022,698 $1,183,861 SSgA Active International Fund 9,014,005 8,733,327 187,384 SSgA Bond Market Fund 30,884,026 27,213,233 2,478,128 SSgA High Yield Bond Fund 3,554,204 2,628,734 434,830 ----------- ----------- ---------- $45,991,924 $41,597,992 $4,284,203 =========== =========== ========== Growth Fund SSgA Active International Fund 1,670,818 2,201,004 928,450 SSgA Aggressive Equity Fund 7,577,736 6,574,401 131,663 ----------- ----------- ---------- $ 9,248,554 $ 8,775,405 $1,060,113 =========== =========== ==========
The values of the above Underlying Funds are shown in the accompanying Statements of Net Assets. Annual Report 35 SSgA Life Solutions Funds Notes to Financial Statements, continued August 31, 2000 5. Fund Share Transactions (amounts in thousands)
Fiscal Years Ended August 31, --------------------------------------------------- 2000 1999 ----------------------- ----------------------- Shares Dollars Shares Dollars --------- ---------- --------- ---------- Income and Growth Fund Proceeds from shares sold .............. 398 $ 5,072 866 $ 10,846 Proceeds from reinvestment of distributions ....................... 173 2,139 172 2,169 Payments for shares redeemed ........... (961) (12,279) (926) (11,621) --------- ---------- --------- ---------- Total net increase (decrease) .......... (390) $ (5,068) 112 $ 1,394 ========= ========== ========= ========== Balanced Fund Proceeds from shares sold .............. 2,728 $ 38,171 992 $ 12,420 Proceeds from reinvestment of distributions ....................... 712 9,575 737 9,647 Payments for shares redeemed ........... (5,017) (70,657) (1,560) (20,124) --------- ---------- --------- ---------- Total net increase (decrease) .......... (1,577) $ (22,911) 169 $ 1,943 ========= ========== ========= ========== Growth Fund Proceeds from shares sold .............. 714 $ 10,726 776 $ 10,200 Proceeds from reinvestment of distributions ....................... 385 5,517 465 6,267 Payments for shares redeemed ........... (2,277) (34,537) (898) (12,097) --------- ---------- --------- ---------- Total net increase (decrease) .......... (1,178) $ (18,294) 343 $ 4,370 ========= ========== ========= ==========
6. Interfund Lending Program The Funds and all other funds of the Investment Company received from the Securities and Exchange Commission an exemptive order on December 23, 1999 to establish and operate an Interfund Credit Facility. This allows the Funds to directly lend to and borrow money from the SSgA Money Market Fund for temporary purposes in accordance with certain conditions. The borrowing Funds are charged the average of the current Repo Rate and the Bank Loan Rate. The Funds did not utilize the interfund lending program during this year. 36 Annual Report SSgA Life Solutions Funds Tax Information August 31, 2000 (Unaudited) The Fund paid distributions of $532,709, $3,398,035 and $2,221,590 for Income and Growth Fund, Balanced Fund and Growth Fund, respectively, from net long-term capital gains during its taxable year ended August 31, 2000. Please consult a tax advisor for questions about federal or state income tax laws. Annual Report 37 SSgA Life Solutions Funds One International Place, 27th Floor Boston, Massachusetts 02110 (800) 997-7327 -------------------------------------------------------------------------------- Trustees Lynn L. Anderson, Chairman William L. Marshall Steven J. Mastrovich Patrick J. Riley Richard D. Shirk Bruce D. Taber Henry W. Todd Officers Lynn L. Anderson, President, Treasurer and CEO Mark E. Swanson, Treasurer and Principal Accounting Officer J. David Griswold, Vice President and Secretary Deedra S. Walkey, Assistant Secretary Rick J. Chase, Assistant Treasurer Carla L. Anderson, Assistant Secretary Investment Adviser State Street Bank and Trust Company 225 Franklin Street Boston, Massachusetts 02110 Custodian, Transfer Agent and Office of Shareholder Inquiries State Street Bank and Trust Company 1776 Heritage Drive North Quincy, Massachusetts 02171 (800) 647-7327 Distributor Russell Fund Distributors, Inc. One International Place, 27th Floor Boston, Massachusetts 02110 (800) 997-7327 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 160 Federal Street Boston, Massachusetts 02110 38 Annual Report [COVER GRAPHIC] SSgA(R) funds ANNUAL REPORT Money Market Fund August 31, 2000 SSgA(R) Funds Money Market Fund Annual Report August 31, 2000 Table of Contents Page Chairman's Letter........................................................ 4 Portfolio Management Discussion and Analysis............................. 6 Report of Independent Accountants........................................ 8 Financial Statements..................................................... 9 Financial Highlights..................................................... 18 Notes to Financial Statements............................................ 19 Fund Management and Service Providers.................................... 23 "SSgA(R)" is a registered trademark of State Street Corporation and is licensed for use by the SSgA Funds. This report is prepared from the books and records of the Fund and it is submitted for the general information of shareholders. This information is for distribution to prospective investors only when preceded or accompanied by a SSgA Funds Prospectus containing more complete information concerning the investment objective and operations of the Fund, charges and expenses. The Prospectus should be read carefully before an investment is made. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. An investment in a money market fund is neither insured nor guaranteed by the US government. There can be no assurance that a money market fund will be able to maintain a stable net asset value of $1.00 per share. Russell Fund Distributors, Inc., is the distributor of the SSgA Funds. SSgA Money Market Fund -------------------------------------------------------------------------------- Letter From the Chairman of State Street Global Advisors -------------------------------------------------------------------------------- Dear Shareholders, It is our pleasure to provide you with the SSgA Funds annual report for the fiscal year ended August 31, 2000. The SSgA Fund Family has grown to include twenty-four portfolios with over $21 billion in assets as of August 31, 2000. The Fund Family provides a wide range of strategies covering the world's major markets. The enclosed information provides an overview of the investment process for the SSgA Money Market Fund. This overview contains the portfolio management discussion, performance updates and financial information for the Fund. In an ongoing effort to develop competitive products and services that provide investment solutions for our clients, we have added the SSgA Intermediate Municipal Bond Fund to the SSgA Fund Family. This Fund's investment objective seeks to provide federally tax-exempt current income by investing primarily in a diversified portfolio of municipal debt securities with a dollar-weighted average maturity between three and ten years. We are also pleased with the success of our SSgA Emerging Markets and SSgA Growth and Income Funds as they were included in Money(R) Magazine's June 2000 issue listing of the 'Top 100 Mutual Funds'. This is the second year in a row that these funds have been selected. Additionally, the SSgA Tax Free Money Market and the SSgA Active International Funds have achieved five-year performance history during the 2000 fiscal year. Currently, all of our SSgA Money Market Funds have at least a five-year performance history. We strive to meet our clients' needs by providing funds with long-term records and competitive performance. We would like to thank you for choosing the SSgA Funds. Our reputation is based on our tradition of designing and delivering exceptional financial services to our clients. We look forward to continue sharing the benefit of our experience with you. Sincerely, /s/ Nicholas A. Lopardo Nicholas A. Lopardo State Street Global Advisors Chairman and Chief Executive Officer /s/ Timothy B. Harbert Timothy B. Harbert State Street Global Advisors President and Chief Operating Officer, SSgA 4 Annual Report SSgA Money Market Fund -------------------------------------------------------------------------------- Management of the Funds -------------------------------------------------------------------------------- [PHOTO] Nicholas A. Lopardo Chairman and Chief Executive Officer [PHOTO] Timothy B. Harbert President and Chief Operating Officer A Team Approach to Investment Management Our investment strategies are the product of the combined experience of our professional staff. Portfolio Managers work together to develop and enhance the techniques that drive our investment processes. As a result, the portfolios we manage benefit from the knowledge of the entire team. Ms. Lisa Hatfield, Principal, has been the portfolio manager primarily responsible for investment decisions regarding the SSgA Money Market Fund since January 1998. Ms. Hatfield is the Unit Head of the cash desk with responsibility for the SSgA money market funds, several short-term funds and enhanced cash portfolios. Prior to joining SSgA, she was a portfolio manager with State Street's Investment Research Department, where she managed the securities lending reinvestment funds since their inception in 1987, as well as other money market portfolios. She received a BS from Suffolk University. There are ten other portfolio managers working with Ms. Hatfield. Annual Report 5 SSgA Money Market Fund -------------------------------------------------------------------------------- Portfolio Management Discussion and Analysis -------------------------------------------------------------------------------- Objective: Maximize current income while preserving capital and liquidity. Invests in: High quality money market instruments including certificates of deposit, time deposits, bankers acceptances, commercial paper, corporate medium-term notes, US Government Treasury and Agency notes, and repurchase agreements. Strategy: Fund Managers base their decisions on the relative attractiveness of different money market investments, which vary depending on the general level of interest rates as well as supply and demand imbalances in the market. -------------------------------------------------------------------------------- GROWTH OF A $10,000 INVESTMENT Dates Money Market Salomon Smith Barney 3-Month T-Bill Index** * $10,000 $10,000 1990 $10,848 $10,815 1991 $11,616 $11,523 1992 $12,160 $12,014 1993 $12,585 $12,383 1994 $12,975 $12,824 1995 $13,691 $13,539 1996 $14,425 $14,263 1997 $15,187 $15,012 1998 $16,009 $15,796 1999 $16,787 $16,530 2000 $16,369 $16,127 ================================================================================ Performance Review The Fund had a total return of 5.78% for the fiscal year ended August 31, 2000. This compared favorably to the Salomon Smith Barney 3-Month Treasury Bill Index return of 5.51% for the same period. The Fund's performance is net of operating expenses, while Index results do not include expenses of any kind. The Salomon Smith Barney 3-Month Treasury Bill Index was chosen as a standard, well-known representation of money market rates. The market environment for the last year began with the Federal Open Market Committee (FOMC) tightening monetary policy due to strong domestic growth and rejuvenated demand from abroad. The FOMC raised rates by 25 basis points in June, August and November 1999, bringing the Fed Funds target from 4.75% to 5.50%. The FOMC took no action at its December meeting, but followed a strategy of injecting the economy with massive amounts of cash to ease Y2K liquidity concerns. Fourth quarter GDP logged an impressive 8.3% due to Y2K inventory building -------------------------------------------------------------------------------- SSgA Money Market Fund -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return ------------------- ------------ ------- 1 Year $ 10,578 5.78% 5 Years $ 12,970 5.34%+ 10 Years $ 16,369 5.05%+ -------------------------------------------------------------------------------- Salomon Smith Barney 3-Month Treasury Bill Index -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return ------------------- ------------ ------- 1 Year $ 10,551 5.51% 5 Years $ 12,882 5.20%+ 10 Years $ 16,127 4.89%+ See related Notes on following page. 6 Annual Report SSgA Money Market Fund -------------------------------------------------------------------------------- Portfolio Management Discussion and Analysis -------------------------------------------------------------------------------- supported by the generous liquidity provisions from the Federal Reserve. This surfeit of liquidity, in effect, loosened monetary policy when in fact tight labor markets and excess demand called for tightening. First quarter 2000 GDP followed with a 4.8% growth rate. The Federal Reserve Board needed to take back the excess liquidity and slow the economy. The FOMC did so by raising interest rates by 100 basis points in the first half of 2000. Although GDP advanced 5.4% throughout the second quarter of 2000, fears of inflation were tempered by the fact that productivity grew at 5% for the same period. The FOMC opted to leave rates unchanged at the June and August meetings while maintaining a cautious stance going forward. The Manager continues to be cautious about future FOMC policy considering the trend in rising oil prices as well as the upcoming presidential election. Market and Portfolio Highlights In the last fiscal year, the SSgA Money Market Fund was managed consistently with its objective of providing safety of principal and liquidity by investing in high quality investments and providing competitive returns. The Fund's net assets decreased in size by $1.5 billion or 14.9% over the past year to $8.6 billion at August 31, 2000. During the fall tightening period the Fund was managed with liquidity as a primary concern, with maturing positions remaining in cash and very liquid short-term securities throughout the last calendar quarter of 1999. This large cash position served to hedge against Y2K liquidity concerns and helped with the substantial swings in assets related to calendar year-end 1999. The 100 basis points of tightening in the first half of 2000, combined with the market's concern of further tightening, resulted in a very steep yield curve, with the 6-month LIBOR at 7.10% and the 12-month LIBOR at 7.50%. The Fund took the opportunity to buy on market weakness and extended the Fund's average maturity. By the end of August, the yield curve had stabilized with the 3-month LIBOR at 6.67%, the 6-month LIBOR at 6.80% and the 12-month LIBOR at 6.92%. The Fund's average maturity ranged between 44 and 68 days, ending at 68 days at August 31, 2000, longer than its peer group average of 51 days as measured by iMoneyNet, Inc. (formerly IBC Financial Data). The Fund increased exposure in fixed rate securities, from 76.5% at August 31, 1999, to 85% on August 31, 2000. Fixed rate securities were selected over floating rate securities, enabling the Fund to add yield in a rising rate environment. The Fund increased exposure in 1- to 3-month asset-backed commercial paper, which was priced 2 to 5 basis points cheaper than corresponding-maturity bank and finance commercial paper. With the yield curve's potential to steepen on negative inflation news, the Manager will look for those opportunities to extend duration and add yield. -------------------------------------------------------- Top Five Holdings (by investment type, as a percent of Total Investments) August 31, 2000 -------------------------------------------------------- Domestic Commercial Paper 38.4% Yankee Certificates of Deposit 22.6 Corporate Bonds and Notes 18.7 Eurodollar Certificates of Deposit 11.9 Domestic Certificates of Deposit 3.3 -------------------------------------------------------- --------------------- Notes: The following notes relate to the Growth of $10,000 graph and table on the preceding page. * Assumes initial investment on September 1, 1990. ** Equal dollar amounts of 3-month Treasury bills are purchased at the beginning of each of three consecutive months. As each bill matures, all proceeds are rolled over or reinvested in a new 3-month bill. The income used to calculate the monthly return is derived by subtracting the original amount invested from the maturity value. The yield curve average is the basis for calculating the return on the Index. The Index is rebalanced monthly by market capitalization. + Annualized. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. An investment in a money market fund is neither insured nor guaranteed by the US Government. There can be no assurance that a money market fund will be able to maintain a stable net asset value of $1.00 per share. Annual Report 7 Report of Independent Accountants To the Shareholders and Board of Trustees of the SSgA Funds: In our opinion, the accompanying statement of assets and liabilities and statement of net assets, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of SSgA Money Market Fund (the "Fund") at August 31, 2000, the results of its operations for the fiscal year then ended and the changes in its net assets for each of the two fiscal years in the period then ended, and the financial highlights for each of the five fiscal years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 2000 by correspondence with the custodian, provide a reasonable basis for our opinion. Boston, Massachusetts October 11, 2000 /s/ PricewaterhouseCoopers LLP 8 Annual Report SSgA Money Market Fund Statement of Net Assets August 31, 2000
Principal Amount Date Value (000) Rate of (000) $ % Maturity $ --------- ---- -------- ------- Corporate Bonds and Notes - 15.7% Bank of America N.A. 100,000 6.600 11/09/00 100,000 Bank of America N.A. 50,000 6.740 02/20/01 50,000 Bank of New York 60,000 6.070 11/20/00 59,991 Bank One Corp. (a) 50,000 6.870 10/06/00 49,998 BMW Corp. (a) 90,000 6.823 06/04/01 90,000 Chase Manhattan Corp. (a) 10,000 6.740 02/26/01 10,006 Citigroup, Inc. (a) 85,000 6.580 04/04/01 85,000 Comerica Bank (a) 25,000 6.610 11/20/00 24,998 Commerzbank (a) 25,000 6.530 01/25/01 24,995 Commerzbank (a) 75,000 6.700 02/12/01 74,984 Commerzbank (a) 125,000 6.530 02/16/01 124,972 DaimlerChrysler 30,000 6.680 02/07/01 29,991 DaimlerChrysler (a) 20,000 6.560 02/22/01 19,993 du Pont (E.I.) de Nemours & Co. 35,000 6.480 09/28/00 34,830 Ford Motor Credit Co. 30,000 6.510 10/19/00 29,740 Ford Motor Credit Co. 50,000 6.640 11/22/00 49,995 Ford Motor Credit Co. (a) 27,000 7.089 03/05/01 27,037 Ford Motor Credit Co. (a) 50,000 6.904 07/16/01 50,071 Key Bank N.A. (a) 25,000 6.675 07/27/01 24,996 National City Bank 40,000 6.808 09/18/00 40,002 National City Bank, Grand Cayman 50,060 6.625 09/01/00 50,060 PNC Bank, Pittsburgh (a) 38,000 6.520 02/26/01 37,989 PNC Bank, Pittsburgh (a) 60,000 6.540 03/23/01 59,984 PNC Bank, Pittsburgh 30,000 6.578 05/25/01 29,998 Unilever Capital Corp. (a) 53,000 6.649 09/07/01 53,000 US Bank, Minnesota 40,000 6.580 11/20/00 39,995 US Bank, Minnesota 40,000 6.880 04/04/01 39,993 US Bank, Minnesota (a) 30,000 6.670 05/24/01 30,000 --------- Total Corporate Bonds and Notes (cost $1,342,618) 1,342,618 ---------
Annual Report 9 SSgA Money Market Fund Statement of Net Assets, continued August 31, 2000
Principal Amount Date Value (000) Rate of (000) $ % Maturity $ --------- ---- -------- ------- Domestic Certificates of Deposit - 2.7% First Tennessee Bank NA 25,000 6.700 09/18/00 25,000 First Tennessee Bank NA 75,000 6.560 11/27/00 74,988 Firstar Bank 50,000 6.710 09/29/00 50,000 Merrill Lynch & Co. Inc. 50,000 6.520 10/24/00 49,520 US National Bank, Minneapolis 35,000 6.780 12/26/00 35,000 --------- Total Domestic Certificates of Deposit (cost $234,508) 234,508 --------- Eurodollar Certificates of Deposit - 10.0% Abbey National Treasury Services PLC 45,000 6.600 11/21/00 45,000 Abbey National Treasury Services PLC 50,000 6.720 12/29/00 50,000 Abbey National Treasury Services PLC 50,000 7.260 05/09/01 50,000 Abbey National Treasury Services PLC 50,000 7.330 05/17/01 50,000 Bank of Scotland 75,000 6.705 09/18/00 75,000 Bank of Scotland 50,000 6.650 10/26/00 50,001 Barclays Bank 40,000 6.750 02/20/01 40,002 Barclays Bank 25,000 6.750 02/21/01 25,000 Halifax PLC 30,000 6.620 12/11/00 30,000 Halifax PLC 140,000 6.620 12/27/00 140,009 Halifax PLC 53,000 6.720 12/27/00 52,993 Halifax PLC 50,000 6.700 12/29/00 50,000 ING Bank 50,000 6.600 11/30/00 50,000 Rabobank London ECD 75,000 6.580 09/29/00 75,000 Royal Bank of Scotland 25,000 6.815 09/05/00 25,000 Royal Bank of Scotland 50,000 6.590 09/28/00 50,000 --------- Total Eurodollar Certificates of Deposit (cost $858,005) 858,005 --------- Eurodollar Time Deposits - 0.3% Den Denske Bank 25,000 6.600 12/27/00 25,000 --------- Total Eurodollar Time Deposits (cost $25,000) 25,000 --------- Domestic Commercial Paper - 32.3% ABN Amro 75,000 6.607 09/29/00 74,615 ABN Amro 100,000 6.472 11/30/00 98,382 Alcatel 50,000 6.520 10/24/00 49,520
10 Annual Report SSgA Money Market Fund Statement of Net Assets, continued August 31, 2000
Principal Amount Date Value (000) Rate of (000) $ % Maturity $ --------- ---- -------- ------- Amsterdam FDG Corp. 40,000 6.510 09/14/00 39,906 Amsterdam FDG Corp. 35,000 6.520 09/15/00 34,911 Banco Bilbao Vizacaya (NY) BRH 100,000 6.690 09/21/00 99,999 Ciesco LP 25,000 6.510 09/13/00 24,946 Ciesco LP 50,000 6.520 10/19/00 49,565 Coca Cola Co. 25,000 6.460 09/14/00 24,942 Corporate Asset Funding Co. Inc. 37,000 6.590 09/20/00 36,871 Corporate Asset Funding Co. Inc. 40,000 6.530 09/21/00 39,855 Corporate Asset Funding Co. Inc. 40,000 6.520 09/26/00 39,819 Corporate Asset Funding Co. Inc. 40,000 6.580 10/10/00 39,715 Corporate Asset Funding Co. Inc. 15,000 6.510 10/27/00 14,848 Corporate Asset Funding Co. Inc. 75,000 6.500 11/07/00 74,093 Credit Suisse 50,000 6.590 09/07/00 49,945 Credit Suisse 60,000 6.600 09/22/00 59,769 CREGEM Inc. 40,000 6.500 02/15/01 38,794 CREGEM Inc. 50,000 6.490 02/27/01 48,387 CREGEM Inc. 32,000 6.500 02/27/01 30,966 Delaware Funding Corp. 51,745 6.500 10/13/00 51,353 Delaware Funding Corp. 75,000 6.510 01/31/01 72,939 Den Denske Corp. 50,000 6.585 09/25/00 49,781 Den Denske Corp. 25,000 6.666 12/12/00 24,528 Dexia Co. 25,000 6.590 09/20/00 24,913 Dexia Co. 35,000 6.530 10/17/00 34,708 Dexia Co. 25,000 6.520 10/25/00 24,756 Falcon Asset Securitization 70,000 6.540 09/08/00 69,911 Falcon Asset Securitization 65,000 6.510 10/06/00 64,589 Federal Home Loan Bank 50,000 6.460 08/17/01 49,967 Fortis Funding 25,000 6.530 10/12/00 24,814 General Electric Capital Corp. 50,000 6.580 09/07/00 49,945 General Electric Capital Corp. 50,000 6.580 09/11/00 49,909 General Electric Capital Corp. 50,000 6.570 09/14/00 49,881 General Electric Capital Corp. 75,000 6.530 10/11/00 74,456 General Electric Capital Corp. 50,000 6.520 10/24/00 49,520 General Electric Capital Corp. 30,000 6.520 02/16/01 29,087 General Electric Capital Corp. 50,000 6.500 02/27/01 48,384 General Electric Capital Corp. 25,000 7.380 05/23/01 25,000 Glaxo PLC 38,700 6.580 09/20/00 38,566 Goldman Sachs Group LP 75,000 6.610 09/11/00 74,862 J.P. Morgan Co. Inc. 50,000 6.580 09/08/00 49,936
Annual Report 11 SSgA Money Market Fund Statement of Net Assets, continued August 31, 2000
Principal Amount Date Value (000) Rate of (000) $ % Maturity $ --------- ---- -------- ------- Morgan Stanley Dean Witter 50,000 6.600 09/22/00 49,808 Morgan Stanley Dean Witter 25,000 6.540 10/24/00 24,759 National Australia FDG Inc. 50,000 6.580 09/22/00 49,808 Old Line Funding Corp. 66,284 6.510 10/13/00 65,781 Pfizer Inc. 103,300 6.470 10/02/00 102,724 Preferred Receivables Funding Corp. 55,370 6.520 09/20/00 55,179 Preferred Receivables Funding Corp. 25,000 6.520 09/22/00 24,905 Preferred Receivables Funding Corp. 32,000 6.520 09/25/00 31,861 Preferred Receivables Funding Corp. 52,336 6.490 11/29/00 51,496 Wal Mart Stores Inc. 35,000 6.480 11/28/00 34,446 Wells Fargo & Company (a) 125,000 6.761 07/24/01 124,958 Windmill Funding Corp. 40,000 6.510 09/22/00 39,848 Windmill Funding Corp. 50,000 6.510 10/05/00 49,692 Woolwich PLC 20,000 6.680 12/11/00 19,624 Woolwich PLC 40,000 6.760 12/22/00 39,999 --------- Total Domestic Commercial Paper (cost $2,766,541) 2,766,541 --------- Time Deposits - 1.8% Chase Bank 150,000 6.688 09/01/00 150,000 --------- Total Time Deposits (cost $150,000) 150,000 --------- United States Government Agencies - 2.3% Federal Farm Credit Bank 25,000 6.350 02/02/01 24,988 Federal National Mortgage Association 25,000 6.425 10/26/00 24,755 Federal National Mortgage Association 150,000 6.390 12/20/00 147,071 --------- Total United States Government Agencies (cost $196,814) 196,814 --------- Yankee Certificates of Deposit - 19.0% ABN AMRO 25,000 7.178 05/08/01 24,996 ANZ Bank (a) 40,000 6.776 06/01/01 39,997 Bank of Nova Scotia (a) 75,000 6.740 09/29/00 75,001 Bank of Nova Scotia (a) 30,000 6.550 01/16/01 29,995 Bank of Nova Scotia (a) 24,000 6.550 01/24/01 23,995 Bank of Nova Scotia (a) 50,000 6.530 03/01/01 49,988 Bank of Scotland (a) 25,000 6.540 03/23/01 24,993
12 Annual Report SSgA Money Market Fund Statement of Net Assets, continued August 31, 2000
Principal Amount Date Value (000) Rate of (000) $ % Maturity $ --------- ---- -------- ------- Bank of Scotland (a) 50,000 6.560 04/25/01 49,990 Bank of Scotland (a) 30,000 6.980 07/16/01 29,994 Canadian Imperial Bank 50,000 6.720 12/27/00 50,000 Canadian Imperial Bank 70,000 6.870 04/25/01 69,983 Canadian Imperial Bank 75,000 7.070 05/03/01 74,986 Deutsche Bank AG 75,000 6.700 09/22/00 75,000 Deutsche Bank AG 50,000 6.215 12/01/00 49,991 Deutsche Bank AG 20,000 6.500 01/08/01 19,997 Deutsche Bank AG 68,000 6.550 01/16/01 67,988 Deutsche Bank AG 50,000 6.550 01/24/01 49,991 Deutsche Bank AG 43,000 6.750 02/22/01 42,990 Deutsche Bank AG 70,000 6.890 08/20/01 69,981 National City Bank 36,000 6.550 01/22/01 35,993 National Westminster Bank PLC 50,000 6.080 11/24/00 49,992 National Westminster Bank PLC 40,000 6.100 11/24/00 39,994 National Westminster Bank PLC 50,000 6.855 08/31/01 49,986 Royal Bank of Canada 25,000 6.550 01/16/01 24,996 Royal Bank of Canada 21,000 6.550 01/22/01 20,996 Royal Bank of Canada (a) 50,000 6.615 07/06/01 49,977 Royal Bank of Scotland 37,000 7.230 05/15/01 36,998 Svenska Handelsbanken 50,000 6.710 03/15/01 49,990 Svenska Handelsbanken 25,000 6.930 05/02/01 24,997 Svenska Handelsbanken 25,000 7.000 05/02/01 24,997 Svenska Handelsbanken 40,000 7.075 07/23/01 39,992 UBSAG Stamford Branche 35,000 6.080 11/20/00 34,995 UBSAG Stamford Branche 50,000 6.085 11/27/00 49,993 UBSAG Stamford Branche 50,000 6.240 12/06/00 49,990 UBSAG Stamford Branche 50,000 6.500 01/08/01 49,991 UBSAG Stamford Branche 20,000 6.710 02/09/01 19,995 Unibank 50,000 6.690 09/21/00 49,999 --------- Total Yankee Certificates of Deposit (cost $1,623,727) 1,623,727 --------- Total Investments - 84.1% (amortized cost $7,197,213) 7,197,213 ---------
Annual Report 13 SSgA Money Market Fund Statement of Net Assets, continued August 31, 2000
Value (000) $ ------- Repurchase Agreements - 15.7% Agreement with ABN Amro Securities (USA) Inc. and Bank of New York (Tri-Party) of $989,944 acquired August 31, 2000 at 6.660% to be repurchased at $990,124 on September 1, 2000, collateralized by: $1,001,672 United States Treasury Note, valued at $1,009,764 989,944 Agreement with Swiss Bank Corp. and Chase Bank (Tri-Party) of $350,000 acquired August 31, 2000 at 6.630% to be repurchased at $350,063 on September 1, 2000, collateralized by: $354,139 United States Treasury Note, valued at $357,004 350,000 --------- Total Repurchase Agreements (identified cost $1,339,944) 1,339,944 --------- Total Investments and Repurchase Agreements - 99.8% (cost $8,537,157)(b) 8,537,157 Other Assets and Liabilities, Net - 0.2% 19,087 --------- Net Assets - 100.0% 8,556,244 =========
(a) Adjustable or floating rate security. (b) The identified cost for federal income tax purposes is the same as shown above. 14 Annual Report SSgA Money Market Fund Statement of Assets and Liabilities Amounts in thousands (except per share amount) August 31, 2000 Assets Investments at amortized cost which approximates market ................................... $7,197,213 Repurchase agreements (identified cost $1,339,944) ........................................ 1,339,944 Interest receivable ....................................................................... 69,381 ---------- Total assets ........................................................................ 8,606,538 Liabilities Payables: Dividends ................................................................... $47,165 Other accrued expenses ...................................................... 3,129 ------- Total liabilities ................................................................... 50,294 ---------- Net Assets ................................................................................ $8,556,244 ========== Net Assets Consist of: Accumulated net realized gain (loss) ...................................................... $ 7 Shares of beneficial interest ............................................................. 8,556 Additional paid-in capital ................................................................ 8,547,681 ---------- Net Assets ................................................................................ $8,556,244 ========== Net Asset Value, offering and redemption price per share: ($8,556,244,488 divided by 8,556,236,917 shares of $.001 par value shares of beneficial interest outstanding) .......................................... $ 1.00 ==========
See the accompanying notes which are an integral part of the financial statements. Annual Report 15 SSgA Money Market Fund Statement of Operations Amounts in thousands For the Fiscal Year Ended August 31, 2000 Investment Income Interest ............................................................................... $531,199 Expenses Advisory fees ............................................................... $22,080 Administrative fees ......................................................... 2,774 Custodian fees .............................................................. 1,776 Distribution fees ........................................................... 2,981 Transfer agent fees ......................................................... 889 Professional fees ........................................................... 166 Registration fees ........................................................... 127 Shareholders servicing fees ................................................. 3,542 Trustees' fees .............................................................. 141 Miscellaneous expenses ...................................................... 185 ------- Expenses before reductions .................................................. 34,661 Expense reductions .......................................................... (62) ------- Expenses, net ....................................................................... 34,599 -------- Net investment income ..................................................................... 496,600 -------- Net Realized Gain (Loss) Net realized gain (loss) on investments ................................................... 259 -------- Net increase in net assets from operations ................................................ $496,859 ========
See the accompanying notes which are an integral part of the financial statements. 16 Annual Report SSgA Money Market Fund Statement of Changes in Net Assets Amounts in thousands For the Fiscal Years Ended August 31,
2000 1999 ------------ ------------ Increase (Decrease) in Net Assets Operations Net investment income .......................................... $ 496,600 $ 358,632 Net realized gain (loss) ....................................... 259 1,666 ------------ ------------ Net increase in net assets from operations .................. 496,859 360,298 ------------ ------------ Distributions From net investment income ..................................... (496,600) (358,632) ------------ ------------ Share Transactions Net increase (decrease) in net assets from share transactions .. (1,528,298) 4,605,291 ------------ ------------ Total net increase (decrease) in net assets ....................... (1,528,039) 4,606,957 Net Assets Beginning of period ............................................ 10,084,283 5,477,326 ------------ ------------ End of period .................................................. $ 8,556,244 $ 10,084,283 ============ ============
See the accompanying notes which are an integral part of the financial statements. Annual Report 17 SSgA Money Market Fund Financial Highlights The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
Fiscal Years Ended August 31, ------------------------------------------------------------------ 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- Net Asset Value, Beginning of Period ......... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 ---------- ---------- ---------- ---------- ---------- Income From Operations Net investment income ..................... .0562 .0476 .0528 .0516 .0524 ---------- ---------- ---------- ---------- ---------- Distributions From net investment income ................ (.0562) (.0476) (.0528) (.0516) (.0524) ---------- ---------- ---------- ---------- ---------- Net Asset Value, End of Period ............... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 ========== ========== ========== ========== ========== Total Return (%) ............................. 5.78 4.86 5.41 5.28 5.36 Ratios/Supplemental Data: Net Assets, end of period (in thousands) .. 8,556,244 10,084,283 5,477,326 4,278,165 3,475,409 Ratios to average net assets (%): Operating expenses ..................... .39 .40 .41 .39 .39 Net investment income .................. 5.62 4.74 5.28 5.17 5.20
18 Annual Report SSgA Money Market Fund Notes to Financial Statements August 31, 2000 1. Organization The SSgA Funds (the "Investment Company") is a series mutual fund, currently comprised of 24 investment portfolios which are in operation as of August 31, 2000. These financial statements report on one portfolio, the SSgA Money Market Fund (the "Fund"). The Investment Company is a registered and diversified open-end investment company, as defined in the Investment Company Act of 1940, as amended (the "1940 Act"), that was organized as a Massachusetts business trust on October 3, 1987 and operates under a First Amended and Restated Master Trust Agreement, dated October 13, 1993, as amended (the "Agreement"). The Investment Company's Agreement permits the Board of Trustees to issue an unlimited number of full and fractional shares of beneficial interest at a $.001 par value. 2. Significant Accounting Policies The Fund's financial statements are prepared in accordance with accounting principles generally accepted in the United States which require the use of management estimates. The following is a summary of the significant accounting policies consistently followed by the Fund in the preparation of its financial statements. Security valuation: The Fund utilizes the amortized cost valuation method in accordance with Rule 2a-7 of the 1940 Act, a method by which each portfolio instrument meeting certain materiality parameters and credit worthiness standards are initially valued at cost, and thereafter a constant accretion/amortization to maturity of any discount or premium is assumed. Securities transactions: Securities transactions are recorded on the trade date, which in most instances is the same as the settlement date. Realized gains and losses from the securities transactions, if any, are recorded on the basis of identified cost. Investment income: Interest income is recorded daily on the accrual basis. Federal income taxes: Since the Investment Company is a Massachusetts business trust, each fund is a separate corporate taxpayer and determines its net investment income and capital gains (or losses) and the amounts to be distributed to each fund's shareholders without regard to the income and capital gains (or losses) of the other funds. It is the Fund's intention to qualify as a regulated investment company, as defined by the Internal Revenue Code of 1986, as amended. This requires the Fund to distribute all of its taxable income. Therefore, the Fund paid no federal income taxes and no federal income tax provision was required. Dividends and distributions to shareholders: The Fund declares and records dividends on net investment income daily and pays them monthly. Capital gain distributions, if any, are generally declared and paid annually. An additional distribution may be paid by the Fund to avoid imposition of federal income tax on any remaining undistributed net investment income and capital gains. The Fund may periodically make reclassifications among certain of its capital accounts without impacting net asset value for differences between federal tax regulations and generally accepted accounting principles. Expenses: Most expenses can be directly attributed to the Fund. Expenses of the investment company which cannot be directly attributed are allocated among all funds based principally on their relative net assets. Annual Report 19 SSgA Money Market Fund Notes to Financial Statements, continued August 31, 2000 Repurchase agreements: The Fund may engage in repurchase and tri-party repurchase agreements with certain qualified financial institutions whereby the Fund, through its custodian or third-party custodian, receives delivery of the underlying securities. The market value of these securities (including accrued interest) on acquisition date is required to be an amount equal to at least 102% of the repurchase price. State Street Bank and Trust Company (the "Adviser") will monitor repurchase agreements daily to determine that the market value (including accrued interest) of the underlying securities remains equal to at least 102% of the repurchase price at Fedwire closing time. The Adviser or third-party custodian will notify the seller to immediately increase the collateral on the repurchase agreement to 102% of the repurchase price if collateral falls below 102%. 3. Securities Transactions Investment transactions: For the year ended August 31, 2000, purchases, sales, and maturities of investment securities, excluding US Government and Agency obligations and repurchase agreements, for the Fund aggregated to $379,722,879,767, $723,706,763, and $380,100,456,257, respectively. For the year ended August 31, 2000, purchases and maturities of US Government and Agency obligations, excluding repurchase agreements, aggregated to $2,236,431,258 and $2,348,973,000, respectively. 4. Related Parties Adviser: The Investment Company has an investment advisory agreement with State Street Bank and Trust Company under which the Adviser, through State Street Global Advisors, the investment management group of the Adviser, directs the investments of the Fund in accordance with its investment objectives, policies, and limitations. For these services, the Fund pays a fee to the Adviser, calculated daily and paid monthly, at the annual rate of .25% of its average daily net assets. The Investment Company also has contracts with the Adviser to provide custody, shareholder servicing and transfer agent services to the Fund. These amounts are presented in the accompanying Statement of Operations. In addition, the Fund has entered into arrangements with its Adviser whereby custody credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund's expenses. During the year, the Fund's custodian fees were reduced by $62,143 under these arrangements. Administrator: The Investment Company has an administration agreement with Frank Russell Investment Management Company (the "Administrator"), a wholly-owned subsidiary of The Northwestern Mutual Life Insurance Company, under which the Administrator supervises all non-portfolio investment aspects of the Investment Company's operations and provides adequate office space and all necessary office equipment and services, including telephone service, utilities, stationery supplies, and similar items. The Investment Company pays the Administrator for services supplied by the Administrator pursuant to the Administration Agreement, an annual fee, payable monthly on a pro rata basis. For the period September 1, 1999 to April 30, 2000, the following percentages of the average daily net assets of all domestic funds: $0 up to and including $500 million - .06%; over $500 million up to and including $1 billion - .05%; over $1 billion - .03%. Effective May 1, 2000, the annual fee is based on the following percentages of the average daily net assets of all money market portfolios: $0 up to $15 billion - .0315%; over $15 billion - .029%. The Administrator will also charge a flat fee of $30,000 per year per Fund with less than $500 million in net assets and $1,500 per year for monthly performance reports and use of 20 Annual Report SSgA Money Market Fund Notes to Financial Statements, continued August 31, 2000 Russell Performance Universe software product. In addition, the Fund reimburses the Administrator for out-of-pocket expenses and start-up costs for new funds. Distributor and Shareholder Servicing: The Investment Company has a Distribution Agreement with Russell Fund Distributors (the "Distributor") which is a wholly-owned subsidiary of the Administrator to promote and offer shares of the Investment Company. The Distributor may enter into sub-distribution agreements with other non-related parties. The amounts paid to the Distributor are included in the accompanying Statement of Operations. The Investment Company has a Distribution Plan pursuant to Rule 12b-1 (the "Plan") under the 1940 Act. Under this Plan, the Investment Company is authorized to make payments to the Distributor, or any Shareholder Servicing Agent, as defined in the Plan, for providing distribution and marketing services, for furnishing assistance to investors on an ongoing basis, and for the reimbursement of direct out-of-pocket expenses charged by the Distributor in connection with the distribution and marketing of shares of the Investment Company and the servicing of investor accounts. The Fund has Shareholder Service Agreements with the Adviser, State Street Brokerage Services, Inc. ("SSBSI"), a wholly-owned subsidiary of the Adviser, the Adviser's Retirement Investment Services Division ("RIS"), the Adviser's Metropolitan Division of Commercial Banking ("Commercial Banking") and State Street Solutions ("Solutions")(collectively the "Agents"), as well as several unaffiliated service providers. For these services, the Fund pays .025%, .175%, .175%, .175% and .175% to the Adviser, SSBSI, RIS, Commercial Banking, and Solutions, respectively, based upon the average daily value of all Fund shares held by or for customers of these Agents. For the year ended August 31, 2000, the Fund was charged shareholder servicing expenses of $2,207,039, $578,337, $70,528, $406,003, and $76,002, by the Adviser, SSBSI, RIS, Commercial Banking, and Solutions, respectively. The combined distribution and shareholder servicing payments shall not exceed .25% of the average daily value of net assets of the Fund on an annual basis. The shareholder servicing payments shall not exceed .20% of the average daily value of net assets of the Fund on an annual basis. Payments that exceed the maximum amount of allowable reimbursement may be carried forward for two years following the year in which the expenditure was incurred so long as the plan is in effect. The Fund's responsibility for any such expenses carried forward shall terminate at the end of two years following the year in which the expenditure was incurred. The Trustees or a majority of the Fund's shareholders have the right, however, to terminate the Distribution Plan and all payments thereunder at any time. The Fund will not be obligated to reimburse the Distributor for carryover expenses subsequent to the Distribution Plan's termination or noncontinuance. There were no carryover expenses as of August 31, 2000. Board of Trustees: The Investment Company paid each Trustee not affiliated with the Investment Company an annual retainer, plus specified amounts for board and committee meetings attended. These expenses are allocated among all of the funds based upon their relative net assets. Annual Report 21 SSgA Money Market Fund Notes to Financial Statements, continued August 31, 2000 Accrued fees payable to affiliates and trustees as of August 31, 2000 were as follows: Advisory fees $1,871,910 Administration fees 222,787 Custodian fees 172,039 Distribution fees 170,380 Shareholder servicing fees 387,105 Transfer agent fees 300,863 Trustees' fees 3,581 ---------- $3,128,665 ========== 5. Fund Share Transactions (On a Constant Dollar Basis):
(amounts in thousands) Fiscal Years Ended August 31, ---------------------------- 2000 1999 ------------ ------------ Proceeds from shares sold ..................... 142,514,809 105,783,537 Proceeds from reinvestment of distributions ... 436,772 298,285 Payments for shares redeemed .................. (144,479,879) (101,476,531) ------------ ------------ Total net increase (decrease) ................. (1,528,298) 4,605,291 ============ ============
6. Interfund Lending Program The Fund and all other funds of the Investment Company received from the Securities and Exchange Commission an exemptive order on December 23, 1999 to establish and operate an Interfund Credit Facility. This allows the Funds to directly lend to and borrow money from the SSgA Money Market Fund for temporary purposes in accordance with certain conditions. The borrowing Funds are charged the average of the current Repo Rate and the Bank Loan Rate. Interest Income on the Statement of Operations includes $48,358 received under the interfund lending program for the year ended August 31, 2000. 22 Annual Report SSgA Money Market Fund One International Place, 27th Floor Boston, Massachusetts 02110 (800) 997-7327 -------------------------------------------------------------------------------- Trustees Lynn L. Anderson, Chairman William L. Marshall Steven J. Mastrovich Patrick J. Riley Richard D. Shirk Bruce D. Taber Henry W. Todd Officers Lynn L. Anderson, President, Treasurer and CEO Mark E. Swanson, Treasurer and Principal Accounting Officer J. David Griswold, Vice President and Secretary Deedra S. Walkey, Assistant Secretary Rick J. Chase, Assistant Treasurer Carla L. Anderson, Assistant Secretary Investment Adviser State Street Bank and Trust Company 225 Franklin Street Boston, Massachusetts 02110 Custodian, Transfer Agent and Office of Shareholder Inquiries State Street Bank and Trust Company 1776 Heritage Drive North Quincy, Massachusetts 02171 (800) 647-7327 Distributor Russell Fund Distributors, Inc. One International Place, 27th Floor Boston, Massachusetts 02110 (800) 997-7327 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 160 Federal Street Boston, Massachusetts 02110 Annual Report 23 [COVER GRAPHIC] SSgA(R) funds ANNUAL REPORT Matrix Equity Fund August 31, 2000 SSgA(R) Funds Matrix Equity Fund Annual Report August 31, 2000 Table of Contents Page Chairman's Letter......................................................... 4 Portfolio Management Discussion and Analysis.............................. 6 Report of Independent Accountants......................................... 8 Financial Statements...................................................... 9 Financial Highlights...................................................... 15 Notes to Financial Statements............................................. 16 Tax Information........................................................... 21 Fund Management and Service Providers..................................... 22 "SSgA(R)" is a registered trademark of State Street Corporation and is licensed for use by the SSgA Funds. This report is prepared from the books and records of the Fund and it is submitted for the general information of shareholders. This information is for distribution to prospective investors only when preceded or accompanied by a SSgA Funds Prospectus containing more complete information concerning the investment objective and operations of the Fund, charges and expenses. The Prospectus should be read carefully before an investment is made. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. Russell Fund Distributors, Inc., is the distributor of the SSgA Funds. SSgA Matrix Equity Fund -------------------------------------------------------------------------------- Letter From the Chairman of State Street Global Advisors -------------------------------------------------------------------------------- Dear Shareholders, It is our pleasure to provide you with the SSgA Funds annual report for the fiscal year ended August 31, 2000. The SSgA Fund Family has grown to include twenty-four portfolios with over $21 billion in assets as of August 31, 2000. The Fund Family provides a wide range of strategies covering the world's major markets. The enclosed information provides an overview of the investment process for the SSgA Matrix Equity Fund. This overview contains the portfolio management discussion, performance updates and financial information for the Fund. In an ongoing effort to develop competitive products and services that provide investment solutions for our clients, we have added the SSgA Intermediate Municipal Bond Fund to the SSgA Fund Family. This Fund's investment objective seeks to provide federally tax-exempt current income by investing primarily in a diversified portfolio of municipal debt securities with a dollar-weighted average maturity between three and ten years. We are also pleased with the success of our SSgA Emerging Markets and SSgA Growth and Income Funds as they were included in Money(R) Magazine's June 2000 issue listing of the 'Top 100 Mutual Funds'. This is the second year in a row that these funds have been selected. Additionally, the SSgA Tax Free Money Market and the SSgA Active International Funds have achieved five-year performance history during the 2000 fiscal year. Currently, all of our SSgA Money Market Funds have at least a five-year performance history. We strive to meet our clients' needs by providing funds with long-term records and competitive performance. We would like to thank you for choosing the SSgA Funds. Our reputation is based on our tradition of designing and delivering exceptional financial services to our clients. We look forward to continue sharing the benefit of our experience with you. Sincerely, /s/ Nicholas A. Lopardo Nicholas A. Lopardo State Street Global Advisors Chairman and Chief Executive Officer /s/ Timothy B. Harbert Timothy B. Harbert State Street Global Advisors President and Chief Operating Officer, SSgA 4 Annual Report SSgA Matrix Equity Fund -------------------------------------------------------------------------------- Management of the Funds -------------------------------------------------------------------------------- [PHOTO] Nicholas A. Lopardo Chairman and Chief Executive Officer [PHOTO] Timothy B. Harbert President and Chief Operating Officer A Team Approach to Investment Management Our investment strategies are the product of the combined experience of our professional staff. Portfolio Managers work together to develop and enhance the techniques that drive our investment processes. As a result, the portfolios we manage benefit from the knowledge of the entire team. Mr. Theodore Gekas, Principal, has been the portfolio manager primarily responsible for investment decisions regarding the SSgA Matrix Equity Fund since April 1999. Prior to joining SSgA, at Citibank Mr. Gekas developed asset allocation and forecasting models for the global equity and fixed income markets. With the IBM Retirement Fund, he applied quantitative strategies to manage US and EAFE equity-indexed and alpha-tilted funds. He holds a BS in engineering from the University of Wisconsin, and an MBA in Finance from New York University and Melbourne University (Australia). There are seven other managers working with Mr. Gekas. Annual Report 5 SSgA Matrix Equity Fund -------------------------------------------------------------------------------- Portfolio Management Discussion and Analysis -------------------------------------------------------------------------------- Objective: Provide total returns that exceed the S&P 500(R) Index over the long term. Invests in: Large capitalization US equity securities. Strategy: The Fund management team uses a systematic approach to investment management designed to uncover equity securities which are undervalued, with superior growth potential. This disciplined investment approach rests on a modeling process that evaluates vast amounts of financial and market data and corporate earnings forecasts. The result is an investment process that provides strong long-term total returns through strong bottom-up stock selection within a risk-controlled framework. -------------------------------------------------------------------------------- GROWTH OF A $10,000 INVESTMENT Dates Matrix Equity Fund S&P 500(R) Index** Inception* $10,000 $10,000 1992 $9,780 $10,093 1993 $12,152 $11,628 1994 $12,687 $12,264 1995 $15,074 $14,895 1996 $17,285 $17,685 1997 $24,675 $24,874 1998 $25,192 $26,887 1999 $33,463 $37,597 2000 $38,211 $43,734 ================================================================================ Performance Review For the fiscal year ended August 31, 2000, the SSgA Matrix Equity Fund had a total return of 14.19%, as compared to the S&P 500(R) Index results of 16.33%. The Fund's performance is net of operating expenses, whereas Index results do not include expenses of any kind. These expenses account for 90% of the difference in performance. Market and Portfolio Highlights For the twelve months ended August 31, 2000, the US equity market, as measured by the S&P 500(R) Index, made steady gains. The Index reached record highs in March. However, valuations finally reached unsustainable levels and after attaining such record highs, the market reacted with a correction in April. After the correction, valuations trended higher through the fiscal year-end. The correction was attributable, in part, to the Federal Reserve's previous short-term interest rate hikes which were intended to slow the -------------------------------------------------------------------------------- SSgA Matrix Equity Fund -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return -------------- ------------ ------- 1 Year $ 11,419 14.19% 5 Years $ 25,350 20.45%+ Inception $ 38,211 17.48%+ -------------------------------------------------------------------------------- Standard & Poor's(R) 500 Composite Stock Price Index -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return -------------- ------------ ------- 1 Year $ 11,633 16.33% 5 Years $ 29,362 24.04%+ Inception $ 43,734 19.37%+ See related Notes on following page. 6 Annual Report SSgA Matrix Equity Fund -------------------------------------------------------------------------------- Portfolio Management Discussion and Analysis -------------------------------------------------------------------------------- economy and dampen inflation expectations. However, as fears of future aggressive rate increases subsided, the market was able to post additional gains late in the fiscal year. To meet the Fund's strategic objective, the investment process combines proven stock selection capability with a refined, proprietary portfolio construction methodology. The Manager seeks to control and diversify the active exposures in the Fund relative to the S&P 500(R) Index by controlling sector and industry weights, stock-specific weights, market capitalization, beta, and yield of the portfolio. Specifically, capitalization is controlled by a method that approximates a weighted median capitalization constraint. Additionally, individual security-specific weights are controlled relative to the benchmark weight. Within the Technology sector, the Manager favored those companies with the ability to support their capital structures, and with favorable valuations relative to their industry peers such as Altera, Applied Materials, and Apple. The Manager under-weighted Texas Instruments and Nortel Networks, which hurt performance. The Fund reflected strong stock selection in Manufacturing, Medical Services, and Financials Services, which included positions in Northrup Grumman, United Healthcare, and Lehman Brothers. Poor stock selection in Technology software companies, such as positions in Oracle and Computer Associates, hurt Fund performance. Due to the risk-controlled nature of the investment process, the Fund maintains portfolio characteristics which are consistent with the S&P 500(R) Index. As of August 31, 2000, the Fund was overweight in Technology, with a 37.6% allocation versus the benchmark exposure of 35.4%, and was underweight Consumer Staples, with a fiscal year-end weight of 5.4% as compared to 7.9% for the Index. As of August 31, 2000, the SSgA Matrix Equity Fund held 109 stocks with an average weighted market capitalization of $151.5 billion. As the Fund's objective is achieved through stock selections with a disciplined investment approach, the portfolio will be fully invested at all times. ------------------------------------------------------------- Top Ten Equity Holdings (as a percent of Total Investments) August 31, 2000 ------------------------------------------------------------- Intel Corp. 4.2% General Electric Co. 4.1 Cisco Systems, Inc. 3.8 Microsoft Corp. 2.8 Sun Microsystems, Inc. 2.5 Exxon Mobil Corp. 2.5 Citigroup, Inc. 2.2 Merck & Co., Inc. 2.1 International Business Machines Corp. 2.0 Oracle Systems Corp. 1.9 ------------------------------------------------------------- --------------------- Notes: The following notes relate to the Growth of $10,000 graph and table on the preceding page. * The Fund commenced operations on May 4, 1992. Index comparison began May 1, 1992. ** The Standard & Poor's(R) 500 Composite Stock Index is composed of 500 common stocks which are chosen by Standard and Poor's Corporation 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. + Annualized. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. Annual Report 7 Report of Independent Accountants To the Shareholders and Board of Trustees of the SSgA Funds: In our opinion, the accompanying statement of assets and liabilities and statement of net assets, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of SSgA Matrix Equity Fund (the "Fund") at August 31, 2000, the results of its operations for the fiscal year then ended and the changes in its net assets for each of the two fiscal years in the period then ended, and the financial highlights for each of the five fiscal years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 2000 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. Boston, Massachusetts October 11, 2000 /s/ PricewaterhouseCoopers LLP 8 Annual Report SSgA Matrix Equity Fund Statement of Net Assets August 31, 2000 Market Number Value of (000) Shares $ -------- ------ Common Stocks - 97.9% Basic Industries - 1.6% Eastman Chemical Co. 58,200 2,510 FMC Corp. (a) 61,600 4,177 ------- 6,687 ------- Capital Goods - 6.4% Dover Corp. 89,200 4,360 General Electric Co. 292,600 17,172 Novellus Systems, Inc. (a) 72,000 4,428 Tyco International, Ltd. 12,800 730 ------- 26,690 ------- Consumer Basics - 14.8% Abbott Laboratories 28,600 1,251 Amgen, Inc. (a) 60,300 4,575 Biomet, Inc. 100,000 3,381 Bristol-Myers Squibb Co. 67,600 3,583 Coca-Cola Co. (The) 36,500 1,921 Genzyme Corp. (a) 28,400 2,130 Johnson & Johnson 86,400 7,943 Kroger Co. (a) 69,600 1,579 Merck & Co., Inc. 127,800 8,930 Oxford Health Plans, Inc. (a) 109,700 3,346 PacifiCare Health Systems, Inc. (a) 37,900 2,042 Pepsi Bottling Group, Inc. (The) 73,800 2,343 PepsiCo, Inc. 22,900 976 Pfizer, Inc. 161,875 7,001 Philip Morris Cos., Inc. 132,600 3,928 United Health Corp (a) 30,700 2,901 Wellpoint Health Networks, Inc. (a) 49,600 4,281 ------- 62,111 ------- Consumer Durables - 1.3% Best Buy Co. (a) 33,900 2,093 Ford Motor Co. (a) 140,550 3,400 ------- 5,493 ------- Consumer Non-Durables - 4.1% Anheuser-Busch Cos., Inc. 21,600 1,702 Coors (Adolph) Co. Class B 9,700 578 Home Depot, Inc. (The) 37,500 1,802 Sears Roebuck & Co. 75,800 2,364 Tiffany & Co. 112,900 4,699 Wal-Mart Stores, Inc. 120,800 5,730 Zale Corp. (a) 11,600 428 ------- 17,303 ------- Consumer Services - 0.5% Disney (Walt) Co. 15,800 615 Mandalay Resort Group (a) 50,300 1,399 ------- 2,014 ------- Energy - 6.3% Ashland, Inc. 30,700 1,082 Chevron Corp. 18,900 1,597 Exxon Mobil Corp. 126,758 10,347 Kerr-McGee Corp. 37,900 2,395 Occidental Petroleum Corp. 99,600 2,154 Phillips Petroleum Co. 27,800 1,720 Tosco Corp. 64,500 1,967 Ultramar Diamond Shamrock Corp. 38,800 909 USX-Marathon Group 60,700 1,665 Valero Energy Corp. 75,600 2,277 ------- 26,113 ------- Finance - 14.4% American International Group, Inc. 48,825 4,352 AXA Financial, Inc. 73,800 3,819 Bear Stearns Companies Inc. (The) 29,000 1,945 Citigroup, Inc. 158,067 9,227 Comerica, Inc. 40,500 2,281 FleetBoston Financial Corp. 67,200 2,869 Golden West Financial Corp. 29,000 1,381 Greenpoint Financial Corp. 39,700 1,037 John Hancock Financial Services, Inc. (a) 94,700 2,391 Annual Report 9 SSgA Matrix Equity Fund Statement of Net Assets, continued August 31, 2000 Market Number Value of (000) Shares $ -------- ------ KeyCorp 69,600 1,405 Lehman Brothers Holdings, Inc. 24,500 3,553 Loews Corp. 51,500 4,168 Merrill Lynch & Co., Inc. 26,900 3,901 Morgan Stanley Dean Witter & Co. 29,900 3,216 PMI Group, Inc. (The) 50,100 3,106 Radian Group, Inc. 64,300 3,995 Robert Half International, Inc. (a) 121,200 3,856 Torchmark Corp. 400 11 UnionBanCal Corp. 37,500 931 Washington Mutual, Inc. 78,800 2,759 ------- 60,203 ------- General Business - 5.1% Automatic Data Processing, Inc. 89,900 5,360 First Data Corp. 58,400 2,785 New York Times Co. Class A 100,200 3,927 SBC Communications, Inc. 154,918 6,468 Time Warner, Inc. 20,500 1,753 Viacom, Inc. Class B (a) 14,900 1,003 ------- 21,296 ------- Shelter - 0.4% USG Corp. 55,800 1,796 ------- Technology - 36.4% America Online, Inc. (a) 89,900 5,270 Analog Devices, Inc. (a) 22,700 2,281 Apple Computer, Inc. (a) 45,400 2,767 Applied Materials, Inc. (a) 25,000 2,158 BroadVision, Inc. (a) 61,500 2,118 Cisco Systems, Inc. (a) 235,100 16,148 Dell Computer Corp. (a) 132,600 5,785 EMC Corp. (a) 78,600 7,703 Hewlett-Packard Co. 40,000 4,830 Intel Corp. 237,400 17,775 International Business Machines Corp. 62,300 8,224 Intersil Holding Corp. New (a) 43,500 2,338 JDS Uniphase Corp. (a) 31,200 3,884 Lucent Technologies, Inc. 57,200 2,392 Micron Technology, Inc. (a) 39,100 3,196 Microsoft Corp. (a) 166,300 11,610 Nortel Networks Corp. 92,500 7,545 Oracle Systems Corp. (a) 89,400 8,124 Qwest Communications International, Inc. (a) 69,600 3,593 RadioShack, Corp. 83,300 4,915 Sun Microsystems, Inc. (a) 81,600 10,358 Sybase, Inc. (a) 117,400 3,214 Symantec Corp. (a) 83,400 4,076 Texas Instruments, Inc. 51,900 3,474 Verizon Communications 60,400 2,635 Vishay Intertechnology, Inc. (a) 53,800 2,169 Xilinx, Inc. (a) 8,800 782 Yahoo!, Inc. (a) 24,300 2,952 ------- 152,316 ------- Transportation - 1.0% Boeing Co. (The) 79,800 4,279 ------- Utilities - 5.6% AT&T Corp. 53,400 1,682 BellSouth Corp. 108,100 4,033 Corning, Inc. 9,300 3,050 Entergy Corp. 72,000 2,192 PG&E Corp. 89,300 2,584 PPL Corp. 72,600 2,432 Public Service Enterprise Group, Inc. 71,800 2,603 Sprint Corp. (PCS Group) (a) 40,800 2,048 WorldCom, Inc. (a) 74,550 2,721 ------- 23,345 ------- Total Common Stocks (cost $378,877) 409,646 ------- 10 Annual Report SSgA Matrix Equity Fund Statement of Net Assets, continued August 31, 2000 Principal Market Amount Value (000) (000) $ $ --------- ------- Short-Term Investments - 2.5% AIM Short-Term Investment Prime Portfolio Class A (b) 4,026 4,026 Federated Investors Prime Cash Obligations Fund (b) 5,853 5,853 United States Treasury Bills (b)(c)(d) 5.65% due 09/14/00 250 250 5.77% due 09/14/00 400 400 ------- Total Short-Term Investments (cost $10,529) 10,529 ------- Total Investments - 100.4% (identified cost $389,406) 420,175 Other Assets and Liabilities, Net - (0.4%) (1,624) ------- Net Assets - 100.0% 418,551 ======= (a) Nonincome-producing security. (b) At amortized cost, which approximates market. (c) Rate noted is yield-to-maturity from date of acquisition. (d) Held as collateral in connection with futures contracts purchased by the Fund. Unrealized Number Appreciation of (Depreciation) Futures Contracts Contracts (000) --------- -------------- S&P 500 Index expiration date 09/00 24 $ 140 ------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts Purchased $ 140 ------- See the accompanying notes which are an integral part of the financial statements. Annual Report 11 SSgA Matrix Equity Fund Statement of Assets and Liabilities Amounts in thousands (except per share amount) August 31, 2000 Assets Investments at market (identified cost $389,406) ........................................... $420,175 Receivables: Dividends ............................................................................... 476 Investments sold ........................................................................ 2,942 Fund shares sold ........................................................................ 4 Daily variation margin on futures contracts ............................................. 127 Prepaid expenses ........................................................................... 21 Short-term investments held as collateral for securities loaned, at market ................. 6,540 -------- Total assets ......................................................................... 430,285 Liabilities Payables: Investments purchased ........................................................ $ 4,735 Fund shares redeemed ......................................................... 131 Accrued fees to affiliates ................................................... 328 Payable upon return of securities loaned, at market ............................. 6,540 -------- Total liabilities .................................................................... 11,734 -------- Net Assets ................................................................................. $418,551 ======== Net Assets Consist of: Undistributed net investment income ........................................................ $ 161 Accumulated net realized gain (loss) ....................................................... 96,208 Unrealized appreciation (depreciation) on: Investments ............................................................................. 30,769 Futures contracts ....................................................................... 140 Shares of beneficial interest .............................................................. 25 Additional paid-in capital ................................................................. 291,248 -------- Net Assets ................................................................................. $418,551 ======== Net Asset Value, offering and redemption price per share: ($418,551,084 divided by 24,612,416 shares of $.001 par value shares of beneficial interest outstanding) ........................................... $ 17.01 ========
See accompanying notes which are an integral part of the financial statements. 12 Annual Report SSgA Matrix Equity Fund Statement of Operations Amounts in thousands For the Fiscal Year Ended August 31, 2000 Investment Income Dividends .............................................................. $ 6,063 Interest ............................................................... 39 -------- Total investment income ............................................. 6,102 Expenses Advisory fees .............................................. $ 3,843 Administrative fees ........................................ 171 Custodian fees ............................................. 111 Distribution fees .......................................... 162 Transfer agent fees ........................................ 69 Professional fees .......................................... 22 Registration fees .......................................... 36 Shareholder servicing fees ................................. 467 Trustees' fees ............................................. 11 Miscellaneous .............................................. 36 -------- Expenses before reductions ................................. 4,928 Expense reductions ......................................... (247) -------- Expenses, net ....................................................... 4,681 -------- Net investment income ..................................................... 1,421 -------- Net Realized and Unrealized Gain (Loss) Net realized gain (loss) on: Investments ................................................ 107,132 Futures contracts .......................................... (1,161) 105,971 -------- Net change in unrealized appreciation (depreciation) on: Investments ................................................ (39,146) Futures contracts .......................................... 140 (39,006) -------- -------- Net realized and unrealized gain (loss) ................................... 66,965 -------- Net increase (decrease) in net assets from operations ..................... $ 68,386 ========
See accompanying notes which are an integral part of the financial statements. Annual Report 13 SSgA Matrix Equity Fund Statement of Changes in Net Assets Amounts in thousands For the Fiscal Years Ended August 31,
2000 1999 --------- --------- Increase (Decrease) in Net Assets Operations Net investment income ............................................... $ 1,421 $ 2,843 Net realized gain (loss) ............................................ 105,971 70,599 Net change in unrealized appreciation (depreciation) ................ (39,006) 72,637 --------- --------- Net increase (decrease) in net assets from operations ............ 68,386 146,079 --------- --------- Distributions From net investment income .......................................... (1,950) (3,191) From net realized gain .............................................. (80,236) (74,416) --------- --------- Net decrease in net assets from distributions .................... (82,186) (77,607) --------- --------- Share Transactions Net increase (decrease) in net assets from share transactions ....... (124,678) 43,480 --------- --------- Total net increase (decrease) in net assets ............................ (138,478) 111,952 Net Assets Beginning of period ................................................. 557,029 445,077 --------- --------- End of period (including undistributed net investment income of $161 and $690, respectively) ..................................... $ 418,551 $ 557,029 ========= =========
See accompanying notes which are an integral part of the financial statements. 14 Annual Report SSgA Matrix Equity Fund Financial Highlights The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
Fiscal Years Ended August 31, --------------------------------------------------- 2000 1999 1998 1997 1996 ------- ------- ------- ------- ------- Net Asset Value, Beginning of Period ............ $ 17.51 $ 15.68 $ 18.41 $ 14.13 $ 13.93 ------- ------- ------- ------- ------- Income From Operations Net investment income (a) .................... .05 .09 .17 .21 .24 Net realized and unrealized gain (loss) ...... 1.96 4.42 .29 5.43 1.64 ------- ------- ------- ------- ------- Total income from operations .............. 2.01 4.51 .46 5.64 1.88 ------- ------- ------- ------- ------- Distributions From net investment income ................... (.06) (.10) (.19) (.22) (.24) From net realized gain ....................... (2.45) (2.58) (3.00) (1.14) (1.44) ------- ------- ------- ------- ------- Total distributions ....................... (2.51) (2.68) (3.19) (1.36) (1.68) ------- ------- ------- ------- ------- Net Asset Value, End of Period .................. $ 17.01 $ 17.51 $ 15.68 $ 18.41 $ 14.13 ======= ======= ======= ======= ======= Total Return (%) ................................ 14.19 32.83 2.09 42.75 14.67 Ratios/Supplemental Data: Net Assets, end of period (in thousands) ..... 418,551 557,029 445,077 429,397 261,888 Ratios to average net assets (%): Operating expenses, net (b) ............... .91 .78 .69 .58 .66 Operating expenses, gross (b) ............. .96 .94 .97 .96 1.04 Net investment income ..................... .28 .52 .97 1.33 1.76 Portfolio turnover rate (%) .................. 149.82 130.98 133.63 117.27 150.68
(a) For the periods subsequent to August 31, 1998, average month-end shares outstanding were used for this calculation. (b) See Note 4 for current period amounts. Annual Report 15 SSgA Matrix Equity Fund Notes to Financial Statements August 31, 2000 1. Organization The SSgA Funds (the "Investment Company") is a series mutual fund, currently comprised of 24 investment portfolios which are in operation as of August 31, 2000. These financial statements report on one portfolio, the SSgA Matrix Equity Fund (the "Fund"). The Investment Company is a registered and diversified open-end investment company, as defined in the Investment Company Act of 1940, as amended (the "1940 Act"), that was organized as a Massachusetts business trust on October 3, 1987 and operates under a First Amended and Restated Master Trust Agreement, dated October 13, 1993, as amended (the "Agreement"). The Investment Company's Agreement permits the Board of Trustees to issue an unlimited number of full and fractional shares of beneficial interest at a $.001 par value. 2. Significant Accounting Policies The Fund's financial statements are prepared in accordance with accounting principles generally accepted in the United States which require the use of management estimates. The following is a summary of the significant accounting policies consistently followed by the Fund in the preparation of its financial statements. Security valuation: United States equity securities listed and traded principally on any national securities exchange are valued on the basis of the last sale price or, lacking any sale, at the closing bid price, on the primary exchange on which the security is traded. United States over-the-counter equities are valued on the basis of the closing bid price. 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 the mean of bid prices. In the absence of a last sale or mean bid price, respectively, 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. Money market instruments maturing within 60 days of the valuation date are valued at amortized cost. The Fund may 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. Securities transactions: Securities transactions are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the basis of identified cost. Investment income: Dividend income is recorded on the ex-dividend date and interest income is recorded daily on the accrual basis. Amortization and accretion: All zero-coupon bond discounts and original issue discounts are accreted for both tax and financial reporting purposes. All short- and long-term market premiums/discounts are amortized/accreted for both tax and financial reporting purposes. Federal income taxes: Since the Investment Company is a Massachusetts business trust, each fund is a separate corporate taxpayer and determines its net investment income and capital gains (or losses) and the amounts to be distributed to each fund's shareholders without regard to the income and capital gains (or losses) of the other funds. 16 Annual Report SSgA Matrix Equity Fund Notes to Financial Statements, continued August 31, 2000 It is the Fund's intention to qualify as a regulated investment company, as defined by the Internal Revenue Code of 1986, as amended. This requires the Fund to distribute all of its taxable income. Therefore, the Fund paid no federal income taxes and no federal income tax provision was required. The Fund's aggregate cost of investments and the composition of unrealized appreciation and depreciation of investment securities for federal income tax purposes as of August 31, 2000 are as follows: Net Unrealized Federal Tax Unrealized Unrealized Appreciation Cost Appreciation (Depreciation) (Depreciation) ------------ ------------ -------------- -------------- $398,268,999 $33,798,734 $(11,893,468) $21,905,266 Dividends and distributions to shareholders: Income dividends and capital gain distributions, if any, are recorded on the ex-dividend date. Dividends are generally declared and paid quarterly. Capital gain distributions are generally declared and paid annually. An additional distribution may be paid by the Fund to avoid imposition of federal income tax on any remaining undistributed net investment income and capital gains. The timing and characterization of certain income and capital gain distributions are determined in accordance with federal tax regulations which may differ from generally accepted accounting principles ("GAAP"). As a result, net investment income and net realized gain (or loss) from investment transactions for a reporting period may differ significantly from distributions during such period. The differences between tax regulations and GAAP relate primarily to investments in certain securities sold at a loss. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting its net asset value. Expenses: Most expenses can be directly attributed to the individual Fund. Expenses of the investment company which cannot be directly attributed are allocated among all funds based principally on their relative net assets. Futures: The Fund is currently utilizing exchange-traded futures contracts. The primary risks associated with the use of futures contracts are an imperfect correlation between the change in market value of the securities held by the Fund and the prices of futures contracts and the possibility of an illiquid market. Changes in initial settlement value are accounted for as unrealized appreciation (depreciation) until the contracts are terminated, at which time realized gains and losses are recognized. 3. Securities Transactions Investment transactions: For the year ended August 31, 2000, purchases and sales of investment securities, excluding short-term investments, aggregated to $752,124,976 and $965,802,252, respectively. Securities lending: The Investment Company has a securities lending program whereby each Fund can loan securities with a value up to 33 1/3% of its total assets to certain brokers. The Fund receives cash (U.S. currency), U.S. Government or U.S. Government agency obligations as collateral against the loaned securities. To the extent that a loan is secured by cash collateral, such collateral shall be invested by State Street Bank and Trust Company in short-term instruments, money market mutual funds, and such other short-term investments, provided the investments meet certain quality and diversification requirements. Under the securities lending arrangement, the collateral received is recorded on the Fund's statement of assets and liabilities along with the related obligation to Annual Report 17 SSgA Matrix Equity Fund Notes to Financial Statements, continued August 31, 2000 return the collateral. In those situations where the Company has relinquished control of securities transferred, it derecognizes the securities and records a receivable from the counterparty. Income generated from the investment of cash collateral, less negotiated rebate fees paid to participating brokers and transaction costs, is divided between the Fund and State Street Bank and Trust Company and is recorded as interest income for the Fund. To the extent that a loan is secured by non-cash collateral, brokers pay the Fund negotiated lenders' fees, which are divided between the Fund and State Street Bank and Trust Company and are recorded as interest income for the Fund. All collateral received will be in an amount at least equal to 102% (for loans of U.S. securities) or 105% (for non-U.S. securities) of the market value of the loaned securities at the inception of each loan. Should the borrower of the securities fail financially, there is a risk of delay in recovery of the securities or loss of rights in the collateral. Consequently, loans are made only to borrowers which are deemed to be of good financial standing. As of August 31, 2000, the value of outstanding securities on loan and the value of collateral amounted to $6,343,147 and $6,540,239, respectively. Included in interest income is securities lending income of $19,393 for the year ended August 31, 2000. 4. Related Parties Adviser: The Investment Company has an investment advisory agreement with State Street Bank and Trust Company (the "Adviser") under which the Adviser, through State Street Global Advisors, the investment management group of the Adviser, directs the investments of the Fund in accordance with its investment objectives, policies, and limitations. For these services, the Fund pays a fee to the Adviser, calculated daily and paid monthly, at the annual rate of .75% of its average daily net assets. The Adviser has voluntarily agreed to waive .125% of its advisory fee to the Fund. As of January 1, 2000, the Adviser no longer waives a portion of its advisory fee. The total amount of the waiver for the period September 1, 1999 to December 31, 1999 was $240,050. The Investment Company also has contracts with the Adviser to provide custody, shareholder servicing and transfer agent services to the Fund. These amounts are presented in the accompanying Statement of Operations. In addition, the Fund has entered into arrangements with its Adviser whereby custody credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund's expenses. During the year, the Fund's custodian fees were reduced by $7,092 under these arrangements. Administrator: The Investment Company has an administration agreement with Frank Russell Investment Management Company (the "Administrator"), a wholly-owned subsidiary of The Northwestern Mutual Life Insurance Company, under which the Administrator supervises all non-portfolio investment aspects of the Investment Company's operations and provides adequate office space and all necessary office equipment and services, including telephone service, utilities, stationery supplies, and similar items. The Investment Company pays the Administrator for services supplied by the Administrator pursuant to the Administration Agreement, an annual fee, payable monthly on a pro rata basis. For the period September 1, 1999 to April 30, 2000, the following percentages of the average daily net assets of all domestic funds: $0 up to and including $500 million - .06%; over $500 million up to and including $1 billion - .05%; over $1 billion - .03%. Effective May 1, 2000, the annual fee is based on the following percentages of the average daily net assets of all U.S. Equity portfolios: $0 to $2 billion - .0315%; over $2 billion - .029%. The Administrator will charge a flat fee of $30,000 per year per Fund with less than $500 million in net assets and $1,500 per year for monthly performance reports and use of Russell 18 Annual Report SSgA Matrix Equity Fund Notes to Financial Statements, continued August 31, 2000 Performance Universe software product. In addition, the Fund reimburses the Administrator for out-of-pocket expenses and start-up costs for new funds. Distributor and Shareholder Servicing: The Investment Company has a Distribution Agreement with Russell Fund Distributors (the "Distributor") which is a wholly-owned subsidiary of the Administrator to promote and offer shares of the Investment Company. The Distributor may enter into sub-distribution agreements with other non-related parties. The amounts paid to the Distributor are included in the accompanying Statement of Operations. The Investment Company has a Distribution Plan pursuant to Rule 12b-1 (the "Plan") under the 1940 Act. Under this Plan, the Investment Company is authorized to make payments to the Distributor, or any Shareholder Servicing Agent, as defined in the Plan, for providing distribution and marketing services, for furnishing assistance to investors on an ongoing basis, and for the reimbursement of direct out-of-pocket expenses charged by the Distributor in connection with the distribution and marketing of shares of the Investment Company and the servicing of investor accounts. The Fund has Shareholder Service Agreements with the Adviser, State Street Brokerage Services, Inc. ("SSBSI"), a wholly-owned subsidiary of the Adviser, the Adviser's Retirement Investment Services Division ("RIS") the Adviser's Metropolitan Division of Commercial Banking ("Commercial Banking") and State Street Solutions ("Solutions")(collectively the "Agents"), as well as several unaffiliated service providers. For these services, the Fund pays .025%, .175%, .175%, .175%, and .175% to the Adviser, SSBSI, RIS, Commercial Banking, and Solutions, respectively, based upon the average daily value of all Fund shares held by or for customers of these Agents. For the year ended August 31, 2000, the Fund was charged shareholder servicing expenses of $115,215, $2,173, $98,386 and $231,759, by the Adviser, SSBSI, RIS, and Solutions, respectively. The Fund did not incur any expenses from Commercial Banking during this year. The combined distribution and shareholder servicing payments shall not exceed .25% of the average daily value of net assets of the Fund on an annual basis. The shareholder servicing payments shall not exceed .20% of the average daily value of net assets of the Fund on an annual basis. Payments that exceed the maximum amount of allowable reimbursement may be carried forward for two years following the year in which the expenditure was incurred so long as the plan is in effect. The Fund's responsibility for any such expenses carried forward shall terminate at the end of two years following the year in which the expenditure was incurred. The Trustees or a majority of the Fund's shareholders have the right, however, to terminate the Distribution Plan and all payments thereunder at any time. The Fund will not be obligated to reimburse the Distributor for carryover expenses subsequent to the Distribution Plan's termination or noncontinuance. There were no carryover expenses as of August 31, 2000. Affiliated Brokerage: The Fund placed a portion of its portfolio transactions with SSBSI, an affiliated broker dealer of the Fund's Adviser. The commissions paid to SSBSI were $151,786 for the year ended August 31, 2000. Board of Trustees: The Investment Company paid each Trustee not affiliated with the Investment Company an annual retainer, plus specified amounts for board and committee meetings attended. These expenses are allocated among all of the funds based upon their relative net assets. Annual Report 19 SSgA Matrix Equity Fund Notes to Financial Statements, continued August 31, 2000 Accrued fees payable to affiliates and trustees as of August 31, 2000 were as follows: Advisory fees $257,375 Administration fees 13,676 Custodian fees 3,276 Distribution fees 3,050 Shareholder servicing fees 41,544 Transfer agent fees 6,101 Trustees' fees 2,785 -------- $327,807 ======== Beneficial Interest: As of August 31, 2000, two shareholders (who were also affiliates of the Investment Company) were record owners of approximately 25% and 14%, respectively, of the total outstanding shares of the Fund. 5. Fund Share Transactions (amounts in thousands)
Fiscal Years Ended August 31, ---------------------------------------------- 2000 1999 -------------------- -------------------- Shares Dollars Shares Dollars ------- --------- ------- --------- Proceeds from shares sold ........................ 5,694 $ 92,941 11,235 $ 181,145 Proceeds from reinvestment of distributions ...... 5,377 78,260 5,170 73,530 Payments for shares redeemed ..................... (18,266) (295,879) (12,986) (211,195) ------- --------- ------- --------- Total net increase (decrease) .................... (7,195) $(124,678) 3,419 $ 43,480 ======= ========= ======= =========
6. Interfund Lending Program The Fund and all other funds of the Investment Company received from the Securities and Exchange Commission an exemptive order on December 23, 1999 to establish and operate an Interfund Credit Facility. This allows the Funds to directly lend to and borrow money from the SSgA Money Market Fund for temporary purposes in accordance with certain conditions. The borrowing Funds are charged the average of the current Repo Rate and the Bank Loan Rate. Miscellaneous Expenses on the Statement of Operations include $33,967 of interest expense paid under the interfund lending program. 7. Dividends On September 1, 2000, the Board of Trustees declared a dividend of $.0059 from net investment income, payable on September 8, 2000 to shareholders of record on September 5, 2000. 20 Annual Report SSgA Matrix Equity Fund Tax Information August 31, 2000 (Unaudited) The Fund paid a distribution of $55,327,521 from net long-term capital gains during its taxable year ended August 31, 2000. Please consult a tax advisor for questions about federal or state income tax laws. Annual Report 21 SSgA Matrix Equity Fund One International Place, 27th Floor Boston, Massachusetts 02110 (800) 997-7327 -------------------------------------------------------------------------------- Trustees Lynn L. Anderson, Chairman William L. Marshall Steven J. Mastrovich Patrick J. Riley Richard D. Shirk Bruce D. Taber Henry W. Todd Officers Lynn L. Anderson, President, Treasurer and CEO Mark E. Swanson, Treasurer and Principal Accounting Officer J. David Griswold, Vice President and Secretary Deedra S. Walkey, Assistant Secretary Rick J. Chase, Assistant Treasurer Carla L. Anderson, Assistant Secretary Investment Adviser State Street Bank and Trust Company 225 Franklin Street Boston, Massachusetts 02110 Custodian, Transfer Agent and Office of Shareholder Inquiries State Street Bank and Trust Company 1776 Heritage Drive North Quincy, Massachusetts 02171 (800) 647-7327 Distributor Russell Fund Distributors, Inc. One International Place, 27th Floor Boston, Massachusetts 02110 (800) 997-7327 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 160 Federal Street Boston, Massachusetts 02110 22 Annual Report [COVER GRAPHIC] SSgA(R) funds ANNUAL REPORT Prime Money Market Fund August 31, 2000 SSgA(R) Funds Prime Money Market Fund Annual Report August 31, 2000 Table of Contents Page Chairman's Letter............................................. 4 Portfolio Management Discussion and Analysis.................. 6 Report of Independent Accountants............................. 8 Financial Statements.......................................... 9 Financial Highlights.......................................... 17 Notes to Financial Statements................................. 18 Fund Management and Service Providers......................... 22 "SSgA(R)" is a registered trademark of State Street Corporation and is licensed for use by the SSgA Funds. This report is prepared from the books and records of the Fund and it is submitted for the general information of shareholders. This information is for distribution to prospective investors only when preceded or accompanied by a SSgA Funds Prospectus containing more complete information concerning the investment objective and operations of the Fund, charges and expenses. The Prospectus should be read carefully before an investment is made. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. An investment in a money market fund is neither insured nor guaranteed by the US government. There can be no assurance that a money market fund will be able to maintain a stable net asset value of $1.00 per share. Russell Fund Distributors, Inc., is the distributor of the SSgA Funds. SSgA Prime Money Market Fund -------------------------------------------------------------------------------- Letter From the Chairman of State Street Global Advisors -------------------------------------------------------------------------------- Dear Shareholders, It is our pleasure to provide you with the SSgA Funds annual report for the fiscal year ended August 31, 2000. The SSgA Fund Family has grown to include twenty-four portfolios with over $21 billion in assets as of August 31, 2000. The Fund Family provides a wide range of strategies covering the world's major markets. The enclosed information provides an overview of the investment process for the SSgA Prime Money Market Fund. This overview contains the portfolio management discussion, performance updates and financial information for the Fund. In an ongoing effort to develop competitive products and services that provide investment solutions for our clients, we have added the SSgA Intermediate Municipal Bond Fund to the SSgA Fund Family. This Fund's investment objective seeks to provide federally tax-exempt current income by investing primarily in a diversified portfolio of municipal debt securities with a dollar-weighted average maturity between three and ten years. We are also pleased with the success of our SSgA Emerging Markets and SSgA Growth and Income Funds as they were included in Money(R) Magazine's June 2000 issue listing of the 'Top 100 Mutual Funds'. This is the second year in a row that these funds have been selected. Additionally, the SSgA Tax Free Money Market and the SSgA Active International Funds have achieved five-year performance history during the 2000 fiscal year. Currently, all of our SSgA Money Market Funds have at least a five-year performance history. We strive to meet our clients' needs by providing funds with long-term records and competitive performance. We would like to thank you for choosing the SSgA Funds. Our reputation is based on our tradition of designing and delivering exceptional financial services to our clients. We look forward to continue sharing the benefit of our experience with you. Sincerely, /s/ Nicholas A. Lopardo Nicholas A. Lopardo State Street Global Advisors Chairman and Chief Executive Officer /s/ Timothy B. Harbert Timothy B. Harbert State Street Global Advisors President and Chief Operating Officer, SSgA 4 Annual Report SSgA Prime Money Market Fund -------------------------------------------------------------------------------- Management of the Funds -------------------------------------------------------------------------------- [PHOTO] Nicholas A. Lopardo Chairman and Chief Executive Officer [PHOTO] Timothy B. Harbert President and Chief Operating Officer A Team Approach to Investment Management Our investment strategies are the product of the combined experience of our professional staff. Portfolio Managers work together to develop and enhance the techniques that drive our investment processes. As a result, the portfolios we manage benefit from the knowledge of the entire team. Ms. Lisa Hatfield, Principal, has been the portfolio manager primarily responsible for investment decisions regarding the SSgA Prime Money Market Fund since January 1998. Ms. Hatfield is the Unit Head of the cash desk with responsibility for the SSgA money market funds, several short-term funds and enhanced cash portfolios. Prior to joining SSgA, she was a portfolio manager with State Street's Investment Research Department, where she managed the securities lending reinvestment funds since their inception in 1987, as well as other money market portfolios. She received a BS from Suffolk University. There are ten other portfolio managers working with Ms. Hatfield. Annual Report 5 SSgA Prime Money Market Fund -------------------------------------------------------------------------------- Portfolio Management Discussion and Analysis -------------------------------------------------------------------------------- Objective: Maximize current income while preserving capital and liquidity. Invests in: High quality money market instruments including certificates of deposit, time deposits, bankers acceptances, commercial paper, corporate medium-term notes, US Government Treasury and Agency notes, and repurchase agreements. Strategy: Fund Managers base their decisions on the relative attractiveness of different money market investments, which vary depending on the general level of interest rates as well as supply and demand imbalances in the market. -------------------------------------------------------------------------------- GROWTH OF A $10,000 INVESTMENT Dates Prime Money Market Fund Salomon Brothers 3-Month T-Bill Index** Inception* $10,000 $10,000 1994 $10,209 $10,200 1995 $10,803 $10,769 1996 $11,409 $11,344 1997 $12,038 $11,940 1998 $12,716 $12,564 1999 $13,362 $13,148 2000 $14,164 $13,872 ================================================================================ Performance Review The Fund had a total return of 6.00% for the fiscal year ended August 31, 2000. This compared favorably to the Salomon Smith Barney 3-Month Treasury Bill Index return of 5.51% for the same period. The Fund's performance is net of operating expenses, while Index results do not include expenses of any kind. The Salomon Smith Barney 3-Month Treasury Bill Index was chosen as a standard, well-known representation of money market rates. The market environment for the last year began with the Federal Open Market Committee (FOMC) tightening monetary policy due to strong domestic growth and rejuvenated demand from abroad. The FOMC raised rates by 25 basis points in June, August and November 1999, bringing the Fed Funds target from 4.75% to 5.50%. The FOMC took no action at its December meeting, but followed a strategy of injecting the economy with massive amounts of cash to ease Y2K liquidity concerns. Fourth quarter GDP logged an impressive 8.3% due to Y2K inventory building supported by the generous liquidity provisions from the Federal Reserve. This surfeit of liquidity, in effect, loosened monetary policy -------------------------------------------------------------------------------- SSgA Prime Money Market Fund -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return -------------- ------------ ------- 1 Year $ 10,600 6.00% 5 Years $ 13,110 5.57%+ Inception $ 14,164 5.48%+ -------------------------------------------------------------------------------- Salomon Smith Barney 3-Month Treasury Bill Index -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return -------------- ------------ ------- 1 Year $ 10,551 5.51% 5 Years $ 12,882 5.20%+ Inception $ 13,872 5.16%+ See related Notes on following page. 6 Annual Report SSgA Prime Money Market Fund -------------------------------------------------------------------------------- Portfolio Management Discussion and Analysis -------------------------------------------------------------------------------- when in fact tight labor markets and excess demand called for tightening. First quarter 2000 GDP followed with a 4.8% growth rate. To achieve a more sustainable rate of growth, the Federal Reserve Board needed to take back the excess liquidity and slow the economy. The FOMC did so by raising interest rates by 100 basis points in the first half of 2000. Although GDP advanced 5.4% throughout the second quarter of 2000, fears of inflation were tempered by the fact that productivity grew at 5% for the same period. The FOMC opted to leave rates unchanged at the June and August meetings while maintaining a cautious stance going forward. The Manager continues to be cautious about future FOMC policy, considering the trend in rising oil prices as well as the upcoming presidential election. Market and Portfolio Highlights In the last fiscal year, the SSgA Prime Money Market Fund was managed consistently with its objective of providing safety of principal and liquidity by investing in high quality investments and providing competitive returns. The Fund's net assets increased in size by $1.5 billion or 62% over the past year to $4.0 billion at August 31, 2000. During the fall tightening period the Fund was managed with liquidity as a primary concern, with maturing positions remaining in cash and very liquid short-term securities throughout the last calendar quarter of 1999. This large cash position served to hedge against Y2K liquidity concerns and helped with the substantial swings in assets related to calendar year-end 1999. The 100 basis points of tightening in the first half of 2000, combined with the market's concern of further tightening, resulted in a very steep yield curve, with the 6-month LIBOR at 7.10% and the 12-month LIBOR at 7.50%. At that time the market was expecting up to 100 basis points of additional tightening. The Fund took the opportunity to buy on market weakness and extended the Fund's average maturity. By the end of August, the yield curve had stabilized with the 3-month LIBOR at 6.67%, the 6-month LIBOR at 6.80% and the 12-month LIBOR at 6.92%. The Fund's average maturity ranged from 41 to 60 days over the last year, ending at 60 days at August 31, 2000, longer than its peer group average of 51 days as measured by iMoneyNet, Inc. (formerly IBC Financial Data). The Fund increased exposure in fixed rate securities from 65% at August 31, 1999 to 81.5% on August 31, 2000. Fixed rate securities were selected over floating rate securities enabling the Fund to add yield in a rising rate environment. The Fund also increased exposure in 1- to 3-month asset-backed commercial paper which was priced 2 to 5 basis points cheaper than corresponding maturity bank and finance commercial paper. With the yield curve's potential to steepen on negative inflation news, the Manager will look for those opportunities to extend duration and add yield. ------------------------------------------------------------- Top Five Holdings (by investment type, as a percent of Total Investments) August 31, 2000 ------------------------------------------------------------- Domestic Commercial Paper 37.8% Corporate Bonds and Notes 19.1 Eurodollar Certificates of Deposit 13.9 Yankee Certificates of Deposit 13.8 Domestic Certificates of Deposit 6.6 ------------------------------------------------------------- --------------------- Notes: The following notes relate to the Growth of $10,000 graph and table on the preceding page. * The Fund commenced operations on February 22, 1994. Index comparison began March 1, 1994. ** Equal dollar amounts of 3-month Treasury bills are purchased at the beginning of each of three consecutive months. As each bill matures, all proceeds are rolled over or reinvested in a new 3-month bill. The income used to calculate the monthly return is derived by subtracting the original amount invested from the maturity value. The yield curve average is the basis for calculating the return on the Index. The Index is rebalanced monthly by market capitalization. + Annualized. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. An investment in a money market fund is neither insured nor guaranteed by the US Government. There can be no assurance that a money market fund will be able to maintain a stable net asset value of $1.00 per share. Annual Report 7 Report of Independent Accountants To the Shareholders and Board of Trustees of the SSgA Funds: In our opinion, the accompanying statement of assets and liabilities and statement of net assets, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of SSgA Prime Money Market Fund (the "Fund") at August 31, 2000, the results of its operations for the fiscal year then ended and the changes in its net assets for each of the two fiscal years in the period then ended, and the financial highlights for each of the five fiscal years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 2000 by correspondence with the custodian, provide a reasonable basis for our opinion. Boston, Massachusetts October 11, 2000 /s/ PricewaterhouseCoopers LLP 8 Annual Report SSgA Prime Money Market Fund Statement of Net Assets August 31, 2000
Principal Amount Date Value (000) Rate of (000) $ % Maturity* $ --------- ------ --------- ----- Corporate Bonds and Notes - 16.7% Bank of America NA 50,000 6.600 11/09/00 50,000 Bank of America NA (a) 50,000 6.784 07/12/01 50,021 The Bank of New York Co., Inc. 15,000 6.070 11/20/00 14,998 The Bank of New York Co., Inc. 25,000 7.230 05/15/01 24,998 BMW US Capital Corp. (a) 75,000 6.823 06/04/01 75,000 Chase Manhattan Corp. (a) 15,000 6.880 02/26/01 15,008 Citigroup Inc. (a) 25,000 6.580 04/04/01 25,000 DaimlerChrysler North America Holding Corp. 9,900 6.680 02/07/01 9,897 DaimlerChrysler North America Holding Corp. (a) 5,000 6.560 02/22/01 4,998 Fleet National Bank (a) 20,000 6.733 07/31/01 20,004 Ford Motor Credit Co. (a) 5,000 6.771 02/13/01 5,002 Ford Motor Credit Co. (a) 35,000 7.089 03/05/01 35,049 Ford Motor Credit Co. (a) 65,000 6.904 07/16/01 65,098 General Electric Capital Corp. 15,000 7.380 05/23/01 15,000 Key Bank NA (a) 25,000 6.675 07/27/01 24,996 M&I Marshall & Ilsley Bank 10,000 6.070 09/28/00 10,000 National City Bank 12,000 6.550 01/22/01 11,998 PNC Bank NA (a) 10,000 6.520 02/26/01 9,997 PNC Bank NA (a) 20,000 6.550 03/23/01 19,995 PNC Bank NA (a) 14,000 6.578 05/25/01 13,999 Unilever (a) 30,000 6.649 09/07/01 30,000 US Bank of NA, Minnesota (a) 10,000 6.700 12/20/00 10,004 US Bank of NA, Minnesota 20,000 6.880 04/04/01 19,997 US Bank of NA, Minnesota (a) 25,000 6.670 05/24/01 25,000 Wells Fargo & Co. (a) 75,000 6.761 07/24/01 74,975 --------- Total Corporate Bonds and Notes (cost $661,034) 661,034 --------- Domestic Certificates of Deposit - 2.3% First Bank NA, Tennessee 25,000 6.720 09/07/00 25,000 Old Kent Bank & Trust Co. (a) 50,000 6.660 05/08/01 49,997 US Bank, Minneapolis 15,000 6.780 12/26/00 15,000 --------- Total Domestic Certificates of Deposit (cost $89,997) 89,997 ---------
Annual Report 9 SSgA Prime Money Market Fund Statement of Net Assets, continued August 31, 2000
Principal Amount Date Value (000) Rate of (000) $ % Maturity* $ --------- ------ --------- ----- Eurodollar Certificate of Deposit - 11.8% Abbey National Treasury Services PLC 25,000 6.720 12/29/00 25,000 Abbey National Treasury Services PLC 25,000 7.260 05/09/01 25,000 Abbey National Treasury Services PLC 25,000 7.330 05/16/01 25,000 Bank of Scotland 50,000 6.705 09/18/00 50,000 Bank of Scotland 20,000 6.660 10/17/00 20,000 Barclays Bank 20,000 6.750 02/20/01 20,001 Barclays Bank 15,000 6.750 02/21/01 15,000 Halifax Group PLC 15,000 6.620 12/11/00 15,000 Halifax Group PLC 60,000 6.620 12/27/00 60,004 Halifax Group PLC 25,000 6.700 12/29/00 25,000 ING Bank 50,000 6.705 09/08/00 50,000 ING Bank 25,000 6.600 11/30/00 25,000 Rabobank Nederland 25,000 6.580 09/29/00 25,000 Royal Bank of Scotland, Grand Cayman 50,000 6.815 09/05/00 50,000 Royal Bank of Scotland, Grand Cayman 20,000 6.590 09/28/00 20,000 Woolwich PLC 20,000 6.760 12/22/00 20,000 --------- Total Eurodollar Certificates of Deposit (cost $470,005) 470,005 --------- Yankee Certificates of Deposit - 15.9% Australia & New Zealand Banking Group (a) 30,000 6.776 06/01/01 29,998 Bank of Nova Scotia 25,000 6.740 09/29/00 25,000 Bank of Nova Scotia 20,000 6.550 01/16/01 19,996 Bank of Nova Scotia 8,000 6.550 01/24/01 7,998 Bank of Nova Scotia (a) 20,000 6.555 03/01/01 19,995 Bank of Scotland (a) 50,000 6.665 03/23/01 49,986 Bank of Scotland 10,000 6.980 07/16/01 9,998 Canadian Imperial Bank 25,000 6.720 12/27/00 25,000 Comerica Bank, New York (a) 25,000 6.530 02/16/01 24,994 Deutsche Bank AG 50,000 6.700 09/22/00 50,000 Deutsche Bank AG 10,000 6.500 01/08/01 9,998 Deutsche Bank AG 25,000 6.550 01/16/01 24,996 Deutsche Bank AG 25,000 6.550 01/24/01 24,995 Deutsche Bank AG 30,000 6.890 08/20/01 29,992 National Westminster Bank PLC 25,000 6.855 08/31/01 24,993 Royal Bank of Canada, New York 25,000 6.760 02/22/01 24,975 Royal Bank of Canada, New York 25,000 7.070 05/03/01 24,995 Royal Bank of Canada, New York (a) 30,000 6.615 07/06/01 29,986
10 Annual Report SSgA Prime Money Market Fund Statement of Net Assets, continued August 31, 2000
Principal Amount Date Value (000) Rate of (000) $ % Maturity* $ --------- ------ --------- ----- Svenska Handelsbanken 20,000 6.710 03/15/01 19,996 Svenska Handelsbanken 20,000 7.075 07/23/01 19,996 Toronto Dominion Bank 14,000 7.230 05/15/01 13,999 UBS AG Stamford Branche 10,000 6.500 01/08/01 9,998 Unibank 50,000 6.690 09/21/00 50,000 Westpac Banking Corp. 25,000 6.255 10/23/20 24,997 Westpac Banking Corp. 7,000 6.710 02/09/01 6,998 Westpac Banking Corp. 25,000 6.710 02/12/01 24,995 --------- Total Yankee Certificates of Deposit (cost $628,874) 628,874 --------- Domestic Commercial Paper - 33.0% ABN AMRO North America 50,000 6.472 11/30/00 49,191 ABN AMRO North America 15,000 6.500 02/12/01 14,556 Alcatel 20,700 6.520 10/25/00 20,498 Amsterdam Funding Corp. 23,000 6.530 09/08/00 22,971 Amsterdam Funding Corp. 25,000 6.510 09/18/00 24,923 Amsterdam Funding Corp. 25,000 6.510 10/05/00 24,846 Asset Securitization Cooperative Corp. 15,000 6.590 09/20/00 14,948 Asset Securitization Cooperative Corp. 15,000 6.530 09/21/00 14,946 Asset Securitization Cooperative Corp. 15,000 6.580 10/10/00 14,893 Bank of New York 25,000 6.590 09/08/00 24,968 Chase Manhattan Corp. 25,000 6.510 01/31/01 24,313 Ciesco LP 10,000 6.510 09/13/00 9,978 Corporate Asset Funding Co, Inc. 20,000 6.520 09/26/00 19,909 Corporate Asset Funding Co, Inc. 10,000 6.510 10/27/00 9,899 Credit Suisse 25,000 6.590 09/07/00 24,973 Credit Suisse 40,000 6.600 09/22/00 39,846 DaimlerChrysler North America Holding Corp. 15,000 6.680 09/01/00 15,000 Delaware Funding Corp. 25,000 6.590 09/11/00 24,954 Delaware Funding Corp. 22,607 6.490 11/22/00 22,273 Dexia Finance Co. 15,000 6.590 09/20/00 14,948 Dexia Finance Co. 20,000 6.520 10/25/00 19,804 Du Pont E I De Nemours & Co. 52,000 6.480 09/20/00 51,822 Edison Asset Securitization 40,000 6.600 09/05/00 39,971 Edison Asset Securitization 25,000 6.600 09/22/00 24,904 Falcon Asset Securitization 25,000 6.510 10/06/20 24,842 Ford Motor Credit Co. 20,000 6.510 10/19/00 19,826 Fortis Funding 50,000 6.500 02/15/01 48,492
Annual Report 11 SSgA Prime Money Market Fund Statement of Net Assets, continued August 31, 2000
Principal Amount Date Value (000) Rate of (000) $ % Maturity* $ --------- ------ --------- ----- GE Capital International Funding 25,000 6.570 09/14/00 24,941 General Electric Capital Corp. 20,000 6.580 09/11/00 19,963 General Electric Capital Corp. 30,000 6.530 10/11/00 29,782 General Electric Capital Corp. 41,000 6.520 02/16/01 39,753 General Electric Capital Corp. 20,000 6.500 02/27/01 19,354 General Motors Acceptance Corp. 30,000 6.686 09/07/00 29,967 Glaxo PLC 42,200 6.470 11/30/00 41,517 Goldman Sachs Group LP 30,000 6.610 09/11/00 29,945 KFW International, Inc. 16,900 6.500 10/11/00 16,778 Morgan, (J.P.) & Co., Inc. 25,000 6.580 09/08/00 24,968 National Australia Funding, Inc. 50,000 6.580 09/22/00 49,808 Old Line Funding Corp. 33,942 6.540 09/01/00 33,942 Old Line Funding Corp. 17,823 6.510 10/06/00 17,710 Park Avenue Receivables Corp. 7,528 6.530 09/12/00 7,513 Preferred Receivables Funding Corp. 30,000 6.520 09/20/00 29,897 Preferred Receivables Funding Corp. 30,000 6.520 09/25/00 29,870 Thunder Bay Funding, Inc. 50,000 6.510 10/04/00 49,702 Wal Mart Stores, Inc. 36,000 6.500 09/12/00 35,929 Wal Mart Stores, Inc. 27,704 6.490 11/28/00 27,264 Windmill Funding Corp. 12,500 6.530 09/18/00 12,461 Windmill Funding Corp. 25,000 6.510 10/05/00 24,846 Windmill Funding Corp. 25,000 6.510 11/10/00 24,684 Windmill Funding Corp. 25,000 6.500 11/21/00 24,634 --------- Total Domestic Commercial Paper (cost $1,307,722) 1,307,722 --------- Foreign Commercial Paper - 2.2% Cregem NA, Inc. 25,000 6.500 02/13/01 24,255 Den Denske Corp. 25,000 6.585 09/25/00 24,890 Den Denske Corp. 25,000 6.666 12/12/00 24,528 Woolwich PLC 15,000 6.680 12/11/00 14,719 --------- Total Foreign Commercial Paper (cost $88,392) 88,392 --------- Domestic Time Deposits - 3.0% M&I Bank, Milwaukee 119,712 6.625 09/01/00 119,712 --------- Total Domestic Time Deposits (cost $119,712) 119,712 ---------
12 Annual Report SSgA Prime Money Market Fund Statement of Net Assets, continued August 31, 2000
Principal Amount Date Value (000) Rate of (000) $ % Maturity* $ --------- ------ --------- ----- United States Government Agency - 2.4% Federal Home Loan Bank (a) 25,000 6.460 08/17/01 24,984 Federal National Mortgage Association 20,000 6.425 10/26/00 19,804 Federal National Mortgage Association 50,000 6.390 12/20/00 49,024 --------- Total United States Government Agency (cost $93,812) 93,812 --------- Total Investments - 87.3% (amortized cost $3,459,548) 3,459,548 --------- Repurchase Agreements - 12.6% Agreement with ABN AMRO Securities (USA) Inc. and The Bank of New York (Tri-Party) of $200,000 acquired on August 31, 2000 at 6.66% to be repurchased at $200,036 on September 1, 2000, collateralized by: $199,066 Federal National Mortgage Association securities, valued at $204,001 200,000 Agreement with Bear Stearns & Co., Inc. and Chase Bank (Tri-Party) of $300,000 acquired on August 31, 2000 at 6.67% to be repurchased at $300,055 on September 1, 2000, collateralized by: $316,932 Federal Home Loan Mortgage Corp. Participation Certificates, valued at $311,590 300,000 --------- Total Repurchase Agreements (identified cost $500,000) 500,000 --------- Total Investments and Repurchase Agreements - 99.9% (cost $3,959,548)(b) 3,959,548 Other Assets and Liabilities, Net - 0.1% 2,766 --------- Net Assets - 100.0% 3,962,314 =========
* The interest rate for all securities with a maturity greater than thirteen months has an automatic reset feature resulting in an effective maturity of thirteen months or less. (a) Adjustable or floating rate security. (b) The identified cost for federal income tax purpose is the same as shown above. See accompanying notes which are an integral part of the financial statements. Annual Report 13 SSgA Prime Money Market Fund Statement of Assets and Liabilities Amounts in thousands (except per share amount) August 31, 2000 Assets Investments at amortized cost which approximates market .................................. $ 3,459,548 Repurchase agreements (identified cost $500,000) ......................................... 500,000 Interest receivable ...................................................................... 26,796 ----------- Total assets ....................................................................... 3,986,344 Liabilities Payables: Dividends ......................................................... $ 23,156 Accrued fees to affiliates ........................................ 778 Other accrued expenses ............................................ 96 ------------ Total liabilities .................................................................. 24,030 ----------- Net Assets ............................................................................... $ 3,962,314 =========== Net Assets Consist of: Accumulated net realized gain (loss) ..................................................... $ (30) Shares of beneficial interest ............................................................ 3,962 Additional paid-in capital ............................................................... 3,958,382 ----------- Net Assets ............................................................................... $ 3,962,314 =========== Net Asset Value, offering and redemption price per share: ($3,962,314,376 divided by 3,962,356,007 shares of $.001 par value shares of beneficial interest outstanding) ......................................... $ 1.00 ===========
See accompanying notes which are an integral part of the financial statements. 14 Annual Report SSgA Prime Money Market Fund Statement of Operations Amounts in thousands For the Fiscal Year Ended August 31, 2000 Investment Income Interest ....................................................... $ 191,750 Expenses Advisory fees .................................... $ 4,695 Administrative fees .............................. 1,011 Custodian fees ................................... 550 Distribution fees ................................ 527 Transfer agent fees .............................. 146 Professional fees ................................ 28 Registration fees ................................ 112 Shareholder servicing fees ....................... 783 Trustees' fees ................................... 53 Miscellaneous .................................... 66 ----------- Expenses before reductions ....................... 7,971 Expense reductions ............................... (1,711) ----------- Expenses, net ............................................... 6,260 ---------- Net investment income ............................................. 185,490 ---------- Net Realized and Unrealized Gain (Loss) Net realized gain (loss) on investments ........................... (81) ---------- Net increase in net assets from operations ........................ $ 185,409 ========== See accompanying notes which are an integral part of the financial statements. Annual Report 15 SSgA Prime Money Market Fund Statement of Changes in Net Assets Amounts in thousands For the Fiscal Years Ended August 31,
2000 1999 ------------- ------------- Increase (Decrease) in Net Assets Operations Net investment income ........................................... $ 185,490 $ 133,335 Net realized gain (loss) ........................................ (81) 58 ------------- ------------- Net increase in net assets from operations ................... 185,409 133,393 ------------- ------------- Distributions From net investment income ...................................... (185,490) (133,335) ------------- ------------- Share Transactions Net increase (decrease) in net assets from share transactions ... 1,547,164 290,153 ------------- ------------- Total net increase (decrease) in net assets ........................ 1,547,083 290,211 Net Assets Beginning of period ............................................. 2,415,231 2,125,020 ------------- ------------- End of period ................................................... $ 3,962,314 $ 2,415,231 ============= =============
See accompanying notes which are an integral part of the financial statements. 16 Annual Report SSgA Prime Money Market Fund Financial Highlights The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
Fiscal Years Ended August 31, ------------------------------------------------------------------ 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- Net Asset Value, Beginning of Period ............... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 ---------- ---------- ---------- ---------- ---------- Income From Operations Net investment income ........................... .0580 .0496 .0544 .0528 .0546 ---------- ---------- ---------- ---------- ---------- Distributions From net investment income ...................... (.0580) (.0496) (.0544) (.0528) (.0546) ---------- ---------- ---------- ---------- ---------- Net Asset Value, End of Period ..................... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 ========== ========== ========== ========== ========== Total Return (%) ................................... 6.00 5.08 5.63 5.52 5.60 Ratios/Supplemental Data: Net Assets, end of period (in thousands) ........ 3,962,314 2,415,231 2,125,020 1,406,263 1,095,631 Ratios to average net assets (%): Operating expenses, net (a) .................. .20 .20 .20 .20 .20 Operating expenses, gross (a) ................ .25 .26 .28 .28 .25 Net investment income ........................ 5.93 4.96 5.48 5.40 5.44
(a) See Note 4 for current period amounts. Annual Report 17 SSgA Prime Money Market Fund Notes to Financial Statements August 31, 2000 1. Organization The SSgA Funds (the "Investment Company") is a series mutual fund, currently comprised of 24 investment portfolios which are in operation as of August 31, 2000. These financial statements report on one portfolio, the SSgA Prime Money Market Fund (the "Fund"). The Investment Company is a registered and diversified open-end investment company, as defined in the Investment Company Act of 1940, as amended (the "1940 Act"), that was organized as a Massachusetts business trust on October 3, 1987 and operates under a First Amended and Restated Master Trust Agreement, dated October 13, 1993, as amended (the "Agreement"). The Investment Company's Agreement permits the Board of Trustees to issue an unlimited number of full and fractional shares of beneficial interest at a $.001 par value. 2. Significant Accounting Policies The Fund's financial statements are prepared in accordance with accounting principles generally accepted in the United States which require the use of management estimates. The following is a summary of the significant accounting policies consistently followed by the Fund in the preparation of its financial statements. Security valuation: The Fund utilizes the amortized cost valuation method in accordance with Rule 2a-7 of the 1940 Act, a method by which each portfolio instrument meeting certain materiality parameters and credit worthiness standards are initially valued at cost, and thereafter a constant accretion/amortization to maturity of any discount or premium is assumed. Securities transactions: Securities transactions are recorded on the trade date, which in most instances is the same as the settlement date. Realized gains and losses from the securities transactions, if any, are recorded on the basis of identified cost. Investment income: Interest income is recorded daily on the accrual basis. Federal income taxes: Since the Investment Company is a Massachusetts business trust, each fund is a separate corporate taxpayer and determines its net investment income and capital gains (or losses) and the amounts to be distributed to each funds' shareholders without regard to the income and capital gains (or losses) of the other funds. It is the Fund's intention to qualify as a regulated investment company, as defined by the Internal Revenue Code of 1986, as amended. This requires the Fund to distribute all of its taxable income. Therefore, the Fund paid no federal income taxes and no federal income tax provision was required. As permitted by tax regulations, the Fund intends to defer a net realized capital loss of $81,302 incurred from November 1, 1999 to August 31, 2000, and treat it as arising in fiscal year 2001. Dividends and distributions to shareholders: The Fund declares and records dividends on net investment income daily and pays them monthly. Capital gain distributions, if any, are generally declared and paid annually. An additional distribution may be paid by the Fund to avoid imposition of federal income tax on any remaining undistributed net investment income and capital gains. The Fund may periodically make reclassifications among certain of its capital accounts without impacting net asset value for differences between federal tax regulations and generally accepted accounting principles. 18 Annual Report SSgA Prime Money Market Fund Notes to Financial Statements, continued August 31, 2000 Expenses: Most expenses can be directly attributed to the Fund. Expenses of the investment company which cannot be directly attributed are allocated among all funds based principally on their relative net assets. Repurchase agreements: The Fund may engage in repurchase and tri-party repurchase agreements with certain qualified financial institutions whereby the Fund, through its custodian or third-party custodian, receives delivery of the underlying securities. The market value of these securities (including accrued interest) on acquisition date is required to be an amount equal to at least 102% of the repurchase price. State Street Bank and Trust Company (the "Adviser") will monitor repurchase agreements daily to determine that the market value (including accrued interest) of the underlying securities remains equal to at least 102% of the repurchase price at Fedwire closing time. The Adviser or third-party custodian will notify the seller to immediately increase the collateral on the repurchase agreement to 102% of the repurchase price if collateral falls below 102%. 3. Securities Transactions Investment transactions: For the year ended August 31, 2000, purchases, sales, and maturities of investment securities, excluding US Government and Agency obligations and repurchase agreements, for the Fund aggregated to $141,985,224,496, $873,362,960, and $139,954,729,000, respectively. For the year ended August 31, 2000, purchases, sales and maturities of US Government and Agency obligations, excluding repurchase agreements, aggregated to $648,475,877, $274,312,561, and $358,930,000, respectively. 4. Related Parties Adviser: The Investment Company has an investment advisory agreement with State Street Bank and Trust Company under which the Adviser, through State Street Global Advisors, the investment management group of the Adviser, directs the investments of the Fund in accordance with its investment objectives, policies, and limitations. For these services, the Fund pays a fee to the Adviser, calculated daily and paid monthly, at the annual rate of .15%, of its average daily net assets. The Adviser has voluntarily agreed to reimburse the Fund for all expenses in excess of .20% of its average daily net assets on an annual basis. For the period January 1, 2000 to August 31, 2000, the Adviser has also voluntarily agreed to waive .5% of its .15% advisory fee. The total amounts of the waiver and reimbursement for the year ended August 31, 2000 were $1,137,643 and $535,216, respectively. As of August 31, 2000, the receivable due from the Adviser for reimbursed expenses in excess of the expense cap has been netted against the Advisory fee payable. The Investment Company also has contracts with the Adviser to provide custody, shareholder servicing and transfer agent services to the Fund. These amounts are presented in the accompanying Statement of Operations. In addition, the Fund has entered into arrangements with its Adviser whereby custody credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund's expenses. During the year, the Fund's custodian fees were reduced by $37,868 under these arrangements. Administrator: The Investment Company has an administration agreement with Frank Russell Investment Management Company (the "Administrator"), a wholly-owned subsidiary of The Northwestern Mutual Life Insurance Company, under which the Administrator supervises all non-portfolio investment aspects of the Investment Company's operations and provides adequate office space and all necessary office equipment and services, including telephone service, utilities, stationery supplies, and similar items. The Investment Company Annual Report 19 SSgA Prime Money Market Fund Notes to Financial Statements, continued August 31, 2000 pays the Administrator for services supplied by the Administrator pursuant to the Administration Agreement, an annual fee, payable monthly on a pro rata basis. For the period September 1, 1999 to April 30, 2000, the following percentages of the average daily net assets of all domestic funds: $0 up to and including $500 million - .06%; over $500 million up to and including $1 billion - .05%; over $1 billion - .03%. Effective May 1, 2000, the annual fee is based on the following percentages of the average daily net assets of all money market portfolios: $0 up to $15 billion - .0315%; over $15 billion - .029%. The Administrator will also charge a flat fee of $30,000 per year per Fund with less than $500 million in net assets and $1,500 per year for monthly performance reports and use of Russell Performance Universe software product. In addition, the Fund reimburses the Administrator for out-of-pocket expenses and start-up costs for new funds. Distributor and Shareholder Servicing: The Investment Company has a Distribution Agreement with Russell Fund Distributors (the "Distributor") which is a wholly-owned subsidiary of the Administrator to promote and offer shares of the Investment Company. The Distributor may enter into sub-distribution agreements with other non-related parties. The amounts paid to the Distributor are included in the accompanying Statement of Operations. The Investment Company has a Distribution Plan pursuant to Rule 12b-1 (the "Plan") under the 1940 Act. Under this Plan, the Investment Company is authorized to make payments to the Distributor, or any Shareholder Servicing Agent, as defined in the Plan, for providing distribution and marketing services, for furnishing assistance to investors on an ongoing basis, and for the reimbursement of direct out-of-pocket expenses charged by the Distributor in connection with the distribution and marketing of shares of the Investment Company and the servicing of investor accounts. The Fund has Shareholder Service Agreements with the Adviser. For these services, the Fund pays .025% to the Adviser, based upon the average daily value of all Fund shares held. For the year ended August 31, 2000, the Fund was charged shareholder servicing expenses of $782,582 by the Adviser. The combined distribution and shareholder servicing payments shall not exceed .25% of the average daily value of net assets of the Fund on an annual basis. The shareholder servicing payments shall not exceed .20% of the average daily value of net assets of the Fund on an annual basis. Payments that exceed the maximum amount of allowable reimbursement may be carried forward for two years following the year in which the expenditure was incurred so long as the plan is in effect. The Fund's responsibility for any such expenses carried forward shall terminate at the end of two years following the year in which the expenditure was incurred. The Trustees or a majority of the Fund's shareholders have the right, however, to terminate the Distribution Plan and all payments thereunder at any time. The Fund will not be obligated to reimburse the Distributor for carryover expenses subsequent to the Distribution Plan's termination or noncontinuance. There were no carryover expenses as of August 31, 2000. Board of Trustees: The Investment Company paid each Trustee not affiliated with the Investment Company an annual retainer, plus specified amounts for board and committee meetings attended. These expenses are allocated among all of the funds based upon their relative net assets. 20 Annual Report SSgA Prime Money Market Fund Notes to Financial Statements, continued August 31, 2000 Accrued fees payable to affiliates and trustees as of August 31, 2000 were as follows: Advisory fees $514,720 Administration fees 140,368 Custodian fees 15,497 Distribution fees 6,354 Shareholder servicing fees 90,087 Transfer agent fees 8,739 Trustees' fees 1,917 -------- $777,682 ======== Beneficial Interest: As of August 31, 2000, one shareholder (who was also an affiliate of the Investment Company) was a record owner of approximately 66% of the total outstanding shares of the Fund. 5. Fund Share Transactions (On a Constant Dollar Basis): (amounts in thousands) Fiscal Years Ended August 31, ----------------------------- 2000 1999 ----------- ----------- Proceeds from shares sold........... 47,952,579 44,635,015 Proceeds from reinvestment of distributions 143,017 117,035 Payments for shares redeemed........ (46,548,432) (44,461,897) ----------- ----------- Total net increase (decrease)....... 1,547,164 290,153 =========== =========== 6. Interfund Lending Program The Fund and all of the funds of the Investment Company received from the Securities and Exchange Commission an exemptive order on December 23, 1999 to establish and operate an Interfund Credit Facility. This allows the Funds to directly lend to and borrow money from the SSgA Money Market Fund for temporary purposes in accordance with certain conditions. The borrowing Funds are charged the average of the current Repo Rate and the Bank Loan Rate. The Fund did not utilize the interfund lending program during this year. Annual Report 21 SSgA Prime Money Market Fund One International Place, 27th Floor Boston, Massachusetts 02110 (800) 997-7327 -------------------------------------------------------------------------------- Trustees Lynn L. Anderson, Chairman William L. Marshall Steven J. Mastrovich Patrick J. Riley Richard D. Shirk Bruce D. Taber Henry W. Todd Officers Lynn L. Anderson, President, Treasurer and CEO Mark E. Swanson, Treasurer and Principal Accounting Officer J. David Griswold, Vice President and Secretary Deedra S. Walkey, Assistant Secretary Rick J. Chase, Assistant Treasurer Carla L. Anderson, Assistant Secretary Investment Adviser State Street Bank and Trust Company 225 Franklin Street Boston, Massachusetts 02110 Custodian, Transfer Agent and Office of Shareholder Inquiries State Street Bank and Trust Company 1776 Heritage Drive North Quincy, Massachusetts 02171 (800) 647-7327 Distributor Russell Fund Distributors, Inc. One International Place, 27th Floor Boston, Massachusetts 02110 (800) 997-7327 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 160 Federal Street Boston, Massachusetts 02110 22 Annual Report [COVER GRAPHIC] SSgA(R) funds ANNUAL REPORT Small Cap Fund August 31, 2000 SSgA(R) Funds Small Cap Fund Annual Report August 31, 2000 Table of Contents Page Chairman's Letter ......................................................... 4 Portfolio Management Discussion and Analysis .............................. 6 Report of Independent Accountants ......................................... 8 Financial Statements ...................................................... 9 Financial Highlights ...................................................... 17 Notes to Financial Statements ............................................. 18 Fund Management and Service Providers ..................................... 23 "SSgA(R)" is a registered trademark of State Street Corporation and is licensed for use by the SSgA Funds. This report is prepared from the books and records of the Fund and it is submitted for the general information of shareholders. This information is for distribution to prospective investors only when preceded or accompanied by a SSgA Funds Prospectus containing more complete information concerning the investment objective and operations of the Fund, charges and expenses. The Prospectus should be read carefully before an investment is made. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. Russell Fund Distributors, Inc., is the distributor of the SSgA Funds. SSgA Small Cap Fund -------------------------------------------------------------------------------- Letter From the Chairman of State Street Global Advisors -------------------------------------------------------------------------------- Dear Shareholders, It is our pleasure to provide you with the SSgA Funds annual report for the fiscal year ended August 31, 2000. The SSgA Fund Family has grown to include twenty-four portfolios with over $21 billion in assets as of August 31, 2000. The Fund Family provides a wide range of strategies covering the world's major markets. The enclosed information provides an overview of the investment process for the SSgA Small Cap Fund. This overview contains the portfolio management discussion, performance updates and financial information for the Fund. In an ongoing effort to develop competitive products and services that provide investment solutions for our clients, we have added the SSgA Intermediate Municipal Bond Fund to the SSgA Fund Family. This Fund's investment objective seeks to provide federally tax-exempt current income by investing primarily in a diversified portfolio of municipal debt securities with a dollar-weighted average maturity between three and ten years. We are also pleased with the success of our SSgA Emerging Markets and SSgA Growth and Income Funds as they were included in Money(R) Magazine's June 2000 issue listing of the 'Top 100 Mutual Funds'. This is the second year in a row that these funds have been selected. Additionally, the SSgA Tax Free Money Market and the SSgA Active International Funds have achieved five-year performance history during the 2000 fiscal year. Currently, all of our SSgA Money Market Funds have at least a five-year performance history. We strive to meet our clients' needs by providing funds with long-term records and competitive performance. We would like to thank you for choosing the SSgA Funds. Our reputation is based on our tradition of designing and delivering exceptional financial services to our clients. We look forward to continue sharing the benefit of our experience with you. Sincerely, /s/ Nicholas A. Lopardo Nicholas A. Lopardo State Street Global Advisors Chairman and Chief Executive Officer /s/ Timothy B. Harbert Timothy B. Harbert State Street Global Advisors President and Chief Operating Officer, SSgA 4 Annual Report SSgA Small Cap Fund -------------------------------------------------------------------------------- Management of the Funds -------------------------------------------------------------------------------- [PHOTO] Nicholas A. Lopardo Chairman and Chief Executive Officer [PHOTO] Timothy B. Harbert President and Chief Operating Officer A Team Approach to Investment Management Our investment strategies are the product of the combined experience of our professional staff. Portfolio Managers work together to develop and enhance the techniques that drive our investment processes. As a result, the portfolios we manage benefit from the knowledge of the entire team. Mr. Jeffrey P. Adams, Principal, has been the portfolio manager primarily responsible for investment decisions regarding the SSgA Small Cap Fund since December 1999. Mr. Adams is the Strategy Leader for the Large Cap Value Strategy and the co-manager of the Small Cap Strategy. He is also responsible for the development of the Small Cap Strategy. In addition, he is Head of Research for the Quantitative US Active Equity Group. Prior to his responsibility in domestic equities, Mr. Adams was a Senior Investment Support Analyst at SSgA. He has been working in the investment management field since 1989. He holds a BS in economics from Northeastern University. There are seven other portfolio managers working with Mr. Adams. Annual Report 5 SSgA Small Cap Fund -------------------------------------------------------------------------------- Portfolio Management Discussion and Analysis -------------------------------------------------------------------------------- Objective: The Fund seeks to maximize total return relative to the Russell 2000(R) Index through investments in equity securities. Invests in: At least 65% of the total assets will be invested in smaller cap securities. Strategy: The Fund management team uses a systematic investment approach designed to uncover equity securities which are undervalued, have superior growth potential and present an opportunity from a price perspective. The Fund seeks to provide long-term total returns in excess of the Russell 2000(R) Index through strong bottom-up stock selection within a risk-controlled framework. -------------------------------------------------------------------------------- GROWTH OF A $10,000 INVESTMENT Dates Small Cap Fund S&P 400 Midcap Index** Russell 2000 Index++ Inception* $10,000 $10,000 $10,000 1992 $10,090 $10,245 $10,055 1993 $12,478 $12,751 $13,321 1994 $12,964 $13,341 $14,111 1995 $16,859 $16,077 $17,045 1996 $20,760 $17,988 $18,890 1997 $28,202 $24,693 $24,359 1998 $21,906 $22,376 $19,634 1999 $24,393 $31,698 $25,212 2000 $31,204 $44,277 $32,048 ================================================================================ Performance Review For the fiscal year ended August 31, 2000, the SSgA Small Cap Fund had a total return of 27.92% versus the Russell 2000(R) Index return of 27.16%. The Fund's performance is net of operating expenses, whereas Index results do not include expenses of any kind. The fiscal year-end performance of the Fund can be, in part, attributed to investments made in Initial Public Offerings (IPOs). There is no guarantee that the Fund will continue to participate in the IPO market, and due to their inherent volatility, there can be no assurance that IPOs will continue to have a positive impact on Fund performance. The Fund seeks to achieve its strategic objective, to outperform the Russell 2000(R) Index over the long-term, through consistent application of the Manager's proven stock selection technique combined with a refined, proprietary portfolio construction methodology. The Fund's exposure to -------------------------------------------------------------------------------- SSgA Small Cap Fund -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return -------------- ------------ ------- 1 Year $ 12,792 27.92% 5 Years $ 18,509 13.10%+ Inception $ 31,204 14.95%+ -------------------------------------------------------------------------------- Standard & Poor's(R) MidCap 400 Index -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return -------------- ------------ ------- 1 Year $ 13,976 39.76% 5 Years $ 27,540 22.46%+ Inception $ 44,277 19.98%+ -------------------------------------------------------------------------------- Russell 2000(R) Index -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return -------------- ------------ ------- 1 Year $ 12,716 27.16% 5 Years $ 18,801 13.46%+ Inception $ 32,046 15.33%+ See related Notes on the following page. 6 Annual Report SSgA Small Cap Fund -------------------------------------------------------------------------------- Portfolio Management Discussion and Analysis -------------------------------------------------------------------------------- specific market sectors is managed relative to the Russell 2000(R) Index. As a result, the Fund has sector, industry, market capitalization, beta and yield exposures similar to those of the Index. Additionally, individual security weights are managed relative to their Index weight. Market and Portfolio Highlights After a difficult start, the Fund added over 16% of excess return over the benchmark in the second six months of the fiscal year. Many of the issues that plagued the Fund in the early part of the fiscal year - lack of breadth in the equity market and significant stock return volatility - dissipated in the second half and allowed the Manager's stock selection skill to come through in the returns. In particular, stock selection was very good in the Technology, Utilities and Consumer Staples sectors. Specifically, positions in hardware companies Infocus and Proxim boosted returns in the Technology sector, while holdings of Calpine, Minnesota Power and Energen provided good results for the Utilities. Selection was uniformly favorable throughout the Consumer Staples sector during the period. The small cap segment of the US equity market maintained a favorable position relative to the large cap segment, as the Russell 2000(R) Index returned 27.16% for the year ended August 31, 2000 versus 16.33% for the S&P 500(R) Index. Although the small cap growth market had a significant lead over the value style during the last fiscal year, a dramatic decline in the NASDAQ in March 2000 prompted investors to begin taking a fresh look at company valuations. As a result, the Russell 2000(R) Value Index outperformed the Russell 2000(R) Growth Index in four of the six months ended August 31, 2000. The Manager's attention to company valuations was rewarded by this shift in the marketplace. The Fund's position in Micromuse was increased in late April on favorable analyst expectations, and the stock's subsequent share price increased by more than 100% before the position was sold in July. In spite of the strong returns in the mid cap and small cap value portions of the equity market, it appears that the bull market has subsided somewhat so far in 2000. The interest rate increases implemented by the Federal Open Market Committee seem to have put the brakes on market momentum. At August 31, 2000, the SSgA Small Cap Fund held 235 stocks, with an average weighted market capitalization of $1.21 billion. The Fund had characteristics in line with those of the Russell 2000(R) Index due to the risk-controlled nature if the investment process. A core small cap strategy does not expose the Fund to any style cycle and instead provides broad diversification across all economic sectors. Additionally, as the Fund's objective is achieved through stock selection with a disciplined investment approach, it will seek to be fully invested at all times. -------------------------------------------------------- Top Ten Equity Holdings (as a percent of Total Investments) August 31, 2000 -------------------------------------------------------- InFocus Corp. 1.1% Reebok International, Ltd. 1.1 AmeriCredit Corp. 1.1 AmeriSource Health Corp. Class A 1.0 Newport News Shipbuilding, Inc. 1.0 Precision Castparts Corp. 1.0 Radian Group, Inc. 1.0 Technitrol, Inc. 0.9 Bank United Corp. Class A 0.9 Silicon Valley Bancshares 0.9 -------------------------------------------------------- --------------------- Notes: The following notes relate to the Growth of $10,000 graph and table on the preceding page. * The Fund commenced operations on July 1, 1992. Index comparison also began July 1, 1992. ** The Standard & Poor's(R) MidCap 400 Index is comprised of 400 domestic stocks chosen for market size, liquidity and industry group representation. It is a market-weighted index (stock price times shares outstanding), with each stock affecting the Index in proportion to its market value. ++ The Russell 2000(R) Index is comprised of the 2,000 smallest securities in the Russell 3000(R) Index, representing approximately 10% of the Russell 3000 total market capitalization. The Index is reconstituted annually. + Annualized. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. Annual Report 7 Report of Independent Accountants To the Shareholders and Board of Trustees of the SSgA Funds: In our opinion, the accompanying statement of assets and liabilities and statement of net assets, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of SSgA Small Cap Fund (the "Fund") at August 31, 2000, the results of its operations for the fiscal year then ended and the changes in its net assets for each of the two fiscal years in the period then ended, and the financial highlights for each of the five fiscal years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 2000 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. Boston, Massachusetts October 11, 2000 /s/ PricewaterhouseCoopers LLP 8 Annual Report SSgA Small Cap Fund Statement of Net Assets August 31, 2000 Market Number Value of (000) Shares $ ------- ------- Common Stocks - 98.0% Basic Industries - 5.6% Advanced Energy Industries, Inc. (a) 38,500 2,199 Albemarle Corp. 58,600 1,454 CONSOL Energy, Inc. 51,600 1,074 Cytec Industries, Inc. (a) 36,200 1,208 Georgia Gulf Corp. 184,000 2,392 Hexcel Corp. (a) 59,300 819 Mentor Graphics Corp. (a) 161,500 3,028 Mueller Industries, Inc. (a) 52,000 1,641 NL Industries, Inc. 23,600 556 Precision Castparts Corp. 45,600 3,466 Reliance Steel & Aluminum Co. 23,000 474 W.R. Grace & Co. (a) 187,000 1,485 ------- 19,796 ------- Capital Goods - 5.3% AMETEK, Inc. 35,700 763 Applied Industrial Technology, Inc. 12,200 207 Centex Construction Products, Inc. 23,400 604 Cognex Corp. (a) 30,800 1,234 Harman International Industries, Inc. 12,400 952 Kennametal, Inc. 115,000 2,947 Manitowoc Co., Inc. 57,712 1,324 Milacron, Inc. 88,500 1,366 Nanometrics, Inc. (a) 38,900 1,918 Newport News Shipbuilding, Inc. 82,000 3,485 Ryland Group, Inc. 24,200 594 Silicon Valley Group, Inc. (a) 70,500 1,965 Standard Pacific Corp. 98,700 1,622 ------- 18,981 ------- Consumer Basics - 16.8% Advance Paradigm, Inc. (a) 69,200 1,838 AmeriSource Health Corp. Class A (a) 108,200 3,760 Apria Healthcare Group, Inc. (a) 61,000 907 Biosite Diagnostics, Inc. (a) 29,500 2,052 Buckeye Technologies, Inc. (a) 36,800 918 Cooper Companies, Inc. 26,000 855 Coventry Health Care, Inc. (a) 61,800 985 Dean Foods Co. 36,700 1,147 Dura Pharmaceuticals, Inc. (a) 99,600 2,758 Edwards Lifesciences Corp. (a) 82,000 2,153 Enzon, Inc. (a) 16,500 1,004 First Health Group Corp. (a) 18,400 567 Foundation Health Systems, Inc. (a) 144,400 2,536 Henry Schein, Inc. (a) 30,200 555 IDEXX Laboratories, Inc. (a) 76,000 1,976 INAMED Corp. (a) 41,600 1,357 Interstate Bakeries Corp. 60,000 1,076 Invacare Corp. 35,000 943 King Pharmaceuticals, Inc. (a) 56,700 1,821 Laboratory Corp. of America Holdings (a) 19,800 2,343 LifePoint Hospitals, Inc. (a) 86,400 2,587 Medicis Pharmaceutical Corp. Class A. (a) 23,650 1,524 Michael Foods, Inc. 22,200 526 Mid Atlantic Medical Services, Inc. (a) 95,000 1,532 NBTY, Inc. (a) 237,900 1,673 Noven Pharmaceuticals, Inc. (a) 62,000 2,600 Owens & Minor, Inc., Holding Co. 131,000 2,006 Patterson Dental Co. (a) 67,300 1,590 PolyMedica Corp. (a) 63,300 2,247 Priority Healthcare Corp. Class B (a) 36,128 2,093 Protein Design Labs, Inc. (a) 14,200 1,076 Salton, Inc. (a) 78,100 2,939 Syncor International Corp. (a) 45,200 1,796 Topps Co., Inc. (a) 220,900 1,740 Trigon Healthcare, Inc. (a) 23,800 1,228 VISX, Inc. (a) 45,900 1,261 Whole Foods Market, Inc. (a) 9,300 470 ------- 60,439 ------- Annual Report 9 SSgA Small Cap Fund Statement of Net Assets, continued August 31, 2000 Market Number Value of (000) Shares $ ------- ------- Consumer Durables - 0.9% Furniture Brands International, Inc. (a) 41,200 664 Group 1 Automotive, Inc. (a) 48,900 538 Libbey, Inc. 30,000 984 Polaris Industries, Inc. 31,000 1,058 Sonic Automotive, Inc. (a) 10,000 106 ------- 3,350 ------- Consumer Non-Durables - 7.9% Abercrombie & Fitch Co. Class A (a) 61,100 1,417 Canandaigua Brands Co., Inc. Class A (a) 40,700 2,193 Dress Barn, Inc. (a) 34,000 703 Footstar, Inc. (a) 62,500 1,859 Genesco, Inc. (a) 95,400 1,544 Handleman Co. (a) 37,700 467 Haverty Furniture Co., Inc. 5,700 66 Hot Topic, Inc. (a) 11,000 311 Kenneth Cole Productions, Inc. Class A (a) 25,000 1,102 Michaels Stores, Inc. (a) 76,700 2,685 Musicland Stores Corp. (a) 130,800 932 Neiman Marcus Group, Inc. (The) Class A (a) 55,200 1,853 Nortek, Inc. (a) 21,200 433 Payless ShoeSource, Inc. (a) 25,000 1,334 Petco Animal Supplies, Inc. (a) 57,000 1,197 Pier 1 Imports, Inc. 94,600 1,112 Polo Ralph Lauren Corp. Class A (a) 81,300 1,575 Reebok International, Ltd. (a) 201,900 3,874 Trans World Entertainment Corp. (a) 96,300 914 Zale Corp. (a) 80,100 2,958 ------- 28,529 ------- Consumer Services - 2.5% Argosy Gaming Co. (a) 153,300 2,453 Aztar Corp. (a) 109,900 1,600 Brinker International, Inc. (a) 62,500 1,984 CEC Entertainment, Inc. (a) 25,700 742 Isle of Capri Casinos, Inc. (a) 58,000 892 RARE Hospitality International, Inc. (a) 45,100 1,263 ------- 8,934 ------- Energy - 5.2% Clayton Williams Energy, Inc. (a) 8,600 352 Helmerich & Payne, Inc. 80,200 2,962 HS Resources, Inc. (a) 59,700 1,892 Key Production, Inc. (a) 52,000 936 Marine Drilling Co, Inc. (a) 53,500 1,455 Mitchell Energy & Development Corp. Class A 30,000 1,200 ONEOK, Inc. 49,400 1,578 Patina Oil & Gas Corp. 67,300 1,430 Patterson Energy, Inc. (a) 29,000 903 Swift Energy Co. (a) 41,900 1,212 Valero Energy Corp. 101,200 3,049 Vintage Petroleum, Inc. 89,400 1,876 ------- 18,845 ------- Finance - 15.0% AmeriCredit Corp. (a) 139,900 3,865 AmerUs Life Holdings, Inc. 24,000 593 Amli Residential Properties Trust (c) 11,200 277 Astoria Financial Corp. 52,300 1,837 Bank United Corp. Class A 75,400 3,388 Bedford Property Investors, Inc. (c) 44,000 855 CBL & Associates Properties, Inc. (c) 68,400 1,633 Dain Rauscher Corp. 18,000 1,448 Downey Financial Corp. 36,200 1,213 East West Bancorp, Inc. 42,400 721 10 Annual Report SSgA Small Cap Fund Statement of Net Assets, continued August 31, 2000 Market Number Value of (000) Shares $ ------- ------- Enhance Financial Services Group, Inc. 45,500 717 Essex Property Trust, Inc. (c) 30,400 1,495 FelCor Lodging Trust, Inc. (c) 92,800 2,065 First Industrial Realty Trust, Inc. (c) 33,900 1,006 FirstFed Financial Corp. (a) 68,300 1,229 GBC Bancorp 2,900 110 Glimcher Realty Trust (c) 47,400 729 Greater Bay Bancorp 5,000 310 Imperial Bancorp (a) 54,000 1,175 Innkeepers USA Trust (c) 111,400 1,156 Irwin Financial Corp. 24,500 363 MeriStar Hospitality Corp. (c) 88,300 1,954 Metris Companies, Inc. 91,698 3,295 Morgan Keegan, Inc. 9,000 181 PFF Bancorp, Inc. 21,900 438 Prentiss Properties Trust (c) 71,300 1,733 Provident Bankshares Corp. 56,595 806 Provident Financial Group, Inc. 41,800 1,100 Radian Group, Inc. 55,700 3,460 Reckson Associates Realty Corp. (c) 76,600 1,862 RFS Hotel Investors, Inc. (c) 71,800 898 Riggs National Corp. 24,600 292 Security Capital Group, Inc. Class B (a) 78,600 1,336 Silicon Valley Bancshares (a) 57,700 3,325 SL Green Realty Corp. (c) 42,000 1,126 Smith (Charles E.) Residential Realty, Inc. (c) 30,800 1,267 Southwest Bancorporation of Texas, Inc. (a) 35,200 1,021 Southwest Securities Group, Inc. 63,140 2,095 Tucker Anthony Sutro Corp. 20,400 481 Urban Shopping Centers, Inc. (c) 23,000 803 Westamerica Bancorporation 5,300 160 ------- 53,818 ------- General Business - 7.7% Adminstaff, Inc. (a) 33,900 2,763 Advo Systems, Inc. (a) 44,300 1,814 Career Education Corp. (a) 18,800 744 Diamond Technology Partners, Inc. (a) 28,500 1,817 F.Y.I., Inc. (a) 39,300 1,530 Forrester Research, Inc. (a) 29,000 1,762 Heidrick & Struggles International, Inc. New (a) 35,300 2,047 internet.com Corp. New (a) 20,300 637 Kronos, Inc. (a) 32,200 1,203 Learning Tree International, Inc. (a) 47,000 3,217 Oakley, Inc. (a) 41,500 703 On Assignment, Inc. (a) 54,400 1,618 Penton Media, Inc. 51,000 1,597 Professional Detailing, Inc. (a) 2,100 100 R.H. Donnelley Corp. (a) 56,000 1,176 SCP Pool Corp. (a) 45,000 1,308 Sinclair Broadcast Group, Inc. Class A (a) 87,500 1,050 Sylvan Learning Systems, Inc. (a) 74,100 1,070 United Stationers, Inc. (a) 51,500 1,664 ------- 27,820 ------- Shelter - 1.0% NVR, Inc. (a) 32,600 2,396 Toll Brothers, Inc. (a) 39,000 1,272 ------- 3,668 ------- Technology - 25.3% Actel Corp. (a) 45,200 1,986 ADAC Laboratories (a) 88,000 1,964 Adtran, Inc. (a) 12,300 655 Allaire Corp. (a) 86,500 2,930 Alliant Techsystems, Inc. (a) 28,000 2,158 Amphenol Corp. Class A (a) 39,000 2,496 AXENT Technologies, Inc. (a) 96,000 2,280 Benchmark Electronics, Inc. (a) 24,000 1,239 Braun Consulting, Inc. New (a) 24,000 387 Annual Report 11 SSgA Small Cap Fund Statement of Net Assets, continued August 31, 2000 Market Number Value of (000) Shares $ ------- ------- Cerner Corp. (a) 69,200 2,630 Checkpoint Systems, Inc. (a) 35,600 285 Cognizant Technology Solutions Corp. (a) 30,800 1,317 Corsair Communications, Inc. (a) 67,300 740 Credence Systems Corp. (a) 28,900 1,692 CyberOptics Corp. (a) 27,700 802 Dallas Semiconductor Corp. 64,300 2,660 Dendrite International, Inc. (a) 28,000 742 Electro Scientific Industries, Inc. (a) 55,100 2,259 Electroglas, Inc. (a) 86,500 1,941 Emulex Corp. (a) 23,100 2,414 ESS Technology, Inc. (a) 89,800 1,555 Exchange Applications, Inc. (a) 26,600 648 GaSonics International Corp. (a) 16,400 391 Go2Net, Inc. (a) 39,300 2,709 Hall, Kinion & Associates, Inc. (a) 39,400 1,298 iNet Technologies, Inc. (a) 19,600 788 InFocus Corp. (a) 83,200 4,025 Insight Enterprises, Inc. (a) 52,500 2,635 Interwoven, Inc. (a) 12,200 1,171 Kemet Corp. (a) 104,200 3,126 Littlefuse, Inc. (a) 56,500 2,052 Manhattan Associates, Inc. (a) 35,100 1,628 Marimba, Inc. (a) 55,300 933 Microsemi Corp. (a) 44,000 1,843 Netopia, Inc. (a) 38,500 1,410 PerkinElmer, Inc. 24,100 2,167 Plexus Corp. (a) 8,500 1,315 Power Integrations, Inc. (a) 103,000 1,745 Primus Knowledge Solutions, Inc. New (a) 37,000 863 Progress Software Corp. (a) 75,800 1,033 Proxicom, Inc. (a) 42,500 1,028 Razorfish, Inc. (a) 83,300 1,057 Remedy Corp. (a) 49,000 1,127 RSA Security, Inc. (a) 13,500 797 Sawtek, Inc. (a) 7,700 388 Sensormatic Electronics Corp. (a) 134,800 2,241 Structural Dynamics Research Corp. (a) 1,500 24 Sybase, Inc. (a) 99,600 2,727 Tanning Technology Corp. New (a) 13,500 219 Technitrol, Inc. 26,600 3,392 TelCom Semiconductor, Inc. (a) 92,000 1,604 Varian Semiconductor Equipment Associates, Inc. (a) 55,000 3,148 Verity, Inc. (a) 61,800 2,822 Viant Corp. New (a) 62,500 862 WebTrends Corp. (a) 73,400 2,761 ------- 91,109 ------- Transportation - 1.2% American Freightways Corp. (a) 50,500 827 Arkansas Best Corp. (a) 42,400 636 Dollar Thrifty Automotive Group, Inc. (a) 44,900 1,016 Landstar Systems, Inc. (a) 18,200 920 Yellow Corp. (a) 65,500 991 ------- 4,390 ------- Utilities - 3.6% Conectiv, Inc. 67,000 1,189 Minnesota Power, Inc. 113,200 2,512 MRV Communications, Inc. (a) 18,000 1,388 Price Communications Corp. (a) 104,770 2,148 Public Service Co. of New Mexico 113,200 2,420 RGS Energy Group, Inc. 34,000 846 Superior Energy Services, Inc. (a) 25,000 270 Tut Systems, Inc. (a) 20,000 2,009 ------- 12,782 ------- Total Common Stocks (cost $315,551) 352,461 ------- 12 Annual Report SSgA Small Cap Fund Statement of Net Assets, continued August 31, 2000 Principal Market Amount Value (000) (000) $ $ --------- ------- Short-Term Investments - 2.4% AIM Short-Term Investment Prime Portfolio Class A (b) 4,839 4,839 Federated Investors Prime Cash Obligations Fund (b) 3,429 3,429 United States Treasury Bills (b)(d)(e) 6.130% due 09/14/00 299 299 5.650% due 09/14/00 150 150 ------- Total Short-Term Investments (cost $8,717) 8,717 ------- Total Investments - 100.4% (identified cost $324,268) 361,178 Other Assets and Liabilities, Net - (0.4%) (1,399) ------- Net Assets - 100.0% 359,779 ======= (a) Nonincome-producing security. (b) At amortized cost, which approximates market. (c) Real Estate Investment Trust (REIT). (d) Rate noted is yield-to-maturity from date of acquisition. (e) Held as collateral in connection with futures contracts purchased by the Fund. Unrealized Number Appreciation of (Depreciation) Futures Contracts Contracts (000) --------- -------------- Russell 2000 Index expiration date 09/00 20 $ 153 ------------ Total Unrealized Appreciation (Depreciation) on Open Futures Contracts Purchased $ 153 ============ See the accompanying notes which are an integral part of the financial statements. Annual Report 13 SSgA Small Cap Fund Statement of Assets and Liabilities Amounts in thousands (except per share amount) August 31, 2000 Assets Investments at market (identified cost $324,268) ........................................... $361,178 Receivables: Dividends .............................................................................. 173 Investments sold ....................................................................... 11,868 Fund shares sold ....................................................................... 1,510 Daily variation margin on futures contracts ............................................ 30 Short-term investments held as collateral for securities loaned, at market.................. 41,055 -------- Total assets ....................................................................... 415,814 Liabilities Payables: Investments purchased ...................................................... $ 13,883 Fund shares redeemed ....................................................... 734 Accrued fees to affiliates ................................................. 363 Payable upon return of securities loaned, at market ............................ 41,055 -------- Total liabilities .................................................................. 56,035 -------- Net Assets ................................................................................. $359,779 ======== Net Assets Consist of: Accumulated net realized gain (loss) ....................................................... $ (18,032) Unrealized appreciation (depreciation) on: Investments ............................................................................ 36,910 Futures contracts ...................................................................... 153 Shares of beneficial interest .............................................................. 16 Additional paid-in capital ................................................................. 340,732 -------- Net Assets ................................................................................. $359,779 ======== Net Asset Value, offering and redemption price per share: ($359,778,961 divided by 15,859,286 shares of $.001 par value shares of beneficial interest outstanding) ......................................... $ 22.69 ========
See accompanying notes which are an integral part of the financial statements. 14 Annual Report SSgA Small Cap Fund Statement of Operations Amounts in thousands For the Fiscal Year Ended August 31, 2000 Investment Income Dividends ..................................................... $ 3,254 Interest ...................................................... 148 -------- Total investment income ................................... 3,402 Expenses Advisory fees ...................................... $ 2,508 Administrative fees ................................ 117 Custodian fees ..................................... 92 Distribution fees .................................. 196 Transfer agent fees ................................ 127 Professional fees .................................. 19 Registration fees .................................. 54 Shareholder servicing fees ......................... 445 Trustees' fees ..................................... 10 Miscellaneous ...................................... 22 -------- Expenses before reductions ......................... 3,590 Expense reduction .................................. (7) -------- Expenses, net ............................................. 3,583 -------- Net investment income (loss) ...................................... (181) -------- Net Realized and Unrealized Gain (Loss) Net realized gain (loss) on: Investments ........................................ 39,826 Futures contracts .................................. 1 39,827 -------- Net change in unrealized appreciation (depreciation) on: Investments ........................................ 42,728 Futures contracts .................................. 153 42,881 -------- -------- Net realized and unrealized gain (loss) ........................... 82,708 -------- Net increase (decrease) in net assets from operations ............. $ 82,527 ======== See accompanying notes which are an integral part of the financial statements. Annual Report 15 SSgA Small Cap Fund Statement of Changes in Net Assets Amounts in thousands For the Fiscal Years Ended August 31,
2000 1999 --------- --------- Increase (Decrease) in Net Assets Operations Net investment income (loss) ................................ $ (181) $ 678 Net realized gain (loss) .................................... 39,827 (53,028) Net change in unrealized appreciation (depreciation) ........ 42,881 88,963 --------- --------- Net increase (decrease) in net assets from operations ... 82,527 36,613 --------- --------- Distributions From net investment income .................................. (238) (468) From net realized gains ..................................... -- (24) --------- --------- Net decrease in net assets from distributions ........... (238) (492) --------- --------- Share Transactions Net increase (decrease) in net assets from share transactions (74,523) (28,738) --------- --------- Total net increase (decrease) in net assets ..................... 7,766 7,383 Net Assets Beginning of period ......................................... 352,013 344,630 --------- --------- End of period (including undistributed net investment income of $238 at August 31, 1999) ............................ $ 359,779 $ 352,013 ========= =========
See accompanying notes which are an integral part of the financial statements. 16 Annual Report SSgA Small Cap Fund Financial Highlights The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
Fiscal Years Ended August 31, -------------------------------------------------------- 2000 1999 1998 1997 1996 -------- -------- -------- -------- -------- Net Asset Value, Beginning of Period .......... $ 17.75 $ 15.96 $ 22.11 $ 17.44 $ 14.42 -------- -------- -------- -------- -------- Income From Operations Net investment income (loss) (a) .......... (.01) .03 .02 .03 .04 Net realized and unrealized gain (loss) ... 4.96 1.78 (4.54) 5.87 3.25 -------- -------- -------- -------- -------- Total income from operations .......... 4.95 1.81 (4.52) 5.90 3.29 -------- -------- -------- -------- -------- Distributions From net investment income ................ (.01) (.02) (.04) (.01) (.07) From net realized gain .................... -- -- (1.59) (1.22) (.20) -------- -------- -------- -------- -------- Total distributions ................... (.01) (.02) (1.63) (1.23) (.27) -------- -------- -------- -------- -------- Net Asset Value, End of Period ................ $ 22.69 $ 17.75 $ 15.96 $ 22.11 $ 17.44 ======== ======== ======== ======== ======== Total Return (%) .............................. 27.92 11.35 (22.32) 35.85 23.14 Ratios/Supplemental Data: Net Assets, end of period (in thousands) .. 359,779 352,013 344,630 149,808 55,208 Ratios to average net assets (%): Operating expenses, net ............... 1.07 1.07 1.04 1.00 1.00 Operating expenses, gross ............. 1.07 1.07 1.04 1.09 1.18 Net investment income (loss) .......... (.05) .17 .10 .18 .26 Portfolio turnover rate (%) ............... 156.41 110.82 86.13 143.79 76.85
(a) For the periods subsequent to August 31, 1998, average month-end shares outstanding were used for this calculation. Annual Report 17 SSgA Small Cap Fund Notes to Financial Statements August 31, 2000 1. Organization The SSgA Funds (the "Investment Company") is a series mutual fund, currently comprised of 24 investment portfolios which are in operation as of August 31, 2000. These financial statements report on one portfolio, the SSgA Small Cap Fund (the "Fund"). The Investment Company is a registered and diversified open-end investment company, as defined in the Investment Company Act of 1940, as amended (the "1940 Act"), that was organized as a Massachusetts business trust on October 3, 1987 and operates under a First Amended and Restated Master Trust Agreement, dated October 13, 1993, as amended (the "Agreement"). The Investment Company's Agreement permits the Board of Trustees to issue an unlimited number of full and fractional shares of beneficial interest at a $.001 par value. 2. Significant Accounting Policies The Fund's financial statements are prepared in accordance with accounting principles generally accepted in the United States which require the use of management estimates. The following is a summary of the significant accounting policies consistently followed by the Fund in the preparation of its financial statements. Security valuation: United States equity securities listed and traded principally on any national securities exchange are valued on the basis of the last sale price or, lacking any sale, at the closing bid price, on the primary exchange on which the security is traded. United States over-the-counter equities are valued on the basis of the closing bid price. 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 the mean of bid prices. In the absence of a last sale or mean bid price, respectively, 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. Money market instruments maturing within 60 days of the valuation date are valued at amortized cost. The Fund may 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. Securities transactions: Securities transactions are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the basis of identified cost. Investment income: Dividend income is recorded on the ex-dividend date and interest income is recorded daily on the accrual basis. Amortization and accretion: All zero-coupon bond discounts and original issue discounts are accreted for both tax and financial reporting purposes. All short- and long-term market premiums/discounts are amortized/accreted for both tax and financial reporting purposes. Federal income taxes: Since the Investment Company is a Massachusetts business trust, each fund is a separate corporate taxpayer and determines its net investment income and capital gains (or losses) and the amounts to be distributed to each fund's shareholders without regard to the income and capital gains (or losses) of the other funds. 18 Annual Report SSgA Small Cap Fund Notes to Financial Statements, continued August 31, 2000 It is the Fund's intention to qualify as a regulated investment company, as defined by the Internal Revenue Code of 1986, as amended. This requires the Fund to distribute all of its taxable income. Therefore, the Fund paid no federal income taxes and no federal income tax provision was required. At August 31, 2000, the Fund had a net tax basis capital loss carryover of $8,981,463 which may be applied against any realized net taxable gains in each succeeding year or until its expiration date of August 31, 2007. As permitted by tax regulations, the Fund intends to defer a net realized capital loss of $8,659,636 incurred from November 1, 1999 to August 31, 2000, and treat it as arising in the fiscal year 2001. The Fund's aggregate cost of investments and the composition of unrealized appreciation and depreciation of investment securities for federal income tax purposes as of August 31, 2000 are as follows: Net Unrealized Federal Tax Unrealized Unrealized Appreciation Cost Appreciation (Depreciation) (Depreciation) ------------ ------------ -------------- -------------- $324,310,480 $ 58,155,465 $ (21,287,789) $ 36,867,676 Dividends and distributions to shareholders: Income dividends and capital gain distributions, if any, are recorded on the ex-dividend date. Dividends are generally declared and paid quarterly. Capital gain distributions are generally declared and paid annually. An additional distribution may be paid by the Fund to avoid imposition of federal income tax on any remaining undistributed net investment income and capital gains. The timing and characterization of certain income and capital gain distributions are determined in accordance with federal tax regulations which may differ from generally accepted accounting principles ("GAAP"). As a result, net investment income and net realized gain (or loss) on investment transactions for a reporting year may differ significantly from distributions during such year. The differences between tax regulations and GAAP relate primarily to investments in futures and certain securities sold at a loss. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting its net asset value. Expenses: Most expenses can be directly attributed to the Fund. Expenses of the investment company which cannot be directly attributed are allocated among all funds based principally on their relative net assets. Futures: The Fund utilizes exchange-traded futures contracts. The primary risks associated with the use of futures contracts are an imperfect correlation between the change in market value of the securities held by the Fund and the prices of futures contracts and the possibility of an illiquid market. Changes in initial settlement value are accounted for as unrealized appreciation (depreciation) until the contracts are terminated, at which time realized gains and losses are recognized. 3. Securities Transactions Investment transactions: For the year ended August 31, 2000, purchases and sales of investment securities, excluding short-term investments and futures contracts, aggregated to $517,064,833 and $595,690,375, respectively. Annual Report 19 SSgA Small Cap Fund Notes to Financial Statements, continued August 31, 2000 Securities lending: The Investment Company has a securities lending program whereby each Fund can loan securities with a value up to 33 1/3% of its total assets to certain brokers. The Fund receives cash (U.S. currency), U.S. Government or U.S. Government agency obligations as collateral against the loaned securities. To the extent that a loan is secured by cash collateral, such collateral shall be invested by State Street Bank and Trust Company in short-term instruments, money market mutual funds, and such other short-term investments, provided the investments meet certain quality and diversification requirements. Under the securities lending arrangement, the collateral received is recorded on the Fund's statement of assets and liabilities along with the related obligation to return the collateral. In those situations where the Company has relinquished control of securities transferred, it derecognizes the securities and records a receivable from the counterparty. Income generated from the investment of cash collateral, less negotiated rebate fees paid to participating brokers and transaction costs, is divided between the Fund and State Street Bank and Trust Company and is recorded as interest income for the Fund. To the extent that a loan is secured by non-cash collateral, brokers pay the Fund negotiated lenders' fees, which are divided between the Fund and State Street Bank and Trust Company and are recorded as interest income for the Fund. All collateral received will be in an amount at least equal to 102% (for loans of U.S. securities) or 105% (for non-U.S. securities) of the market value of the loaned securities at the inception of each loan. Should the borrower of the securities fail financially, there is a risk of delay in recovery of the securities or loss of rights in the collateral. Consequently, loans are made only to borrowers which are deemed to be of good financial standing. As of August 31, 2000, the value of outstanding securities on loan and the value of collateral amounted to $39,575,061 and $41,055,048, respectively. Included in interest income is securities lending income of $145,510 for the year ended August 31, 2000. 4. Related Parties Adviser: The Investment Company has an investment advisory agreement with State Street Bank and Trust Company (the "Adviser") under which the Adviser, through State Global Advisors, the investment management group of the Adviser, directs the investments of the Fund in accordance with its investment objectives, policies, and limitations. For these services, the Fund pays a fee to the Adviser calculated daily and paid monthly, at an annual rate of .75% of its average daily net assets. The Investment Company also has contracts with the Adviser to provide custody, shareholder servicing and transfer agent services to the Fund. These amounts are presented in the accompanying Statement of Operations. In addition, the Fund has entered into arrangements with its Adviser whereby custody credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund's expenses. During the year, the Fund's custodian fees were reduced by $6,871 under these arrangements. Administrator: The Investment Company has an administration agreement with Frank Russell Investment Management Company (the "Administrator"), a wholly-owned subsidiary of The Northwestern Mutual Life Insurance Company, under which the Administrator supervises all non-portfolio investment aspects of the Investment Company's operations and provides adequate office space and all necessary office equipment and services, including telephone service, utilities, stationery supplies, and similar items. 20 Annual Report SSgA Small Cap Fund Notes to Financial Statements, continued August 31, 2000 The Investment Company pays the Administrator for services supplied by the Administrator pursuant to the Administration Agreement, an annual fee, payable monthly on a pro rata basis. For the period September 1, 1999 to April 30, 2000, the following percentages of the combined average daily net assets of all domestic funds: $0 up to and including $500 million - .06%; over $500 million up to and including $1 billion - .05%; over $1 billion - .03%. Effective May 1, 2000, the annual fee is based on the following percentages of the average daily net assets of all U.S. Equity portfolios: $0 to $2 billion - .0315%; over $2 billion - .029%. The Administrator will charge a flat fee of $30,000 per year per Fund with less than $500 million in net assets and $1,500 per year for monthly performance reports and use of Russell Performance Universe software product. In addition, the Fund reimburses the Administrator for out-of-pocket expenses and start-up costs for new funds. Distributor and Shareholder Servicing: The Investment Company has a Distribution Agreement with Russell Fund Distributors (the "Distributor") which is a wholly-owned subsidiary of the Administrator to promote and offer shares of the Investment Company. The Distributor may enter into sub-distribution agreements with other non-related parties. The amounts paid to the Distributor are included in the accompanying Statement of Operations. The Investment Company has a Distribution Plan pursuant to Rule 12b-1 (the "Plan") under the 1940 Act. Under this Plan, the Investment Company is authorized to make payments to the Distributor, or any Shareholder Servicing Agent, as defined in the Plan, for providing distribution and marketing services, for furnishing assistance to investors on an ongoing basis, and for the reimbursement of direct out-of-pocket expenses charged by the Distributor in connection with the distribution and marketing of shares of the Investment Company and the servicing of investor accounts. The Fund has Shareholder Service Agreements with the Adviser, State Street Brokerage Services, Inc. ("SSBSI"), a wholly-owned subsidiary of the Adviser, the Adviser's Retirement Investment Services Division ("RIS"), the Adviser's Metropolitan Division of Commercial Banking ("Commercial Banking") and State Street Solutions ("Solutions")(collectively the "Agents"), as well as several unaffiliated service providers. For these services, the Fund pays .025%, .175%, .175%, .175% and .175% to the Adviser, SSBSI, RIS, Commercial Banking, and Solutions, respectively, based upon the average daily value of all Fund shares held by or for customers of these Agents. For the year ended August 31, 2000, the Fund was charged shareholder servicing expenses of $80,911, $5,387, $236,711, $325 and $55,911, by the Adviser, SSBSI, RIS, Commercial Banking, and Solutions, respectively. The combined distribution and shareholder servicing payments shall not exceed .25% of the average daily value of net assets of the Fund on an annual basis. The shareholder servicing payments shall not exceed .20% of the average daily value of net assets of the Fund on an annual basis. Payments that exceed the maximum amount of allowable reimbursement may be carried forward for two years following the year in which the expenditure was incurred so long as the plan is in effect. The Fund's responsibility for any such expenses carried forward shall terminate at the end of two years following the year in which the expenditure was incurred. The Trustees or a majority of the Fund's shareholders have the right, however, to terminate the Distribution Plan and all payments thereunder at any time. The Fund will not be obligated to reimburse the Distributor for carryover expenses subsequent to the Distribution Plan's termination or noncontinuance. There were no carryover expenses as of August 31, 2000. Annual Report 21 SSgA Small Cap Fund Notes to Financial Statements, continued August 31, 2000 Affiliated Brokerage: The Fund placed a portion of its portfolio transactions with SSBSI, an affiliated broker dealer of the Fund's Adviser. The commissions paid to SSBSI were $13,365 for the year ended August 31, 2000. Board of Trustees: The Investment Company paid each Trustee not affiliated with the Investment Company an annual retainer, plus specified amounts for board and committee meetings attended. These expenses are allocated among all of the funds based upon their relative net assets. Accrued fees payable to affiliates and trustees as of August 31, 2000 were as follows: Advisory fees $216,415 Administration fees 13,562 Custodian fees 16,561 Distribution fees 9,436 Shareholder servicing fees 71,584 Transfer agent fees 34,336 Trustees' fees 1,534 -------- $363,428 ======== Beneficial Interest: As of August 31, 2000, one shareholder was a record owner of approximately 29% of the total outstanding shares of the Fund. 5. Fund Share Transactions (amounts in thousands) Fiscal Years Ended August 31, ------------------------------------------ 2000 1999 ------------------- ------------------- Shares Dollars Shares Dollars ------- --------- ------- --------- Proceeds from shares sold 10,079 $ 203,755 20,403 $ 358,555 Proceeds from reinvestment of distributions 11 180 23 405 Payments for shares redeemed (14,067) (278,458) (22,182) (387,698) ------- --------- ------- --------- Total net increase (decrease) (3,977) $ (74,523) (1,756) $ (28,738) ======= ========= ======= ========= 6. Interfund Lending Program The Fund and all other funds of the Investment Company received from the Securities and Exchange Commission an exemptive order on December 23, 1999 to establish and operate an Interfund Credit Facility. This allows the Funds to directly lend to and borrow money from the SSgA Money Market Fund for temporary purposes in accordance with certain conditions. The borrowing Funds are charged the average of the current Repo Rate and the Bank Loan Rate. Miscellaneous Expenses on the Statement of Operations include $3,578 of interest paid under the interfund lending program. 22 Annual Report SSgA Small Cap Fund One International Place, 27th Floor Boston, Massachusetts 02110 (800) 997-7327 -------------------------------------------------------------------------------- Trustees Lynn L. Anderson, Chairman William L. Marshall Steven J. Mastrovich Patrick J. Riley Richard D. Shirk Bruce D. Taber Henry W. Todd Officers Lynn L. Anderson, President, Treasurer and CEO Mark E. Swanson, Treasurer and Principal Accounting Officer J. David Griswold, Vice President and Secretary Deedra S. Walkey, Assistant Secretary Rick J. Chase, Assistant Treasurer Carla L. Anderson, Assistant Secretary Investment Adviser State Street Bank and Trust Company 225 Franklin Street Boston, Massachusetts 02110 Custodian, Transfer Agent and Office of Shareholder Inquiries State Street Bank and Trust Company 1776 Heritage Drive North Quincy, Massachusetts 02171 (800) 647-7327 Distributor Russell Fund Distributors, Inc. One International Place, 27th Floor Boston, Massachusetts 02110 (800) 997-7327 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 160 Federal Street Boston, Massachusetts 02110 Annual Report 23 [COVER GRAPHIC] SSgA(R) funds ANNUAL REPORT US Treasury Money Market Fund August 31, 2000 SSgA(R) Funds US Treasury Money Market Fund Annual Report August 31, 2000 Table of Contents Page Chairman's Letter........................................................... 4 Portfolio Management Discussion and Analysis................................ 6 Report of Independent Accountants........................................... 8 Financial Statements........................................................ 9 Financial Highlights........................................................ 14 Notes to Financial Statements............................................... 15 Fund Management and Service Providers....................................... 19 "SSgA(R)" is a registered trademark of State Street Corporation and is licensed for use by the SSgA Funds. This report is prepared from the books and records of the Fund and it is submitted for the general information of shareholders. This information is for distribution to prospective investors only when preceded or accompanied by a SSgA Funds Prospectus containing more complete information concerning the investment objective and operations of the Fund, charges and expenses. The Prospectus should be read carefully before an investment is made. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. An investment in a money market fund is neither insured nor guaranteed by the US government. There can be no assurance that a money market fund will be able to maintain a stable net asset value of $1.00 per share. Russell Fund Distributors, Inc., is the distributor of the SSgA Funds. SSgA US Treasury Money Market Fund -------------------------------------------------------------------------------- Letter From the Chairman of State Street Global Advisors -------------------------------------------------------------------------------- Dear Shareholders, It is our pleasure to provide you with the SSgA Funds annual report for the fiscal year ended August 31, 2000. The SSgA Fund Family has grown to include twenty-four portfolios with over $21 billion in assets as of August 31, 2000. The Fund Family provides a wide range of strategies covering the world's major markets. The enclosed information provides an overview of the investment process for the SSgA US Treasury Money Market Fund. This overview contains the portfolio management discussion, performance updates and financial information for the Fund. In an ongoing effort to develop competitive products and services that provide investment solutions for our clients, we have added the SSgA Intermediate Municipal Bond Fund to the SSgA Fund Family. This Fund's investment objective seeks to provide federally tax-exempt current income by investing primarily in a diversified portfolio of municipal debt securities with a dollar-weighted average maturity between three and ten years. We are also pleased with the success of our SSgA Emerging Markets and SSgA Growth and Income Funds as they were included in Money(R) Magazine's June 2000 issue listing of the 'Top 100 Mutual Funds'. This is the second year in a row that these funds have been selected. Additionally, the SSgA Tax Free Money Market and the SSgA Active International Funds have achieved five-year performance history during the 2000 fiscal year. Currently, all of our SSgA Money Market Funds have at least a five-year performance history. We strive to meet our clients' needs by providing funds with long-term records and competitive performance. We would like to thank you for choosing the SSgA Funds. Our reputation is based on our tradition of designing and delivering exceptional financial services to our clients. We look forward to continue sharing the benefit of our experience with you. Sincerely, /s/ Nicholas A. Lopardo Nicholas A. Lopardo State Street Global Advisors Chairman and Chief Executive Officer /s/ Timothy B. Harbert Timothy B. Harbert State Street Global Advisors President and Chief Operating Officer, SSgA 4 Annual Report SSgA US Treasury Money Market Fund -------------------------------------------------------------------------------- Management of the Funds -------------------------------------------------------------------------------- [PHOTO] Nicholas A. Lopardo Chairman and Chief Executive Officer [PHOTO] Timothy B. Harbert President and Chief Operating Officer A Team Approach to Investment Management Our investment strategies are the product of the combined experience of our professional staff. Portfolio Managers work together to develop and enhance the techniques that drive our investment processes. As a result, the portfolios we manage benefit from the knowledge of the entire team. Ms. Lisa Hatfield, Principal, has been the portfolio manager primarily responsible for investment decisions regarding the SSgA US Treasury Money Market Fund since March 1999. Ms. Hatfield is the Unit Head of the cash desk with responsibility for the SSgA money market funds, several short-term funds and enhanced cash portfolios. Prior to joining SSgA, she was a portfolio manager with State Street's Investment Research Department, where she managed the securities lending reinvestment funds since their inception in 1987, as well as other money market portfolios. She received a BS from Suffolk University. There are ten other portfolio managers working with Ms. Hatfield. Annual Report 5 SSgA US Treasury Money Market Fund -------------------------------------------------------------------------------- Portfolio Management Discussion and Analysis -------------------------------------------------------------------------------- Objective: Maximize current income while preserving capital and liquidity. Invests in: US Treasury notes and bills, and repurchase agreements backed by those securities. Strategy: Fund Managers base their decisions on the relative attractiveness of different money market investments, which vary depending on the general level of interest rates as well as supply and demand imbalances in the market. -------------------------------------------------------------------------------- GROWTH OF A $10,000 INVESTMENT Salomon Smith Barney Dates US Treasury Money Market Fund 3-Month Treasury Bill Index** Inception* $10,000 $10,000 1994 $10,251 $10,277 1995 $10,813 $10,851 1996 $11,399 $11,431 1997 $12,010 $12,031 1998 $12,675 $12,659 1999 $13,288 $13,248 2000 $14,039 $13,978 ================================================================================ Performance Review The Fund had a total return of 5.65% for the fiscal year ended August 31, 2000. This compared favorably to the Salomon Smith Barney 3-Month Treasury Bill Index, which returned 5.51% for the same period. The Fund's performance is net of operating expenses, while Index results do not include expenses of any kind. The Salomon Smith Barney 3-Month Treasury Bill Index was chosen as a standard, well-known representation of money market rates. The market environment for the last year began with the Federal Open Market Committee (FOMC) tightening monetary policy due to strong domestic growth and rejuvenated demand from abroad. The FOMC raised rates by 25 basis points in June, August and November 1999, bringing the Fed Funds target from 4.75% to 5.50%. The FOMC took no action at its December meeting, but followed a strategy of injecting the economy with massive amounts of cash to ease -------------------------------------------------------------------------------- SSgA US Treasury Money Market Fund -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return ------------------- --------------- -------- 1 Year $ 10,565 5.65% 5 Years $ 12,983 5.36%+ Inception $ 14,039 5.15%+ -------------------------------------------------------------------------------- Salomon Smith Barney 3-Month Treasury Bill Index -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return ------------------- --------------- -------- 1 Year $ 10,551 5.51% 5 Years $ 12,882 5.20%+ Inception $ 13,978 5.09%+ See related Notes on following page. 6 Annual Report SSgA US Treasury Money Market Fund -------------------------------------------------------------------------------- Portfolio Management Discussion and Analysis -------------------------------------------------------------------------------- Y2K liquidity concerns. Fourth quarter GDP logged an impressive 8.3% due to Y2K inventory building supported by the generous liquidity provisions from the Federal Reserve. This surfeit of liquidity, in effect, loosened monetary policy when in fact tight labor markets and excess demand called for tightening. First quarter 2000 GDP followed with a 4.8% growth rate. To achieve a more sustainable rate of growth, the Federal Reserve Board needed to take back the excess liquidity and slow the economy. The FOMC did so by raising interest rates by 100 basis points in the first half of 2000. Although GDP advanced 5.4% throughout the second quarter of 2000, fears of inflation were tempered by the fact that productivity grew at 5% for the same period. The FOMC opted to leave rates unchanged at the June and August meetings while maintaining a cautious stance going forward. The Manager continues to be cautious about future FOMC policy, considering the trend in rising oil prices as well as the upcoming presidential election. Market and Portfolio Highlights In the last fiscal year, the SSgA US Treasury Money Market Fund was managed consistently with its objective of providing safety of principal and liquidity by investing in treasury securities and providing competitive returns. The Fund's net assets increased slightly in size by $15 million over the past year to $1.1 billion at August 31, 2000. During the fall tightening period the Fund was managed with liquidity as a primary concern, with maturing positions remaining in cash and very liquid short-term securities throughout the last calendar quarter of 1999. This large cash position served to hedge against Y2K liquidity concerns and helped with the substantial swings in assets related to calendar year-end 1999. Perceived as a "safe haven", Treasury securities traded very expensively throughout the tightening period and year end, as investors parked cash in the safety of the short Treasury market. Short dated Treasury yields continued to drop as the Treasury reduced the size of bill auctions causing a supply and demand imbalance. Throughout the period, overnight repurchase agreements significantly outyielded Treasury bills and notes. Consequently, as Treasury bills and notes in the Fund matured, the money was largely reinvested into repos, taking advantage of yields that are priced close to the Fed funds target. Issuance of short term cash management bills provided some Treasury supply priced at attractive levels. In this environment, the Fund's average days to maturity steadily declined, from 39 days at the beginning of the fiscal year, to 8 days at August 31, 2000, with over 68% of the Fund invested in overnight maturities. With the yield curve's potential to steepen on negative inflation news, the Manager will look for those opportunities to extend duration and add yield. ---------- Notes: The following notes relate to the Growth of $10,000 graph and table on the preceding page. * The Fund commenced operations on December 1, 1993. Index comparison also began on December 1, 1993. ** Equal dollar amounts of 3-month Treasury bills are purchased at the beginning of each of three consecutive months. As each bill matures, all proceeds are rolled over or reinvested in a new 3-month bill. The income used to calculate the monthly return is derived by subtracting the original amount invested from the maturity value. The yield curve average is the basis for calculating the return on the Index. The Index is rebalanced monthly by market capitalization. + Annualized. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. An investment in a money market fund is neither insured nor guaranteed by the US Government. There can be no assurance that a money market fund will be able to maintain a stable net asset value of $1.00 per share. Annual Report 7 Report of Independent Accountants To the Shareholders and Board of Trustees of the SSgA Funds: In our opinion, the accompanying statement of assets and liabilities and statement of net assets, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of SSgA US Treasury Money Market Fund (the "Fund") at August 31, 2000, the results of its operations for the fiscal year then ended and the changes in its net assets for each of the two fiscal years in the period then ended, and the financial highlights for each of the five fiscal years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 2000 by correspondence with the custodian, provide a reasonable basis for our opinion. Boston, Massachusetts October 11, 2000 /s/ PricewaterhouseCoopers LLP 8 Annual Report SSgA US Treasury Money Market Fund Statement of Net Assets August 31, 2000
Principal Amount Date Value (000) Rate of (000) $ % Maturity $ --------- ----- -------- ------- United States Government - 31.9% United States Treasury Bills 200,000 6.340 09/21/00 199,295 United States Treasury Bills 100,000 6.395 09/21/00 99,645 United States Treasury Bills 50,000 6.130 09/28/00 49,776 --------- Total United States Government (cost $348,716) 348,716 --------- Total Investments - 31.9% (amortized cost $348,716) 348,716 --------- Repurchase Agreements - 68.6% Agreement with ABN AMRO Securities (USA) Inc. of $50,000 acquired August 31, 2000 at 6.600% to be repurchased at $50,009 on September 1, 2000, collateralized by: $50,032 various United States Treasury Obligations valued at $51,057 50,000 Agreement with Bank One Capital Corp. and Chase Bank (Tri-Party) of $50,000 acquired August 31, 2000 at 6.600% to be repurchased at $50,009 on September 1, 2000, collateralized by: $50,955 various United States Treasury Obligations valued at $51,003 50,000 Agreement with Bear Stearns & Co., Inc. of $250,000 acquired August 31, 2000 at 6.620% to be repurchased at $250,046 on September 1, 2000, collateralized by: $414,748 various United States Treasury Strips valued at $255,328 250,000 Agreement with Deutsche Bank of $50,000 acquired August 31, 2000 at 6.610% to be repurchased at $50,009 on September 1, 2000, collateralized by: $45,350 various United States Treasury Obligations valued at $51,483 50,000 Agreement with Lehman Brothers, Inc. of $51,210 acquired August 31, 2000 at 6.600% to be repurchased at $51,219 on September 1, 2000, collateralized by: $49,630 various United States Treasury Obligations valued at $52,331 51,210 Agreement with Merrill Lynch, Pierce, Fenner & Smith, Inc. of $50,000 acquired August 31, 2000 at 6.600% to be repurchased at $50,009 on September 1, 2000, collateralized by: $49,395 various United States Treasury Obligations valued at $51,002 50,000
Annual Report 9 SSgA US Treasury Money Market Fund Statement of Net Assets, continued August 31, 2000
Value (000) $ ------- Agreement with Warburg Dillon Reed, L.L.C. of $250,000 acquired August 31, 2000 at 6.600% to be repurchased at $250,046 on September 1, 2000, collateralized by: $255,742 various United States Treasury Obligations valued at $256,251 250,000 --------- Total Repurchase Agreements (identified cost $751,210) 751,210 --------- Total Investments and Repurchase Agreements - 100.5% (cost $1,099,926)(a) 1,099,926 Other Assets and Liabilities, Net - (0.5%) (6,013) --------- Net Assets - 100.0% 1,093,913 =========
(a) The identified cost for federal income tax purposes is the same as shown above. See accompanying notes which are an integral part of the financial statements. 10 Annual Report SSgA US Treasury Money Market Fund Statement of Assets and Liabilities Amounts in thousands (except per share amount) August 31, 2000 Assets Investments at amortized cost which approximates market ........................... $ 348,716 Repurchase agreements (identified cost $751,210) .................................. 751,210 Interest receivable ............................................................... 138 Prepaid expenses .................................................................. 16 ---------- Total assets .............................................................. 1,100,080 Liabilities Payables: Dividends ........................................................ $ 5,936 Accrued fees to affiliates ....................................... 231 ---------- Total liabilities ......................................................... 6,167 ---------- Net Assets ........................................................................ $1,093,913 ========== Net Assets Consist of: Accumulated net realized gain (loss) .............................................. $ 29 Shares of beneficial interest ..................................................... 1,094 Additional paid-in capital ........................................................ 1,092,790 ---------- Net Assets ........................................................................ $1,093,913 ========== Net Asset Value, offering and redemption price per share: ($1,093,913,250 divided by 1,093,895,680 shares of $.001 par value shares of beneficial interest outstanding) ................................ $ 1.00 ==========
See accompanying notes which are an integral part of the financial statements. Annual Report 11 SSgA US Treasury Money Market Fund Statement of Operations Amounts in thousands For the Fiscal Year Ended August 31, 2000 Investment Income Interest ..................................................... $60,277 ------- Expenses Advisory fees ................................... $ 2,641 Administrative fees ............................. 338 Custodian fees .................................. 364 Distribution fees ............................... 218 Transfer agent fees ............................. 71 Professional fees ............................... 21 Registration fees ............................... 32 Shareholder servicing fees ...................... 264 Trustees' fees .................................. 22 Miscellaneous ................................... 33 ------- Expenses before reductions ...................... 4,004 Expense reductions .............................. (1,891) ------- Expenses, net ............................................ 2,113 ------- Net investment income ............................................ 58,164 ------- Net Realized Gain (Loss) Net realized gain (loss) on investments .......................... 27 ------- Net increase in net assets from operations ....................... $58,191 ======= See accompanying notes which are an integral part of the financial statements. 12 Annual Report SSgA US Treasury Money Market Fund Statement of Changes in Net Assets Amounts in thousands For the Fiscal Years Ended August 31,
2000 1999 ----------- ----------- Increase (Decrease) in Net Assets Operations Net investment income .......................................... $ 58,164 $ 48,643 Net realized gain (loss) ....................................... 27 -- ----------- ----------- Net increase in net assets from operations ................. 58,191 48,643 ----------- ----------- Distributions From net investment income ..................................... (58,164) (48,643) ----------- ----------- Share Transactions Net increase (decrease) in net assets from share transactions .. (21,728) 115,247 ----------- ----------- Total net increase (decrease) in net assets ........................ (21,701) 115,247 Net Assets Beginning of period ............................................ 1,115,614 1,000,367 ----------- ----------- End of period .................................................. $ 1,093,913 $ 1,115,614 =========== ===========
See accompanying notes which are an integral part of the financial statements. Annual Report 13 SSgA US Treasury Money Market Fund Financial Highlights The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
Fiscal Years Ended August 31, ------------------------------------------------------------------ 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- Net Asset Value, Beginning of Period .......... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 ---------- ---------- ---------- ---------- ---------- Income From Operations Net investment income ..................... .0551 .0473 .0540 .0515 .0529 ---------- ---------- ---------- ---------- ---------- Distributions From net investment income ................ (.0551) (.0473) (.0540) (.0515) (.0529) ---------- ---------- ---------- ---------- ---------- Net Asset Value, End of Period ................ $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 ========== ========== ========== ========== ========== Total Return (%) .............................. 5.65 4.84 5.53 5.36 5.42 Ratios/Supplemental Data: Net Assets, end of period (in thousands) .. 1,093,913 1,115,614 1,000,367 916,845 189,004 Ratios to average net assets (%): Operating expenses, net (a) ........... .20 .20 .20 .20 .20 Operating expenses, gross (a) ......... .38 .39 .39 .46 .38 Net investment income ................. 5.51 4.73 5.40 5.28 5.29
(a) See Note 4 for current period amounts. 14 Annual Report SSgA US Treasury Money Market Fund Notes to Financial Statements August 31, 2000 1. Organization The SSgA Funds (the "Investment Company") is a series mutual fund, currently comprised of 24 investment portfolios which are in operation as of August 31, 2000. These financial statements report on one portfolio, the SSgA US Treasury Money Market Fund (the "Fund"). The Investment Company is a registered and diversified open-end investment company, as defined in the Investment Company Act of 1940, as amended (the "1940 Act"), that was organized as a Massachusetts business trust on October 3, 1987 and operates under a First Amended and Restated Master Trust Agreement, dated October 13, 1993, as amended (the "Agreement"). The Investment Company's Agreement permits the Board of Trustees to issue an unlimited number of full and fractional shares of beneficial interest at a $.001 par value. 2. Significant Accounting Policies The Fund's financial statements are prepared in accordance with accounting principles generally accepted in the United States which require the use of management estimates. The following is a summary of the significant accounting policies consistently followed by the Fund in the preparation of its financial statements. Security valuation: The Fund utilizes the amortized cost valuation method in accordance with Rule 2a-7 of the 1940 Act, a method by which each portfolio instrument meeting certain materiality parameters and credit worthiness standards are initially valued at cost, and thereafter a constant accretion/amortization to maturity of any discount or premium is assumed. Securities transactions: Securities transactions are recorded on the trade date, which in most instances is the same as the settlement date. Realized gains and losses from the securities transactions, if any, are recorded on the basis of identified cost. Investment income: Interest income is recorded daily on the accrual basis. Federal income taxes: Since the Investment Company is a Massachusetts business trust, each fund is a separate corporate taxpayer and determines its net investment income and capital gains (or losses) and the amounts to be distributed to each funds' shareholders without regard to the income and capital gains (or losses) of the other funds. It is the Fund's intention to qualify as a regulated investment company, as defined by the Internal Revenue Code of 1986, as amended. This requires the Fund to distribute all of its taxable income. Therefore, the Fund paid no federal income taxes and no federal income tax provision was required. Dividends and distributions to shareholders: The Fund declares and records dividends on net investment income daily and pays them monthly. Capital gain distributions, if any, are generally declared and paid annually. An additional distribution may be paid by the Fund to avoid imposition of federal income tax on any remaining undistributed net investment income and capital gains. The Fund may periodically make reclassifications among certain of its capital accounts without impacting net asset value for differences between federal tax regulations and generally accepted accounting principles. Expenses: Most expenses can be directly attributed to the Fund. Expenses of the investment company which cannot be directly attributed are allocated among all funds based principally on their relative net assets. Annual Report 15 SSgA US Treasury Money Market Fund Notes to Financial Statements, continued August 31, 2000 Repurchase agreements: The Fund may engage in repurchase and tri-party repurchase agreements with certain qualified financial institutions whereby the Fund, through its custodian or third-party custodian, receives delivery of the underlying securities. The market value of these securities (including accrued interest) on acquisition date is required to be an amount equal to at least 102% of the repurchase price. State Street Bank and Trust Company (the "Adviser") will monitor repurchase agreements daily to determine that the market value (including accrued interest) of the underlying securities remains equal to at least 102% of the repurchase price at Fedwire closing time. The Adviser or third-party custodian will notify the seller to immediately increase the collateral on the repurchase agreement to 102% of the repurchase price if collateral falls below 102%. 3. Securities Transactions Investment transactions: For the year ended August 31, 2000, purchases, sales and maturities of US Government and Agency obligations, excluding repurchase agreements aggregated to $2,369,938,597, $722,031,674 and $1,830,000,000, respectively. 4. Related Parties Adviser: The Investment Company has an investment advisory agreement with State Street Bank and Trust Company under which the Adviser, through State Street Global Advisors, the investment management group of the Adviser, directs the investments of the Fund in accordance with its investment objectives, policies, and limitations. For these services, the Fund pays a fee to the Adviser, calculated daily and paid monthly, at the annual rate of .25% of its average daily net assets. The Adviser has voluntarily agreed to waive .15% of its .25% advisory fee. The Adviser has also voluntarily agreed to reimburse the Fund for all expenses in excess of .20% of its average daily net assets on an annual basis. The total amounts of the waiver and reimbursement for the year ended August 31, 2000 were $1,045,420 and $827,844, respectively. As of August 31, 2000, the receivable due from the Adviser for reimbursed expenses in excess of the expense cap has been netted against the Advisory fee payable. The Investment Company also has contracts with the Adviser to provide custody, shareholder servicing and transfer agent services to the Fund. These amounts are presented in the accompanying Statement of Operations. In addition, the Fund has entered into arrangements with its Adviser whereby custody credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund's expenses. During the year, the Fund's custodian fees were reduced by $17,734 under these arrangements. Administrator: The Investment Company has an administration agreement with Frank Russell Investment Management Company (the "Administrator"), a wholly-owned subsidiary of The Northwestern Mutual Life Insurance Company, under which the Administrator supervises all non-portfolio investment aspects of the Investment Company's operations and provides adequate office space and all necessary office equipment and services, including telephone service, utilities, stationery supplies, and similar items. The Investment Company pays the Administrator for services supplied by the Administrator pursuant to the Administration Agreement, an annual fee, payable monthly on a pro rata basis. For the period September 1, 1999 to April 30, 2000, the following percentages of the average daily net assets of all domestic funds: $0 up to and including $500 million - .06%; over $500 million up to and including $1 billion - .05%; over $1 billion - .03%. Effective May 1, 2000, the annual fee is based on the following percentages of the average daily net assets of all money market portfolios: $0 up to $15 billion - .0315%; over $15 billion - .029%. The Administrator will also charge a flat fee of $30,000 per year per Fund with less than $500 million in net assets and $1,500 per year for monthly performance reports and use of 16 Annual Report SSgA US Treasury Money Market Fund Notes to Financial Statements, continued August 31, 2000 Russell Performance Universe software product. In addition, the Fund reimburses the Administrator for out-of-pocket expenses and start-up costs for new funds. Distributor and Shareholder Servicing: The Investment Company has a Distribution Agreement with Russell Fund Distributors (the "Distributor") which is a wholly-owned subsidiary of the Administrator to promote and offer shares of the Investment Company. The Distributor may enter into sub-distribution agreements with other non-related parties. The amounts paid to the Distributor are included in the accompanying Statement of Operations. The Investment Company has a Distribution Plan pursuant to Rule 12b-1 (the "Plan") under the 1940 Act. Under this Plan, the Investment Company is authorized to make payments to the Distributor, or any Shareholder Servicing Agent, as defined in the Plan, for providing distribution and marketing services, for furnishing assistance to investors on an ongoing basis, and for the reimbursement of direct out-of-pocket expenses charged by the Distributor in connection with the distribution and marketing of shares of the Investment Company and the servicing of investor accounts. The Fund has Shareholder Service Agreements with the Adviser. For these services, the Fund pays .025% to the Adviser, based upon the average daily value of all Fund shares held. For the year ended August 31, 2000, the Fund was charged shareholder servicing expenses of $264,024 by the Adviser. The combined distribution and shareholder servicing payments shall not exceed .25% of the average daily value of net assets of the Fund on an annual basis. The shareholder servicing payments shall not exceed .20% of the average daily value of net assets of the Fund on an annual basis. Payments that exceed the maximum amount of allowable reimbursement may be carried forward for two years following the year in which the expenditure was incurred so long as the plan is in effect. The Fund's responsibility for any such expenses carried forward shall terminate at the end of two years following the year in which the expenditure was incurred. The Trustees or a majority of the Fund's shareholders have the right, however, to terminate the Distribution Plan and all payments thereunder at any time. The Fund will not be obligated to reimburse the Distributor for carryover expenses subsequent to the Distribution Plan's termination or noncontinuance. There were no carryover expenses as of August 31, 2000. Board of Trustees: The Investment Company paid each Trustee not affiliated with the Investment Company an annual retainer, plus specified amounts for board and committee meetings attended. These expenses are allocated among all of the funds based upon their relative net assets. Annual Report 17 SSgA US Treasury Money Market Fund Notes to Financial Statements, continued August 31, 2000 Accrued fees payable to affiliates and trustees as of August 31, 2000 were as follows: Advisory fees $ 84,399 Administration fees 34,986 Custodian fees 45,135 Distribution fees 24,270 Shareholder servicing fees 23,821 Transfer agent fees 16,537 Trustees' fees 2,316 -------- $231,464 ======== Beneficial Interest: As of August 31, 2000, two shareholders (who were also affiliates of the Investment Company) were record owners of approximately 52% and 37%, respectively, of the total outstanding shares of the Fund. 5. Fund Share Transactions (On a Constant Dollar Basis):
(amounts in thousands) Fiscal Years Ended August 31, ----------------------------- 2000 1999 ----------- ----------- Proceeds from shares sold .................... 12,519,352 8,297,431 Proceeds from reinvestment of distributions .. 16,242 9,755 Payments for shares redeemed ................. (12,557,322) (8,191,939) ----------- ----------- Total net increase (decrease) ................ (21,728) 115,247 =========== ===========
6. Interfund Lending Program The Fund and all other funds of the Investment Company received from the Securities and Exchange Commission an exemptive order on December 23, 1999 to establish and operate an Interfund Credit Facility. This allows the Funds to directly lend to and borrow money from the SSgA Money Market Fund for temporary purposes in accordance with certain conditions. The borrowing Funds are charged the average of the current Repo Rate and the Bank Loan Rate. The Fund did not utilize the interfund lending program during this year. 18 Annual Report SSgA US Treasury Money Market Fund One International Place, 27th Floor Boston, Massachusetts 02110 (800) 997-7327 -------------------------------------------------------------------------------- Trustees Lynn L. Anderson, Chairman William L. Marshall Steven J. Mastrovich Patrick J. Riley Richard D. Shirk Bruce D. Taber Henry W. Todd Officers Lynn L. Anderson, President, Treasurer and CEO Mark E. Swanson, Assistant Secretary, Assistant Treasurer and Principal Accounting Officer J. David Griswold, Vice President and Secretary Deedra S. Walkey, Assistant Secretary Rick J. Chase, Assistant Secretary Carla L. Anderson, Assistant Secretary Investment Adviser State Street Bank and Trust Company 225 Franklin Street Boston, Massachusetts 02110 Custodian, Transfer Agent and Office of Shareholder Inquiries State Street Bank and Trust Company 1776 Heritage Drive North Quincy, Massachusetts 02171 (800) 647-7327 Distributor Russell Fund Distributors, Inc. One International Place, 27th Floor Boston, Massachusetts 02110 (800) 997-7327 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 160 Federal Street Boston, Massachusetts 02110 Annual Report 19 [COVER GRAPHIC] SSgA(R) funds ANNUAL REPORT Yield Plus Fund August 31, 2000 SSgA(R) Funds Yield Plus Fund Annual Report August 31, 2000 Table of Contents Page Chairman's Letter......................................................... 4 Portfolio Management Discussion and Analysis.............................. 6 Report of Independent Accountants......................................... 8 Financial Statements...................................................... 9 Financial Highlights...................................................... 14 Notes to Financial Statements............................................. 15 Fund Management and Service Providers..................................... 21 "SSgA(R)" is a registered trademark of State Street Corporation and is licensed for use by the SSgA Funds. This report is prepared from the books and records of the Fund and it is submitted for the general information of shareholders. This information is for distribution to prospective investors only when preceded or accompanied by a SSgA Funds Prospectus containing more complete information concerning the investment objective and operations of the Fund, charges and expenses. The Prospectus should be read carefully before an investment is made. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. Russell Fund Distributors, Inc., is the distributor of the SSgA Funds. SSgA Yield Plus Fund -------------------------------------------------------------------------------- Letter From the Chairman of State Street Global Advisors -------------------------------------------------------------------------------- Dear Shareholders, It is our pleasure to provide you with the SSgA Funds annual report for the fiscal year ended August 31, 2000. The SSgA Fund Family has grown to include twenty-four portfolios with over $21 billion in assets as of August 31, 2000. The Fund Family provides a wide range of strategies covering the world's major markets. The enclosed information provides an overview of the investment process for the SSgA Yield Plus Fund. This overview contains the portfolio management discussion, performance updates and financial information for the Fund. In an ongoing effort to develop competitive products and services that provide investment solutions for our clients, we have added the SSgA Intermediate Municipal Bond Fund to the SSgA Fund Family. This Fund's investment objective seeks to provide federally tax-exempt current income by investing primarily in a diversified portfolio of municipal debt securities with a dollar-weighted average maturity between three and ten years. We are also pleased with the success of our SSgA Emerging Markets and SSgA Growth and Income Funds as they were included in Money(R) Magazine's June 2000 issue listing of the 'Top 100 Mutual Funds'. This is the second year in a row that these funds have been selected. Additionally, the SSgA Tax Free Money Market and the SSgA Active International Funds have achieved five-year performance history during the 2000 fiscal year. Currently, all of our SSgA Money Market Funds have at least a five-year performance history. We strive to meet our clients' needs by providing funds with long-term records and competitive performance. We would like to thank you for choosing the SSgA Funds. Our reputation is based on our tradition of designing and delivering exceptional financial services to our clients. We look forward to continue sharing the benefit of our experience with you. Sincerely, /s/ Nicholas A. Lopardo Nicholas A. Lopardo State Street Global Advisors Chairman and Chief Executive Officer /s/ Timothy B. Harbert Timothy B. Harbert State Street Global Advisors President and Chief Operating Officer, SSgA 4 Annual Report SSgA Yield Plus Fund -------------------------------------------------------------------------------- Management of the Funds -------------------------------------------------------------------------------- [PHOTO] Nicholas A. Lopardo Chairman and Chief Executive Officer [PHOTO] Timothy B. Harbert President and Chief Operating Officer A Team Approach to Investment Management Our investment strategies are the product of the combined experience of our professional staff. Portfolio Managers work together to develop and enhance the techniques that drive our investment processes. As a result, the portfolios we manage benefit from the knowledge of the entire team. Ms. Maria Pino, CFA, Principal, has been the portfolio manager primarily responsible for investment decisions regarding the SSgA Yield Plus Fund since May 2000. Ms. Pino joined the firm in 1997. Previously, Ms. Pino managed non-ERISA assets in a short term fixed income fund and a money market fund at Partners HealthCare System, Inc. Prior to this, she managed fixed income assets for the Commonwealth of Massachusetts State Employees and Teachers Pension Fund. She has been working in the investment management field since 1981. She holds a BS in Accounting from Providence College, an MA in Economics from Northeastern University and an MBA from Boston University. There are ten other portfolio managers working with Ms. Pino. Annual Report 5 SSgA Yield Plus Fund -------------------------------------------------------------------------------- Portfolio Management Discussion and Analysis -------------------------------------------------------------------------------- Objective: Maximize current income; preservation of capital and liquidity. . Invests in: High quality, investment grade, debt instruments including: US Treasuries and Government agencies, corporate bonds, asset-backed securities, mortgage-backed securities, and high quality money market instruments maintaining a duration of one year or less. Strategy: Fund Managers base their decisions on the relative attractiveness of different sectors and issues which vary depending on the general level of interest rates, market determined risk premiums, as well as supply and demand imbalances in the market.
------------------------------------------------------------------------------------------------- GROWTH OF A $10,000 INVESTMENT Salomon Smith Barney 3-Month Salomon Smith Barney 6-Month Dates Yield Plus Fund Treasury Bill Index++ Treasury Bill Index++++ Inception* $10,000 $10,000 $10,000 1993 $10,285 $10,256 $10,273 1994 $10,660 $10,621 $10,650 1995 $11,301 $11,213 $11,271 1996 $11,948 $11,813 $11,888 1997 $12,626 $12,433 $12,532 1998 $13,308 $13,082 $13,209 1999 $13,929 $13,688 $13,842 2000 $14,804 $14,445 $14,621 =================================================================================================
Performance Review For the fiscal year ended August 31, 2000, the Fund had a total return of 6.28%. This compared favorably to the return of 5.51% for the benchmark, the Salomon 3-Month Treasury Bill Index. The Fund's performance is net of operating expenses, while Index results do not include expenses of any kind. Market and Portfolio Highlights The year began on a positive note as economic data suggested ailing foreign economies were on the mend. Federal Open Market Committee (FOMC) members, faced with strong domestic growth and rejuvenated demand from abroad, responded by tightening monetary policy. The FOMC raised rates by 25 basis points in June, August and November 1999, bringing the Fed Funds target from 4.75% to 5.50%. The FOMC took no action at its December meeting, but followed a strategy of injecting the economy with massive amounts of cash to ease Y2K liquidity concerns. Fourth quarter GDP logged an impressive 8.3% due to Y2K inventory building -------------------------------------------------------------------------------- SSgA Yield Plus Fund -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return ----------------- ------------ ------ 1 Year $ 10,628 6.28% 5 Years $ 13,100 5.55%+ Inception $ 14,804 5.15%+ -------------------------------------------------------------------------------- Salomon Smith Barney 3-Month Treasury Bill Index -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return ----------------- ------------ ------ 1 Year $ 10,551 5.51% 5 Years $ 12,882 5.20%+ Inception $ 14,445 4.81%+ -------------------------------------------------------------------------------- Salomon Smith Barney 6-Month Treasury Bill Index -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return ----------------- ------------ ------ 1 Year $ 10,561 5.61% 5 Years $ 12,972 5.34%+ Inception $ 14,621 4.97%+ See related Notes on following page. 6 Annual Report SSgA Yield Plus Fund -------------------------------------------------------------------------------- Portfolio Management Discussion and Analysis -------------------------------------------------------------------------------- supported by the generous liquidity provisions from the Federal Reserve. This surfeit of liquidity, in effect, loosened monetary policy when in fact tight labor markets and excess demand called for tightening. First quarter 2000 GDP followed with 4.8% growth rate. The Federal Reserve needed to take back the excess liquidity and slow the economy to achieve a more sustainable rate of growth and dampen the risks of inflation. The FOMC did so by raising interest rates by 100 basis points in the first half of 2000. Although GDP advanced 5.4% throughout the second quarter of 2000, fears of inflation were tempered by the fact that productivity grew at 5% for the same period. The FOMC opted to leave rates unchanged at the June and August meetings while maintaining a cautious stance going forward. By the end of August 2000, the yield curve had stabilized, with the 3-month LIBOR at 6.67%, the 6-month LIBOR at 6.80% and the 12-month LIBOR at 6.92%. At August 31, 2000, the two-year Treasury was at 6.17%, the 10-year was at 5.73% and the 30-year bond was at 5.67%. This inversion in the Treasury yield curve can be attributed to a combination of low future inflation expectations and dramatically reduced Treasury supply. The shape of the yield curve, credit considerations, Y2K concerns, and possible future increases in interest rates led to a defensive investment strategy for most of the year. The yield on the two-year Treasury reached a high of 6.23% in December 1999. Issuance was expected to balloon during the fall, as issuers sought funding earlier in the year to avoid any year-end market disruptions due to Y2K. The anticipation of the increase in issuance caused credit spreads to widen. The Fund took advantage of the spread widening and purchased securities cheaper than they had been earlier in the year. However, the expected issuance did not materialize and spreads tightened in December 1999. The short end of the yield curve was quite volatile during the first eight months of 2000. The two-year Treasury traded in a range between a high of 6.91% and a low of 6.13%. The Fund's most significant changes occurred in the portfolio's industry diversification. The allocation to ABS credit cards increased from 6% to 25% of the portfolio and represented a shift from unsecured credits to AAA secured credits. Although the finance allocation only declined from 8% to 5% of the portfolio, a strategic shift was made from lower quality, stand-alone finance companies to higher quality finance companies backed by a strong parent. ------------------------------------------------------------- Top Ten Issuers (as a percent of Total Investments) August 31, 2000 ------------------------------------------------------------- US Bancorp 5.6% Wells Fargo Co. 5.5 First USA Credit Card Master Trust 5.3 Chase Manhattan Corp. 5.1 DaimlerChrysler North America 5.1 SLM Student Loan Trust 4.9 Ford Motor Credit Co. 4.9 Chase Credit Card Master Trust 4.3 MBNA Master Credit Card Trust 4.1 Capital One Master Trust 4.1 ------------------------------------------------------------- --------------------------------------- Notes: The following notes relate to the Growth of $10,000 graph and table on the preceding page. * The Fund commenced operations on November 9, 1992. Index comparisons began November 1, 1992. + + Equal dollar amounts of 3-month Treasury bills are purchased at the beginning of each of three consecutive months. As each bill matures all proceeds are rolled over or reinvested in a new 3-month bill. The income used to calculate the monthly return is derived by subtracting the original amount invested from the maturity value. The yield curve average is the basis for calculating the return on the Index. The Index is rebalanced monthly by market capitalization. ++ ++ The total return calculated for the Salomon Smith Barney 6-Month Treasury Bills Index includes principal gain or loss, income and reinvestment of proceeds. The Index is based on a rolling maturity concept and holding the bond to maturity. For example, the Index will contain, at any point, issues with 1-6 months of remaining maturity. + Annualized. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. Annual Report 7 Report of Independent Accountants To the Shareholders and Board of Trustees of the SSgA Funds: In our opinion, the accompanying statement of assets and liabilities and statement of net assets, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of SSgA Yield Plus Fund (the "Fund") at August 31, 2000, the results of its operations for the fiscal year then ended and the changes in its net assets for each of the two fiscal years in the period then ended, and the financial highlights for each of the five fiscal years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 2000 by correspondence with the custodian, provide a reasonable basis for our opinion. Boston, Massachusetts October 11, 2000 /s/ PricewaterhouseCoopers LLP 8 Annual Report SSgA Yield Plus Fund Statement of Net Assets August 31, 2000 Principal Market Amount Value (000) (000) $ $ --------- ------ Long-Term Investments - 91.2% Asset-Backed Securities - 42.0% American Express Credit Account Master Trust Series 2000-2 Class A 6.784% due 09/15/07 (a) 16,000 16,015 Capital One Master Trust Series 1999-1 Class A 6.759% due 07/16/07 (a) 20,000 19,981 Chase Credit Card Master Trust Series 1999-1 Class A 6.779% due 09/15/06 (a) 16,000 16,028 Series 2000-1 Class A 6.789% due 06/15/07 (a) 5,000 4,998 CIT RV Trust Series 1996-A Class A 5.400% due 12/15/11 4,861 4,805 Citibank Credit Card Master Trust I Series 1998-1 Class A 5.750% due 01/15/03 4,000 3,982 Distribution Financial Services Trust Series 1999-1 Class A4 5.840% due 10/17/11 9,000 8,818 EQCC Home Equity Loan Trust Series 1999-3 Class A2F 6.887% due 10/25/13 10,000 9,904 First USA Credit Card Master Trust Series 1997-2 Class A 6.750% due 01/17/07 (a) 10,176 10,182 Series 1997-7 Class A 6.718% due 05/17/07 (a) 7,500 7,491 Series 1999-1 Class A 6.770% due 10/19/06 (a) 8,658 8,672 Fleet Credit Card Master Trust Series 1999-D Class A 6.839% due 04/16/07 (a) 8,500 8,519 Ford Credit Auto Owner Trust Series 2000-D Class A4 7.130% due 07/15/04 5,000 5,025 GE Capital Mortgage Services, Inc. Series 1997-HE3 Class A3 6.520% due 08/25/13 1,207 1,200 MBNA Master Credit Card Trust Series 1999-H Class A 6.944% due 09/15/06 (a) 20,000 20,044 Providian Master Trust Series 1999-1 Class A 6.849% due 01/15/09 (a) 9,000 9,031 Saxon Asset Securities Trust Series 1998-3 Class AF2 5.750% due 05/25/18 (a) 9,220 9,142 SLM Student Loan Trust Series 1998-2 Class A1 6.867% due 04/25/07 (a) 12,148 12,081 Series 2000-3 Class A1L 6.599% due 04/25/08 (a) 12,000 11,990 Superior Wholesale Inventory Financing Trust Series 2000-A Class A 6.905% due 04/15/07 (a) 15,000 14,991 Wachovia Credit Card Master Trust Series 1999-1 Class A 6.769% due 08/15/06 (a) 5,000 5,007 -------- 207,906 -------- Corporate Bonds and Notes - 44.9% Bank of America Corp. Series H 6.878% due 03/19/02 (a) 8,000 8,000 7.350% due 04/03/02 2,000 2,005 Bank of America NA 6.860% due 03/15/02 (a) 15,000 15,000 Boeing Capital Corp. 6.870% due 03/27/02 (a) 12,500 12,482 Chase Manhattan Corp. Series C 6.831% due 03/22/02 (a) 25,000 25,005 DaimlerChrysler North America Holding Corp. Series B 6.670% due 02/15/02 10,000 9,977 Series C 6.900% due 03/15/02 (a) 15,000 14,990 Fleet National Bank 6.836% due 02/01/02 (a) 9,500 9,503 Annual Report 9 SSgA Yield Plus Fund Statement of Net Assets, continued August 31, 2000 Principal Market Amount Value (000) (000) $ $ --------- ------ FleetBoston Financial Corp. Series P 6.851% due 05/01/02 (a) 17,500 17,493 Ford Motor Credit Co. 6.500% due 02/28/02 6,000 5,935 6.928% due 03/19/02 (a) 5,000 5,001 6.994% due 07/16/02 (a) 13,000 13,015 Main Place Funding, LLC Series 99-1 6.810% due 05/28/02 (a) 8,000 7,983 Merrill Lynch & Co. Series B 6.771% due 11/09/01 (a) 2,000 2,002 7.194% due 01/11/02 (a) 5,000 5,022 Morgan Stanley Dean Witter & Co. Series 1 6.838% due 01/28/02 (a) 4,900 4,906 Series C 6.910% due 04/08/02 (a) 9,000 8,999 US Bancorp Series L 6.941% due 02/03/03 (a) 27,500 27,485 Wells Fargo Co. 6.814% due 04/26/02 (a) 27,000 27,027 -------- 221,830 -------- Eurodollar Bonds - 3.3% Holmes Financing PLC Series 1 Class 1A 6.834% due 07/15/05 (a) 6,000 6,000 Lehman Brothers Holdings PLC 7.089% due 11/06/00 (a) 2,280 2,281 Vodafone Group PLC 6.962% due 12/19/01 (a) 8,000 8,006 -------- 16,287 -------- Mortgage-Backed Securities - 1.0% Federal Home Loan Mortgage Corp. Participation Certificate 7.000% due 2000 99 99 Federal National Mortgage Association 8.000% due 2013 3,345 3,350 Government National Mortgage Association 8.000% due 2012 1,323 1,350 -------- 4,799 -------- Total Long-Term Investments (cost $451,089) 450,822 -------- Short-Term Investments - 8.6% AIM Short Term Investment Prime Portfolio Class A (b) 23,751 23,751 Federal Home Loan Bank 6.660% due 04/06/01 10,000 9,995 Federated Investors Prime Cash Obligations Fund (b) 8,756 8,756 -------- Total Short-Term Investments (cost $42,502) 42,502 -------- Total Investments - 99.8% (identified cost $493,591) 493,324 Other Assets and Liabilities, Net - 0.2% 1,052 -------- Net Assets - 100.0% 494,376 ======== (a) Adjustable or floating rate security. (b) At amortized cost, which approximates market. See accompanying notes which are an integral part of the financial statements. 10 Annual Report SSgA Yield Plus Fund Statement of Assets and Liabilities Amounts in thousands (except per share amount) August 31, 2000 Assets Investments at market (identified cost $493,591) .................................... $ 493,324 Receivables: Dividends and interest ........................................................... 4,002 Fund shares sold ................................................................. 90 Prepaid expenses .................................................................... 22 --------- Total assets .................................................................. 497,438 Liabilities Payables: Dividends ............................................................ $ 2,802 Fund shares redeemed ................................................. 49 Accrued fees to affiliates ........................................... 177 Other accrued expenses ............................................... 34 --------- Total liabilities ............................................................. 3,062 --------- Net Assets .......................................................................... $ 494,376 ========= Net Assets Consist of: Accumulated distributions in excess of net investment income ........................ $ (51) Accumulated net realized gain (loss) ................................................ (5,723) Unrealized appreciation (depreciation) on investments ............................... (267) Shares of beneficial interest ....................................................... 50 Additional paid-in capital .......................................................... 500,367 --------- Net Assets .......................................................................... $ 494,376 ========= Net Asset Value, offering and redemption price per share: ($494,376,237 divided by 49,858,439 shares of $.001 par value shares of beneficial interest outstanding) .................................... $ 9.92 =========
See accompanying notes which are an integral part of the financial statements. Annual Report 11 SSgA Yield Plus Fund Statement of Operations Amounts in thousands For the Fiscal Year Ended August 31, 2000 Investment Income Interest ............................................................ $ 32,793 Dividends ........................................................... 1,319 -------- Total investment income .......................................... 34,112 Expenses Advisory fees ........................................... $ 1,350 Administrative fees ..................................... 172 Custodian fees .......................................... 114 Distribution fees ....................................... 210 Transfer agent fees ..................................... 65 Professional fees ....................................... 24 Registration fees ....................................... 41 Shareholder servicing fees .............................. 256 Trustees' fees .......................................... 14 Miscellaneous ........................................... 28 -------- Expenses before reduction ............................... 2,274 Expense reductions ...................................... (25) -------- Expenses, net .................................................... 2,249 -------- Net investment income .................................................. 31,863 -------- Net Realized and Unrealized Gain (Loss) Net realized gain (loss) on: Investments ............................................. (2,505) Futures contracts ....................................... (315) Options written ......................................... 51 (2,769) -------- Net change in unrealized appreciation (depreciation) on: Investments ............................................. 3,286 Futures contracts ....................................... 149 3,435 -------- -------- Net realized and unrealized gain (loss) ................................ 666 -------- Net increase (decrease) in net assets from operations .................. $ 32,529 ========
See accompanying notes which are an integral part of the financial statements. 12 Annual Report SSgA Yield Plus Fund Statement of Changes in Net Assets Amounts in thousands For the Fiscal Years Ended August 31,
2000 1999 --------- --------- Increase (Decrease) in Net Assets Operations Net investment income ............................................... $ 31,863 $ 33,673 Net realized gain (loss) ............................................ (2,769) (961) Net change in unrealized appreciation (depreciation) ................ 3,435 (2,482) --------- --------- Net increase (decrease) in net assets from operations ............ 32,529 30,230 --------- --------- Distributions From net investment income .......................................... (31,863) (33,700) --------- --------- Share Transactions Net increase (decrease) in net assets from share transactions ....... (31,784) (143,501) --------- --------- Total net increase (decrease) in net assets ............................ (31,118) (146,971) Net Assets Beginning of period ................................................. 525,494 672,465 --------- --------- End of period (including accumulated distributions in excess of net investment income of $51 and $108, respectively) ............. $ 494,376 $ 525,494 ========= =========
See accompanying notes which are an integral part of the financial statements. Annual Report 13 SSgA Yield Plus Fund Financial Highlights The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
Fiscal Years Ended August 31, -------------------------------------------------------- 2000 1999 1998 1997 1996 -------- -------- -------- -------- -------- Net Asset Value, Beginning of Period ............ $ 9.90 $ 9.97 $ 10.01 $ 10.00 $ 10.00 -------- -------- -------- -------- -------- Income From Operations Net investment income (a) .................... .59 .54 .57 .54 .56 Net realized and unrealized gain (loss) ...... .01 (.07) (.04) .01 -- -------- -------- -------- -------- -------- Total income from operations .............. .60 .47 .53 .55 .56 -------- -------- -------- -------- -------- Distributions From net investment income ................... (.58) (.54) (.57) (.54) (.56) -------- -------- -------- -------- -------- Net Asset Value, End of Period .................. $ 9.92 $ 9.90 $ 9.97 $ 10.01 $ 10.00 ======== ======== ======== ======== ======== Total Return (%) ................................ 6.28 4.67 5.40 5.67 5.73 Ratios/Supplemental Data: Net Assets, end of period (in thousands) ..... 494,376 525,494 672,465 840,055 933,485 Ratios to average net assets (%): Operating expenses ........................ .42 .41 .41 .38 .36 Net investment income ..................... 5.90 5.29 5.66 5.42 5.59 Portfolio turnover rate (%) .................. 162.12 167.12 249.10 92.38 97.05
(a) For the periods subsequent to August 31, 1998, average month-end shares outstanding were used for this calculation. 14 Annual Report SSgA Yield Plus Fund Notes to Financial Statements August 31, 2000 1. Organization The SSgA Funds (the "Investment Company") is a series mutual fund, currently comprised of 24 investment portfolios which are in operation as of August 31, 2000. These financial statements report on one portfolio, the SSgA Yield Plus Fund (the "Fund"). The Investment Company is a registered and diversified open-end investment company, as defined in the Investment Company Act of 1940, as amended (the "1940 Act"), that was organized as a Massachusetts business trust on October 3, 1987 and operates under a First Amended and Restated Master Trust Agreement, dated October 13, 1993, as amended (the "Agreement"). The Investment Company's Agreement permits the Board of Trustees to issue an unlimited number of full and fractional shares of beneficial interest at a $.001 par value. 2. Significant Accounting Policies The Fund's financial statements are prepared in accordance with accounting principles generally accepted in the United States which require the use of management estimates. The following is a summary of the significant accounting policies consistently followed by the Fund in the preparation of its financial statements. Security valuation: United States 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 sale, at the closing bid price, on the primary exchange on which the security is traded. United States over-the-counter, fixed-income securities and options are valued on the basis of the closing bid price. Futures contracts are valued on the basis of the last sale price. Many fixed-income securities do not trade each day, and thus last sale or bid prices are frequently not available. Fixed-income securities may be valued using prices provided by a pricing service when such prices are believed to reflect the market value of such securities. Money market instruments maturing within 60 days of the valuation date are valued at amortized cost. The Fund may 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. Securities transactions: Securities transactions are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the basis of identified cost. Investment income: Dividend income is recorded on the ex-dividend date and interest income is recorded daily on the accrual basis. Amortization and accretion: All zero-coupon bond discounts and original issue discounts are accreted for both tax and financial reporting purposes. All short- and long-term market premiums/discounts are amortized/accreted for both tax and financial reporting purposes. Federal income taxes: Since the Investment Company is a Massachusetts business trust, each fund is a separate corporate taxpayer and determines its net investment income and capital gains (or losses) and the amounts to be distributed to each fund's shareholders without regard to the income and capital gains (or losses) of the other funds. Annual Report 15 SSgA Yield Plus Fund Notes to Financial Statements, continued August 31, 2000 It is the Fund's intention to qualify as a regulated investment company, as defined by the Internal Revenue Code of 1986, as amended. This requires the Fund to distribute all of its taxable income. Therefore, the Fund paid no federal income taxes and no federal income tax provision was required. At August 31, 2000, the Fund had net tax basis capital loss carryovers of $1,086,432, $1,891,302 and $80,342, which may be applied against any realized net taxable gains in each succeeding year or until their expiration dates of August 31, 2004, August 31, 2007, and August 31, 2008, respectively, whichever occurs first. As permitted by tax regulations, the Fund intends to defer a net realized capital loss of $2,664,723 incurred from November 1, 1999 to August 31, 2000, and treat it as arising in fiscal year 2001. The Fund's aggregate cost of investments and the composition of unrealized appreciation and depreciation of investment securities for federal income tax purposes as of August 31, 2000 are as follows: Net Unrealized Federal Tax Unrealized Unrealized Appreciation Cost Appreciation (Depreciation) (Depreciation) ------------ ------------ -------------- -------------- $493,591,207 $249,373 $(516,154) $(266,781) Dividends and distributions to shareholders: The Fund declares and records dividends on net investment income daily and pays them monthly. Capital gain distributions, if any, are generally declared and paid annually. An additional distribution may be paid by the Fund to avoid imposition of federal income tax on any remaining undistributed net investment income and capital gains. The timing and characterization of certain income and capital gain distributions are determined in accordance with federal tax regulations which may differ from generally accepted accounting principles ("GAAP"). As a result, net investment income and net realized gain (or loss) from investment transactions for a reporting year may differ significantly from distributions during such year. The differences between tax regulations and GAAP relate primarily to investments in certain fixed income securities purchased at a discount, futures, mortgage-backed securities, and certain securities sold at a loss. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting its net asset value. Expenses: Most expenses can be directly attributed to the Fund. Expenses of the investment company which cannot be directly attributed are allocated among all funds based principally on their relative net assets. Forward commitments/Mortgage dollar rolls: The Fund may contract to purchase securities for a fixed price at a future date beyond customary settlement time (not to exceed 120 days)(i.e., a "forward commitment" or "delayed settlement" transaction, e.g., to be announced ("TBA")) consistent with a Fund's ability to manage its investment portfolio and meet redemption requests. The Fund may enter into mortgage dollar rolls (principally in TBA's) in which the Fund purchases a mortgage security and sells a similar mortgage security before settlement of the purchased mortgage security occurs. The Fund may realize a short-term gain (or loss), based on market movements, upon such sale. When effecting such transactions, cash or liquid high-grade debt obligations of the Fund will be segregated on the Fund's records in a dollar amount sufficient to make payment for the portfolio securities to be purchased at the trade date and maintained until the transaction is settled. A forward commitment 16 Annual Report SSgA Yield Plus Fund Notes to Financial Statements, continued August 31, 2000 transaction involves a risk of loss if the value of the security to be purchased declines prior to the settlement date or the other party to the transaction fails to complete the transaction. Derivatives: To the extent permitted by the investment objective, restrictions and policies set forth in the Fund's Prospectus and Statement of Additional Information, the Fund may participate in various derivative-based transactions. Derivative securities are instruments or agreements whose value is derived from an underlying security or index. The Fund's use of derivatives includes exchange-traded futures and options on futures. These instruments offer unique characteristics and risks that assist the Fund in meeting its investment objective. The Fund typically uses derivatives in three ways: cash equitization, hedging, and return enhancement. Cash equitization is a technique that may be used by the Fund through the use of options and futures to earn "market-like" returns with the Fund's excess and liquidity reserve cash balances. Hedging is used by the Fund to limit or control risks, such as adverse movements in exchange rates and interest rates. Return enhancement can be accomplished through the use of derivatives in the Fund. By purchasing certain instruments, the Fund may more effectively achieve the desired portfolio characteristics that assist in meeting the Fund's investment objectives. Depending on how the derivatives are structured and utilized, the risks associated with them may vary widely. These risks are generally categorized as market risk, liquidity risk and counterparty or credit risk. Futures: The Fund utilizes exchange-traded futures contracts. The primary risks associated with the use of futures contracts are an imperfect correlation between the change in market value of the securities held by the Funds and the prices of futures contracts and the possibility of an illiquid market. Changes in initial settlement value are accounted for as unrealized appreciation (depreciation) until the contracts are terminated, at which time realized gains and losses are recognized. Options: The Fund may purchase and sell (write) call and put options on securities and securities indices, provided such options are traded on a national securities exchange or in an over-the-counter market. This Fund may also purchase and sell call and put options on foreign currencies. When a Fund writes a covered call or a put option, an amount equal to the premium received by the Fund is included in the Fund's Statement of Assets and Liabilities as an asset and as an equivalent liability. The amount of the liability is subsequently marked-to-market to reflect the current market value of the option written. The Fund receives a premium on the sale of a call option but gives up the opportunity to profit from any increase in stock value above the exercise price of the option, and when the Fund writes a put option it is exposed to a decline in the price of the underlying security. If an option which the Fund has written either expires on its stipulated expiration date or the Fund enters into a closing purchase transaction, the Fund realizes a gain (or loss, if the cost of a closing purchase transaction exceeds the premium received when the option was sold) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. If a call option which the Fund has written is exercised, the Fund realizes a capital gain or loss from the sale of the underlying security, and the proceeds from such sale are increased by the premium originally received. When a put option which a Fund has written is exercised, the amount of the premium originally received will reduce the cost of the security which a Fund purchases upon exercise of the option. Realized gains (losses) on purchased options are included in net realized gain (loss) from investments. Annual Report 17 SSgA Yield Plus Fund Notes to Financial Statements, continued August 31, 2000 The Fund's use of written options involves, to varying degrees, elements of market risk in excess of the amount recognized in the Statement of Assets and Liabilities. The face or contract amounts of these instruments reflect the extent of the Fund's exposure to off balance sheet risk. The risks may be caused by an imperfect correlation between movements in the price of the instrument and the price of the underlying securities and interest rates. 3. Securities Transactions Investment transactions: For the year ended August 31, 2000, purchases and sales of investment securities, excluding US Government and Agency obligations, short-term investments, futures contracts, and repurchase agreements aggregated to $756,241,760 and $693,848,946, respectively. For the year ended August 31, 2000, purchases and sales of US Government and Agency obligations, excluding short-term investments and futures contracts, aggregated to $56,062,016 and $147,303,868, respectively. Written Options Contracts: Fund transactions in written options contracts for the year ended August 31, 2000 were as follows: Written Options Notional Value (1) Premiums (000) Received ------------------ ---------- Outstanding August 31, 1999 -- $ -- Opened 750 158,200 Closed (750) (158,200) ------------------ ---------- Outstanding August 31, 2000 -- -- ================== ========== (1) Each $2,500 notional value represents 1 contract. Securities lending: The Investment Company has a securities lending program whereby each Fund can loan securities with a value up to 33 1/3% of its total assets to certain brokers. The Fund receives cash (U.S. currency), U.S. Government or U.S. Government agency obligations as collateral against the loaned securities. To the extent that a loan is secured by cash collateral, such collateral shall be invested by State Street Bank and Trust Company in short-term instruments, money market mutual funds, and such other short-term investments, provided the investments meet certain quality and diversification requirements. Under the securities lending arrangement, the collateral received is recorded on the Fund's statement of assets and liabilities along with the related obligation to return the collateral. In those situations where the Company has relinquished control of securities transferred, it derecognizes the securities and records a receivable from the counterparty. Income generated from the investment of cash collateral, less negotiated rebate fees paid to participating brokers and transaction costs, is divided between the Fund and State Street Bank and Trust Company and is recorded as interest income for the Fund. To the extent that a loan is secured by non-cash collateral, brokers pay the Fund negotiated lenders' fees, which are divided between the Fund and State Street Bank and Trust Company and are recorded as interest income for the Fund. All collateral received will be in an amount at least equal to 102% (for loans of U.S. securities) or 105% (for non-U.S. securities) of the market value of the loaned securities at the inception of each loan. Should the borrower of the securities fail financially, there is a risk of delay in recovery of the securities or loss of rights in the collateral. Consequently, loans are made only to borrowers which are deemed 18 Annual Report SSgA Yield Plus Fund Notes to Financial Statements, continued August 31, 2000 to be of good financial standing. As of August 31, 2000, there were no outstanding securities on loan and no income earned during the year. 4. Related Parties Adviser: The Investment Company has an investment advisory agreement with State Street Bank and Trust Company (the "Adviser") under which the Adviser, through State Street Global Advisors, the investment management group of the Adviser, directs the investments of the Fund in accordance with its investment objectives, policies, and limitations. For these services, the Fund pays a fee to the Adviser, calculated daily and paid monthly, at the annual rate of .25% of its average daily net assets. The Investment Company also has contracts with the Adviser to provide custody, shareholder servicing, and transfer agent services to the Fund. These amounts are presented in the accompanying Statement of Operations. In addition, the Fund has entered into arrangements with its Adviser whereby custody credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund's expenses. During the year, the Fund's custodian fees were reduced by $24,676 under these arrangements. Administrator: The Investment Company has an administration agreement with Frank Russell Investment Management Company (the "Administrator"), a wholly-owned subsidiary of The Northwestern Mutual Life Insurance Company, under which the Administrator supervises all non-portfolio investment aspects of the Investment Company's operations and provides adequate office space and all necessary office equipment and services, including telephone service, utilities, stationery supplies, and similar items. The Investment Company pays the Administrator for services supplied by the Administrator pursuant to the Administration Agreement, an annual fee, payable monthly on a pro rata basis. For the period September 1, 1999 to April 30, 2000, it is based on the following percentages of the combined average daily net assets of all domestic funds: $0 up to and including $500 million - .06%; over $500 million up to and including $1 billion - .05%; over $1 billion - .03%. Effective May 1, 2000, the annual fee is based on the following percentages of the average daily net assets of all U.S. Fixed Income portfolios: $0 up to $1 billion - .0315%; over $1 billion - .029%. The Administrator will also charge a flat fee of $30,000 per year per Fund with less than $500 million in net assets and $1,500 per year for monthly performance reports and use of Russell Performance Universe software product. In addition, the Fund reimburses the Administrator for out-of-pocket expenses and start-up costs for new funds. Distributor and Shareholder Servicing: The Investment Company has a Distribution Agreement with Russell Fund Distributors (the "Distributor") which is a wholly-owned subsidiary of the Administrator to promote and offer shares of the Investment Company. The Distributor may enter into sub-distribution agreements with other non-related parties. The amounts paid to the Distributor are included in the accompanying Statement of Operations. The Investment Company has a Distribution Plan pursuant to Rule 12b-1 (the "Plan") under the 1940 Act. Under this Plan, the Investment Company is authorized to make payments to the Distributor, or any Shareholder Servicing Agent, as defined in the Plan, for providing distribution and marketing services, for furnishing assistance to investors on an ongoing basis, and for the reimbursement of direct out-of-pocket expenses charged by the Distributor in connection with the distribution and marketing of shares of the Investment Company and the servicing of investor accounts. Annual Report 19 SSgA Yield Plus Fund Notes to Financial Statements, continued August 31, 2000 The Fund has Shareholder Service Agreements with the Adviser, State Street Brokerage Services, Inc. ("SSBSI"), a wholly-owned subsidiary of the Adviser, the Adviser's Retirement Investment Services Division ("RIS"), the Adviser's Metropolitan Division of Commercial Banking ("Commercial Banking") and State Street Solutions ("Solutions")(collectively the "Agents"), as well as several unaffiliated service providers. For these services, the Fund pays .025%, .175%, .175%, .175%, and .175% to the Adviser, SSBSI, RIS, Commercial Banking, and Solutions, respectively, based upon the average daily value of all Fund shares held by or for customers of these Agents. For the year ended August 31, 2000, the Fund was charged shareholder servicing expenses of $135,030, $1,034, $17,459 and $104,875, by the Adviser, SSBSI, Commercial Banking, and Solutions, respectively. The Fund did not incur any expenses from RIS during this year. The combined distribution and shareholder servicing payments shall not exceed .25% of the average daily value of net assets of the Fund on an annual basis. The shareholder servicing payments shall not exceed .20% of the average daily value of net assets of the Fund on an annual basis. Payments that exceed the maximum amount of allowable reimbursement may be carried forward for two years following the year in which the expenditure was incurred so long as the plan is in effect. The Fund's responsibility for any such expenses carried forward shall terminate at the end of two years following the year in which the expenditure was incurred. The Trustees or a majority of the Fund's shareholders have the right, however, to terminate the Distribution Plan and all payments thereunder at any time. The Fund will not be obligated to reimburse the Distributor for carryover expenses subsequent to the Distribution Plan's termination or noncontinuance. There were no carryover expenses as of August 31, 2000. Board of Trustees: The Investment Company paid each Trustee not affiliated with the Investment Company an annual retainer, plus specified amounts for board and committee meetings attended. These expenses are allocated among all of the funds based upon their relative net assets. Accrued fees payable to affiliates and trustees as of August 31, 2000 were as follows: Advisory fees $108,435 Administration fees 15,768 Custodian fees 2,348 Distribution fees 3,458 Shareholder servicing fees 16,983 Transfer agent fees 27,357 Trustees' fees 2,193 -------- $176,542 ======== Beneficial Interest: As of August 31, 2000, two shareholders (who were also affiliates of the Investment Company) were record owners of approximately 54% and 11%, respectively, of the total outstanding shares of the Fund. 20 Annual Report SSgA Yield Plus Fund Notes to Financial Statements, continued August 31, 2000 5. Fund Share Transactions (amounts in thousands)
Fiscal Years Ended August 31, ---------------------------------------------------- 2000 1999 ---------------------- ----------------------- Shares Dollars Shares Dollars ------- ----------- -------- ----------- Proceeds from shares sold 69,488 $ 688,713 91,330 $ 905,446 Proceeds from reinvestment of distributions 3,014 29,869 3,008 29,841 Payments for shares redeemed (75,706) (750,366) (108,708) (1,078,788) ------- ----------- -------- ----------- Total net increase (decrease) (3,204) $ (31,784) (14,370) $ (143,501) ======= =========== ======== ===========
6. Interfund Lending Program The Fund and all other funds of the Investment Company received from the Securities and Exchange Commission an exemptive order on December 23, 1999 to establish and operate an Interfund Credit Facility. This allows the Funds to directly lend to and borrow money from the SSgA Money Market Fund for temporary purposes in accordance with certain conditions. The borrowing Funds are charged the average of the current Repo Rate and the Bank Loan Rate. The Fund did not utilize the interfund lending program during this year. Annual Report 21 SSgA Yield Plus Fund One International Place, 27th Floor Boston, Massachusetts 02110 (800) 997-7327 -------------------------------------------------------------------------------- Trustees Lynn L. Anderson, Chairman William L. Marshall Steven J. Mastrovich Patrick J. Riley Richard D. Shirk Bruce D. Taber Henry W. Todd Officers Lynn L. Anderson, President, Treasurer and CEO Mark E. Swanson, Treasurer and Principal Accounting Officer J. David Griswold, Vice President and Secretary Deedra S. Walkey, Assistant Secretary Rick J. Chase, Assistant Treasurer Carla L. Anderson, Assistant Secretary Investment Adviser State Street Bank and Trust Company 225 Franklin Street Boston, Massachusetts 02110 Custodian, Transfer Agent and Office of Shareholder Inquiries State Street Bank and Trust Company 1776 Heritage Drive North Quincy, Massachusetts 02171 (800) 647-7327 Distributor Russell Fund Distributors, Inc. One International Place, 27th Floor Boston, Massachusetts 02110 (800) 997-7327 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 160 Federal Street Boston, Massachusetts 02110 22 Annual Report [COVER GRAPHIC] SSgA(R) funds ANNUAL REPORT Bond Market Fund August 31, 2000 SSgA(R) Funds Bond Market Fund Annual Report August 31, 2000 Table of Contents Page Chairman's Letter......................................................... 4 Portfolio Management Discussion and Analysis.............................. 6 Report of Independent Accountants......................................... 8 Financial Statements...................................................... 9 Financial Highlights...................................................... 17 Notes to Financial Statements............................................. 18 Fund Management and Service Providers..................................... 24 "SSgA(R)" is a registered trademark of State Street Corporation and is licensed for use by the SSgA Funds. This report is prepared from the books and records of the Fund and it is submitted for the general information of shareholders. This information is for distribution to prospective investors only when preceded or accompanied by a SSgA Funds Prospectus containing more complete information concerning the investment objective and operations of the Fund, charges and expenses. The Prospectus should be read carefully before an investment is made. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. Russell Fund Distributors, Inc., is the distributor of the SSgA Funds. SSgA Bond Market Fund -------------------------------------------------------------------------------- Letter From the Chairman of State Street Global Advisors -------------------------------------------------------------------------------- Dear Shareholders, It is our pleasure to provide you with the SSgA Funds annual report for the fiscal year ended August 31, 2000. The SSgA Fund Family has grown to include twenty-four portfolios with over $21 billion in assets as of August 31, 2000. The Fund Family provides a wide range of strategies covering the world's major markets. The enclosed information provides an overview of the investment process for the SSgA Bond Market Fund. This overview contains the portfolio management discussion, performance updates and financial information for the Fund. In an ongoing effort to develop competitive products and services that provide investment solutions for our clients, we have added the SSgA Intermediate Municipal Bond Fund to the SSgA Fund Family. This Fund's investment objective seeks to provide federally tax-exempt current income by investing primarily in a diversified portfolio of municipal debt securities with a dollar-weighted average maturity between three and ten years. We are also pleased with the success of our SSgA Emerging Markets and SSgA Growth and Income Funds as they were included in Money(R) Magazine's June 2000 issue listing of the 'Top 100 Mutual Funds'. This is the second year in a row that these funds have been selected. Additionally, the SSgA Tax Free Money Market and the SSgA Active International Funds have achieved five-year performance history during the 2000 fiscal year. Currently, all of our SSgA Money Market Funds have at least a five-year performance history. We strive to meet our clients' needs by providing funds with long-term records and competitive performance. We would like to thank you for choosing the SSgA Funds. Our reputation is based on our tradition of designing and delivering exceptional financial services to our clients. We look forward to continue sharing the benefit of our experience with you. Sincerely, /s/ Nicholas A. Lopardo Nicholas A. Lopardo State Street Global Advisors Chairman and Chief Executive Officer /s/ Timothy B. Harbert Timothy B. Harbert State Street Global Advisors President and Chief Operating Officer, SSgA 4 Annual Report SSgA Bond Market Fund -------------------------------------------------------------------------------- Management of the Funds -------------------------------------------------------------------------------- [PHOTO] Nicholas A. Lopardo Chairman and Chief Executive Officer [PHOTO] Timothy B. Harbert President and Chief Operating Officer A Team Approach to Investment Management Our investment strategies are the product of the combined experience of our professional staff. Portfolio Managers work together to develop and enhance the techniques that drive our investment processes. As a result, the portfolios we manage benefit from the knowledge of the entire team. Mr. John Kirby, Principal, has been the portfolio manager primarily responsible for investment decisions regarding the SSgA Bond Market Fund since January 1995. Prior to joining State Street Bank in 1995, Mr. Kirby was an Account Manager with Lowell, Blake & Associates. Prior to that, he was a portfolio manager with One Federal Asset Management, and an asset/liability risk specialist at Cambridgeport Savings. He has a BA degree from Boston College and is a CFA candidate. There are six other portfolio managers working with Mr. Kirby. Annual Report 5 SSgA Bond Market Fund -------------------------------------------------------------------------------- Portfolio Management Discussion and Analysis -------------------------------------------------------------------------------- Objective: Maximize total return by investing in fixed income securities. Invests in: Investment grade debt instruments including: US Government Treasuries and agencies, corporate bonds, asset-backed securities, mortgage-backed securities and CMBS. Strategy: Fund managers seek to exceed the return of the Lehman Brothers Aggregate Bond Index. The Fund seeks to match the Index's duration at all times while adding value through issue and sector selection. -------------------------------------------------------------------------------- GROWTH OF A $10,000 INVESTMENT Dates Bond Market Fund Lehman Brothers Aggregate Bond Index** Inception* $10,000 $10,000 1996 $9,781 $9,824 1997 $10,707 $10,806 1998 $11,762 $11,949 1999 $11,770 $12,041 2000 $12,584 $12,953 ================================================================================ Performance Review For the year ended August 31, 2000, the SSgA Bond Market Fund returned 6.92% for the year versus its benchmark, the Lehman Brothers Aggregate Bond Index, which posted a return of 7.56%. The Fund's performance includes fifty basis points of operating expenses, whereas the Index does not include expenses of any type. This differential represents a benchmark-relative underperformance of 14 basis points for the fiscal year. While mortgage spreads widened and contributed slightly to this underperformance, Corporate sector spreads widened to levels not seen in two decades. The Fund's overweight allocation to this sector, and the resulting underweight to the Treasury sector, was the dominant driver to the underperformance of the portfolio. -------------------------------------------------------------------------------- SSgA Bond Market Fund -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return -------------- ------------ ------- 1 Year $ 10,692 6.92% Inception $ 12,584 5.17%+ -------------------------------------------------------------------------------- Lehman Brothers Aggregate Bond Index -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return -------------- ------------ ------- 1 Year $ 10,756 7.56% Inception $ 12,953 5.81%+ See related Notes on following page. 6 Annual Report SSgA Bond Market Fund -------------------------------------------------------------------------------- Portfolio Management Discussion and Analysis -------------------------------------------------------------------------------- Market and Portfolio Highlights The year was marked by the Federal Reserve increasing short-term rates to slow down an overly robust economy. The resulting interest rate hikes implemented by the Fed during the period, as well as the US Treasury's announcement of aggressive bond buybacks and curtailed issuance in the future led to an inverted Treasury yield curve. The two-year Treasury note ended the fiscal year at 6.17%, while the thirty-year bond was at 5.67%. At the beginning of the year, these two securities were yielding 5.73% and 6.07% respectively. As a result of this inversion, longer corporate bond spreads widened relative to their Treasury benchmarks. Additionally, comments made by a Treasury department official in first quarter 2000 questioning the implicit government guarantee of the Federal Agencies, such as FNMA and FHLMC, further aggravated spreads. Finally, the continued lower risk profile on the part of the Wall Street dealer community, evidenced by less inventory and reduced market making, made it much more difficult to buy and sell corporate securities, encouraging wider spreads to persist in that sector. The Fund continues to maintain an overweighting in spread product, although the current positions constitute its lowest level of the year. Additionally, the composition of that overweighting is changing, as the Fund sold longer corporate bonds and invested in MBS, Agency, and CMBS securities during the period. The Manager felt that it was prudent to lower Fund exposure in corporates, a very technical and illiquid sector. As a result, the Manager moved the Fund into more liquid sectors such as mortgage-backed securities, allowing it to continue taking advantage of the unusually wide spreads. The Fund is now only slightly overweight to Corporates, and primarily in the shorter end. The Fund continues to be overweight in the Mortgage sector, which comprises the bulk of the portfolio's overweight exposure to the spread sectors. The Fund seeks to enhance returns through overweight allocations in the Corporate and Mortgage-Backed sectors relative to its benchmark. These weightings are reduced or increased throughout the year in response to our outlook on the market. The Fund does not take explicit active interest rate risk, but by utilizing duration as its measurement, seeks to match that of the Index. ----------------------------------------------------- Top Ten Issuers (as a percent of Total Investments) August 31, 2000 ----------------------------------------------------- Federal National Mortgage Association 42.5% United States Government Treasuries 21.4 Federal Home Loan Mortgage Corporation 8.1 Government National Mortgage Association 4.5 General Motors Acceptance Corp. 1.4 Ford Motor Credit Co. 1.0 Quebec, Province of 1.0 Korea Development Bank 0.8 Federal Home Loan Bank 0.7 Wal-Mart Stores, Inc. 0.6 ----------------------------------------------------- --------------------- Notes: The following notes relate to the Growth of $10,000 graph and table on the preceding page. * The Bond Market Fund commenced operations on February 7, 1996. Index comparisons began February 1, 1996. ** The Lehman Brothers Aggregate Bond Index is composed of all bonds covered by the Lehman Brothers Government/Corporate Bond Index, Mortgage-Backed Securities Index, and the Asset-Backed Securities Index. Total returns comprises price appreciation/depreciation and income as a percentage of the original investment. + Annualized. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. Annual Report 7 Report of Independent Accountants To the Shareholders and Board of Trustees of the SSgA Funds: In our opinion, the accompanying statement of assets and liabilities and statement of net assets, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of SSgA Bond Market Fund (the "Fund") at August 31, 2000, the results of its operations for the fiscal year then ended and the changes in its net assets for each of the two fiscal years in the period then ended, and the financial highlights for each of the four fiscal years in the period then ended, and for the period February 7, 1996 (commencement of operations) to August 31, 1996, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 2000 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. Boston, Massachusetts October 11, 2000 /s/ PricewaterhouseCoopers LLP 8 Annual Report SSgA Bond Market Fund Statement of Net Assets August 31, 2000 Principal Market Amount Value (000) (000) $ $ --------- ------ Long-Term Investments - 98.3% Asset-Backed Securities - 2.2% Citibank Credit Card Master Trust I Series 1999-1 Class A 5.500% due 02/15/06 650 622 CNH Equipment Trust Series 2000-A Class A4 7.340% due 02/15/07 1,000 1,007 Discover Card Master Trust I Series 1996-3 Class A 6.050% due 08/18/08 200 191 Series 1998-7 Class A 5.600% due 05/16/06 1,000 959 First USA Credit Card Master Trust Series 1997-6 Class A 6.420% due 03/17/05 1,000 993 Ford Credit Auto Owner Trust Series 2000-B Class A5 7.070% due 04/15/04 1,000 1,004 Honda Automobile Lease Trust Series 1999-A Class A5 6.650% due 07/15/05 1,100 1,097 MBNA Master Credit Card Trust Series 2000-I Class A 6.900% due 01/15/08 1,350 1,343 -------- 7,216 -------- Corporate Bonds and Notes - 14.9% BankAmerica Corp. 5.875% due 02/15/09 1,250 1,129 Canadian National Railway Co. 6.900% due 07/15/28 750 659 Chase Manhattan Corp. 7.875% due 06/15/10 1,100 1,127 CIT Group, Inc. 5.800% due 03/26/02 500 489 5.910% due 11/10/03 1,000 958 Citigroup, Inc. 9.500% due 03/01/02 285 295 Clear Channel Communications 7.875% due 06/15/05 700 714 Continental Airlines Pass Through Certificates Series 981A 6.648% due 09/15/17 289 267 Continental Airlines, Inc. Series 2000-1 8.048% due 11/01/20 300 306 DaimlerChrysler North America Holding Corp. Series B 6.630% due 09/21/01 2,000 1,989 El Paso Energy Corp. 6.750% due 05/15/09 500 473 Enron Corp. 9.125% due 04/01/03 1,000 1,041 EOP Operating, L.P. 6.500% due 01/15/04 250 241 6.800% due 01/15/09 750 693 Equitable Life Assurance Society 6.950% due 12/01/05 500 481 7.700% due 12/01/15 500 500 Financing Corp. 9.400% due 02/08/18 500 629 Ford Motor Credit Co. 7.000% due 09/25/01 500 498 6.110% due 12/28/01 900 889 7.500% due 01/15/03 1,000 1,005 5.750% due 02/23/04 1,050 999 7.875% due 06/15/10 750 753 GATX Capital Corp. 6.500% due 11/01/00 1,000 998 General Electric Capital Corp. 7.500% due 06/05/03 800 813 General Motors Acceptance Corp. 6.375% due 09/28/01 900 890 9.625% due 12/15/01 1,810 1,858 5.500% due 01/14/02 500 488 6.000% due 02/01/02 1,000 982 Annual Report 9 SSgA Bond Market Fund Statement of Net Assets, continued August 31, 2000 Principal Market Amount Value (000) (000) $ $ --------- ------ 5.950% due 03/14/03 1,000 971 5.750% due 11/10/03 1,000 961 Goldman Sachs Group, Inc. 7.625% due 08/17/05 750 757 Hartford Life, Inc. 7.100% due 06/15/07 1,000 979 International Business Machines Corp. 6.500% due 01/15/28 1,000 912 International Paper Co. 8.000% due 07/08/03 835 845 Kemper Corp. 6.875% due 09/15/03 345 341 Lehman Brothers Holdings, Inc. 6.750% due 09/24/01 1,000 995 6.625% due 04/01/04 500 486 Lockheed Martin Corp. 7.950% due 12/01/05 700 711 Massachusetts Mutual Life 7.625% due 11/15/23 875 856 Mellon Financial Co. 5.750% due 11/15/03 500 482 Mellon Funding Corp. 7.500% due 06/15/05 1,000 1,013 Merrill Lynch & Co., Inc. 6.000% due 02/17/09 500 455 MidAmerican Funding LLC 6.339% due 03/01/09 400 366 Morgan Stanley Dean Witter & Co. 7.125% due 01/15/03 1,000 1,002 5.625% due 01/20/04 500 478 New York Life Insurance Co. 6.400% due 12/15/03 1,500 1,466 Norfolk Southern Corp. 8.375% due 05/15/05 375 388 7.800% due 05/15/27 850 828 Northwest Airlines Pass-Thru Certificates Series 2000-1 Class G 8.072% due 10/01/19 800 817 Phillips Petroleum Co. 8.500% due 05/25/05 385 404 Sprint Capital Corp. 6.500% due 11/15/01 2,000 1,980 6.875% due 11/15/28 500 431 Sun Life Canada (US) Capital Trust 8.526% due 05/29/49 (d) 500 457 SunTrust Banks, Inc. 6.125% due 02/15/04 1,300 1,250 Time Warner, Inc. 7.250% due 10/15/17 500 469 6.625% due 05/15/29 1,000 846 Tosco Corp. 8.125% due 02/15/30 600 606 United Mexican States 8.500% due 02/01/06 300 299 Vastar Resources, Inc. 6.500% due 04/01/09 500 480 Wal-Mart Stores, Inc. 6.875% due 08/10/09 1,000 990 7.550% due 02/15/30 1,500 1,556 Williams Cos., Inc. 7.625% due 07/15/19 450 438 -------- 48,479 -------- Eurodollar Bonds - 4.1% Alberta, Province of 4.875% due 10/29/03 500 472 Cable & Wireless Optus, Ltd. 8.000% due 06/22/10 310 316 Chile, Republic of 6.875% due 04/28/09 100 94 Deutsche Telekom International Finance BV Step Up Bond 8.250% due 06/15/30 (e) 350 354 Korea Development Bank 7.125% due 04/22/04 1,060 1,035 Korea, Republic of 8.750% due 04/15/03 1,000 1,026 8.875% due 04/15/08 395 418 10 Annual Report SSgA Bond Market Fund Statement of Net Assets, continued August 31, 2000 Principal Market Amount Value (000) (000) $ $ --------- ------ Ontario, Province of Canada 7.375% due 01/27/03 1,070 1,080 7.625% due 06/22/04 585 598 Quebec, Province of Canada 5.750% due 02/15/09 4,500 4,109 Telekomunikacja Polska SA 7.125% due 12/10/03 1,000 971 7.750% due 12/10/08 560 538 United Mexican States 8.625% due 03/12/08 500 501 10.375% due 02/17/09 1,255 1,379 11.500% due 05/15/26 160 199 Vodafone Airtouch PLC 7.875% due 02/15/30 325 324 -------- 13,414 -------- Mortgage-Backed Securities - 43.6% Capco America Securitization Corp. Series 1998-D7 Class A1A 5.860% due 12/15/07 1,733 1,654 DLJ Commercial Mortgage Corp. Series 1998-CF2 Class A1A 5.880% due 11/12/31 2,050 1,950 Federal Home Loan Mortgage Corp.(b) 6.500% 30 Year TBA 11,745 11,228 7.500% 30 Year TBA 18,390 18,281 Federal Home Loan Mortgage Corp. Pools 8.500% due 2025 25 25 Federal Home Loan Mortgage Corp. Participation Certificate 7.000% due 08/01/01 43 43 9.000% due 12/01/04 25 25 9.000% due 08/01/05 182 186 9.000% due 03/01/10 231 239 8.000% due 09/01/11 52 53 6.000% due 12/01/11 72 70 7.000% due 10/01/28 2,780 2,713 7.000% due 08/01/29 1,941 1,894 Federal National Mortgage Association (b) 6.000% 15 Year TBA 5,600 5,353 6.500% 15 Year TBA 4,920 4,791 6.500% 30 Year TBA 18,015 17,204 7.000% 30 Year TBA 8,700 8,480 8.000% 30 Year TBA 20,305 20,483 Federal National Mortgage Association Pools 6.000% due 01/01/09 104 101 7.125% due 06/15/10 8,240 8,389 6.000% due 03/01/11 109 105 6.000% due 10/01/11 22 21 5.500% due 10/01/14 146 137 7.000% due 03/01/15 4,866 4,811 7.500% due 05/01/15 363 364 7.500% due 06/01/15 1,767 1,170 8.000% due 02/01/23 3 3 8.500% due 12/01/24 9 9 7.500% due 07/01/25 65 65 9.000% due 06/01/26 43 45 6.500% due 02/01/27 150 144 8.000% due 12/01/27 2,926 2,954 6.500% due 01/01/29 4,553 4,351 6.500% due 03/01/29 95 90 6.500% due 06/01/29 260 249 6.500% due 07/01/29 1,801 1,721 6.500% due 08/01/29 527 503 6.500% due 09/01/29 524 501 7.000% due 09/01/29 35 34 6.500% due 01/01/30 299 285 7.000% due 02/01/30 1,545 1,490 Government National Mortgage Association (b) 7.500% 30 Year TBA 3,000 2,998 8.000% 30 Year TBA 3,000 3,041 Government National Mortgage Association Pools 8.000% due 02/15/08 80 81 8.000% due 03/15/12 955 975 Annual Report 11 SSgA Bond Market Fund Statement of Net Assets, continued August 31, 2000 Principal Market Amount Value (000) (000) $ $ --------- ------ 10.000% due 11/15/13 14 14 10.000% due 04/15/14 2 2 7.500% due 12/15/22 9 9 7.000% due 08/15/23 66 65 7.000% due 10/15/23 1,611 1,586 7.500% due 10/15/23 27 27 6.500% due 01/15/24 27 26 7.500% due 02/15/24 152 152 7.500% due 05/15/24 547 548 8.500% due 06/15/25 133 137 9.500% due 06/15/25 83 87 7.500% due 12/15/27 322 322 8.500% due 06/15/28 148 151 8.500% due 07/15/28 941 964 6.500% due 09/15/28 1,151 1,105 7.500% due 09/15/28 350 350 8.500% due 09/15/28 114 117 7.500% due 10/15/28 290 290 8.500% due 10/15/28 783 794 6.000% due 11/15/28 343 321 7.000% due 11/15/28 419 411 7.500% due 11/15/28 388 387 8.500% due 11/15/28 50 51 6.500% due 12/15/28 315 302 8.500% due 12/15/28 32 32 8.500% due 09/15/29 847 867 8.500% due 11/15/29 876 897 8.500% due 03/15/30 1,308 1,340 8.500% due 04/15/30 868 889 Nomura Asset Securities Corp. 6.590% due 03/17/28 385 370 -------- 141,922 -------- Non-US Bonds - 0.2% Kowloon-Canton Railway 8.000% due 03/15/10 565 577 -------- United States Government Agencies - 2.4% Federal Home Loan Bank Series-157 6.875% due 07/18/02 3,000 3,008 Federal National Mortgage Association 6.560% due 11/26/07 400 382 6.400% due 05/14/09 1,000 947 7.250% due 05/15/30 3,450 3,632 -------- 7,969 -------- United States Government Treasuries - 28.2% United States Treasury Bonds 10.000% due 05/15/10 320 368 12.000% due 08/15/13 3,000 4,091 11.250% due 02/15/15 4,500 6,779 9.875% due 11/15/15 380 527 8.125% due 08/15/19 2,745 3,415 8.125% due 08/15/21 7,355 9,260 7.625% due 11/15/22 635 767 7.125% due 02/15/23 3,600 4,132 6.750% due 08/15/26 4,600 5,122 5.250% due 02/15/29 535 493 6.125% due 08/15/29 1,590 1,666 6.250% due 05/15/30 205 222 United States Treasury Notes 6.625% due 05/31/02 30 30 6.375% due 06/30/02 3,800 3,809 3.625% due 07/15/02 2,689 2,678 6.250% due 07/31/02 8,125 8,131 6.125% due 08/31/02 7,000 6,996 5.250% due 08/15/03 500 489 5.875% due 11/15/04 250 249 7.875% due 11/15/04 750 800 6.750% due 05/15/05 16,090 16,588 6.500% due 08/15/05 450 459 5.875% due 11/15/05 500 497 6.875% due 05/15/06 850 885 12 Annual Report SSgA Bond Market Fund Statement of Net Assets, continued August 31, 2000 Principal Market Amount Value (000) (000) $ $ --------- ------ 6.500% due 10/15/06 600 615 6.500% due 02/15/10 6,895 7,199 5.750% due 08/15/10 5,615 5,619 -------- 91,886 -------- Yankee Bonds - 2.7% Abitibi-Consolidated, Inc. 8.300% due 08/01/05 750 763 8.850% due 08/01/30 500 503 Apache Finance Canada Corp. 7.750% due 12/15/29 700 697 AT&T Canada, Inc. 12.000% due 08/15/07 500 563 Banco Santiago SA 7.000% due 07/18/07 200 184 Korea Development Bank 7.625% due 10/01/02 2,570 2,569 Metronet Communications Corp. 10.750% due 11/01/07 585 530 Step Up Bond Orange PLC 9.000% due 06/01/09 425 445 Quebec, Province of 7.500% due 09/15/29 1,000 998 Saskatchewan, Province of 6.625% due 07/15/03 1,000 991 Svenska Handelsbanken 8.350% due 07/15/04 500 515 -------- 8,758 -------- Total Long-Term Investments (cost $319,258) 320,221 -------- Short-Term Investments - 33.3% Federal National Mortgage Association Discount Note 6.402% due 09/14/00 (a)(c) 93,300 93,084 Federated Investors Prime Cash Obligations Fund (a) 15,226 15,226 -------- Total Short-Term Investments (cost $108,310) 108,310 -------- Total Investments - 131.6% (identified cost $427,568) 428,531 Other Assets and Liabilities, Net - (31.6%) (102,904) -------- Net Assets - 100.0% 325,627 ======== (a) At amortized cost, which approximates market. (b) Forward commitment. (c) Rate noted is yield-to-maturity from date of acqusition. (d) Perpetual floating rate note. (e) Adjustable or floating rate security. Abbreviations: TBA - To Be Announced Security. See the accompanying notes which are an integral part of the financial statements. Annual Report 13 SSgA Bond Market Fund Statement of Assets and Liabilities Amounts in thousands (except per share amount) August 31, 2000 Assets Investments at market (identified cost $427,568) ................................. $ 428,531 Receivables: Dividends and interest ........................................................ 2,708 Investments sold .............................................................. 4,070 Fund shares sold .............................................................. 361 --------- Total assets ............................................................... 435,670 Liabilities Payables: Investments purchased (regular settlement) ........................ $ 15,294 Investments purchased (delayed settlement) ........................ 94,325 Fund shares redeemed .............................................. 261 Accrued fees to affiliates ........................................ 136 Other accrued expenses ............................................ 27 --------- Total liabilities .......................................................... 110,043 --------- Net Assets ....................................................................... $ 325,627 ========= Net Assets Consist of: Undistributed net investment income .............................................. $ 4,736 Accumulated net realized gain (loss) ............................................. (12,388) Unrealized appreciation (depreciation) on investments ............................ 963 Shares of beneficial interest .................................................... 34 Additional paid-in capital ....................................................... 332,282 --------- Net Assets ....................................................................... $ 325,627 ========= Net Asset Value, offering and redemption price per share: ($325,627,247 divided by 33,582,550 shares of $.001 par value shares of beneficial interest outstanding) ................................. $ 9.70 =========
See accompanying notes which are an integral part of the financial statements. 14 Annual Report SSgA Bond Market Fund Statement of Operations Amounts in thousands For the Fiscal Year Ended August 31, 2000 Investment Income Interest ......................................................................... $ 18,649 Dividends ........................................................................ 494 -------- Total investment income ....................................................... 19,143 Expenses Advisory fees ......................................................... $ 871 Administrative fees ................................................... 102 Custodian fees ........................................................ 127 Distribution fees ..................................................... 93 Transfer agent fees ................................................... 50 Professional fees ..................................................... 17 Registration fees ..................................................... 37 Shareholder servicing fees ............................................ 93 Trustees' fees ........................................................ 10 Miscellaneous ......................................................... 11 -------- Expenses before reductions ............................................ 1,411 Expense reductions .................................................... (3) -------- Expenses, net ................................................................. 1,408 -------- Net investment income ............................................................... 17,735 -------- Net Realized and Unrealized Gain (Loss) Net realized gain (loss) on investments ............................................. (7,086) Net change in unrealized appreciation (depreciation) on investments ................. 8,406 -------- Net realized and unrealized gain (loss) ............................................. 1,320 -------- Net increase (decrease) in net assets from operations ............................... $ 19,055 ========
See accompanying notes which are an integral part of the financial statements. Annual Report 15 SSgA Bond Market Fund Statement of Changes in Net Assets Amounts in thousands For the Fiscal Years Ended August 31,
2000 1999 --------- --------- Increase (Decrease) in Net Assets Operations Net investment income ............................................... $ 17,735 $ 12,073 Net realized gain (loss) ............................................ (7,086) (3,422) Net change in unrealized appreciation (depreciation) ................ 8,406 (9,931) --------- --------- Net increase (decrease) in net assets from operations ............ 19,055 (1,280) --------- --------- Distributions From net investment income .......................................... (16,896) (10,558) From net realized gain (loss) ....................................... (9) (3,345) --------- --------- Net decrease in net assets from distributions .................... (16,905) (13,903) --------- --------- Share Transactions Net increase (decrease) in net assets from share transactions ....... 54,193 94,316 --------- --------- Total net increase (decrease) in net assets ............................ 56,343 79,133 Net Assets Beginning of period ................................................. 269,284 190,151 --------- --------- End of period (including undistributed net investment income of $4,736 and $3,831, respectively) ................................. $ 325,627 $ 269,284 ========= =========
See accompanying notes which are an integral part of the financial statements. 16 Annual Report SSgA Bond Market Fund Financial Highlights The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
Fiscal Years Ended August 31, -------------------------------------------------------- 2000 1999 1998 1997 1996* -------- -------- -------- -------- -------- Net Asset Value, Beginning of Period ............ $ 9.63 $ 10.35 $ 9.97 $ 9.63 $ 10.00 -------- -------- -------- -------- -------- Income From Operations Net investment income (a) .................... .58 .54 .55 .53 .27 Net realized and unrealized gain (loss) ...... .06 (.52) .40 .35 (.49) -------- -------- -------- -------- -------- Total income from operations .............. .64 .02 .95 .88 (.22) -------- -------- -------- -------- -------- Distributions From net investment income ................... (.57) (.54) (.54) (.54) (.15) From net realized gain ....................... -- (.20) (.03) -- -- -------- -------- -------- -------- -------- Total distributions ....................... (.57) (.74) (.57) (.54) (.15) -------- -------- -------- -------- -------- Net Asset Value, End of Period .................. $ 9.70 $ 9.63 $ 10.35 $ 9.97 $ 9.63 ======== ======== ======== ======== ======== Total Return (%)(b) ............................. 6.92 .07 9.86 9.47 (2.19) Ratios/Supplemental Data: Net Assets, end of period (in thousands) ..... 325,627 269,284 190,151 87,670 29,015 Ratios to average net assets (%)(c): Operating expenses, net ................... .48 .50 .48 .50 .63 Operating expenses, gross ................. .48 .50 .52 .74 .93 Net investment income ..................... 6.09 5.50 5.74 6.05 5.66 Portfolio turnover rate (%)(c) ............... 248.34 327.83 300.77 375.72 253.30
* For the period February 7, 1996 (commencement of operations) to August 31, 1996. (a) For the periods subsequent to August 31, 1998, average month-end shares outstanding were used for this calculation. (b) Periods less than one year are not annualized. (c) The ratios for the period ended August 31, 1996 are annualized. Annual Report 17 SSgA Bond Market Fund Notes to Financial Statements August 31, 2000 1. Organization The SSgA Funds (the "Investment Company") is a series mutual fund, currently comprised of 24 investment portfolios which are in operation as of August 31, 2000. These financial statements report on one portfolio, the SSgA Bond Market Fund (the "Fund"). The Investment Company is a registered and diversified open-end investment company, as defined in the Investment Company Act of 1940, as amended (the "1940 Act"), that was organized as a Massachusetts business trust on October 3, 1987 and operates under a First Amended and Restated Master Trust Agreement, dated October 13, 1993, as amended (the "Agreement"). The Investment Company's Agreement permits the Board of Trustees to issue an unlimited number of full and fractional shares of beneficial interest at a $.001 par value. 2. Significant Accounting Policies The Fund's financial statements are prepared in accordance with accounting principles generally accepted in the United States which require the use of management estimates. The following is a summary of the significant accounting policies consistently followed by the Fund in the preparation of its financial statements. Security valuation: United States 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 sale, at the closing bid price, on the primary exchange on which the security is traded. United States over-the-counter, fixed-income securities and options are valued on the basis of the closing bid price. Many fixed-income securities do not trade each day, and thus last sale or bid prices are frequently not available. Fixed-income securities may be valued using prices provided by a pricing service when such prices are believed to reflect the market value of such securities. Money market instruments maturing within 60 days of the valuation date are valued at amortized cost. The Fund may 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. Securities transactions: Securities transactions are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the basis of identified cost. Investment income: Dividend income is recorded on the ex-dividend date and interest income is recorded daily on the accrual basis. Amortization and accretion: All zero-coupon bond discounts and original issue discounts are accreted for both tax and financial reporting purposes. All short- and long-term market premiums/discounts are amortized/accreted for both tax and financial reporting purposes. Federal income taxes: Since the Investment Company is a Massachusetts business trust, each fund is a separate corporate taxpayer and determines its net investment income and capital gains (or losses) and the amounts to be distributed to each fund's shareholders without regard to the income and capital gains (or losses) of the other funds. 18 Annual Report SSgA Bond Market Fund Notes to Financial Statements, continued August 31, 2000 It is the Fund's intention to qualify as a regulated investment company, as defined by the Internal Revenue Code of 1986, as amended. This requires the Fund to distribute all of its taxable income. Therefore, the Fund paid no federal income taxes and no federal income tax provision was required. At August 31, 2000, the Fund had net tax basis capital loss carryover of $5,633,442, which may be applied against any realized net taxable gains in each succeeding year or until its expiration date of August 31, 2008. As permitted by tax regulations, the Fund intends to defer a net realized capital loss of $6,556,689 incurred from November 1, 1999 to August 31, 2000, and treat it as arising in the fiscal year 2001. The Fund's aggregate cost of investments and the composition of unrealized appreciation and depreciation of investment securities for federal income tax purposes as of August 31, 2000 are as follows: Net Unrealized Federal Tax Unrealized Unrealized Appreciation Cost Appreciation (Depreciation) (Depreciation) ------------ ------------ -------------- -------------- $427,724,958 $ 2,376,558 $(1,570,902) $805,656 Dividends and distributions to shareholders: Income dividends and capital gain distributions, if any, are recorded on the ex-dividend date. Dividends are generally declared and paid quarterly. Capital gain distributions are generally declared and paid annually. An additional distribution may be paid by the Fund to avoid imposition of federal income tax on any remaining undistributed net investment income and capital gains. The timing and characterization of certain income and capital gain distributions are determined in accordance with federal tax regulations which may differ from generally accepted accounting principles ("GAAP"). As a result, net investment income and net realized gain (or loss) on investment transactions for a reporting year may differ significantly from distributions during such year. The differences between tax regulations and GAAP relate primarily to investment in certain fixed income securities purchased at a discount, mortgage-backed securities and certain securities sold at a loss. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting its net asset value. Expenses: Most expenses can be directly attributed to the Fund. Expenses of the investment company which cannot be directly attributed are allocated among all funds based principally on their relative net assets. Forward commitments/Mortgage dollar rolls: The Fund may contract to purchase securities for a fixed price at a future date beyond customary settlement time (not to exceed 120 days)(i.e., a "forward commitment" or "delayed settlement" transaction, e.g., to be announced ("TBA")) consistent with a Fund's ability to manage its investment portfolio and meet redemption requests. For example, the Fund may enter into mortgage dollar rolls (principally in TBA's) in which the Fund purchases a mortgage security and sells a similar mortgage security before settlement of the purchased mortgage security occurs. The Fund may realize a short-term gain (or loss), based on market movements, upon such sale. When effecting such transactions, cash or liquid high-grade debt obligations of the Fund will be segregated on the Fund's records in a dollar amount sufficient to make payment for the portfolio securities to be purchased at the trade date and maintained until the transaction is settled. A forward Annual Report 19 SSgA Bond Market Fund Notes to Financial Statements, continued August 31, 2000 commitment transaction involves a risk of loss if the value of the security to be purchased declines prior to the settlement date or the other party to the transaction fails to complete the transaction. 3. Securities Transactions Investment transactions: For the year ended August 31, 2000, purchases and sales of investment securities, excluding US Government and Agency obligations and short-term investments, aggregated to $129,902,130 and $162,119,898, respectively. For the year ended August 31, 2000, purchases and sales of US Government and Agency obligations, excluding short-term investments, aggregated to $588,199,279 and $544,925,279, respectively. Securities lending: The Investment Company has a securities lending program whereby each Fund can loan securities with a value up to 33 1/3% of its total assets to certain brokers. The Fund receives cash (U.S. currency), U.S. Government or U.S. Government agency obligations as collateral against the loaned securities. To the extent that a loan is secured by cash collateral, such collateral shall be invested by State Street Bank and Trust Company in short-term instruments, money market mutual funds, and such other short-term investments, provided the investments meet certain quality and diversification requirements. Under the securities lending arrangement, the collateral received is recorded on the Fund's statement of assets and liabilities along with the related obligation to return the collateral. In those situations where the Company has relinquished control of securities transferred, it derecognizes the securities and records a receivable from the counterparty. Income generated from the investment of cash collateral, less negotiated rebate fees paid to participating brokers and transaction costs, is divided between the Fund and State Street Bank and Trust Company and is recorded as interest income for the Fund. To the extent that a loan is secured by non-cash collateral, brokers pay the Fund negotiated lenders' fees, which are divided between the Fund and State Street Bank and Trust Company and are recorded as interest income for the Fund. All collateral received will be in an amount at least equal to 102% (for loans of U.S. securities) or 105% (for non-U.S. securities) of the market value of the loaned securities at the inception of each loan. Should the borrower of the securities fail financially, there is a risk of delay in recovery of the securities or loss of rights in the collateral. Consequently, loans are made only to borrowers which are deemed to be of good financial standing. As of August 31, 2000, there were no outstanding securities on loan and no income earned during the year. 4. Related Parties Adviser: The Investment Company has an investment advisory agreement with State Street Bank and Trust Company (the "Adviser") under which the Adviser, through State Street Global Advisors, the investment management group of the Adviser, directs the investments of the Fund in accordance with its investment objectives, policies, and limitations. For these services, the Fund pays a fee to the Adviser, calculated daily and paid monthly, at the annual rate of .30% of its average daily net assets. The Adviser has agreed to reimburse the Fund for all expenses in excess of .50% of average daily net assets on an annual basis. The Investment Company also has contracts with the Adviser to provide custody, shareholder servicing and transfer agent services to the Fund. These amounts are presented in the accompanying Statement of Operations. 20 Annual Report SSgA Bond Market Fund Notes to Financial Statements, continued August 31, 2000 In addition, the Fund has entered into arrangements with its Adviser whereby custody credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund's expenses. During the year, the Fund's custodian fees were reduced by $2,925 under these arrangements. Administrator: The Investment Company has an administration agreement with Frank Russell Investment Management Company (the "Administrator"), a wholly-owned subsidiary of The Northwestern Mutual Life Insurance Company, under which the Administrator supervises all non-portfolio investment aspects of the Investment Company's operations and provides adequate office space and all necessary office equipment and services, including telephone service, utilities, stationery supplies, and similar items. The Investment Company pays the Administrator for services supplied by the Administrator pursuant to the Administration Agreement, an annual fee, payable monthly on a pro rata basis. For the period September 1, 1999 to April 30, 2000, it is based on the following percentages of the average daily net assets of all domestic funds: $0 up to and including $500 million - .06%; over $500 million up to and including $1 billion - .05%; over $1 billion - .03%. Effective May 1, 2000, the annual fee is based on the following percentages of the average daily net assets of all U.S. Fixed Income portfolios: $0 up to $1 billion - .0315%; over $1 billion - .029%. The Administrator will also charge a flat fee of $30,000 per year per Fund with less than $500 million in net assets and $1,500 per year for monthly performance reports and use of Russell Performance Universe software product. In addition, the Fund reimburses the Administrator for out-of-pocket expenses and start-up costs for new funds. Distributor and Shareholder Servicing: The Investment Company has a Distribution Agreement with Russell Fund Distributors (the "Distributor") which is a wholly-owned subsidiary of the Administrator to promote and offer shares of the Investment Company. The Distributor may enter into sub-distribution agreements with other non-related parties. The amounts paid to the Distributor are included in the accompanying Statement of Operations. The Investment Company has a Distribution Plan pursuant to Rule 12b-1 (the "Plan") under the 1940 Act. Under this Plan, the Investment Company is authorized to make payments to the Distributor, or any Shareholder Servicing Agent, as defined in the Plan, for providing distribution and marketing services, for furnishing assistance to investors on an ongoing basis, and for the reimbursement of direct out-of-pocket expenses charged by the Distributor in connection with the distribution and marketing of shares of the Investment Company and the servicing of investor accounts. The Fund has Shareholder Service Agreements with the Adviser, the Adviser's Retirement Investment Services Division ("RIS"), the Adviser's Metropolitan Division of Commercial Banking ("Commercial Banking") and State Street Solutions ("Solutions")(collectively the "Agents"), as well as several unaffiliated service providers. For these services, the Fund pays .025%, .050%, .050%, and .100% to the Adviser, RIS, Commercial Banking, and Solutions, respectively, based upon the average daily value of all Fund shares held by or for customers of these Agents. For the year ended August 31, 2000, the Fund was charged shareholder servicing expenses of $55,859 and $24,662, by the Adviser and Solutions. The combined distribution and shareholder servicing payments shall not exceed .25% of the average daily value of net assets of the Fund on an annual basis. The shareholder servicing payments shall not exceed .20% of the average daily value of net assets of the Fund on an annual basis. Payments that exceed the maximum amount of Annual Report 21 SSgA Bond Market Fund Notes to Financial Statements, continued August 31, 2000 allowable reimbursement may be carried forward for two years following the year in which the expenditure was incurred so long as the plan is in effect. The Fund's responsibility for any such expenses carried forward shall terminate at the end of two years following the year in which the expenditure was incurred. The Trustees or a majority of the Fund's shareholders have the right, however, to terminate the Distribution Plan and all payments thereunder at any time. The Fund will not be obligated to reimburse the Distributor for carryover expenses subsequent to the Distribution Plan's termination or noncontinuance. There were no carryover expenses as of August 31, 2000. Board of Trustees: The Investment Company paid each Trustee not affiliated with the Investment Company an annual retainer, plus specified amounts for board and committee meetings attended. These expenses are allocated among all of the funds based upon their relative net assets. Accrued fees payable to affiliates and trustees as of August 31, 2000 were as follows: Advisory fees $ 80,663 Administration fees 11,030 Custodian fees 12,014 Distribution fees 4,483 Shareholder servicing fees 19,760 Transfer agent fees 6,127 Trustees' fees 1,742 -------- $135,819 ======== 5. Fund Share Transactions (amounts in thousands)
Fiscal Years Ended August 31, --------------------------------------------- 2000 1999 ------------------- ------------------- Shares Dollars Shares Dollars ------ --------- ------ --------- Proceeds from shares sold ........................ 13,702 $ 130,845 18,503 $ 184,824 Proceeds from reinvestment of distributions ...... 856 8,083 934 9,418 Payments for shares redeemed ..................... (8,927) (84,735) (9,860) (99,926) ------ --------- ------ --------- Total net increase (decrease) .................... 5,631 $ 54,193 9,577 $ 94,316 ====== ========= ====== =========
6. Interfund Lending Program The Fund and all other funds of the Investment Company received from the Securities and Exchange Commission an exemptive order on December 23, 1999 to establish and operate an Interfund Credit Facility. This allows the Funds to directly lend to and borrow money from the SSgA Money Market Fund for temporary purposes in accordance with certain conditions. The borrowing Funds are charged the average of the current Repo Rate and the Bank Loan Rate. The Fund did not utilize the interfund lending program during this year. 22 Annual Report SSgA Bond Market Fund Notes to Financial Statements, continued August 31, 2000 7. Dividends On September 1, 2000, the Board of Trustees declared a dividend of $.1397 from net investment income, payable on September 8, 2000 to shareholders of record on September 5, 2000. Annual Report 23 SSgA Bond Market Fund One International Place, 27th Floor Boston, Massachusetts 02110 (800) 997-7327 -------------------------------------------------------------------------------- Trustees Lynn L. Anderson, Chairman William L. Marshall Steven J. Mastrovich Patrick J. Riley Richard D. Shirk Bruce D. Taber Henry W. Todd Officers Lynn L. Anderson, President, Treasurer and CEO Mark E. Swanson, Treasurer and Principal Accounting Officer J. David Griswold, Vice President and Secretary Deedra S. Walkey, Assistant Secretary Rick J. Chase, Assistant Treasurer Carla L. Anderson, Assistant Secretary Investment Adviser State Street Bank and Trust Company 225 Franklin Street Boston, Massachusetts 02110 Custodian, Transfer Agent and Office of Shareholder Inquiries State Street Bank and Trust Company 1776 Heritage Drive North Quincy, Massachusetts 02171 (800) 647-7327 Distributor Russell Fund Distributors, Inc. One International Place, 27th Floor Boston, Massachusetts 02110 (800) 997-7327 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 160 Federal Street Boston, Massachusetts 02110 24 Annual Report [COVER GRAPHIC] SSgA(R) funds ANNUAL REPORT S&P 500 Index Fund August 31, 2000 SSgA(R) Funds S&P 500 Index Fund Annual Report August 31, 2000 Table of Contents Page Chairman's Letter......................................................... 4 Portfolio Management Discussion and Analysis.............................. 6 Report of Independent Accountants......................................... 8 Financial Statements...................................................... 9 Financial Highlights...................................................... 12 Notes to Financial Statements............................................. 13 Tax Information........................................................... 19 Fund Management and Service Providers..................................... 20 "SSgA(R)" is a registered trademark of State Street Corporation and is licensed for use by the SSgA Funds. This report is prepared from the books and records of the Fund and it is submitted for the general information of shareholders. This information is for distribution to prospective investors only when preceded or accompanied by a SSgA Funds Prospectus containing more complete information concerning the investment objective and operations of the Fund, charges and expenses. The Prospectus should be read carefully before an investment is made. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. Russell Fund Distributors, Inc., is the distributor of the SSgA Funds. SSgA S&P 500 Index Fund -------------------------------------------------------------------------------- Letter From the Chairman of State Street Global Advisors -------------------------------------------------------------------------------- Dear Shareholders, It is our pleasure to provide you with the SSgA Funds annual report for the fiscal year ended August 31, 2000. The SSgA Fund Family has grown to include twenty-four portfolios with over $21 billion in assets as of August 31, 2000. The Fund Family provides a wide range of strategies covering the world's major markets. The enclosed information provides an overview of the investment process for the SSgA S&P 500 Index Fund. This overview contains the portfolio management discussion, performance updates and financial information for the Fund. Effective June 1, 2000, the SSgA S&P 500 Index Fund began investing all of its assets in the State Street Equity 500 Index Portfolio (the "Portfolio"). Under this structure, sometimes referred to as a "master/feeder" arrangement, the SSgA S&P 500 Fund is, in effect, a participating shareholder in the Portfolio. The SSgA S&P 500 Index Fund was converted with the best interests of our shareholders in mind, and it is anticipated that the Fund should indirectly benefit from the economies of scale associated with this type of arrangement. The most recent financial statement for the Portfolio is included in this book. In an ongoing effort to develop competitive products and services that provide investment solutions for our clients, we have added the SSgA Intermediate Municipal Bond Fund to the SSgA Fund Family. This Fund's investment objective seeks to provide federally tax-exempt current income by investing primarily in a diversified portfolio of municipal debt securities with a dollar-weighted average maturity between three and ten years. We are also pleased with the success of our SSgA Emerging Markets and SSgA Growth and Income Funds as they were included in Money(R) Magazine's June 2000 issue listing of the 'Top 100 Mutual Funds'. This is the second year in a row that these funds have been selected. Additionally, the SSgA Tax Free Money Market and the SSgA Active International Funds have achieved five-year performance history during the 2000 fiscal year. Currently, all of our SSgA Money Market Funds have at least a five-year performance history. We strive to meet our clients' needs by providing funds with long-term records and competitive performance. We would like to thank you for choosing the SSgA Funds. Our reputation is based on our tradition of designing and delivering exceptional financial services to our clients. We look forward to continue sharing the benefit of our experience with you. Sincerely, /s/ Nicholas A. Lopardo Nicholas A. Lopardo State Street Global Advisors Chairman and Chief Executive Officer /s/ Timothy B. Harbert Timothy B. Harbert State Street Global Advisors President and Chief Operating Officer, SSgA 4 Annual Report SSgA S&P 500 Index Fund -------------------------------------------------------------------------------- Management of the Funds -------------------------------------------------------------------------------- [PHOTO] Nicholas A. Lopardo Chairman and Chief Executive Officer [PHOTO] Timothy B. Harbert President and Chief Operating Officer A Team Approach to Investment Management Our investment strategies are the product of the combined experience of our professional staff. Portfolio Managers work together to develop and enhance the techniques that drive our investment processes. As a result, the portfolios we manage benefit from the knowledge of the entire team. Mr. James May, Principal, has been the portfolio manager primarily responsible for investment decisions regarding the SSgA S&P 500 Index 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 managers working with Mr. May. Annual Report 5 SSgA S&P 500 Index Fund -------------------------------------------------------------------------------- Portfolio Management Discussion and Analysis -------------------------------------------------------------------------------- Objective: To replicate the total return of the S&P(R)500 Index before expenses. Invests in: Shares of the State Street Equity 500 Index Portfolio. Strategy: The Portfolio's holdings are composed of the 500 stocks in the S&P 500(R) Index. The Index is designed to capture the price performance of a large cross-section of the US publicly traded stock market. -------------------------------------------------------------------------------- GROWTH OF A $10,000 INVESTMENT Dates S&P 500 Index Fund S&P 500(R) Index** Inception* $10,000 $10,000 1993 $10,806 $10,842 1994 $11,377 $11,435 1995 $13,779 $13,887 1996 $16,323 $16,488 1997 $22,901 $23,191 1998 $24,713 $25,068 1999 $34,480 $35,054 2000 $40,086 $40,775 ================================================================================ Performance Review The SSgA S&P 500 Fund closed the fiscal year ended August 31, 2000 with a 16.26% return, which closely mirrors the S&P 500(R) Index return of 16.33% for the same period. The Fund's slight deviation from the benchmark return is attributable principally to the payment of fund operating expenses. Index results do not reflect expenses of any kind. Effective June 1, 2000, the SSgA S&P 500 Fund began investing all of its assets in the State Street Equity 500 Index Portfolio (the "Portfolio"). As a result, substantially all of the investable assets of the SSgA S&P 500 Fund were exchanged, in whole, for beneficial interest in the Portfolio. Under this arrangement, the SSgA S&P 500 Fund does not hold any individual securities, but based on its shares outstanding in the Portfolio, receives an allocation of income, expenses, and capital gains/losses generated by the Portfolio. The SSgA S&P 500 Fund continues to seek returns which replicate the total return of the S&P 500(R) Index. The stocks of -------------------------------------------------------------------------------- SSgA S&P 500 Index Fund -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return ------------ ----------- ----------- 1 Year $ 11,626 16.26% 5 Years $ 29,092 23.81%+ Inception $ 40,086 19.85%+ -------------------------------------------------------------------------------- Standard & Poor's(R) 500 Composite Stock Price Index -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return ------------ ----------- ----------- 1 Year $ 11,633 16.33% 5 Years $ 29,362 24.04%+ Inception $ 40,775 20.12%+ See related Notes on following page. 6 Annual Report SSgA S&P 500 Index Fund -------------------------------------------------------------------------------- Portfolio Management Discussion and Analysis -------------------------------------------------------------------------------- the S&P 500(R) Index represent approximately 79% of the market value of all US common stocks. Standard and Poor's Corporation chooses the 500 stocks to capture the price performance of a large cross-section of the US publicly traded stock market. The Index is also structured to approximate the general distribution of industries in the US economy and does not necessarily represent the 500 largest companies. Market and Portfolio Highlights The US equity market rally that began in 1994 limped forward for much of the past fiscal year, as most of the return was gained in the last quarter of 1999. Inflation continued to remain somewhat subdued as Alan Greenspan and the Federal Open Market Committee (FOMC) attempted to engineer a "soft landing" for the US economy. The FOMC has increased the Fed Funds rate a full 1%, to 6.5%, since February 2000. Earnings surprises and extreme market volatility have also helped to keep the reigns on the once high flying US equity markets. Softening retail numbers and soaring energy prices increased the inflation fears of equity investors as the fiscal year came to a close. A majority of the S&P 500(R) Index return of 16.33% can be attributed to the last calendar quarter of 1999 when the Index was up 14.88%. Further evidence of a cooling stock market and a cautious investing community was the fact that the first six months of 2000 resulted in a decline of 0.42%, the first semi-annual loss for the Index since 1994. Over the past fiscal year, Technology remained the hot sector to watch. The weight of the Technology sector in the S&P 500(R) Index increased from 23% at the end of last fiscal year, to 32% at August 31, 2000. Much of that growth was provided by the sector's excellent return of 41.78% over the past fiscal year. Impressive as that return is, it is not even half of the 99.54% the sector returned in fiscal year ended August 31, 1999. The Tech sector also had major additions during the period. Yahoo was added to the Index in December 1999, with JDS Uniphase joining in July 2000. At nearly 1.00% of the overall sector, JDS Uniphase was the largest addition, as measured by cap weight in the Index, since Microsoft was added. Microsoft's well publicized antitrust battle with the Federal Government decreased its market capitalization enough to take it out of contention for the largest capitalized company in the Index. Some of the best performing stocks came from the Technology sector. Computer network, software, and communications equipment companies such as Network Appliance, Oracle and Corning provided the best returns for the past fiscal year, with incredible gains of 612.46%, 398.29%, and 394.49%, respectively. However, the past year was not pleasant for every Tech stock, as some of the worst performers in the Index came from that sector as well. This is evidenced by dismal returns from both Unysis and Compuware, posting losses of 69.77% and 65.01%, respectively. Technology was not the only sector that performed well. The Financial sector, comprising nearly 20% of the Index, provided a return of 29.18%. The sector was led by firms such as Morgan Stanley, Northern Trust and State Street Corp, all posting strong returns of 152.37%, 100.06%, and 97.73% respectively. The Capital Goods sector dragged the S&P 500(R) Index as the worst performing sector with a loss of 14.85% for the current period. Two of the worst performing stocks in the Index are in the Capital Goods sector. Owens Corning had the worst return, dropping 80.49%, while McDermott International was not far behind posting a loss of 65.04%. --------------------- Notes: The following notes relate to the Growth of $10,000 graph and table on the preceding page. * The Fund commenced operations on December 30, 1992. Index comparison began December 31, 1992. ** The Standard & Poor's(R) 500 Composite Stock Index is composed of 500 common stocks which are chosen by Standard & Poor's Corporation 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. + Annualized. "Standard & Poor's(R)", "S&P(R)", "S&P 500(R)", "Standard & Poor's 500" and "500" are trademarks of Standard & Poor's Corporation and have been licensed for use by The SSgA Fund. The Product is not sponsored, endorsed, sold or promoted by Standard & Poor's, and Standard & Poor's makes no representation regarding the advisability of investing in the Product. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. Annual Report 7 Report of Independent Accountants To the Shareholders and Board of Trustees of the SSgA Funds: In our opinion, the accompanying statement of assets and liabilities and statement of net assets, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of SSgA S&P 500 Index Fund (the "Fund") at August 31, 2000, the results of its operations for the fiscal year then ended and the changes in its net assets for each of the two fiscal years in the period then ended, and the financial highlights for each of the five fiscal years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of the security at August 31, 2000 by correspondence with the custodian, provide a reasonable basis for our opinion. Boston, Massachusetts October 11, 2000 /s/ PricewaterhouseCoopers LLP 8 Annual Report SSgA S&P 500 Index Fund Statement of Assets and Liabilities Amounts in thousands (except per share amount) August 31, 2000 Assets Investment in State Street Equity 500 Index Portfolio, at value ... $3,108,325 Receivables: Fund shares sold ............................................... 2,077 Miscellaneous receivables ...................................... 23 From Advisor ................................................... 34 Prepaid expenses .................................................. 15 ---------- Total assets ................................................ 3,110,474 Liabilities Payables: Fund shares redeemed .............................. $ 4,631 Accrued fees to affiliates ........................ 656 Other accrued expenses ............................ 20 ---------- Total liabilities ........................................... 5,307 ---------- Net Assets ........................................................ $3,105,167 ========== Net Assets Consist of: Undistributed net investment income ............................... $ 7,507 Accumulated net realized gain (loss) .............................. 120,531 Unrealized appreciation (depreciation) on: Portfolio investments .......................................... 844,232 Portfolio futures contracts .................................... 2,266 Shares of beneficial interest ..................................... 118 Additional paid-in capital ........................................ 2,130,513 ---------- Net Assets ........................................................ $3,105,167 ========== Net Asset Value, offering and redemption price per share: ($3,105,166,699 divided by 117,575,679 shares of $.001 par value shares of beneficial interest outstanding) .................. $ 26.41 ========== See accompanying notes which are an integral part of the financial statements. Annual Report 9 SSgA S&P 500 Index Fund Statement of Operations Amounts in thousands For the Fiscal Year Ended August 31, 2000 Investment Income Dividends (a) ................................................. $ 27,833 Interest (a) .................................................. 495 Dividends allocated from Portfolio ............................ 8,131 Interest allocated from Portfolio ............................. 589 Expenses allocated from Portfolio ............................. (336) ---------- Total investment income .................................... 36,712 Expenses Advisory fees ..................................... $ 2,189 Administrative fees ............................... 816 Custodian fees .................................... 406 Distribution fees ................................. 1,019 Transfer agent fees ............................... 287 Professional fees ................................. 66 Registration fees ................................. 113 Shareholder servicing fees ........................ 1,547 Trustees' fees .................................... 56 Miscellaneous ..................................... 115 ---------- Expenses before reductions ........................ 6,614 Expense reductions ................................ (1,666) ---------- Expenses, net .............................................. 4,948 ---------- Net investment income ............................................ 31,764 ---------- Net Realized and Unrealized Gain (Loss) Net realized gain (loss) on: Investment transactions allocated from Portfolio .... (24,066) Futures transactions allocated from Portfolio ....... 308 Futures transactions (a) ............................ (134) Investment transactions (a) ......................... 271,023 ---------- Futures transactions (a) ............................ 247,131 Net change in unrealized appreciation (depreciation) on: Investments allocated from Portfolio ................ 844,232 Futures contracts allocated from Portfolio .......... 2,266 Futures (a) ......................................... 750 Investments (a) ..................................... (678,384) 168,864 ---------- ---------- Net realized and unrealized gain (loss) .......................... 415,995 ---------- Net increase (decrease) in net assets from operations ............ $ 447,759 ========== (a) Amount represents results from operations prior to June 1, 2000 (conversion to Master-Feeder structure). See accompanying notes which are an integral part of the financial statements. 10 Annual Report SSgA S&P 500 Index Fund Statement of Changes in Net Assets Amounts in thousands For the Fiscal Years Ended August 31,
2000 1999 ----------- ----------- Increase (Decrease) in Net Assets Operations Net investment income ......................................... $ 31,764 $ 30,644 Net realized gain (loss) ...................................... 247,131 165,310 Net change in unrealized appreciation (depreciation) .......... 168,864 480,768 ----------- ----------- Net increase (decrease) in net assets from operations ...... 447,759 676,722 ----------- ----------- Distributions From net investment income .................................... (32,901) (28,913) From net realized gain ........................................ (83,817) (211,531) ----------- ----------- Net decrease in net assets from distributions .............. (116,718) (240,444) ----------- ----------- Share Transactions Net increase (decrease) in net assets from share transactions . 100,163 621,772 ----------- ----------- Total net increase (decrease) in net assets ...................... 431,204 1,058,050 Net Assets Beginning of period ........................................... 2,673,963 1,615,913 ----------- ----------- End of period (including undistributed net investment income of $7,507 and $8,644, respectively) ........................... $ 3,105,167 $ 2,673,963 =========== ===========
See accompanying notes which are an integral part of the financial statements. Annual Report 11 SSgA S&P 500 Index Fund Financial Highlights The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
Fiscal Years Ended August 31, ---------------------------------------------------------------- 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- -------- Net Asset Value, Beginning of Period ........ $ 23.74 $ 19.42 $ 18.96 $ 14.41 $ 12.81 ---------- ---------- ---------- ---------- -------- Income From Operations Net investment income (a) ................ .27 .29 .31 .32 .32 Net realized and unrealized gain (loss) 3.40 6.74 1.18 5.22 1.98 ---------- ---------- ---------- ---------- -------- Total income from operations .......... 3.67 7.03 1.49 5.54 2.30 ---------- ---------- ---------- ---------- -------- Distributions From net investment income ............... (.28) (.29) (.32) (.32) (.31) From net realized gain ................... (.72) (2.42) (.71) (.67) (.39) ---------- ---------- ---------- ---------- -------- Total distributions ................... (1.00) (2.71) (1.03) (.99) (.70) ---------- ---------- ---------- ---------- -------- Net Asset Value, End of Period .............. $ 26.41 $ 23.74 $ 19.42 $ 18.96 $ 14.41 ========== ========== ========== ========== ======== Total Return (%) ............................ 16.26 39.52 7.91 40.30 18.46 Ratios/Supplemental Data: Net Assets, end of period (in thousands) . 3,105,167 2,673,963 1,615,913 1,299,571 704,683 Ratios to average net assets (%): Operating expenses, net (b)(c) ........ .18 .18 .17 .16 .18 Operating expenses, gross (b)(c) ...... .24 .28 .27 .26 .28 Net investment income ................. 1.08 1.29 1.50 2.00 2.32 Portfolio turnover of the Fund (%)(d) .... 16.43 13.80 26.17 7.54 28.72 Portfolio turnover of the Portfolio ...... 14.00 N/A N/A N/A N/A
(a) For the periods subsequent to August 31, 1998, average month-end shares outstanding were used for this calculation. (b) See Note 4 for current period amounts. (c) Expense ratios for the fiscal year ended August 31, 2000 includes the Fund's share of the Portfolio's allocated expenses for the period June 1, 2000 (commencement of the Master-Feeder structure) to August 31, 2000. (d) Portfolio turnover represents the rate of portfolio activity, for the period September 1, 1999 through May 31, 2000, while the Fund was making investments directly in securities. 12 Annual Report SSgA S&P 500 Index Fund Notes to Financial Statements August 31, 2000 1. Organization The SSgA Funds (the "Investment Company") is a series mutual fund, currently comprised of 24 investment portfolios which are in operation as of August 31, 2000. These financial statements report on one portfolio, the SSgA S&P 500 Index Fund (the "Fund"). The Investment Company is a registered and diversified open-end investment company, as defined in the Investment Company Act of 1940, as amended (the "1940 Act"), that was organized as a Massachusetts business trust on October 3, 1987 and operates under a First Amended and Restated Master Trust Agreement, dated October 13, 1993, as amended (the "Agreement"). The Investment Company's Agreement permits the Board of Trustees to issue an unlimited number of full and fractional shares of beneficial interest at a $.001 par value. The Fund invests all of its investable assets in interests in State Street Equity 500 Index Portfolio (the "Portfolio"). The investment objective and policies of the Portfolio are the same as the Fund. On June 1, 2000, the Fund transferred substantially all of its investable assets with a value of $2,846,508,871, including unrealized appreciation of $625,464,206 to the Portfolio in exchange for interests in the Portfolio. The value of the Fund's investment in the Portfolio reflects the Fund's proportionate interest in the net assets of the Portfolio (approximately 87.0% at August 31, 2000). The performance of the Fund is directly affected by the performance of the Portfolio. The financial statements of the Portfolio, including the portfolio of investments, are included elsewhere in this report and should be read in conjunction with the Fund's financial statements. 2. Significant Accounting Policies The Fund's financial statements are prepared in accordance with accounting principles generally accepted in the United States which require the use of management estimates. The following is a summary of the significant accounting policies consistently followed by the Fund in the preparation of its financial statements. Security valuation: The Fund records its investment in the Portfolio at value. Valuation of securities held by the Portfolio is discussed in Note 2 of the Portfolio's Notes to Financial Statements which are included elsewhere in this report. Securities transactions: Securities transactions were recorded on a trade date basis. Realized gains and losses from securities transactions were recorded on the basis of identified cost. Investment income: Dividend income was recorded on the ex-dividend date and interest income was recorded daily on the accrual basis through May 31, 2000. Currently, the Fund's net investment income consists of the Fund's pro rata share of the net investment income of the Portfolio, less all expenses of the Fund determined in accordance with accounting principles generally accepted in the United States. Federal income taxes: Since the Investment Company is a Massachusetts business trust, each fund is a separate corporate taxpayer and determines its net investment income and capital gains (or losses) and the amounts to be distributed to each fund's shareholders without regard to the income and capital gains (or losses) of the other funds. It is the Fund's intention to qualify as a regulated investment company, as defined by the Internal Revenue Code of 1986, as amended. This requires the Fund to distribute all of its taxable income. Therefore, the Fund paid no federal taxes and no federal income tax provision was required. Annual Report 13 SSgA S&P 500 Index Fund Notes to Financial Statements, continued August 31, 2000 Dividends and distributions to shareholders: Income dividends and capital gain distributions, if any, are recorded on the ex-dividend date. The Fund declares and pays dividends quarterly. Capital gain distributions, if any, are generally declared and paid annually. An additional distribution may be paid by the Fund to avoid imposition of federal income tax on any remaining undistributed net investment income and capital gains. The timing and characterization of certain income and capital gain distributions are determined in accordance with federal tax regulations which may differ from generally accepted accounting principles ("GAAP"). As a result, net investment income and net realized gain (or loss) from investment transactions for a reporting period may differ significantly from distributions during such period. Accordingly, the Fund reclassifications among certain of its capital accounts without impacting its net asset value made the following: Undistributed Net Investment Income $ (156) Accumulated Net Realized Gain (Loss) (123,519,583) Additional Paid-in Capital 123,519,739 Expenses: Most expenses can be directly attributed to the individual Fund. Additionally, expenses allocated from the Portfolio are recorded and identified separately in the Statement of Operations. Expenses of the investment company which cannot be directly attributed are allocated among all funds based principally on their relative net assets. Derivatives: To the extent permitted by the investment objectives, restrictions and policies set forth in the Fund's Prospectus and Statement of Additional Information, the Fund participated in various derivative-based transactions through May 31, 2000. Derivative securities are instruments or agreements whose value is derived from an underlying security or index. These instruments offer unique characteristics and risks that assist the Fund to meet its investment objective. The Fund typically used derivatives for cash equitization. Cash equitization is a technique that is used by the Fund through the use of options and futures to earn "market-like" returns with the Fund's excess and liquidity reserve cash balances. By purchasing certain instruments, a fund may more effectively achieve the desired portfolio characteristics that allow the Fund to meet its investment objective. The Fund used futures and options contracts solely for the purpose of cash management. The primary risks associated with the use of derivatives are generally categorized as market risk. Futures: The Fund utilized exchange-traded futures contracts through May 31, 2000. The primary risks associated with the use of futures contracts are an imperfect correlation between the change in market value of the securities held by the Fund and the prices of futures contracts and the possibility of an illiquid market. Changes in initial settlement value are accounted for as unrealized appreciation (depreciation) until the contracts are terminated, at which time realized gains and losses are recognized. 3. Securities Transactions Investment transactions: For the period September 1, 1999 to May 31, 2000, purchases and sales of investment securities, excluding short-term investments and futures contracts, aggregated to $469,903,949 and $524,456,924, respectively. Subsequent to the transfer of assets to the Portfolio on June 1, 2000, increases and decreases in the 14 Annual Report SSgA S&P 500 Index Fund Notes to Financial Statements, continued August 31, 2000 Fund's investment in the Portfolio aggregated $87,602,381 and $148,124,655 respectively, for the period June 1, 2000 to August 31, 2000. Two redemptions in-kind of securities resulted in a realized gain of $123,883,217. Securities Lending: The Investment Company has a securities lending program whereby each Fund can loan securities with a value up to 33 1/3% of its total assets to certain brokers. The Fund receives cash (U.S. currency), U.S. Government or U.S. Government agency obligations as collateral against the loaned securities. To the extent that a loan is secured by cash collateral, such collateral shall be invested by State Street Bank and Trust Company in short-term instruments, money market mutual funds, and such other short-term investments, provided the investments meet certain quality and diversification requirements. Under the securities lending arrangement, the collateral received is recorded on the Fund's statement of assets and liabilities along with the related obligation to return the collateral. In those situations where the Company has relinquished control of securities transferred, it derecognizes the securities and records a receivable from the counterparty. Income generated from the investment of cash collateral, less negotiated rebate fees paid to participating brokers and transaction costs, is divided between the Fund and State Street Bank and Trust Company and is recorded as interest income for the Fund. To the extent that a loan is secured by non-cash collateral, brokers pay the Fund negotiated lenders' fees, which are divided between the Fund and State Street Bank and Trust Company and are recorded as interest income for the Fund. All collateral received will be in an amount at least equal to 102% (for loans of U.S. securities) or 105% (for non-U.S. securities) of the market value of the loaned securities at the inception of each loan. Should the borrower of the securities fail financially, there is a risk of delay in recovery of the securities or loss of rights in the collateral. Consequently, loans are made only to borrowers which are deemed to be of good financial standing. The Fund participated in the securities lending program up to May 31, 2000. Included in interest income is securities lending income of $245,161 for the period September 1, 1999 to May 31, 2000. 4. Related Parties Adviser: The Investment Company had an investment advisory agreement with State Street Bank and Trust Company (the "Adviser") under which the Adviser, through State Global Advisors, the investment management group of the Adviser, directed the investments of the Fund in accordance with its investment objectives, policies, and limitations through May 31, 2000. For these services, the Fund paid a fee to the Adviser, calculated daily and paid monthly, at the annual rate of .10% of its average daily net assets. For the period September 1, 1999 to December 31, 1999, the Adviser voluntarily agreed to waive up to the full amount of its advisory fee to the extent that total expenses exceeded .18% of its average daily net assets on an annual basis. For the period January 1, 2000 to May 31, 2000, the Adviser agreed to reimburse the Fund for all expenses in excess of .18% of average daily net assets on an annual basis and has also agreed to waive .07% of its .10% management fee. Effective June 1, 2000, the Fund is allocated a charge for a management fee from the Portfolio, calculated daily at an annual rate of .045% of its average daily net assets. This fee relates to the advisory, custody and administrative fees provided by the Portfolio on behalf of its investors. For the period June 1, 2000 to August 31, 2000, the Adviser agreed to reimburse the Fund for all fund and allocated portfolio expenses that exceed .18%. The total amount of the waiver and the reimbursement for the year ended August 31, 2000 were $1,513,796 and $139,830, respectively. As of August 31, 2000, the receivable due from the Adviser for reimbursed expenses in excess of the expense cap has been netted against the Advisory fee payable. See Note 4 of the Portfolio's Notes to Financial Statements which Annual Report 15 SSgA S&P 500 Index Fund Notes to Financial Statements, continued August 31, 2000 are included elsewhere in this report. The Investment Company also has contracts with the Adviser to provide fund accounting, shareholder servicing and transfer agent services to the Fund. These amounts are presented on the accompanying Statement of Operations. In addition, the Fund has entered into arrangements with its Adviser whereby custody credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund's expenses. During the year, the Fund's custodian fees were reduced by $12,316 under these arrangements. Administrator: The Investment Company has an administration agreement with Frank Russell Investment Management Company (the "Administrator"), a wholly-owned subsidiary of The Northwestern Mutual Life Insurance Company, under which the Administrator supervises all non-portfolio investment aspects of the Investment Company's operations and provides adequate office space and all necessary office equipment and services, including telephone service, utilities, stationery supplies, and similar items. The Investment Company pays the Administrator for services supplied by the Administrator pursuant to the Administration Agreement, an annual fee, payable monthly on a pro rata basis. For the period September 1, 1999 to April 30, 2000, it is based on the following percentages of the average daily net assets of all domestic funds: $0 up to and including $500 million - .06%; over $500 million up to and including $1 billion - .05%; over $1 billion - .03%. For the period May 1, 2000 to May 31, 2000, the annual fee is based on the following percentages of the daily net assets of all U.S. Equity portfolios: $0 to $2 billion - .0315%; over $2 billion - .029%. Effective June 1, 2000, the annual fee is based on the following percentages of the average daily net assets of the Fund: $0 to $1 billion - .0315%; over $1 billion - .01%. The Administrator will also charge a flat fee of $30,000 per year per Fund with less than $500 million in net assets and $1,500 per year for monthly performance reports and use of Russell Performance Universe software product. In addition, the Fund reimburses the Administrator for out-of-pocket expenses and start-up costs for new funds. Distributor and Shareholder Servicing: The Investment Company has a Distribution Agreement with Russell Fund Distributors (the "Distributor") which is a wholly-owned subsidiary of the Administrator to promote and offer shares of the Investment Company. The Distributor may enter into sub-distribution agreements with other non-related parties. The amounts paid to the Distributor are included in the accompanying Statement of Operations. The Investment Company has a Distribution Plan pursuant to Rule 12b-1 (the "Plan") under the 1940 Act. Under this Plan, the Investment Company is authorized to make payments to the Distributor, or any Shareholder Servicing Agent, as defined in the Plan, for providing distribution and marketing services, for furnishing assistance to investors on an ongoing basis, and for the reimbursement of direct out-of-pocket expenses charged by the Distributor in connection with the distribution and marketing of shares of the Investment Company and the servicing of investor accounts. The Fund has Shareholder Service Agreements with the Adviser, the Adviser's Retirement Investment Services Division ("RIS"), the Adviser's Metropolitan Division of Commercial Banking ("Commercial Banking") and State Street Solutions ("Solutions")(collectively the "Agents"), as well as several unaffiliated service providers. For these services, the Fund pays .025%, .050%, .050% and .100% to the Adviser, RIS, Commercial Banking, and Solutions, respectively based upon the average daily value of all Fund shares held by or for customers of these 16 Annual Report SSgA S&P 500 Index Fund Notes to Financial Statements, continued August 31, 2000 Agents. For the year ended August 31, 2000, the Fund was charged shareholder servicing expenses of $729,441, $123,434, $371, and $185,204, by the Adviser, RIS, Commercial Banking and Solutions, respectively. The combined distribution and shareholder servicing payments shall not exceed .25% of the average daily value of net assets of the Fund on an annual basis. The shareholder servicing payments shall not exceed .20% of the average daily value of net assets of the Fund on an annual basis. Payments that exceed the maximum amount of allowable reimbursement may be carried forward for two years following the year in which the expenditure was incurred so long as the plan is in effect. The Fund's responsibility for any such expenses carried forward shall terminate at the end of two years following the year in which the expenditure was incurred. The Trustees or a majority of the Fund's shareholders have the right, however, to terminate the Distribution Plan and all payments thereunder at any time. The Fund will not be obligated to reimburse the Distributor for carryover expenses subsequent to the Distribution Plan's termination or noncontinuance. There were no carryover expenses as of August 31, 2000. Affiliated Brokerage: The Fund placed a portion of its portfolio transactions with State Street Brokerage Services, Inc. ("SSBSI"), an affiliated broker dealer of the Fund's Adviser. The commissions paid to SSBSI were $96,304 for the period September 1, 1999 to May 31, 2000. Board of Trustees: The Investment Company paid each Trustee not affiliated with the Investment Company an annual retainer, plus specified amounts for board and committee meetings attended. These expenses are allocated among all of the funds based upon their relative net assets. Accrued fees payable to affiliates and trustees as of August 31, 2000 were as follows: Administration fees $ 45,125 Fund accounting fees 3,036 Distribution fees 44,623 Shareholder servicing fees 538,503 Transfer agent fees 23,044 Trustees' fees 1,695 ---------- $ 656,026 ========== Beneficial Interest: As of August 31, 2000, one shareholder was a record owner of approximately 10% of the total outstanding shares of the Fund. 5. Fund Share Transactions (amounts in thousands)
Fiscal Years Ended August 31, ----------------------------------------------------------- 2000 1999 --------------------------- --------------------------- Shares Dollars Shares Dollars ----------- ----------- ----------- ----------- Proceeds from shares sold 52,321 $ 1,287,105 66,940 $ 1,498,677 Proceeds from reinvestment of distributions 4,965 110,904 11,888 232,051 Payments for shares redeemed (52,339) (1,297,846) (49,413) (1,108,956) ------- ----------- ------- ----------- Total net increase (decrease) 4,947 $ 100,163 29,415 $ 621,772 ======= =========== ======= ===========
Annual Report 17 SSgA S&P 500 Index Fund Notes to Financial Statements, continued August 31, 2000 6. Interfund Lending Program The Fund and all other funds of the Investment Company received from the Securities and Exchange Commission an exemptive order on December 23, 1999 to establish and operate an Interfund Credit Facility. This allows the Funds to directly lend to and borrow money from the SSgA Money Market Fund for temporary purposes in accordance with certain conditions. The borrowing Funds are charged the average of the current Repo Rate and the Bank Loan Rate. The Fund did not utilize the interfund lending program during this year. 7. Dividends On September 1, 2000, the Board of Trustees declared a dividend of $.0641 from net investment income, payable on September 8, 2000 to shareholders of record on September 5, 2000. 18 Annual Report SSgA S&P 500 Index Fund Tax Information August 31, 2000 (Unaudited) The Fund paid distributions of $75,475,294 from net long-term capital gains during its taxable year ended August 31, 2000. Please consult a tax advisor for questions about federal or state income tax laws. Annual Report 19 S&P 500 Index Fund One International Place, 27th Floor Boston, Massachusetts 02110 (800) 997-7327 -------------------------------------------------------------------------------- Trustees Lynn L. Anderson, Chairman William L. Marshall Steven J. Mastrovich Patrick J. Riley Richard D. Shirk Bruce D. Taber Henry W. Todd Officers Lynn L. Anderson, President, Treasurer and CEO Mark E. Swanson, Treasurer and Principal Accounting Officer J. David Griswold, Vice President and Secretary Deedra S. Walkey, Assistant Secretary Rick J. Chase, Assistant Treasurer Carla L. Anderson, Assistant Secretary Investment Adviser State Street Bank and Trust Company 225 Franklin Street Boston, Massachusetts 02110 Custodian, Transfer Agent and Office of Shareholder Inquiries State Street Bank and Trust Company 1776 Heritage Drive North Quincy, Massachusetts 02171 (800) 647-7327 Distributor Russell Fund Distributors, Inc. One International Place, 27th Floor Boston, Massachusetts 02110 (800) 997-7327 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 160 Federal Street Boston, Massachusetts 02110 Annual Report 20 State Street Equity 500 Index Portfolio Portfolio of Investments August 31, 2000
Market Value (000) Shares $ --------- ----------- Common Stocks - 97.9% Aerospace - 0.8% Boeing Co. 239,576 12,847 General Dynamics Corp. 52,200 3,286 Lockheed Martin Corp. 113,346 3,216 Northrop Grumman Corp. 18,400 1,432 United Technologies Corp. 123,900 7,736 --------- 28,517 --------- Basic Industries - 2.3% Air Products & Chemicals, Inc. 59,100 2,146 Alcan Aluminum, Ltd. 56,200 1,844 Alcoa, Inc. 227,560 7,566 Allegheny Technologies, Inc. 18,988 413 B.F. Goodrich Co. 29,000 1,184 Barrick Gold Corp. 104,600 1,667 Bemis Co., Inc. 14,800 496 Bethlehem Steel Corp. (a) 32,300 113 Boise Cascade Corp. 15,400 460 Crown Cork & Seal Co., Inc. 34,300 444 Dow Chemical Co. 179,400 4,698 du Pont (E.I.) de Nemours & Co. 275,341 12,356 Eastman Chemical Co. 21,225 915 Engelhard Corp. 32,725 614 FMC Corp. (a) 8,800 597 Freeport-McMoRan Copper & Gold, Inc. Class B (a) 45,600 447 Great Lakes Chemical Corp. 15,600 526 Hercules, Inc. 27,400 363 Homestake Mining Co. 71,800 399 Illinois Tool Works, Inc. 79,000 4,429 Inco, Ltd. (a) 49,100 878 International Paper Co. 126,445 4,030 Kimberly-Clark Corp. 146,436 8,566 Mead Corp. 27,500 737 Minnesota Mining & Manufacturing Co. 104,400 9,709 Newmont Mining Corp. 46,867 870 Nucor Corp. 23,000 845 Owens-Illinois, Inc. (a) 40,300 526 Phelps Dodge Corp. 21,339 950
Market Value (000) Shares $ --------- ----------- Placer Dome, Inc. 89,100 791 Potlatch Corp. 7,000 235 PPG Industries, Inc. 45,800 1,855 Praxair, Inc. 40,500 1,792 Rohm & Haas Co. 57,220 1,656 Sealed Air Corp. (a) 22,443 1,152 Sigma Aldrich Corp. 23,200 676 Temple-Inland, Inc. 14,700 624 Union Carbide Corp. 36,600 1,466 USX-U.S. Steel Group 23,000 400 W.R. Grace & Co. (a) 18,000 143 Westvaco Corp. 27,800 761 Willamette Industries, Inc. 29,400 897 Worthington Industries, Inc. 21,900 229 --------- 81,465 --------- Capital Goods - 6.0% Allied Waste Industries, Inc.(a) 50,100 460 Ball Corp. 7,900 274 Boston Scientific Corp. (a) 107,200 2,030 Briggs & Stratton Corp. 5,500 238 Caterpillar, Inc. 91,000 3,344 Cooper Industries, Inc. 24,400 862 Crane Co. 17,600 442 Cummins Engine Co., Inc. 11,600 412 Deere & Co. 61,500 2,026 Dover Corp. 54,500 2,664 Emerson Electric Co. 112,400 7,439 Fluor Corp. 19,900 596 General Electric Co. 2,601,500 152,675 Grainger (W.W.), Inc. 25,300 731 HCA-Healthcare Corp. (The) 146,232 5,045 Ingersoll-Rand Co. 41,700 1,900 ITT Industries, Inc. 23,400 787 Johnson Controls, Inc. 22,000 1,176 Millipore Corp. 12,700 773 National Service Industries, Inc. 11,300 225 Pall Corp. 34,200 731 Parker-Hannifin Corp. 30,250 1,053 Raytheon Co. Class B 88,000 2,447
See notes to financial statements. Annual Report 21 State Street Equity 500 Index Portfolio Portfolio of Investments, continued August 31, 2000
Market Value (000) Shares $ --------- ----------- Timken Co. 14,500 236 TRW, Inc. 33,200 1,517 Tyco International, Ltd. 442,948 25,248 --------- 215,331 --------- Consumer Basics - 15.7% Abbott Laboratories 405,900 17,758 Albertson's, Inc. 110,603 2,378 Allergan, Inc. 33,500 2,450 ALZA Corp. (a) 27,700 2,095 American Home Products Corp. 341,800 18,521 Amgen, Inc. (a) 269,200 20,426 Archer-Daniels-Midland Co. 170,923 1,506 Bard (C.R.), Inc. 13,800 674 Bausch & Lomb, Inc. 14,300 511 Baxter International, Inc. 76,300 6,352 Becton, Dickinson & Co. 66,400 2,000 Bestfoods 72,000 5,085 Biogen, Inc. (a) 39,200 2,710 Biomet, Inc. 46,050 1,557 Black & Decker Corp. 23,700 950 Bristol-Myers Squibb Co. 517,900 27,449 Campbell Soup Co. 110,000 2,791 Cardinal Health, Inc. 72,212 5,908 Clorox Co. (The) 63,400 2,294 Coca-Cola Co. (The) 650,300 34,222 Coca-Cola Enterprises, Inc. 106,400 1,982 Colgate-Palmolive Co. 151,900 7,737 ConAgra, Inc. 127,900 2,342 Corning, Inc. 77,100 25,284 Costco Wholesale Corp. (a) 116,500 4,012 CVS Corp. 102,100 3,790 Fort James Corp. 56,000 1,771 General Mills, Inc. 75,500 2,425 Gillette Co. (The) 275,000 8,250 HEALTHSOUTH Corp. (a) 110,600 677 Heinz (H.J.) Co. 94,150 3,590 Hershey Foods Corp. 36,100 1,541 Humana, Inc. (a) 43,900 376 Johnson & Johnson 365,400 33,594
Market Value (000) Shares $ --------- ----------- Kellogg Co. 105,500 2,446 Kroger Co. (The) (a) 218,800 4,964 Lilly (Eli) & Co. 296,300 21,630 Mallinckrodt, Inc. 18,700 843 Manor Care, Inc. (a) 29,200 391 McKesson HBOC, Inc. 74,051 1,847 MedImmune, Inc. (a) 55,000 4,637 Medtronic, Inc. 314,700 16,128 Merck & Co., Inc. 604,300 42,226 Nabisco Group Holdings Corp. 85,800 2,408 Pactiv Corp. (a) 45,200 497 PE Corp. 54,600 5,371 PepsiCo, Inc. 377,500 16,091 Pfizer, Inc. 1,655,525 71,601 Pharmacia & Upjohn, Inc. 332,732 19,486 Philip Morris Cos., Inc. 599,400 17,757 Procter & Gamble Co. 343,100 21,208 Quaker Oats Co. 33,900 2,303 Ralston-Purina Group 82,800 1,873 Safeway, Inc. (a) 130,500 6,435 Sara Lee Corp. 227,300 4,234 Schering-Plough Corp. 385,000 15,448 Snap-On Tools Corp. 15,900 490 St. Jude Medical, Inc. (a) 23,250 921 Stanley Works 24,600 658 SYSCO Corp. 86,900 3,677 Tenet Healthcare Corp. 81,200 2,517 Tupperware Corp. 14,600 295 Unilever NV ADR 150,428 7,108 UnitedHealth Group, Inc. 42,400 4,007 UST Corp. 42,700 923 Watson Pharmaceuticals, Inc. (a) 26,300 1,622 Wellpoint Health Networks, Inc. (a) 16,800 1,450 Winn-Dixie Stores, Inc. 40,600 566 Wrigley (Wm.), Jr. Co. 30,000 2,222 --------- 561,288 --------- Consumer Durables - 1.3% AutoZone, Inc. (a) 36,500 821 Avery Dennison Corp. 30,600 1,654
See notes to financial statements. 22 Annual Report State Street Equity 500 Index Portfolio Portfolio of Investments, continued August 31, 2000
Market Value (000) Shares $ --------- ----------- Best Buy Co. (a) 53,400 3,297 Cooper Tire & Rubber Co. 18,900 228 Dana Corp. 41,465 1,024 Danaher Corp. 37,300 2,096 Delphi Automotive Systems Corp. 148,041 2,433 Eaton Corp. 19,100 1,268 Ford Motor Co. 492,878 11,921 General Motors Corp. 141,098 10,186 Genuine Parts Co. 47,650 980 Goodyear Tire & Rubber Co. 43,500 1,017 Harley-Davidson, Inc. 79,100 3,940 Leggett & Platt, Inc. 52,800 934 Maytag Corp. 19,400 740 PACCAR, Inc. 20,890 887 Pitney Bowes, Inc. 66,600 2,435 Visteon Corp. 30,250 475 Whirlpool Corp. 20,300 771 --------- 47,107 --------- Consumer Non-Durables - 5.0% Alberto Culver Co. Class B 16,000 453 Anheuser-Busch Cos., Inc. 119,200 9,395 Avon Products, Inc. 61,400 2,406 Bed Bath & Beyond, Inc. (a) 72,200 1,268 Brown-Forman Distillers, Inc. Class B 18,800 996 Brunswick Corp. 23,800 446 Circuit City Stores, Inc. 55,700 1,445 Consolidated Stores Corp. (a) 28,942 394 Coors (Adolph) Co. Class B 9,400 560 Dillard's, Inc. Class A 28,000 359 Dollar General Corp. 85,616 1,761 Eastman Kodak Co. 81,200 5,055 Federated Department Stores, Inc. (a) 58,500 1,616 Fortune Brands, Inc. 43,400 1,107 Gap, Inc. 223,475 5,014 Hasbro, Inc. 46,400 571 Home Depot, Inc. (The) 608,297 29,236 International Flavors & Fragrances, Inc. 28,200 726
Market Value (000) Shares $ --------- ----------- JC Penney & Co., Inc. 70,700 990 Kmart Corp. (a) 131,900 923 Kohl's Corp. (a) 85,500 4,788 Limited, Inc. (The) 108,836 2,177 Liz Claiborne, Inc. 12,900 567 Longs Drug Stores, Inc. 9,700 183 Lowe's Cos., Inc. 100,100 4,486 Mattel, Inc. 116,187 1,147 May Department Stores Co. 89,900 2,062 Newell Rubbermaid, Inc. 72,657 1,885 NIKE, Inc. Class B 71,200 2,817 Nordstrom, Inc. 36,600 631 Office Depot, Inc. (a) 88,400 646 Polaroid Corp. 12,200 207 Radioshack Corp. 48,700 2,873 Reebok International, Ltd. (a) 13,700 263 Russell Corp. 7,600 145 Seagram Co., Ltd. 114,700 6,904 Sears Roebuck & Co. 91,800 2,863 Springs Industries, Inc. 5,300 158 Staples, Inc. (a) 128,850 1,981 Starbucks Corp. (a) 49,600 1,810 SuperValu, Inc. 36,900 551 Target Corp. 240,000 5,580 Tiffany & Company 39,400 1,640 TJX Cos., Inc. 81,800 1,539 Toys "R" Us, Inc. (a) 59,000 1,073 V.F. Corp. 31,900 730 Wal-Mart Stores, Inc. 1,171,900 55,592 Walgreen Co. 265,700 8,735 --------- 178,754 --------- Consumer Services - 1.5% AMR Corp. 40,100 1,316 Carnival Corp. 157,800 3,146 Convergys Corp. (a) 40,300 1,577 Darden Restaurants, Inc. 34,100 603 Delta Air Lines, Inc. 33,300 1,648 Disney (Walt) Co. 544,886 21,217 Harrah's Entertainment, Inc. (a) 32,100 911
See notes to financial statements. Annual Report 23 State Street Equity 500 Index Portfolio Portfolio of Investments, continued August 31, 2000
Market Value (000) Shares $ --------- ----------- Hilton Hotels Corp. 103,200 1,032 Marriot International, Inc. Class A 62,000 2,449 McDonald's Corp. 352,900 10,543 Sabre Holdings Corporation Class A 35,123 979 Sapient Corp. (a) 31,800 1,677 Southwest Airlines Co. 129,287 2,925 Tricon Global Restaurants, Inc. (a) 38,810 1,130 USAirways Group, Inc. (a) 18,700 636 Wendy's International, Inc. 32,900 621 --------- 52,410 --------- Electrical Equipment - 1.0% American Power Conversion Corp. (a) 52,400 1,248 Molex, Inc. 50,775 2,682 Tektronix, Inc. 12,400 945 Texas Instruments, Inc. 453,430 30,351 Thomas & Betts Corp. 14,900 279 --------- 35,505 --------- Electronics - 3.5% Agilent Technologies, Inc. (a) 118,700 7,159 Altera Corp. (a) 104,600 6,773 Analog Devices, Inc. (a) 93,100 9,357 Broadcom Corp. (a) 56,600 14,146 Conexant Systems, Inc. (a) 57,100 2,123 JDS Uniphase Corp. (a) 245,000 30,503 KLA Tencor Corporation (a) 48,200 3,157 Lexmark International Group, Inc. Class A (a) 34,000 2,306 Linear Technology Corp. 81,600 5,855 Maxim Integrated Products, Inc. (a) 74,200 6,502 Novellus Systems, Inc. (a) 34,200 2,103 QUALCOMM, Inc. (a) 195,800 11,724 Sanmina Corp. (a) 38,700 4,564 Solectron Corp. (a) 156,700 7,100 Teradyne, Inc. 45,100 2,923 Xilinx, Inc. (a) 84,500 7,510 --------- 123,805 ---------
Market Value (000) Shares $ --------- ----------- Energy - 5.4% Amerada Hess Corp. 22,600 1,547 Anadarko Petroleum Corp. 63,468 4,174 Apache Corp. 29,700 1,871 Ashland, Inc. 18,900 666 Baker Hughes, Inc. 85,880 3,140 Burlington Resources, Inc. 58,222 2,289 Chevron Corp. 171,400 14,483 Conoco, Inc. Class B 163,400 4,269 Constellation Energy Group 37,100 1,419 Devon Energy Corp. 34,000 1,991 El Paso Energy Corp. 60,400 3,518 Exxon Mobil Corp. 915,705 74,744 Halliburton Co. 116,600 6,180 Kerr-McGee Corp. 23,356 1,476 McDermott International, Inc. 15,400 118 Occidental Petroleum Corp. 95,300 2,061 ONEOK, Inc. 8,000 256 Phillips Petroleum Co. 67,700 4,189 Rowan Cos., Inc. (a) 25,200 781 Royal Dutch Petroleum Co. ADR 563,300 34,467 Schlumberger, Ltd. 150,300 12,822 Sempra Energy 55,250 1,077 Sunoco, Inc. 24,055 654 Texaco, Inc. 145,300 7,483 Tosco Corp. 39,000 1,190 Transocean Sedco Forex, Inc. 53,952 3,224 Unocal Corp. 62,700 2,093 USX-Marathon Group 80,500 2,209 --------- 194,391 --------- Finance - 14.5% Aetna, Inc. 37,102 2,075 AFLAC, Inc. 69,200 3,737 Allstate Corp. 195,788 5,690 American Express Co. 350,300 20,711 American General Corp. 65,087 4,739 American International Group, Inc. 607,867 54,176 AmSouth Bancorp 106,850 1,950 AON Corp. 66,450 2,479
See notes to financial statements. 24 Annual Report State Street Equity 500 Index Portfolio Portfolio of Investments, continued August 31, 2000
Market Value (000) Shares $ --------- ----------- Associates First Capital Corp. Class A 191,016 5,372 Bank of America Corp. 434,795 23,289 Bank of New York Co., Inc. 194,600 10,204 Bank One Corp. 302,668 10,669 BB&T Corp. 96,400 2,609 Bear Stearns Cos., Inc. 30,168 2,023 Capital One Financial Corp. 50,100 3,022 Charter One Financial, Inc. 55,100 1,309 Chase Manhattan Corp. 341,442 19,078 Chubb Corp. (The) 45,500 3,484 CIGNA Corp. 42,600 4,143 Cincinnati Financial Corp. 41,700 1,624 CIT Group, Inc. (The) Class A 71,400 1,249 Citigroup, Inc. 1,183,367 69,079 Comerica, Inc. 40,350 2,272 Conseco, Inc. 91,545 772 Countrywide Credit Industries, Inc. 30,800 1,167 Dun & Bradstreet Corp. 43,700 1,442 Equifax, Inc. 39,200 997 Federal National Mortgage Association 264,900 14,238 Federal Home Loan Mortgage Corp. 183,100 7,713 Fifth Third Bancorp 121,925 5,631 First Union Corp. 258,212 7,472 Firstar Corp. 254,976 6,088 FleetBoston Financial Corp. 237,764 10,150 Franklin Resources, Inc. 61,700 2,345 Golden West Financial Corp. 42,800 2,038 Hartford Financial Services Group, Inc. (The) 56,000 3,731 Household International Corp. 124,299 5,966 Huntington Bancshares, Inc. 66,047 1,115 Jefferson-Pilot Corp. 27,875 1,845 KeyCorp 110,098 2,223 Lehman Brothers Holdings, Inc. 31,600 4,582 Lincoln National Corp. 51,800 2,797 Loews Corp. 24,900 2,015 Marsh & McLennan Cos., Inc. 71,050 8,437 MBIA, Inc. 26,600 1,749 MBNA Corp. 216,782 7,655
Market Value (000) Shares $ --------- ----------- Mellon Financial Corp. 128,900 5,833 Merrill Lynch & Co., Inc. 102,000 14,790 MGIC Investment Corp. 28,600 1,682 Morgan (J.P.) & Co., Inc. 42,700 7,139 Morgan Stanley Dean Witter & Co. 297,612 32,012 National City Corp. 158,100 3,310 Northern Trust Corp. 58,200 4,907 Old Kent Financial Corp. 37,375 1,096 Paine Webber Group, Inc. 38,900 2,781 Paychex, Inc. 97,125 4,334 PNC Bank Corp. 76,000 4,479 Price (T. Rowe) & Associates, Inc. 32,200 1,457 Progressive Corp. 20,000 1,516 Providian Financial Corp. 37,200 4,276 Regions Financial Corp. 59,300 1,290 SAFECO Corp. 34,800 916 Schwab (Charles) Corp. 358,050 13,673 SouthTrust Corp. 45,800 1,291 St. Paul Cos., Inc. 54,972 2,618 State Street Corp. 42,100 4,957 Stilwell Financial, Inc. (a) 57,900 2,801 Summit Bancorp 47,300 1,310 SunTrust Banks, Inc. 79,100 3,906 Synovus Financial Corp. 74,100 1,459 Torchmark Corp. 34,700 974 U.S. Bancorp 196,417 4,272 Union Planters Corp. 35,600 1,079 UnumProvident Corp. 63,228 1,371 USA Education, Inc. 41,200 1,615 Wachovia Corp. 52,800 3,026 Washington Mutual, Inc. 143,498 5,022 Wells Fargo Co. 422,360 18,241 --------- 516,584 --------- General Business - 2.9% American Greetings Corp. Class A 17,800 332 Automatic Data Processing, Inc. 165,400 9,862 Block (H&R) Co., Inc. 26,600 954 Cendant Corp. (a) 189,636 2,501
See notes to financial statements. Annual Report 25 State Street Equity 500 Index Portfolio Portfolio of Investments, continued August 31, 2000
Market Value (000) Shares $ --------- ----------- Clear Channel Communications, Inc. (a) 151,100 10,936 Comcast Corp. Special Class A 236,400 8,806 Computer Sciences Corp. (a) 44,000 3,479 Deluxe Corp. 19,900 438 Donnelley (R.R.) & Sons Co. 33,300 857 Dow Jones & Co., Inc. 24,000 1,502 Ecolab, Inc. 34,700 1,351 First Data Corp. 108,200 5,160 Gannett Co., Inc. 69,600 3,941 Harcourt General, Inc. 19,700 1,168 IMS Health, Inc. 80,400 1,518 Interpublic Group Cos., Inc. 77,600 2,968 Knight-Ridder, Inc. 20,500 1,120 McGraw-Hill, Inc. 49,800 3,084 Meredith Corp. 14,000 382 New York Times Co. Class A 44,500 1,744 Omnicom Group, Inc. 47,400 3,955 Quintiles Transnational Corp. (a) 31,100 433 Time Warner, Inc. 346,000 29,583 Tribune Co. 78,845 2,814 Waste Management, Inc. 161,859 3,065 Young & Rubicam, Inc. 19,400 1,135 --------- 103,088 --------- Shelter - 0.3% Armstrong World Industries, Inc. 10,600 169 Centex Corp. 14,600 422 Georgia-Pacific Group 46,900 1,255 Kaufman & Broad Home Corp. 11,100 276 Louisiana Pacific Corp. 29,100 307 Masco Corp. 113,700 2,217 Owens Corning 15,300 79 Pulte Corp. 11,600 382 Sherwin-Williams Co. 44,200 1,017 Vulcan Materials Co. 26,500 1,174 Weyerhaeuser Co. 60,700 2,811 --------- 10,109 ---------
Market Value (000) Shares $ --------- ----------- Technology - 24.5% Adaptec, Inc. (a) 25,100 615 Adobe Systems, Inc. 31,300 4,069 Advanced Micro Devices, Inc. (a) 78,600 2,957 America Online, Inc. (a) 604,098 35,415 Apple Computer, Inc. (a) 85,600 5,216 Applied Materials, Inc. (a) 211,600 18,264 Autodesk, Inc. 15,900 447 BMC Software, Inc. (a) 62,400 1,685 Cabletron Systems, Inc. (a) 49,300 1,846 Ceridian Corp. (a) 40,400 977 Cisco Systems, Inc. (a) 1,829,100 125,636 Citrix Systems, Inc. (a) 48,800 1,074 COMPAQ Computer Corp. 446,529 15,210 Computer Associates International, Inc. 154,062 4,891 Compuware Corp. (a) 97,500 1,030 Dell Computer Corp. (a) 675,800 29,482 Electronic Data Systems Corp. 122,500 6,102 EMC Corp. (a) 570,524 55,911 Gateway, Inc. (a) 84,400 5,748 Guidant Corp. (a) 80,300 5,405 Hewlett-Packard Co. 263,000 31,757 Honeywell International, Inc. 210,037 8,100 Intel Corp. 1,761,200 131,870 International Business Machines Corp. 466,100 61,525 LSI Logic Corp. (a) 81,900 2,943 Mercury Interactive Corp. (a) 18,500 2,260 Micron Technology, Inc. (a) 146,500 11,976 Microsoft Corp. (a) 1,384,500 96,655 National Semiconductor Corp. (a) 46,600 2,074 NCR Corp. (a) 26,300 1,062 Network Appliance, Inc. (a) 80,200 9,383 Novell, Inc. (a) 88,800 1,088 Oracle Systems Corp. (a) 746,410 67,830 Palm, Inc. (a) 148,473 6,524 Parametric Technology Corp.(a) 75,400 1,008 PeopleSoft, Inc. (a) 73,100 2,358 PerkinElmer, Inc. 13,600 1,223
See notes to financial statements. 26 Annual Report State Street Equity 500 Index Portfolio Portfolio of Investments, continued August 31, 2000
Market Value (000) Shares $ --------- ----------- Rockwell International Corp. 48,400 1,957 Scientific-Atlanta, Inc. 41,400 3,227 Seagate Technology (a) 60,400 3,586 Siebel Systems, Inc. (a) 52,600 10,405 Sun Microsystems, Inc. (a) 417,100 52,946 Tellabs, Inc. (a) 107,700 6,051 Textron, Inc. 36,500 2,046 Thermo Electron Corp. (a) 43,200 1,004 Unisys Corp. (a) 86,200 1,121 VERITAS Software Corp. (a) 103,100 12,424 Xerox Corp. 177,600 2,853 Yahoo!, Inc. (a) 142,400 17,302 --------- 876,538 --------- Telecommunications - 9.6% ADC Telecommunications, Inc. (a) 177,700 7,275 Andrew Corp. (a) 20,868 618 AT&T Corp. 986,714 31,082 BellSouth Corp. 493,100 18,399 CenturyTel, Inc. 37,950 1,093 Comverse Technology, Inc. (a) 39,700 3,650 Global Crossing, Ltd. (a) 232,010 6,975 Lucent Technologies, Inc. 856,292 35,804 Motorola, Inc. 564,421 20,354 Nextel Communications, Inc. Class A (a) 200,100 11,093 Nortel Networks Corp. 779,020 63,539 Qwest Communications International, Inc. (a) 428,015 22,096 SBC Communications, Inc. 893,645 37,310 Verizon Communications 715,306 31,205 Viacom, Inc. Class B (a) 401,014 26,993 WorldCom, Inc. (a) 751,383 27,425 --------- 344,911 --------- Transportation - 0.3% Burlington Northern, Inc. 111,407 2,493 CSX Corp. 56,200 1,342 FedEx Corp. (a) 75,540 3,048 Navistar International Corp. (a) 17,550 658
Market Value (000) Shares $ --------- ----------- Norfolk Southern Corp. 104,500 1,678 Ryder Systems, Inc. 17,100 328 Union Pacific Corp. 64,500 2,564 --------- 12,111 --------- Utilities - 3.3% AES Corp. (a) 112,100 7,147 Alltel Corp. 82,700 4,182 Ameren Corp. 36,077 1,459 American Electric Power Co., Inc. 83,800 2,954 Cinergy Corp. 42,626 1,252 CMS Energy Corp. 30,800 805 Coastal Corp. 55,900 3,850 Columbia Energy Group 21,700 1,523 Consolidated Edison, Inc. 57,800 1,810 CP & L, Inc. 43,200 1,598 Dominion Resources, Inc. 61,008 3,233 DTE Energy Co. 38,600 1,341 Duke Energy Corp. NPV 96,674 7,232 Eastern Enterprises, Inc. 6,800 430 Edison International 90,500 1,872 Enron Corp. 191,800 16,279 Entergy Corp. 60,500 1,842 FirstEnergy Corp. 60,700 1,502 Florida Progress Corp. 27,100 1,406 FPL Group, Inc. 46,800 2,498 GPU, Inc. 33,500 1,026 KeySpan Corp. 37,000 1,274 Niagara Mohawk Holdings, Inc. (a) 41,800 538 NICOR, Inc. 13,300 491 Peco Energy Co. 44,600 2,149 Peoples Energy Corp. 8,300 270 PG&E Corp. 100,300 2,903 Pinnacle West Capital Corp. 22,000 906 PPL Corp. 36,200 1,213 Public Service Enterprise Group, Inc. 56,900 2,063 Reliant Energy, Inc. 78,810 2,926 Southern Co. 169,800 5,083
See notes to financial statements. Annual Report 27 State Street Equity 500 Index Portfolio Portfolio of Investments, continued August 31, 2000
Market Value (000) Shares $ --------- ----------- Sprint Corp. (Fon Group) 230,900 7,735 Sprint Corp. (PCS Group) (a) 241,900 12,140 TXU Corp. 66,930 2,338 Unicom Corp. 46,700 2,134 Williams Cos. (The) 115,980 5,342 Xcel Energy, Inc. 89,260 2,237 ---------- 116,983 ---------- Total Common Stocks (cost $2,542,341)(000) 3,498,897 ----------
Market Shares/Par Value Amount (000) (000) $ ----------- ---------- Short Term Investments - 2.0% AIM Short Term Investment Prime Portfolio 61,772 61,772 Federated Investors Prime Cash Obligations Fund 3 3 United States Treasury Bills: 5.69% due 09/14/00 (b)(c) $ 1,500 1,497 5.70% due 09/14/00 (b)(c) 1,535 1,532 5.75% due 09/14/00 (b)(c) 200 200 5.97% due 09/14/00 (b)(c) 5,000 4,989 ----------
Market Shares/Par Value Amount (000) (000) $ ---------- ---------- Total Short Term Investments (cost $69,993)(000) 69,993 ---------- Total Investments - 99.9% (identified cost $2,612,334)(000) 3,568,890 Other Assets and Liabilities Net - 0.1% 3,556 ---------- Net Assets - 100% $3,572,446 ==========
(a) Non-income producing security. (b) Held as collateral in connection with futures contracts purchased by the Fund. (c) Rate represents annualized yield at date of purchase. Abbreviations ADR - American Depositary Receipt NPV - No Par Value NV - Non-voting
Number Unrealized of Appreciation Contracts (000) --------- ------------ Schedule of Futures Contracts S&P 500 Financial Futures Contracts Expiration date 09/2000 222 $ 1,835 ---------- Total unrealized appreciation on Open futures contracts purchased $ 1,835 ==========
See notes to financial statements. 28 Annual Report State Street Equity 500 Index Portfolio Statement of Assets and Liabilities (Amounts in thousands) August 31, 2000 Assets Investments at market (identified cost $2,612,334) ........................ $3,568,890 Receivables: Investments sold ......................................................... 5,121 Daily variation margin on futures contracts .............................. 977 Dividends and interest ................................................... 4,738 ---------- Total assets ............................................................ 3,579,726 Liabilities Payables: Investments purchased .......................................... $6,847 Management fees (Note 4) ....................................... 433 ------ Total liabilities ....................................................... 7,280 ---------- Net Assets ................................................................ $3,572,446 ========== Composition of Net Assets Paid-in capital ........................................................... $2,614,055 Net unrealized appreciation on investments and futures contracts .......... 958,391 ---------- Net Assets ................................................................ $3,572,446 ==========
See notes to financial statements. Annual Report 29 State Street Equity 500 Index Portfolio Statement of Operations (Amounts in thousands) For the Period Ended August 31, 2000* Investment Income Dividends (net of foreign taxes withheld of $124) ........................ $ 11,830 Interest ................................................................. 1,037 --------- Total Investment Income ................................................. 12,867 Expenses Management fees (Note 4) .................................... $ 483 --------- Total Expenses .......................................................... 483 --------- Net Investment Income ..................................................... 12,384 --------- Realized and Unrealized Gain (Loss) Net realized gain (loss) on: Investments ................................................. (28,849) Futures contracts ........................................... 1,133 --------- (27,716) Net change in unrealized appreciation on: Investments ................................................. 283,765 Futures contracts ........................................... 1,835 --------- 285,600 --------- Net realized and unrealized gain ............................. 257,884 --------- Net increase in net assets resulting from operations ......... $ 270,268 =========
----------- * The Portfolio commenced operations on March 1, 2000. See notes to financial statements. 30 Annual Report State Street Equity 500 Index Portfolio Statement of Changes in Net Assets (Amounts in thousands) For the Period Ended August 31, 2000* Increase (Decrease) in Net Assets From: Operations Net investment income ......................................... $ 12,384 Net realized gain (loss) ...................................... (27,716) Net change in unrealized appreciation ......................... 285,600 ---------- Net increase in net assets resulting from operations ......... 270,268 ---------- Capital Transactions (Note 3) Proceeds from contributions ................................... 3,697,388 Fair value of withdrawals ..................................... (395,210) ---------- Net increase in net assets from capital transactions ......... 3,302,178 ---------- Total Net Increase in Net Assets ............................... 3,572,446 Net Assets Beginning of period ........................................... -- ---------- End of period ................................................. $3,572,446 ==========
----------- * The Portfolio commenced operations on March 1, 2000. See notes to financial statements. Annual Report 31 State Street Equity 500 Index Portfolio Financial Highlights For the Period Ended August 31, 2000* The following table includes selected supplemental data and ratios to average net assets: Supplemental Data and Ratios: Net assets, end of period (in thousands) ......... $3,572,446 Ratios to average net assets: Operating expenses** ............................ 0.045% Net investment income** ......................... 1.16% Portfolio turnover rate*** ....................... 14% Total return*** .................................. 11.74%
----------- * The Portfolio commenced operations on March 1, 2000. ** Annualized. *** Not Annualized. See notes to financial statements. 32 Annual Report State Street Equity 500 Index Portfolio Notes to Financial Statements August 31, 2000 1. Organization State Street Master Funds (the "Trust") is a registered and diversified open-end management investment company, as defined in the Investment Company Act of 1940, as amended (the "1940 Act"), that was organized under the laws of The Commonwealth of Massachusetts on July 27, 1999. The Trust is comprised of 5 investment portfolios. Information presented in these financial statements pertains only to the State Street Equity 500 Index Portfolio (the "Portfolio"). At August 31, 2000, the other portfolios had not commenced operations. The Declaration of the Trust permits the Board of Trustees to issue an unlimited number of shares of beneficial interest. 2. Significant Accounting Policies The Portfolio's financial statements are prepared in accordance with generally accepted accounting principles that require the use of management estimates. Actual results could differ from those estimates. The following is a summary of the significant accounting policies consistently followed by the Portfolio in the preparation of its financial statements. Security valuation: The Portfolio's investments are valued each business day by an independent pricing service approved by the Trustees. Equity securities listed and traded principally on any national securities exchange are valued on the basis of the last sale price or, lacking any sale, at the closing bid price, on the primary exchange on which the security is traded. Investments in other mutual funds are valued at the net asset value per share. Over-the-counter equities, fixed-income securities and options are valued on the basis of the closing bid price. Futures contracts are valued on the basis of the last sale price. Money market instruments maturing within 60 days of the valuation date are valued at amortized cost, a method by which each money market instrument is initially valued at cost, and thereafter a constant accretion or amortization of any discount or premium is recorded until maturity of the security. The Fund may 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. Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Dividend income is recorded on the ex-dividend date. Interest income is recorded daily on the accrual basis and includes amortization of premium and accretion of discounts on investments. Realized gains and losses from securities transactions are recorded on the basis of identified cost. All of the net investment income and realized and unrealized gains and losses from the security transactions of the Portfolio are allocated pro rata among the investors in the Portfolio based on each investor's average net assets. Federal income taxes: The Portfolio is not required to pay federal income taxes on its net investment income and net capital gains because it is treated as a partnership for federal income tax purposes. All interest, dividends, gain and loss of the Portfolio are deemed to have been "passed through" to the Portfolio's interest holders in proportion to their holdings in the portfolio, regardless of whether such items have been distributed by the Portfolio. Each partner is responsible for tax liability based on his/her distributive share; therefore no provision has been made for federal income taxes. Annual Report 33 State Street Equity 500 Index Portfolio Notes to Financial Statements, continued August 31, 2000 Futures: The Portfolio may enter into financial futures contracts. Upon entering into a futures contract, the Portfolio is required to deposit with the broker cash or securities in an amount equal to a certain percentage of the contract amount. Variation margin payments are made or received by the Portfolio each day, depending on the daily fluctuations in the value of the underlying security, and are recorded for financial statement purposes as unrealized gains or losses by the portfolio. The Portfolio recognizes a realized gain or loss when the contract is closed. The Fund is required to segregate securities in an amount equal to the outstanding value of the open futures contracts in accordance with SEC requirements. The primary risks associated with the use of futures contracts are an imperfect correlation between the change in market value of the securities held by the Fund and the prices of futures contracts and the possibility of an illiquid market. 3. Securities Transactions and Capital Transactions For the period ended August 31, 2000, purchases and sales of investment securities, excluding short-term investments and futures contracts, aggregated to $387,637,175 and $353,684,809, respectively. The aggregate gross unrealized appreciation and depreciation were $1,116,600,115 and $160,044,012 respectively as of August 31, 2000. During the period ended August 31, 2000, investment securities were received by the Fund as proceeds from capital invested. Net contributions, at cost, amounted to $2,779,406,282, and unrealized gains assumed by the Fund at the time of purchase amounted to $672,790,394. 4. Related Party Fees and Transactions The Portfolio has entered into an investment advisory agreement with State Street Bank and Trust Company ("State Street") under which State Street, as the investment advisor, directs the investments of the Portfolio in accordance with its investment objectives, policies, and limitations. The Trust also has contracts with State Street to provide Custody, Administration and Transfer Agent services to the Portfolio. In compensation for these services and for the assumption of ordinary operating expenses of the Portfolio, State Street receives a management fee, calculated daily, at the annual rate of 0.045% of the Portfolio's average daily net assets. 34 Annual Report Report of Ernst & Young LLP, Independent Auditors To the Board of Trustees of State Street Master Funds and Owners of Beneficial Interest of State Street Equity 500 Index Portfolio: We have audited the accompanying statement of assets and liabilities, including the portfolio of investments and schedule of futures contracts, of State Street Equity 500 Index Portfolio (the "Portfolio"), as of August 31, 2000, and the related statement of operations, the statement of changes in net assets, and financial highlights for the period from March 1, 2000 (commencement of operations) to August 31, 2000. These financial statements and financial highlights are the responsibility of the Portfolio's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of August 31, 2000, by correspondence with the custodian and brokers, or other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of State Street Equity 500 Index Portfolio as of August 31, 2000, and the results of its operations, the changes in its net assets, and the financial highlights for the period from March 1, 2000 (commencement of operations) to August 31, 2000, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Boston, Massachusetts October 6, 2000 Annual Report 35 [COVER GRAPHIC] SSgA(R) Funds ANNUAL REPORT Active International Fund August 31, 2000 SSgA(R) Funds Active International Fund Annual Report August 31, 2000 Table of Contents Page Chairman's Letter........................................................... 4 Portfolio Management Discussion and Analysis................................ 6 Report of Independent Accountants........................................... 8 Financial Statements........................................................ 9 Financial Highlights........................................................ 22 Notes to Financial Statements............................................... 23 Tax Information............................................................. 29 Fund Management and Service Providers....................................... 30 "SSgA(R)" is a registered trademark of State Street Corporation and is licensed for use by the SSgA Funds. This report is prepared from the books and records of the Fund and it is submitted for the general information of shareholders. This information is for distribution to prospective investors only when preceded or accompanied by a SSgA Funds Prospectus containing more complete information concerning the investment objective and operations of the Fund, charges and expenses. The Prospectus should be read carefully before an investment is made. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. International markets entail different risks than those typically associated with domestic markets, including currency fluctuations, political and economic instability, accounting changes and foreign taxation. Securities may be less liquid and more volatile. Please see the Prospectus for further details. Russell Fund Distributors, Inc., is the distributor of the SSgA Funds. SSgA Active International Fund -------------------------------------------------------------------------------- Letter From the Chairman of State Street Global Advisors -------------------------------------------------------------------------------- Dear Shareholders, It is our pleasure to provide you with the SSgA Funds annual report for the fiscal year ended August 31, 2000. The SSgA Fund Family has grown to include twenty-four portfolios with over $21 billion in assets as of August 31, 2000. The Fund Family provides a wide range of strategies covering the world's major markets. The enclosed information provides an overview of the investment process for the SSgA Active International Fund. This overview contains the portfolio management discussion, performance updates and financial information for the Fund. In an ongoing effort to develop competitive products and services that provide investment solutions for our clients, we have added the SSgA Intermediate Municipal Bond Fund to the SSgA Fund Family. This Fund's investment objective seeks to provide federally tax-exempt current income by investing primarily in a diversified portfolio of municipal debt securities with a dollar-weighted average maturity between three and ten years. We are also pleased with the success of our SSgA Emerging Markets and SSgA Growth and Income Funds as they were included in Money(R) Magazine's June 2000 issue listing of the 'Top 100 Mutual Funds'. This is the second year in a row that these funds have been selected. Additionally, the SSgA Tax Free Money Market and the SSgA Active International Funds have achieved five-year performance history during the 2000 fiscal year. Currently, all of our SSgA Money Market Funds have at least a five-year performance history. We strive to meet our clients' needs by providing funds with long-term records and competitive performance. We would like to thank you for choosing the SSgA Funds. Our reputation is based on our tradition of designing and delivering exceptional financial services to our clients. We look forward to continue sharing the benefit of our experience with you. Sincerely, /s/ Nicholas A. Lopardo Nicholas A. Lopardo State Street Global Advisors Chairman and Chief Executive Officer /s/ Timothy B. Harbert Timothy B. Harbert State Street Global Advisors President and Chief Operating Officer, SSgA 4 Annual Report SSgA Active International Fund -------------------------------------------------------------------------------- Management of the Funds -------------------------------------------------------------------------------- [PHOTO] Nicholas A. Lopardo Chairman and Chief Executive Officer [PHOTO] Timothy B. Harbert President and Chief Operating Officer A Team Approach to Investment Management Our investment strategies are the product of the combined experience of our professional staff. Portfolio Managers work together to develop and enhance the techniques that drive our investment processes. As a result, the portfolios we manage benefit from the knowledge of the entire team. Mr. Geoff Benarick, Principal, has been the portfolio manager primarily responsible for investment decisions regarding the SSgA Active International Fund since December 1999. Mr. Benarick joined SSgA in 1995 as an Investment Support Associate in Global Advisor's Active International Operations area. He is responsible for research and portfolio management support for SSgA's active international developed markets strategies. Prior to joining SSgA, he worked for State Street Corporation, Luxembourg as a Senior Portfolio Administrator in the Global Portfolio Operations area. He holds a BA in Economics from Boston College. There are seven other portfolio managers working with Mr. Benarick. Annual Report 5 SSgA Active International Fund -------------------------------------------------------------------------------- Portfolio Management Discussion and Analysis -------------------------------------------------------------------------------- Objective: Provide long-term capital growth. Invests in: Equity securities of foreign issuers. Strategy: Fund Managers will concentrate investments in holdings that are composed of, but not limited to, countries included in the Morgan Stanley International Europe, Australia, Far East (MSCI EAFE) Index. Through the use of our proprietary model, a quantitative selection process is used to select the best securities within each underlying country in the Index. -------------------------------------------------------------------------------- GROWTH OF A $10,000 INVESTMENT Dates Active International Fund MSCI EAFE Index ** Inception* $10,000 $10,000 1995 $10,890 $10,933 1996 $11,567 $11,794 1997 $11,703 $12,862 1998 $10,591 $12,844 1999 $13,438 $16,141 2000 $14,257 $17,683 ================================================================================ Performance Review For the fiscal year ended August 31, 2000, the SSgA Active International Fund posted a return of 6.09% versus the MSCI EAFE Index return of 9.55%. The Fund's performance is net of operating expenses, whereas Index results do not include expenses of any kind. Of the 3.4% difference between the performance of the Fund and the Index results, 1.00% results from the payment of expenses by the Fund. The remainder of the underperformance can be attributed to poor performance in the Fund's Japanese portfolio. The United States' economy continued to post strong performance throughout the fiscal year, acting as a catalyst to improve economic conditions and fuel growth throughout the world. The heavily technology-laden NASDAQ market returned almost 52% for the five month period ended December 31, 1999. These incredible results helped to drive performance of technology stocks around the globe. -------------------------------------------------------------------------------- SSgA Active International Fund -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return -------------- ------------ ------- 1 Year $10,609 6.09% 5 Years $13,092 5.54%+ Inception $14,257 6.68%+ -------------------------------------------------------------------------------- Morgan Stanley Capital International Europe, Australia, Far East Index (Net Dividend) -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return -------------- ------------ ------- 1 Year $10,955 9.55% 5 Years $16,173 10.09%+ Inception $17,683 10.92%+ See related Notes on following page. 6 Annual Report SSgA Active International Fund -------------------------------------------------------------------------------- Portfolio Management Discussion and Analysis -------------------------------------------------------------------------------- Additionally, cross-border merger and acquisition activity in Europe, rising oil prices, and a series of Federal Reserve interest rate hikes in the US all affected the performance of Fund. Market and Portfolio Highlights Europe was the biggest contributor to performance during the past year. Although underweight to the region as a whole, specific security overweights in Media and Health Care, such as Prosieben (up 240%) and Smith and Nephew (up 60%) helped the Fund outperform in this region over the past year. The MSCI Europe returned close to 30% in local terms over the past fiscal year, although stated in dollar terms, the return was only 7%. The substantial decline in the Euro affected year-end results, and was due primarily to relative economic growth in Euro participating countries. Even with the positive growth data coming out of the Euro economies, they could not keep pace with the momentum in the US. Returns across Europe, and the Fund's European holdings, this year continued to be driven by accelerating merger and acquisition activity, with large notable deals across sectors including Vodafone/Mannesman, Total/Elf and Glaxo/ Smithkline. Technology, Media, and Telecom stocks also drove returns over the year as many firms floated Internet and mobile subsidiaries in order to unlock value and finance the increasing cost of third generation mobile phone investments. Portfolio holdings in these industries, such as Nokia, Mannesmann, and Siemens were among the biggest contributors to the portfolio's performance. The Fund also benefited from underweight securities in the Transportation industry that were negatively affected by increasing oil prices. Japan continued to be a challenging investment environment during the past year. The disappointingly modest cash flow into the equities markets from the maturing Postal Savings Program, the political uncertainty after Prime Minister Obuchi's stroke, continued corporate restructurings, and the abolishment of the zero interest rate policy all added to the uncertainty of the local Japanese markets. Their economic recovery continued to progress during the year, but at an extremely slow pace. Corporate spending picked up during the first quarter of 2000, followed by increased consumer spending during the second quarter of 2000. However, both factors will need to continue in order to sustain a true economic recovery. Once this recovery is established, the Manager expects foreign funds to flow back into Japan and further sustain the economy. The Fund is currently at a moderate overweight to Japan and is well positioned to take advantage of an upturn in the economy. The Fund's biggest contributors in Japan came from the Technology sector, with Kyocera and Taiyo Yuden returning significant gains of 175% and 170%, respectively. The Fund's exposure to emerging markets contributed favorable overall performance results during the past fiscal year. Fund allocations in Israel, South Africa, and Brazil all provided beneficial returns, with Israeli pharmaceutical and software companies performing particularly well during the year. The Fund's weight in Korea was the only emerging markets exposure that had a negative effect on the Fund, with continuing concerns over large corporate restructuring dragging that market down during the period. -------------------------------------------------------- Top Ten Equity Holdings (as a percent of Total Investments) August 31, 2000 -------------------------------------------------------- Vodafone Airtouch PLC 2.9% Nokia Oyj 2.0 BP Amoco PLC 1.5 Nippon Telegraph & Telephone Corp. 1.5 Toyota Motor Corp. 1.2 Siemens AG 1.2 Telefonaktiebolaget LM Ericsson AB 1.1 Novartis AG 1.1 France Telecom SA 1.0 ING Groep 1.0 -------------------------------------------------------- -------------------------- Notes: The following notes relate to the Growth of $10,000 graph and table on the preceding page. * The Fund commenced operations on March 7, 1995. Index comparison began March 1, 1995. ** Morgan Stanley Capital International Europe, Australia, Far East Index is an index composed of an arithmetic, market value-weighted average of the performance of over 1,100 securities listed on the stock exchanges of the countries of Europe, Australia, and the Far East. The Index is calculated on a total-return basis, which includes reinvestment of net dividends after deduction of withholding taxes. + Annualized. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. Investments in securities of non-US issuers and foreign currencies involve investment risks different from those of US issuers. The Prospectus contains further information and details regarding these risks. Annual Report 7 Report of Independent Accountants To the Shareholders and Board of Trustees of the SSgA Funds: In our opinion, the accompanying statement of assets and liabilities and statement of net assets, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of SSgA Active International Fund (the "Fund") at August 31, 2000, the results of its operations for the fiscal year then ended and the changes in its net assets for each of the two fiscal years in the period then ended, and the financial highlights for each of the five fiscal years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 2000 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. Boston, Massachusetts October 11, 2000 /s/ PricewaterhouseCoopers LLP 8 Annual Report SSgA Active International Fund Statement of Net Assets August 31, 2000 Market Number Value of (000) Shares $ ------ ------- Common Stocks - 83.9% Australia - 0.9% AMP, Ltd. 3,572 37 Aristocrat Leisure, Ltd. 3,100 11 Australia & New Zealand Bank Group, Ltd. 600 5 Australian Gas & Light Co. 2,667 16 Brambles Industries, Ltd. 1,470 42 BRL Hardy, Ltd. 2,227 10 Broken Hill Proprietary Co. 6,242 68 Commonwealth Bank of Australia 4,520 72 Computershare, Ltd. 3,200 15 CSL, Ltd. 1,037 21 Foster's Brewing Group, Ltd. 8,162 19 Futuris Corp., Ltd. 6,748 6 Harvey Norman Holdings, Ltd. 5,200 12 Lang Corp., Ltd. 4,038 21 Lend Lease Corp. 2,300 27 National Australia Bank, Ltd. 6,238 91 News Corp., Ltd. 14,435 188 Publishing Broadcasting, Ltd. 600 5 QBE Insurance Group 4,350 22 Rio Tinto, Ltd. 1,275 20 Santos, Ltd. 3,868 13 Sonic Healthcare, Ltd. 2,200 9 Telstra Corp., Ltd. 32,488 106 Westfield Holdings, Ltd. 700 5 Westpac Banking Corp. 6,912 50 WMC, Ltd. 6,302 30 Woolworths, Ltd. 6,683 26 --------- 947 --------- Austria - 0.1% Austria Tabak AG 3,360 129 --------- Belgium - 0.4% Fortis B 8,605 261 UCB SA 4,480 171 --------- 432 --------- Brazil - 0.3% Banco Itau SA 628,200 54 Brasil Telecom Participacoes S.A - ADR 800 56 Centrais Eletricas Brasileiras Electrobras SA - ADR 4,000 37 Companhia de Saneamento Basico do Estado de Sao Paulo 343,500 37 Companhia Siderurgica Nacional - ADR 1,000 36 Petroleo Brasileiro SA 2,377 75 Tele Norte Leste Participacoes SA 2,554,500 50 --------- 345 --------- Denmark - 0.2% Tele Danmark A/S 2,800 168 --------- Finland - 2.5% Nokia Oyj 46,452 2,036 Pohjola Group Insurance Corp. Series B 2,800 106 Sampo Insurance Co., Ltd. Series A 5,300 215 Sonera Group Oyj 1,240 41 UPM-Kymmene Oyj 10,200 258 --------- 2,656 --------- France - 9.8% Alcatel (a) 9,266 757 Atos SA (a) 600 61 AXA 3,116 443 Banque Nationale Paris 9,388 863 Banque Nationale Paris 2002 Warrants (a) 1,742 8 Cap Gemini Sogeti 660 138 Carrefour SA 1,562 114 Chargeurs International SA 1,944 106 Christian Dior (a) 2,400 132 Cie de St. Gobain 2,512 334 Credit Lyonnais 7,200 291 France Telecom SA 8,607 982 Annual Report 9 SSgA Active International Fund Statement of Net Assets, continued August 31, 2000 Market Number Value of (000) Shares $ ------ ------- Groupe Air France (a) 29,650 568 L'Oreal SA (a) 5,000 361 Lafarge SA 2,236 166 Lagardere Europe (Regd) S.C.A 2,701 192 Pernod-Ricard 1,697 89 Peugeot SA 2,927 542 Pinault Printemps-Redoute SA 562 106 Remy Cointreau SA 6,900 224 Renault (Regie Nationale) 5,955 259 Rhone-Poulenc SA Class A - ADR 2,819 211 Sanofi-Synthelabo SA 2,068 101 Societe Generale Series A (a) 3,313 196 Societe Television Francaise (a) 5,500 401 Sommer Allibert 1,400 54 STMicroelectronics N.V 13,700 839 Suez Lyonnaise des Eaux SA 3,418 342 Thomson Multimedia (a) 3,400 206 Total Co. SA Class B 5,534 821 Total Fina SA 1,620 120 Usinor Sacilor 17,639 189 Usinor Sacilor (d) 7 0 Vivendi 2,048 167 --------- 10,383 --------- Germany - 5.1% Allianz AG 1,419 478 AMB Aachener & Muenchener Beteiligungs AG 2,200 176 BASF AG 5,100 189 Bayer AG 3,500 148 DaimlerChrysler AG 993 51 Deutsche Bank AG 7,450 648 Deutsche Lufthansa AG 4,518 100 Deutsche Telekom AG 22,146 850 Infineon Technologies AG (a) 3,550 236 MAN AG 3,000 84 SAP AG 1,515 296 Schering AG 3,000 160 Siemens AG 7,600 1,217 T-Online International AG (a) 10,910 291 Thyssen Krupp AG 4,604 70 Veba AG 7,150 343 --------- 5,337 --------- Hong Kong - 1.7% ASM Pacific Technology 4,000 13 Cathay Pacific Airways 37,000 72 Cheung Kong Holdings, Ltd. 8,000 105 China Unicom, Ltd. (a) 58,000 135 Citic Pacific, Ltd. 3,000 14 CLP Holdings, Ltd. 9,500 43 Dah Sing Financial Group 9,600 45 Esprit Holdings, Ltd. 1,484 1 Giordano International, Ltd. 20,000 11 Hang Seng Bank 13,500 145 Henderson Land Development Co., Ltd 13,000 72 Hong Kong Electric Holding, Ltd. 4,265 14 Hutchison Whampoa, Ltd. 34,100 481 Jardine Matheson Holdings, Ltd. - ADR (a) 4,917 24 Johnson Electric Holdings, Ltd. (a) 6,000 12 Li & Fung, Ltd. 4,000 17 Pacific Century CyberWorks, Ltd. (a) 159,300 296 SmarTone Telecommunications Holdings, Ltd. 24,000 47 Sun Hung Kai Properties, Ltd. 17,000 160 Swire Pacific, Ltd. Class A 10,500 72 Television Broadcast 3,000 17 --------- 1,796 --------- Ireland - 0.3% Bank of Ireland 42,001 248 CRH PLC 5,880 98 --------- 346 --------- 10 Annual Report SSgA Active International Fund Statement of Net Assets, continued August 31, 2000 Market Number Value of (000) Shares $ ------ ------- Israel - 1.5% Africa - Israel Investments, Ltd. (a) 125 143 Agis Industries, Ltd. 8,745 86 Bank Hapoalim, Ltd. 61,495 196 Bank Leumi Le-Israel 41,500 96 Bezeq Israeli Telecommunication Corp., Ltd. 30,950 191 ECI Telecom, Ltd. 4,340 136 Elco Holdings, Ltd. 8,810 88 IDB Holding Corp., Ltd. 2,530 107 Israel Chemicals, Ltd. 46,275 58 Koor Industries, Ltd. 620 66 RT-SET, Ltd. (a) 6,900 104 Scitex Corp., Ltd. (a) 3,560 44 Teva Pharmaceutical Industries, Ltd 4,500 276 --------- 1,591 --------- Italy - 1.8% Banca Pop di Milano 11,396 80 Compagnia Assicuratrice Unipol 2005 Warrants (a) 3,036 4 Enel SPA 35,560 141 Ente Nazionale Idrocarburi SPA 110,400 644 Parmalat Finanziaria SPA 152,500 208 Telecom Italia Mobile SPA di Risp 50,300 250 Telecom Italia SPA 100,325 596 --------- 1,923 --------- Japan - 21.8% Advantest Corp. 400 82 Aoyama Trading Co. 10,000 133 Asahi Bank, Ltd. 33,000 130 Asahi Glass Co., Ltd. 11,000 103 Autobacs Seven Co., Ltd. 6,500 187 Azel Corp. 19,000 55 Bank of Tokyo - Mitsubishi, Ltd. 47,000 576 Bank of Yokohama 22,000 97 Benesse Corp. 2,200 131 Bridgestone Tire Corp. 4,000 52 Canon, Inc. 8,000 358 Casio Computer Co., Ltd. 9,000 105 Chiba Bank, Ltd. 27,000 110 Chubu Electric Power Co., Inc. 1,400 24 Chugoku Electric Power 7,300 114 Crayfish Co., Ltd. (a) 1 28 Crayfish Co., Ltd. - ADR (a) 200 1 Dai Ichi Pharmaceutical Co. 7,000 165 Dai Nippon Screen Manufacturing Co. (a) 9,000 75 Dai-Tokyo Fire & Marine 57,000 202 Daiei, Inc. (a) 75,000 215 Dainippon Ink and Chemicals, Inc. 17,000 60 Daito Trust Construction 7,500 126 Daiwa Bank 103,000 259 Daiwa House Industries Co. 19,000 125 Daiwa Industries, Ltd. 6,000 20 Daiwa Securities Group, Inc. 20,000 249 Denki Kagaku Kogyo 37,000 149 Eiden Sakakiya Co., Ltd. 10,000 83 Fuji Bank, Ltd. 29,000 221 Fuji Heavy Industries, Ltd. 13,000 86 Fuji Photo Film Co. 3,000 107 Fujitsu, Ltd. 17,000 493 Heiwa Corp. 3,000 61 Hikari Tsushin, Inc. 250 12 Hisamitsu Pharmaceutical Co. 11,000 172 Hitachi, Ltd. 35,000 414 Hokkaido Electric Power Co., Inc. 4,600 65 Hokkaido Takushoku Bank, Ltd. (a)(d) 130,000 0 Honda Motor Co., Ltd. 10,000 366 Industrial Bank of Japan, Ltd. 23,000 174 Internet Initiative Japan, Inc. - ADR (a) 5,309 190 Ito-Yokado Co., Ltd. 2,000 99 Itochu Corp. (a) 20,000 88 Itochu Fuel Corp. 21,000 74 Itochu Techno Science Corp. 400 70 Japan Air Lines Co. 42,000 151 Annual Report 11 SSgA Active International Fund Statement of Net Assets, continued August 31, 2000 Market Number Value of (000) Shares $ ------ ------- Japan Tobacco, Inc. 14 107 JGC Corp. 61,000 292 Kamigumi Co., Ltd. 26,000 123 Kansai Electric Power Co., Inc. 8,800 144 Kawasaki Kisen 94,000 175 Kawasho Corp. 15,000 17 Kinden Corp. 14,000 90 Kirin Brewery Co. 4,000 44 Komatsu Forklift Co., Ltd. 16,000 103 Konica Corp. 14,000 112 Kyocera Corp. 1,700 303 Maeda Corp. 27,000 103 Marubeni Corp. 59,000 163 Matsushita Electric Industrial Co., Ltd. 18,000 493 Mazda Motor Corp. 37,000 88 Mitsubishi Corp. 38,000 278 Mitsubishi Electric Corp. 22,000 205 Mitsubishi Heavy Industries 33,000 116 Mitsubishi Rayon 24,000 63 Mitsukoshi (a) 39,000 134 Morita Corp. 17,000 48 Murata Manufacturing Co., Ltd. 3,000 459 Mycal Corp. 17,000 49 NEC Corp. 17,000 486 Nichia Steel Works 800 3 Nichirei Corp. 33,000 124 Nikko Securities Co., Ltd. 12,000 116 Nippon Electric Glass 5,000 114 Nippon Express Co., Ltd. 10,000 56 Nippon Hodo Co., Ltd. 26,000 115 Nippon Kayaku Co., Ltd. 16,000 91 Nippon Paint Co., Ltd. 66,000 208 Nippon Shinpan Co. 90,000 191 Nippon Shokubai Kagaku Kogyo Co. 18,000 91 Nippon Steel Corp. 53,000 99 Nippon Suisan 47,000 83 Nippon Telegraph & Telephone Corp. 124 1,477 Nishimatsu Construction 15,000 49 Nissan Motor Co., Ltd. (a) 26,000 131 Nissho Corp. 15,000 124 Nissin Food Products 6,000 156 Nittoc Construction Co. 19,000 35 Nomura Securities Co., Ltd. 26,000 608 NTT Mobile Communication Network, Inc 5 132 Olympus Optical Co. 3,000 53 Ono Pharmaceutical 3,000 120 Orient Corp. 56,000 228 Ricoh Co., Ltd. 1,000 17 Rohm Co. 1,000 285 Sakura Bank, Ltd. 29,000 216 Sanshin Electronics 11,000 81 Santen Pharmaceutical Co., Ltd. 5,000 113 Sanwa Bank 10,000 95 Sanwa Shutter Corp. 41,000 125 Sanyo Electric Co., Ltd. 6,000 51 Sanyo Shinpan Finance Co. 5,900 171 Secom Co. 1,000 73 Seino Transportation 6,000 32 Sekisui House, Ltd. 9,000 91 Sharp Corp. 10,000 159 Showa Denko (a) 67,000 94 Showa Shell Sekiyu 30,000 148 Sintokogio 22,000 61 Softbank Corp. 3,100 410 Sony Corp. 5,500 614 Sumitomo Bank 27,000 334 Sumitomo Chemical 13,000 60 Sumitomo Metal Mining Co., Ltd. 24,000 132 Sumitomo Realty & Development 48,000 208 Sumitomo Rubber Industries 27,000 155 Taiheiyo Cement Corp. 84,000 135 Taio Daio Paper Co. 5,000 50 Taisei Corp. 74,000 108 Taiyo Yuden Co., Ltd. 2,000 115 Takeda Chemical Industries 5,000 296 Takefuji Corp. 1,400 138 12 Annual Report SSgA Active International Fund Statement of Net Assets, continued August 31, 2000 Market Number Value of (000) Shares $ ------ ------- Takuma Co. 9,000 65 Toenec Corp. 9,000 35 Tohoku Electric Power 7,200 103 Tokai Bank 15,000 76 Tokio Marine & Fire Insurance Co. 12,000 122 Tokyo Electric Power 11,400 255 Tokyo Electron, Ltd. 400 56 Toshiba Corp. 34,000 334 Toyo Seikan Kaisha, Ltd. 15,000 257 Toyo Trust & Banking Co., Ltd. (The) 14,000 49 Toyota Motor Corp. 28,000 1,218 Uniden Corp. 17,000 108 Yamaha Motor Co. 17,000 121 Yamanouchi Pharmaceutical 1,000 50 Yokogawa Electric Co. 20,000 207 --------- 23,079 --------- Luxembourg - 1.0% Carrier 1 International SA (a) 800 35 Lehman Brothers Finance SA 2001 Warrants (a) 8,820 1,002 --------- 1,037 --------- Netherlands - 4.9% ABN Amro Holding 35,709 888 Aegon NV 8,810 343 DSM 7,586 232 Fortis (NL) 61 2 Getronics (a) 6,408 80 Heineken 1,286 65 ING Groep 14,512 971 Koninklijke (Royal) Philips Electronics NV (a) 12,876 626 Koninklijke Ahold 4,923 139 Koninklijke Boskalis Westminster 11,498 260 Koninklijke KPN (a) 6,420 171 Koninklijke Vopak 3,051 64 Royal Dutch Petroleum Co. 15,341 933 Unilever 6,439 305 World Online International (a) 4,600 65 --------- 5,144 --------- Norway - 0.6% Christiania Bank OG Kreditkasse 48,012 252 Den Norske Creditbank ASA 36,600 166 Norsk Hydro AS 4,200 180 --------- 598 --------- Portugal - 0.0% PT Multimedia.com (a) 1,700 10 --------- Singapore - 2.4% Chartered Semiconductor Manufacturing, Ltd (a) 44,000 368 City Developments 24,000 119 Creative Technology, Ltd. 3,000 65 Cycle & Carriage, Ltd. 6,000 13 DBS Group Holdings, Ltd. 32,350 392 DBS Land 66,000 107 Keppel Corp. 14,000 32 Natsteel Electronics, Ltd. 13,000 43 Natsteel, Ltd. 14,000 19 Oversea-Chinese Banking Corp., Ltd 25,905 179 Overseas Union Bank 15,074 76 SembCorp Industries, Ltd. 49,000 52 Singapore Airlines, Ltd. (Alien Market) 37,000 357 Singapore Press Holdings, Ltd. 10,090 162 Singapore Technologies Engineering, Ltd. 77,000 104 Singapore Telecommunications, Ltd. 167,000 276 United Overseas Bank, Ltd. 25,344 199 --------- 2,563 --------- Annual Report 13 SSgA Active International Fund Statement of Net Assets, continued August 31, 2000 Market Number Value of (000) Shares $ ------ ------- South Africa - 0.5% Amalgamated Banks of South Africa 7,300 30 Anglo American Platinum Corp., Ltd 900 35 AngloGold, Ltd. 300 12 De Beers Centenary Linked Units 2,100 58 Driefontein Consolidated 5,200 19 FirstRand, Ltd. 20,300 22 Impala Platinum Holdings, Ltd. 700 33 Imperial Holdings, Ltd. (a) 2,527 24 Metropolitan Life, Ltd. 18,300 25 Murray & Roberts Holdings, Ltd. 36,000 17 Nedcor, Ltd. 1,400 32 Rembrandt Group, Ltd. 2,900 29 Reunert, Ltd. 25,600 43 Sanlam, Ltd. 27,200 33 Sappi, Ltd. 2,500 22 Sasol 4,600 38 Standard Bank Investment Corporation, Ltd. 6,100 26 Tongaat-Hulett Group, Ltd. 3,600 19 --------- 517 --------- South Korea - 1.1% Dacom Corp. (a) 180 16 Daewoo Corp. (a) 6,420 2 Dongwon Securities 1,829 12 Hana Bank 1,950 10 H & CB 1,687 36 Hyundai Electronics Industries Co. (a) 3,040 56 Kookmin Bank 4,020 49 Koram Bank (a) 2,190 11 Korea Electric Power Corp. 2,360 69 Korea Telecom Corp. 1,060 73 Korea Telecom Corp. - ADR 300 11 Korean Air 1,113 8 LG Chemical, Ltd. 1,450 24 LG Electronics 1,440 37 LG Securities 1,590 17 Pohang Iron & Steel Co., Ltd. 590 44 Samsung Corp. 2,710 25 Samsung Display Devices Co. 560 25 Samsung Electro-Mechanics Co. (a) 688 29 Samsung Electronics 1,530 378 Samsung Fire & Marine Insurance 765 20 Samsung Securities Co., Ltd. 1,820 37 SK Telecom Co., Ltd. (a) 430 95 Ssangyong Oil Refining Co. 1,180 27 --------- 1,111 --------- Spain - 1.8% Arceralia Corporacion Siderurgica SA 18,600 154 Banco Bilbao Vizcaya SA 7,964 118 Banco Santander Central Hispano SA 8,132 87 Endesa SA 19,293 377 Hidroelectrica del Cantabrico SA 3,150 57 Iberdrola SA 21,395 246 Repsol SA 11,277 223 Telefonica de Espana SA - ADR (a) 7,194 412 Telefonica SA (a) 3,761 72 Union Electrica Fenosa SA 10,492 195 --------- 1,941 --------- Sweden - 2.4% Electrolux AB Series B 7,188 89 Europolitan Holdings AB 6,300 67 Nordbanken Holding AB 39,000 271 Nordic Baltic Holding AB (a) 26,804 185 Skanska AB Series B 6,283 214 Svenska Handelsbanken AB Series A 35,674 590 Telefonaktiebolaget LM Ericsson AB (a) 55,988 1,130 --------- 2,546 --------- 14 Annual Report SSgA Active International Fund Statement of Net Assets, continued August 31, 2000 Market Number Value of (000) Shares $ ------ ------- Switzerland - 5.8% ABB, Ltd. 1,630 182 Ares Serono SA Series B (a) 140 164 Baloise Holding, Ltd. 410 416 Credit Suisse Group 2,309 482 Jelmoli Holding AG (Regd) 710 177 Nestle SA 281 606 Novartis AG 746 1,128 Roche Holdings Genusscheine AG 66 591 Schweiz Ruckversicher (Regd) 259 532 Schweizerische Lebensversicherungs-und Rentenanstalt 265 204 SGS Holding (BR) 64 115 Swisscom AG 580 164 Synthes-Stratec, Inc. 275 174 UBS AG (a) 3,002 437 Vontobel Holding AG 88 235 Zurich Allied AG 963 496 --------- 6,103 --------- Thailand - 0.0% Finance One Public Co., Ltd. (Alien Market) (a)(d) 31,600 0 --------- United Kingdom - 17.0% Allied Domecq PLC 54,200 252 Allied Zurich AG 23,721 290 Anglian Water PLC 14,368 117 Barclays PLC 20,074 501 BP Amoco PLC 169,090 1,547 British Energy PLC 24,008 81 British Telecom PLC 44,403 564 Cable & Wireless PLC 17,763 328 Caradon PLC 58,379 150 CMG PLC (a) 12,400 246 Commercial Union Assurance Co. PLC 23,522 362 De La Rue PLC 26,391 147 Debenhams PLC 124,900 367 Enterprise Oil PLC 20,636 164 FKI PLC 64,829 216 Glaxo Wellcome PLC 28,825 829 Hanson PLC 33,464 198 HSBC Holdings PLC 85,427 1,225 Hyder PLC 33,397 175 Imperial Chemical Industries PLC 45,033 304 Invesco PLC 25,300 536 Kingston Communication (Hull) PLC 8,900 65 LASMO PLC 204,167 450 Logica PLC 4,000 126 Millennium & Copthorne Hotel PLC 3,742 25 Northern Foods PLC 65,746 102 Pilkington Brothers PLC 195,128 259 PowerGen PLC 26,200 222 Reckitt Benckiser PLC 10,200 122 Reuters Group PLC 9,403 188 Royal Bank of Scotland Group PLC 31,418 567 Safeway PLC 66,685 255 Severn Trent PLC 25,783 253 Signet Group PLC 197,900 158 Smith & Nephew PLC (a) 23,482 96 SmithKline Beecham PLC 58,135 757 Tate & Lyle, Ltd. PLC 72,895 270 Taylor Woodrow PLC 133,595 316 Tesco Store Holdings PLC 74,052 233 Thames Water PLC 16,354 198 Tomkins PLC 32,800 103 United Utilities PLC 10,909 101 Vodafone Airtouch PLC 735,711 2,969 WPP Group PLC 30,600 433 Yorkshire Water PLC 36,258 176 Zeneca Group PLC 19,853 904 --------- 17,947 --------- Annual Report 15 SSgA Active International Fund Statement of Net Assets, continued August 31, 2000 Market Number Value of (000) Shares $ ------ ------- Total Common Stocks (cost $80,714) 88,649 --------- Preferred Stocks - 1.0% Brazil - 0.4% Banco Bradesco SA 4,989,500 42 Banco do Estado de Sao Paulo 498,000 17 Companhia Brasileira de Distribuicao Grupo Pao de Acucar - ADR 900 34 Companhia Siderurgica de Tubarao 1,187,400 16 Companhia Vale Do Rio Doce - ADR 900 25 Companhia Vale Do Rio Doce Series A 1,500 41 Companmia Cervejaria Brahma 41,200 41 Embratel Participacoes SA 1,780,000 40 Embratel Participacoes SA - ADR 1,700 37 Itausa Investimentos Itau SA 16,700 18 Petrobras Distribuidora 1,515,700 24 Petroleo Brasileiro SA 2,182 64 Telesp Celular Participacoes SA (a) 3,102,700 47 --------- 446 --------- Germany - 0.5% M.A.N. AG 6,650 135 ProSieben Media AG 2,650 397 --------- 532 --------- South Korea - 0.1% Samsung Electronic, Ltd. 500 59 --------- Total Preferred Stocks (cost $793) 1,037 --------- Principal Market Amount Value (000) (000) $ $ --------- ------- Long-Term Investments - 0.2% Germany - 0.1% Deutsche Finance BV (conv.) 1.000% due 05/02/01 (a) DEM 60 51 --------- Japan - 0.1% MTI Capital (Cayman), Ltd. (conv.) 0.500% due 10/01/07 (a) JPY39,000 134 --------- Total Long-Term Investments (cost $261) 185 --------- Short-Term Investments - 10.4% United States - 10.4% AIM Short-Term Investment Prime Portfolio Class A (b) 4,000 4,000 Federal Home Loan Mortgage Discount Notes 6.430% due 09/05/00 (b)(c) 4,200 4,197 Federated Investors Prime Cash Obligations Fund (b) 2,775 2,775 --------- 10,972 --------- Total Short-Term Investments (cost $10,972) 10,972 --------- Total Investments - 95.5% (identified cost $92,740) 100,843 Other Assets and Liabilities, Net - 4.5% 4,802 --------- Net Assets - 100.0% 105,645 ========= See the accompanying notes which are an integral part of the financial statements. 16 Annual Report SSgA Active International Fund Statement of Net Assets, continued August 31, 2000 (a) Nonincome-producing security. (b) At amortized cost, which approximates market. (c) Rate noted is yield-to-maturity from date of acqusition. (d) These securities have been valued by the Security Valuation Committee of the Board of Trustees. It is possible that the estimated value may differ significantly from the amount that might ultimately be realized. (e) At August 31, 2000, $1,020 cash was held as collateral in connection with open futures contracts held by the Fund. Abbreviations: ADR - American Depositary Receipt BR - Bearer NV - Nonvoting Foreign Currency Abbreviations: AUD - Australian dollar DEM - German mark EUR - Eurodollar GBP - British pound JPY - Japanese yen SEK - Swedish krona SGD - Singapore dollar USD - United States dollar Unrealized Number Appreciation of (Depreciation) Futures Contracts Contracts (000) --------- -------------- FTSE - 100 Index (UK) expiration date 09/00 21 $ 88 TOPIX Index (Japan) expiration date 09/00 37 71 DJ EURO STOXX Index (EMU countries) expiration date 09/00 87 48 ------ Total Unrealized Appreciation (Depreciation) on Open Futures Contracts Purchased (e) $ 207 ====== -------------------------------------------------------------------------------- Forward Foreign Currency Exchange Contracts -------------------------------------------------------------------------------- Unrealized Appreciation Contracts to In Exchange (Depreciation) Deliver For Settlement (000) (000) (000) Date $ -------------- -------------- ---------- -------------- USD 1,044 AUD 1,745 10/05/00 (37) USD 327 AUD 555 10/05/00 (7) USD 2,993 EUR 3,166 10/05/00 (177) USD 1,630 EUR 1,730 10/05/00 (92) USD 1,831 EUR 2,030 10/05/00 (25) USD 952 GBP 635 10/05/00 (30) USD 700 GBP 466 10/05/00 (23) USD 2,070 JPY 221,302 10/05/00 18 USD 1,107 SEK 9,709 10/05/00 (76) SEK 9,709 USD 1,052 10/05/00 21 SGD 2,139 USD 1,248 10/05/00 (1) ----- (429) ===== See the accompanying notes which are an integral part of the financial statements. Annual Report 17 SSgA Active International Fund Statement of Net Assets, continued August 31, 2000 Market % of Value Industry Diversification Net (000) (Unaudited) Assets $ ------ ------- Basic Industries 4.5% 4,708 Capital Goods 6.0 6,345 Consumer Basics 9.3 9,809 Consumer Discretionary 0.5 566 Consumer Durables 4.2 4,399 Consumer Non-Durables 2.6 2,779 Consumer Services 1.4 1,429 Energy 5.6 5,905 Finance 20.9 22,131 General Business 2.4 2,561 Miscellaneous 3.0 3,122 Shelter 1.6 1,727 Technology 7.0 7,382 Transportation 0.4 390 Utilities 15.7 16,618 Short-Term Investments 10.4 10,972 ----- ------- Total Investments 95.5 100,843 Other Assets and Liabilities, Net 4.5 4,802 ----- ------- Net Assets 100.0% 105,645 ===== ======= Market % of Value Geographic Diversification Net (000) (Unaudited) Assets $ ------ ------- Africa 0.5% 517 Europe 37.2 39,335 Japan 22.0 23,213 Latin America 0.8 790 Middle East 1.5 1,591 Pacific Basin 6.1 6,474 United Kingdom 17.0 17,951 Short-Term Investments 10.4 10,972 ----- ------- Total Investments 95.5 100,843 Other Assets and Liabilities, Net 4.5 4,802 ----- ------- Net Assets 100.0% 105,645 ===== ======= See the accompanying notes which are an integral part of the financial statements. 18 Annual Report SSgA Active International Fund Statement of Assets and Liabilities Amounts in thousands (except per share amount) August 31, 2000 Assets Investments at market (identified cost $92,740) ............................................... $100,843 Cash .......................................................................................... 1,020 Foreign currency holdings (identified cost $785) .............................................. 773 Unrealized appreciation on forward foreign currency exchange contracts ........................ 39 Receivables: Dividends and interest ..................................................................... 256 Investments sold ........................................................................... 619 Fund shares sold ........................................................................... 4,190 Short-term investments held as collateral for securities loaned, at market .................... 9,931 -------- Total assets ............................................................................ 117,671 Liabilities Payables: Investments purchased .......................................................... $ 965 Fund shares redeemed ........................................................... 523 Accrued fees to affiliates ..................................................... 112 Other accrued expenses ......................................................... 21 Daily variation margin on futures contracts .................................... 6 Unrealized depreciation on forward foreign currency exchange contracts ............ 468 Payable upon return of securities loaned, at market ............................... 9,931 ------ Total liabilities ....................................................................... 12,026 -------- Net Assets .................................................................................... $105,645 ======== Net Assets Consist of: Undistributed net investment income ........................................................... $ 302 Accumulated net realized gain (loss) .......................................................... 11,893 Unrealized appreciation (depreciation) on: Investments ................................................................................ 8,103 Futures contracts .......................................................................... 207 Foreign currency-related transactions ...................................................... (450) Shares of beneficial interest ................................................................. 10 Additional paid-in capital .................................................................... 85,580 -------- Net Assets .................................................................................... $105,645 ======== Net Asset Value, offering and redemption price per share: ($105,645,287 divided by 9,719,878 shares of $.001 par value shares of beneficial interest outstanding) .............................................. $ 10.87 ========
See accompanying notes which are an integral part of the financial statements. Annual Report 19 SSgA Active International Fund Statement of Operations Amounts in thousands For the Fiscal Year Ended August 31, 2000 Investment Income Dividends (net of foreign taxes withheld of $251) .......................................... $ 1,789 Interest ................................................................................... 134 -------- Total investment income ................................................................. 1,923 Expenses Advisory fees .................................................................. $ 807 Administrative fees ............................................................ 85 Custodian fees ................................................................. 289 Distribution fees .............................................................. 39 Transfer agent fees ............................................................ 45 Professional fees .............................................................. 27 Registration fees .............................................................. 30 Shareholder servicing fees ..................................................... 36 Trustees' fees ................................................................. 7 Amortization of deferred organization expenses ................................. 5 Miscellaneous .................................................................. 6 ------- Expenses before reductions ..................................................... 1,376 Expense reductions ............................................................. (300) ------- Expenses, net ........................................................................... 1,076 -------- Net investment income ......................................................................... 847 -------- Net Realized and Unrealized Gain (Loss) Net realized gain (loss) on: Investments 16,476 Futures contracts (305) Foreign currency-related transactions (1,221) 14,950 ------- Net change in unrealized appreciation (depreciation) on: Investments (7,598) Futures contracts 207 Foreign currency-related transactions (22) (7,413) ------- -------- Net realized and unrealized gain (loss) 7,537 -------- Net increase (decrease) in net assets from operations $ 8,384 ========
See accompanying notes which are an integral part of the financial statements. 20 Annual Report SSgA Active International Fund Statement of Changes in Net Assets Amounts in thousands For the Fiscal Years Ended August 31,
2000 1999 --------- --------- Increase (Decrease) in Net Assets Operations Net investment income ....................................................... $ 847 $ 1,221 Net realized gain (loss) .................................................... 14,950 1,365 Net change in unrealized appreciation (depreciation) ........................ (7,413) 20,360 -------- ------- Net increase (decrease) in net assets from operations .................... 8,384 22,946 -------- ------- Distributions From net investment income .................................................. (1,269) (3,396) From net realized gain ...................................................... -- (5,999) -------- ------- Net decrease in net assets from distributions ............................ (1,269) (9,395) -------- ------- Share Transactions Net increase (decrease) in net assets from share transactions ............... (1,386) 9,800 -------- ------- Total net increase (decrease) in net assets .................................... 5,729 23,351 Net Assets Beginning of period ......................................................... 99,916 76,565 -------- ------- End of period (including undistributed net investment income of $302 and $731, respectively) ............................................. $105,645 $99,916 ======== =======
See accompanying notes which are an integral part of the financial statements. Annual Report 21 SSgA Active International Fund Financial Highlights The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
Fiscal Years Ended August 31, -------------------------------------------------------- 2000 1999 1998 1997 1996 -------- -------- -------- -------- -------- Net Asset Value, Beginning of Period ......... $ 10.37 $ 9.24 $ 10.85 $ 10.96 $ 10.89 -------- -------- -------- -------- -------- Income From Operations Net investment income (a) ................. .09 .12 .16 .10 .36 Net realized and unrealized gain (loss) ... .54 2.09 (1.13) .03 .28 -------- -------- -------- -------- -------- Total income from operations ........... .63 2.21 (.97) .13 .64 -------- -------- -------- -------- -------- Distributions From net investment income ................ (.13) (.39) (.15) (.18) (.57) From net realized gain .................... -- (.69) (.49) (.06) -- -------- -------- -------- -------- -------- Total distributions .................... (.13) (1.08) (.64) (.24) (.57) -------- -------- -------- -------- -------- Net Asset Value, End of Period ............... $ 10.87 $ 10.37 $ 9.24 $ 10.85 $ 10.96 ======== ======== ======== ======== ======== Total Return (%) ............................. 6.09 26.88 (9.50) 1.17 6.22 Ratios/Supplemental Data: Net Assets, end of period (in thousands) .. 105,645 99,916 76,565 83,930 54,595 Ratios to average net assets (%): Operating expenses, net (b) ............ 1.00 1.00 1.00 1.00 1.00 Operating expenses, gross (b) .......... 1.28 1.37 1.29 1.40 1.47 Net investment income .................. .79 1.30 1.23 1.12 1.16 Portfolio turnover rate (%) ............... 64.05 62.02 74.79 48.29 22.02
(a) For the periods subsequent to August 31, 1998, average month-end shares outstanding were used for this calculation. (b) See Note 4 for current period amounts. 22 Annual Report SSgA Active International Fund Notes to Financial Statements August 31, 2000 1. Organization The SSgA Funds (the "Investment Company") is a series mutual fund, currently comprised of 24 investment portfolios which are in operation as of August 31, 2000. These financial statements report on one portfolio, the SSgA Active International Fund (the "Fund"). The Investment Company is a registered and diversified open-end investment company, as defined in the Investment Company Act of 1940, as amended (the "1940 Act"), that was organized as a Massachusetts business trust on October 3, 1987 and operates under a First Amended and Restated Master Trust Agreement, dated October 13, 1993, as amended (the "Agreement"). The Investment Company's Agreement permits the Board of Trustees to issue an unlimited number of full and fractional shares of beneficial interest at a $.001 par value. 2. Significant Accounting Policies The Fund's financial statements are prepared in accordance with accounting principles generally accepted in the United States which require the use of management estimates. The following is a summary of the significant accounting policies consistently followed by the Fund in the preparation of its financial statements. Security valuation: International equity and fixed-income 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 the mean of bid prices. In the absence of a last sale or mean bid price, respectively, 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. Money market instruments maturing within 60 days of the valuation date are valued at amortized cost. The Fund may value certain 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. Securities transactions: Securities transactions are recorded on the trade date basis. Realized gains and losses from the securities transactions are recorded on the basis of identified cost. Investment income: Dividend income is recorded on the ex-dividend date and interest income is recorded daily on the accrual basis. Amortization and accretion: All zero-coupon bond discounts and original issue discounts are accreted for both tax and financial reporting purposes. All short- and long-term market premiums/discounts are amortized/accreted for both tax and financial reporting purposes. Federal income taxes: Since the Investment Company is a Massachusetts business trust, each fund is a separate corporate taxpayer and determines its net investment income and capital gains (or losses) and the amounts to be distributed to each fund's shareholders without regard to the income and capital gains (or losses) of the other funds. It is the Fund's intention to qualify as a regulated investment company, as defined by the Internal Revenue Code of 1986, as amended. This requires the Fund to distribute all of its taxable income. Therefore, the Fund paid no federal income taxes and no federal income tax provision was required. Annual Report 23 SSgA Active International Fund Notes to Financial Statements, continued August 31, 2000 The Fund's aggregate cost of investments and the composition of unrealized appreciation and depreciation of investment securities for federal income tax purposes as of August 31, 2000 are as follows: Net Unrealized Unrealized Unrealized Appreciation Federal Tax Cost Appreciation (Depreciation) (Depreciation) ---------------- ------------ -------------- -------------- $92,954,276 $14,773,633 $(6,885,219) $7,888,414 Dividends and distributions to shareholders: Income dividends and capital gain distributions, if any, are recorded on the ex-dividend date. The Fund declares and pays dividends annually. Capital gain distributions, if any, are generally declared and paid annually. An additional distribution may be paid by the Fund to avoid imposition of federal income tax on any remaining undistributed net investment income and capital gains. The timing and characterization of certain income and capital gain distributions are determined in accordance with federal tax regulations which may differ from generally accepted accounting principles ("GAAP"). As a result, net investment income and net realized gain (or loss) on investment and foreign currency-related transactions for a reporting year may differ significantly from distributions during such year. The differences between tax regulations and GAAP relate primarily to investments in foreign denominated investments, forward contracts, passive foreign investment companies and certain securities sold at a loss. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting its net asset value. Expenses: Most expenses can be directly attributed to the individual Fund. Expenses of the investment company which cannot be directly attributed are allocated among all funds based principally on their relative net assets. Deferred organization expenses: The Fund has incurred expenses in connection with its organization. These costs were deferred and are being amortized over 60 months on a straight-line basis. Foreign currency translations: The books and records of the Fund are maintained in US dollars. Foreign currency amounts and transactions of the Fund are translated into US dollars on the following basis: (a) Market value of investment securities, other assets and liabilities at the closing rate of exchange on the valuation date. (b) Purchases and sales of investment securities and income at the closing rate of exchange prevailing on the respective trade dates of such transactions. Reported net realized gains or losses from foreign currency-related transactions arise from sales and maturities of short-term securities; sales of foreign currencies; currency gains or losses realized between the trade and settlement dates on securities transactions; and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books and the US dollar equivalent of the amounts actually received or paid. Net unrealized gains or losses from foreign currency-related transactions arise from changes in the value of assets and liabilities, other than investments in securities, at fiscal year-end, resulting from changes in the exchange rates. It is not practical to isolate that portion of the results of operations of the Fund that arises as a result of changes in exchange rates, from that portion that arises from changes in market prices of investments during the year. Such 24 Annual Report SSgA Active International Fund Notes to Financial Statements, continued August 31, 2000 fluctuations are included with the net realized and unrealized gain or loss from investments. However, for federal income tax purposes the Fund does isolate the effects of changes in foreign exchange rates from the fluctuations arising from changes in market prices for realized gain (or loss) on debt obligations. Derivatives: To the extent permitted by the investment objectives, restrictions and policies set forth in the Fund's Prospectus and Statement of Additional Information, the Fund may participate in various derivative-based transactions. Derivative securities are instruments or agreements whose value is derived from an underlying security or index. They include options, futures, swaps, forwards, structured notes and stripped securities. These instruments offer unique characteristics and risks that assist the Fund in meeting its investment strategies. The Fund typically uses derivatives in three ways: cash equitization, hedging, and return enhancement. Cash equitization is a technique that may be used by the Fund through the use of options and futures to earn "market-like" returns with the Fund's excess and liquidity reserve cash balances. Hedging is used by the Fund to limit or control risks, such as adverse movements in exchange rates and interest rates. Return enhancement can be accomplished through the use of derivatives in the Fund. By purchasing certain instruments, the Fund may more effectively achieve the desired portfolio characteristics that assist in meeting the Fund's investment objectives. Depending on how the derivatives are structured and utilized, the risks associated with them may vary widely. These risks are generally categorized as market risk, liquidity risk and counterparty or credit risk. Foreign currency exchange contracts: In connection with portfolio purchases and sales of securities denominated in a foreign currency, the Fund may enter into foreign currency exchange spot contracts and forward foreign currency exchange contracts ("contracts"). Contracts are recorded at market value. Certain risks may arise upon entering into these contracts from the potential inability of counterparties to meet the terms of their contracts and are generally limited to the amount of unrealized gain on the contracts, if any, that are recognized in the accompanying Statement of Assets and Liabilities. Realized gains or losses arising from such transactions are included in net realized gain (or loss) from foreign currency-related transactions. Open forward foreign currency exchange contracts at August 31, 2000 are presented in the accompanying Statement of Net Assets. Futures: The Fund is currently utilizing exchange-traded futures contracts. The primary risks associated with the use of futures contracts are an imperfect correlation between the change in market value of the securities held by the Fund and the prices of futures contracts and the possibility of an illiquid market. Changes in initial settlement value are accounted for as unrealized appreciation (depreciation) until the contracts are terminated, at which time realized gains and losses are recognized. Investment in international markets: Investing in international markets may involve special risks and considerations not typically associated with investing in the United States markets. These risks include revaluation of currencies, high rates of inflation, repatriation, restrictions on income and capital, and future adverse political and economic developments. Moreover, securities issued in these markets may be less liquid, subject to government ownership controls, delayed settlements, and their prices more volatile than those of comparable securities in the United States. 3. Securities Transactions Investment transactions: For the year ended August 31, 2000, purchases and sales of investment securities, excluding short-term investments and futures contracts, aggregated to $64,966,199 and $83,805,755, respectively. Annual Report 25 SSgA Active International Fund Notes to Financial Statements, continued August 31, 2000 Securities lending: The Investment Company has a securities lending program whereby each Fund can loan securities with a value up to 33 1/3% of its total assets to certain brokers. The Fund receives cash (U.S. currency), U.S. Government or U.S. Government agency obligations as collateral against the loaned securities. To the extent that a loan is secured by cash collateral, such collateral shall be invested by State Street Bank and Trust Company in short-term instruments, money market mutual funds, and such other short-term investments, provided the investments meet certain quality and diversification requirements. Under the securities lending arrangement, the collateral received is recorded on the Fund's statement of assets and liabilities along with the related obligation to return the collateral. In those situations where the Company has relinquished control of securities transferred, it derecognizes the securities and records a receivable from the counterparty. Income generated from the investment of cash collateral, less negotiated rebate fees paid to participating brokers and transaction costs, is divided between the Fund and State Street Bank and Trust Company and is recorded as interest income for the Fund. To the extent that a loan is secured by non-cash collateral, brokers pay the Fund negotiated lenders' fees, which are divided between the Fund and State Street Bank and Trust Company and are recorded as interest income for the Fund. All collateral received will be in an amount at least equal to 102% (for loans of U.S. securities) or 105% (for non-U.S. securities) of the market value of the loaned securities at the inception of each loan. Should the borrower of the securities fail financially, there is a risk of delay in recovery of the securities or loss of rights in the collateral. Consequently, loans are made only to borrowers which are deemed to be of good financial standing. As of August 31, 2000, the value of outstanding securities on loan and the value of collateral amounted to $9,443,727 and $9,931,085, respectively. Included in interest income is securities lending income of $81,328 for the year ended August 31, 2000. 4. Related Parties Adviser: The Investment Company has an investment advisory agreement with State Street Bank and Trust Company (the "Adviser") under which the Adviser, through State Global Advisors, the investment management group of the Adviser, directs the investments of the Fund in accordance with its investment objectives, policies, and limitations. For these services, the Fund pays a fee to the Adviser, calculated daily and paid monthly, at the annual rate of .75% of its average daily net assets. The Adviser voluntarily agreed to waive up to the full amount of its advisory fee to the extent that total expenses exceeded 1.00% of its average daily net assets on an annual basis. The total amount of the waiver for the year ended August 31, 2000 was $298,667. The Investment Company also has contracts with the Adviser to provide custody, shareholder servicing and transfer agent services to the Fund. These amounts are presented in the accompanying Statement of Operations. In addition, the Fund has entered into arrangements with its Adviser whereby custody credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund's expenses. During the year, the Fund's custodian fees were reduced by $1,046 under these arrangements. Administrator: The Investment Company has an administration agreement with Frank Russell Investment Management Company (the "Administrator"), a wholly-owned subsidiary of The Northwestern Mutual Life Insurance Company, under which the Administrator supervises all non-portfolio investment aspects of the Investment Company's operations and provides adequate office space and all necessary office equipment and services, including telephone service, utilities, stationery supplies, and similar items. The Investment Company pays the Administrator for services supplied by the Administrator pursuant to the Administration Agreement, an 26 Annual Report SSgA Active International Fund Notes to Financial Statements, continued August 31, 2000 annual fee, payable monthly on a pro rata basis. For the period September 1, 1999 to April 30, 2000, it is based on the following percentages of the average daily net assets of all international funds: $0 up to and including $500 million - .07%, over $500 million up to and including $1 billion - .06%, over $1 billion up to and including $1.5 billion - .04%, over $1.5 billion - .03%. Effective May 1, 2000, the annual fee is based on the following percentages of the average daily net assets of all International portfolios: $0 to $1 billion - .07%; over $1 billion - .05%. The Administrator will charge a flat fee of $30,000 per year per Fund with less than $500 million in net assets and $1,500 per year for monthly performance reports and use of Russell Performance Universe software product. In addition, the Fund reimburses the Administrator for out-of-pocket expenses and start-up costs for new funds. Distributor and Shareholder Servicing: The Investment Company has a Distribution Agreement with Russell Fund Distributors (the "Distributor") which is a wholly-owned subsidiary of the Administrator to promote and offer shares of the Investment Company. The Distributor may enter into sub-distribution agreements with other non-related parties. The amounts paid to the Distributor are included in the accompanying Statement of Operations. The Investment Company has a Distribution Plan pursuant to Rule 12b-1 (the "Plan") under the 1940 Act. Under this Plan, the Investment Company is authorized to make payments to the Distributor, or any Shareholder Servicing Agent, as defined in the Plan, for providing distribution and marketing services, for furnishing assistance to investors on an ongoing basis, and for the reimbursement of direct out-of-pocket expenses incurred by the Distributor in connection with the distribution and marketing of shares of the Investment Company and the servicing of investor accounts. The Fund has Shareholder Service Agreements with the Adviser, State Street Brokerage Services, Inc. ("SSBSI"), a wholly-owned subsidiary of the Adviser, the Adviser's Retirement Investment Services Division ("RIS"), the Adviser's Metropolitan Division of Commercial Banking ("Commercial Banking") and State Street Solutions ("Solutions")(collectively the "Agents"), as well as several unaffiliated service providers. For these services, the Fund pays .025%, .175%, .175%, .175% and .175%, to the Adviser, SSBSI, RIS, Commercial Banking, and Solutions, respectively, based upon the average daily value of all Fund shares held by or for customers of these Agents. For the year ended August 31, 2000, the Fund was charged shareholder servicing expenses of $20,982, $1,681, $68, $17 and $8,501, by the Adviser, SSBSI, RIS, Commercial Banking, and Solutions, respectively. The combined distribution and shareholder servicing payments shall not exceed .25% of the average daily value of net assets of the Fund on an annual basis. The shareholder servicing payments shall not exceed .20% of the average daily value of net assets of the Fund on an annual basis. Payments that exceed the maximum amount of allowable reimbursement may be carried forward for two years following the year in which the expenditure was incurred so long as the plan is in effect. The Fund's responsibility for any such expenses carried forward shall terminate at the end of two years following the year in which the expenditure was incurred. The Trustees or a majority of the Fund's shareholders have the right, however, to terminate the Distribution Plan and all payments thereunder at any time. The Fund will not be obligated to reimburse the Distributor for carryover expenses subsequent to the Distribution Plan's termination or noncontinuance. There were no carryover expenses as of August 31, 2000. Annual Report 27 SSgA Active International Fund Notes to Financial Statements, continued August 31, 2000 Board of Trustees: The Investment Company paid each Trustee not affiliated with the Investment Company an annual retainer, plus specified amounts for board and committee meetings attended. These expenses are allocated among all of the funds based upon their relative net assets. Accrued fees payable to affiliates and trustees as of August 31, 2000 were as follows: Advisory fees $ 37,109 Administration fees 7,950 Custodian fees 42,735 Distribution fees 2,878 Shareholder servicing fees 11,960 Transfer agent fees 7,860 Trustees' fees 1,610 -------- $112,102 ======== 5. Fund Share Transactions (amounts in thousands)
Fiscal Years Ended August 31, ------------------------------------------------ 2000 1999 ---------------------- ---------------------- Shares Dollars Shares Dollars --------- --------- --------- --------- Proceeds from shares sold ..................... 22,664 $ 252,670 8,857 $ 81,077 Proceeds from reinvestment of distributions ... 56 575 879 7,304 Payments for shares redeemed .................. (22,639) (254,631) (8,387) (78,581) --------- --------- --------- --------- Total net increase (decrease) ................. 81 $ (1,386) 1,349 $ 9,800 ========= ========= ========= =========
6. Interfund Lending Program The Fund and all other funds of the Investment Company received from the Securities and Exchange Commission an exemptive order on December 23, 1999 to establish and operate an Interfund Credit Facility. This allows the Funds to directly lend to and borrow money from the SSgA Money Market Fund for temporary purposes in accordance with certain conditions. The borrowing Funds are charged the average of the current Repo Rate and the Bank Loan Rate. Miscellaneous Expenses on the Statement of Operations include $7,789 of interest expense paid under the interfund lending program. 28 Annual Report SSgA Active International Fund Tax Information August 31, 2000 (Unaudited) The Fund paid foreign taxes of $243,667 and recognized $1,830,726 of foreign source income during the taxable year ended August 31, 2000. Pursuant to Section 853 of the Internal Revenue Code, the Fund designates $.0251 per share of foreign taxes paid and $.1883 of gross income earned from foreign sources in the taxable year ended August 31, 2000. Please consult a tax advisor for questions about federal or state income tax laws. Annual Report 29 SSgA Active International Fund One International Place, 27th Floor Boston, Massachusetts 02110 (800) 997-7327 -------------------------------------------------------------------------------- Trustees Lynn L. Anderson, Chairman William L. Marshall Steven J. Mastrovich Patrick J. Riley Richard D. Shirk Bruce D. Taber Henry W. Todd Officers Lynn L. Anderson, President, Treasurer and CEO Mark E. Swanson, Treasurer and Principal Accounting Officer J. David Griswold, Vice President and Secretary Deedra S. Walkey, Assistant Secretary Rick J. Chase, Assistant Treasurer Carla L. Anderson, Assistant Secretary Investment Adviser State Street Bank and Trust Company 225 Franklin Street Boston, Massachusetts 02110 Custodian, Transfer Agent and Office of Shareholder Inquiries State Street Bank and Trust Company 1776 Heritage Drive North Quincy, Massachusetts 02171 (800) 647-7327 Distributor Russell Fund Distributors, Inc. One International Place, 27th Floor Boston, Massachusetts 02110 (800) 997-7327 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 160 Federal Street Boston, Massachusetts 02110 30 Annual Report [COVER GRAPHIC] SSgA(R) funds ANNUAL REPORT Tax Free Money Market Fund August 31, 2000 SSgA(R) Funds Tax Free Money Market Fund Annual Report August 31, 2000 Table of Contents Page Chairman's Letter......................................................... 4 Portfolio Management Discussion and Analysis.............................. 6 Report of Independent Accountants......................................... 8 Financial Statements...................................................... 9 Financial Highlights...................................................... 22 Notes to Financial Statements............................................. 23 Tax Information........................................................... 27 Fund Management and Service Providers..................................... 28 "SSgA(R)" is a registered trademark of State Street Corporation and is licensed for use by the SSgA Funds. This report is prepared from the books and records of the Fund and it is submitted for the general information of shareholders. This information is for distribution to prospective investors only when preceded or accompanied by a SSgA Funds Prospectus containing more complete information concerning the investment objective and operations of the Fund, charges and expenses. The Prospectus should be read carefully before an investment is made. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. An investment in a money market fund is neither insured nor guaranteed by the US government. There can be no assurance that a money market fund will be able to maintain a stable net asset value of $1.00 per share. Income from tax-free funds may be subject to an alternative minimum tax, or state and local taxes. Russell Fund Distributors, Inc., is the distributor of the SSgA Funds. SSgA Tax Free Money Market Fund -------------------------------------------------------------------------------- Letter From the Chairman of State Street Global Advisors -------------------------------------------------------------------------------- Dear Shareholders, It is our pleasure to provide you with the SSgA Funds annual report for the fiscal year ended August 31, 2000. The SSgA Fund Family has grown to include twenty-four portfolios with over $21 billion in assets as of August 31, 2000. The Fund Family provides a wide range of strategies covering the world's major markets. The enclosed information provides an overview of the investment process for the SSgA Tax Free Money Market Fund. This overview contains the portfolio management discussion, performance updates and financial information for the Fund. In an ongoing effort to develop competitive products and services that provide investment solutions for our clients, we have added the SSgA Intermediate Municipal Bond Fund to the SSgA Fund Family. This Fund's investment objective seeks to provide federally tax-exempt current income by investing primarily in a diversified portfolio of municipal debt securities with a dollar-weighted average maturity between three and ten years. We are also pleased with the success of our SSgA Emerging Markets and SSgA Growth and Income Funds as they were included in Money(R) Magazine's June 2000 issue listing of the 'Top 100 Mutual Funds'. This is the second year in a row that these funds have been selected. Additionally, the SSgA Tax Free Money Market and the SSgA Active International Funds have achieved five-year performance history during the 2000 fiscal year. Currently, all of our SSgA Money Market Funds have at least a five-year performance history. We strive to meet our clients' needs by providing funds with long-term records and competitive performance. We would like to thank you for choosing the SSgA Funds. Our reputation is based on our tradition of designing and delivering exceptional financial services to our clients. We look forward to continue sharing the benefit of our experience with you. Sincerely, /s/ Nicholas A. Lopardo Nicholas A. Lopardo State Street Global Advisors Chairman and Chief Executive Officer /s/ Timothy B. Harbert Timothy B. Harbert State Street Global Advisors President and Chief Operating Officer, SSgA 4 Annual Report SSgA Tax Free Money Market Fund -------------------------------------------------------------------------------- Management of the Funds -------------------------------------------------------------------------------- [PHOTO] Nicholas A. Lopardo Chairman and Chief Executive Officer [PHOTO] Timothy B. Harbert President and Chief Operating Officer A Team Approach to Investment Management Our investment strategies are the product of the combined experience of our professional staff. Portfolio Managers work together to develop and enhance the techniques that drive our investment processes. As a result, the portfolios we manage benefit from the knowledge of the entire team. Mr. James Donahue, Vice President, has been the portfolio manager primarily responsible for investment decisions regarding the SSgA Tax Free Money Market Fund since its inception in December 1994. Prior to joining SSgA, he was a municipal bond trader with the investment firm of Jesup Josephthal. He is a graduate of Belknap College with a BS in economics. There are two other portfolio managers working with Mr. Donahue. Annual Report 5 SSgA Tax Free Money Market Fund -------------------------------------------------------------------------------- Portfolio Management Discussion and Analysis -------------------------------------------------------------------------------- Objective: Maximize current income exempt from federal income tax; preservation of capital and liquidity. Invests in: High quality federally tax exempt short-term municipal securities, including: general obligation bonds and notes, revenue bonds and notes, commercial paper, industrial development and private activity bonds and private placements. Strategy: Fund Managers base their decisions on the relative attractiveness of different municipal money market instruments, which vary depending on the general level of interest rates as well as supply and demand imbalances in the market. -------------------------------------------------------------------------------- GROWTH OF A $10,000 INVESTMENT Dates Tax Free Money Market Fund Inception* $10,000 1995 $10,254 1996 $10,568 1997 $10,884 1998 $11,219 1999 $11,523 2000 $11,911 ================================================================================ Performance Review For the fiscal year ended August 31, 2000, the SSgA Tax Free Money Market Fund had a return of 3.37%. In March 2000, the Fund received a AAA rating from Standard & Poor's Corporation. S&P assigns AAA ratings to funds where safety of principal value is paramount and exposure to loss is limited. This rating corresponds with the underlying investments and the management style of the Fund. Market and Portfolio Highlights During the past fiscal year, the Federal Reserve took a cautious bias with regard to interest rates. To prevent the economy from growing too quickly, the Fed raised interest rates a total of 175 basis points during the year, to 6.5% at -------------------------------------------------------------------------------- SSgA Tax Free Money Market Fund -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return ------------ ----------- ----------- 1 Year $10,337 3.37% 5 Years $11,617 3.04%+ Inception $11,911 3.09%+ * The Fund commenced operations on December 1, 1994. + Annualized. 6 Annual Report SSgA Tax Free Money Market Fund -------------------------------------------------------------------------------- Portfolio Management Discussion and Analysis -------------------------------------------------------------------------------- August 31, 2000. The short-term tax-exempt markets focus on seasonal supply and demand factors to determine the level of interest rates, and as a result, are less affected by actions of the Federal Reserve. In the one year maturity range, interest rates rose from 3.68% to a peak of 4.64% in mid May, closing in August at 4.20% as tracked by the Bond Buyer 1-Year Note Index. Weekly notes, represented in the BMA Muni swap, show an even more dramatic response to supply and demand fluctuations. Weekly rates began the fiscal year at 3.15%, rising slightly over the subsequent quarter. However, year-end rates spiked to 5.46%, higher than many taxable security rates at that time, attracting potential buyers. Weekly rates peaked in early May 2000 at 5.84%, immediately following the tax season, reducing cash in money funds and effectively lowering demand for the notes. The average weekly rate for the past year was 3.93% and closed at 4.23% at August 31, 2000. Assets for the Fund fluctuated between $262 million in August 1999 to a high of $368 million in April, and back down to $272 million at August 31, 2000. During the period, average weighted maturity traded in a tight range between 21 and 30 days, extending to 39 days at fiscal year end. With the yield curve relatively flat for much of the period, the Fund maintained a short duration. The Fund is managed so that if the yield curve begins to steepen, the Fund should have the flexibility to take advantage of higher rates and extend the average duration. -------------------------------------------------------------------------------- Top Ten Issuers (as a percent of Total Investments) August 31, 2000 -------------------------------------------------------------------------------- Kentucky Economic Development Finance Authority Pooled Hospital Loan Revenue 5.1% New York, New York Transitional Finance Authority Revenue 4.7 Missouri, State of, Health & Educational Facilities Authority Revenue 4.5 Texas, State of, Tax & Revenue Anticipation Notes 3.7 Wichita, Kansas General Obligation 3.7 Franklin County, Ohio Hospital Revenue 3.2 Louisiana Public Facilities Authority Revenue 2.8 Iowa Finance Authority Hospital Facility Revenue 2.6 Ohio, State of, Public Facilities Commission Revenue 2.0 Salt Lake City, Utah Revenue 2.0 -------------------------------------------------------------------------------- --------------------- Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. An investment in a money market fund is neither insured nor guaranteed by the US Government. There can be no assurance that a money market fund will be able to maintain a stable net asset value of $1.00 per share. Annual Report 7 Report of Independent Accountants To the Shareholders and Board of Trustees of the SSgA Funds: In our opinion, the accompanying statement of assets and liabilities and statement of net assets, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of SSgA Tax Free Money Market Fund (the "Fund") at August 31, 2000, the results of its operations for the fiscal year then ended and the changes in its net assets for each of the two fiscal years in the period then ended, and the financial highlights for each of the five fiscal years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 2000 by correspondence with the custodian, provide a reasonable basis for our opinion. Boston, Massachusetts October 11, 2000 /s/ PricewaterhouseCoopers LLP 8 Annual Report SSgA Tax Free Money Market Fund Statement of Net Assets August 31, 2000
Principal Amount Date Value (000) Rate of (000) $ % Maturity* $ --------- ------- --------- ------- Municipal Bonds - 99.6% Alabama - 2.0% Montgomery, Alabama Baptist Medical Center Special Care Facilities Financing Authority Revenue, Series A, weekly demand (a) 1,000 4.250 12/01/30 1,000 Montgomery, Alabama Baptist Medical Center Special Care Facilities Financing Authority Revenue, Series G, weekly demand (a) 700 4.250 12/01/30 700 University of Alabama Revenue, Series A, weekly demand 3,800 4.300 10/01/07 3,800 -------- 5,500 -------- Alaska - 1.2% Alaska Industrial Development & Export Authority Revenue Lot 5, weekly demand 2,035 4.800 07/01/03 2,035 Alaska Industrial Development & Export Authority Revenue Lot 6, weekly demand 1,355 4.800 07/01/01 1,355 -------- 3,390 -------- Arkansas - 1.1% Arkansas, State of, Development Financial Authority Health Care Facilities Revenue, Series B, weekly demand 3,100 4.250 06/01/12 3,100 -------- Colorado - 1.3% Colorado Health Facilities Authority Revenue, Series A 1,450 7.250 02/15/16 1,497 Jefferson County, Colorado School District Number R-001 General Obligation (a) 2,075 5.250 12/15/00 2,083 -------- 3,580 -------- Connecticut - 0.9% Connecticut, State of, Health & Educational Facilities Authority Revenue, Series T-2, weekly demand 2,500 3.900 07/01/29 2,500 -------- District of Columbia - 0.7% District of Columbia Revenue, weekly demand (a) 1,900 4.350 10/01/15 1,900 -------- Florida - 7.5% Broward County, Florida Professional Sports Facilities Tax Revenue, Series SGA38, weekly demand (a) 5,000 4.300 09/01/21 5,000 Dade County, Florida Industrial Development Authority Revenue, Series A, weekly demand 950 4.250 01/01/16 950
Annual Report 9 SSgA Tax Free Money Market Fund Statement of Net Assets, continued August 31, 2000
Principal Amount Date Value (000) Rate of (000) $ % Maturity* $ --------- ------- --------- ------- Dade County, Florida Industrial Development Authority Revenue, Series B, weekly demand 885 4.250 01/01/16 885 Dade County, Florida Industrial Development Authority Revenue, Series C, weekly demand 475 4.250 01/01/16 475 Dade County, Florida Industrial Development Authority Revenue, Series D, weekly demand 100 4.250 01/01/16 100 Jacksonville, Florida Electric Authority Revenue, Series 3, (pre-refunded 10/01/00)(b) 1,000 6.650 10/01/02 1,017 Jacksonville, Florida Electric Authority Revenue, Series A 2,065 4.100 10/01/00 2,065 Putnam County, Florida Development Authority Pollution Control Revenue, Series D, semiannual demand 2,000 4.350 12/15/09 2,000 Putnam County, Florida Development Authority Pollution Control Revenue, Series H-4, semiannual demand 2,830 4.050 03/15/14 2,830 St. Lucie County, Florida Pollution Control Commercial Paper 5,000 4.300 12/18/00 5,000 -------- 20,322 -------- Georgia - 2.9% Burke County, Georgia Development Authority Pollution Control Revenue, Series A, weekly demand (a) 650 4.200 01/01/19 650 Clayton County, Georgia Housing Authority Multi-family Housing Revenue, Series A, weekly demand 2,315 4.350 01/01/21 2,315 Clayton County, Georgia Housing Authority Multi-family Housing Revenue, Series D, weekly demand 2,215 4.350 01/01/21 2,215 De Kalb County, Georgia Housing Authority Multi-family Housing Revenue, weekly demand 1,200 4.200 06/15/25 1,200 Georgia, State of, General Obligation, Series D 1,500 6.800 08/01/01 1,533 -------- 7,913 -------- Hawaii - 2.3% Hawaii, State of, General Obligation, Series BS (pre-refunded 09/01/00)(b) 1,100 7.000 09/01/03 1,111 Honolulu, Hawaii City & County General Obligation, Series A, weekly demand 5,125 4.250 01/01/18 5,125 -------- 6,236 --------
10 Annual Report SSgA Tax Free Money Market Fund Statement of Net Assets, continued August 31, 2000
Principal Amount Date Value (000) Rate of (000) $ % Maturity* $ --------- ------- --------- ------- Illinois - 3.2% Illinois Development Finance Authority, Economic Development Revenue, weekly demand 700 4.350 12/01/09 700 Illinois Health Facilities Authority Revenue Series B, weekly demand 5,000 4.200 08/01/20 5,000 Illinois Student Assistance Commission, Student Loan Revenue Series A, weekly demand 2,900 4.300 03/01/16 2,900 -------- 8,600 -------- Indiana - 2.3% Marion County, Indiana Convention & Recreational Facilities Authority Excise Tax Revenue, Series B (pre-refunded 06/01/01)(a)(b) 1,000 7.000 06/01/21 1,039 North Harrison, Indiana High School Building Corp. Revenue (pre-refunded 01/15/01)(b) 5,000 7.300 01/15/13 5,156 -------- 6,195 -------- Iowa - 3.9% Des Moines, Iowa Commercial Development Revenue, Series E, weekly demand 3,400 4.200 04/01/15 3,400 Iowa Finance Authority Hospital Facility Revenue, Series B, weekly demand (a) 3,300 4.250 07/01/07 3,300 Iowa Finance Authority Hospital Facility Revenue, Series B, weekly demand (a) 3,800 4.250 01/01/28 3,800 -------- 10,500 -------- Kansas - 3.7% Wichita, Kansas General Obligation 10,000 5.000 02/22/01 10,032 -------- Kentucky - 6.3% Kentucky Economic Development Finance Authority Pooled Hospital Loan Revenue, weekly demand 13,895 4.450 08/01/18 13,895 Lexington-Fayette, Kentucky Urban County Government Public Facilities Corp. Mortgage Revenue 2,000 4.375 02/01/01 2,002 University of Kentucky Revenue, Series L 1,140 6.600 05/01/05 1,179 -------- 17,076 -------- Louisiana - 3.0% Ascension Parish, Louisiana Pollution Control Revenue, weekly demand 700 4.250 12/01/09 700 Louisiana Public Facilities Authority Revenue, weekly demand 7,500 4.350 05/15/30 7,500 -------- 8,200 --------
Annual Report 11 SSgA Tax Free Money Market Fund Statement of Net Assets, continued August 31, 2000
Principal Amount Date Value (000) Rate of (000) $ % Maturity* $ --------- ------- --------- ------- Maine - 1.4% Maine Health & Higher Education Facilities Authority Revenue, Series C, weekly demand (a) 1,700 4.250 12/01/25 1,700 Maine Regional Waste System, Inc. Solid Waste Resource Recovery Revenue, Series M, weekly demand 2,035 4.350 07/01/04 2,035 -------- 3,735 -------- Maryland - 3.0% Maryland, State of, Health & Higher Educational Facilities Authority Revenue, Series A, weekly demand 4,000 4.200 04/01/35 4,000 Prince George's County, Maryland Certificates of Participation, Series A (a) 4,050 5.000 10/15/00 4,054 -------- 8,054 -------- Massachusetts - 1.6% Massachusetts, State of, Health & Educational Facilities Authority Revenue, Series D, weekly demand (a) 1,000 4.000 10/01/27 1,000 Massachusetts, State of, Health & Educational Facilities Authority Revenue, Series G-1, weekly demand (a) 600 4.100 01/01/19 600 Massachusetts, State of, Health & Educational Facilities Authority Revenue, Series SGA 65, daily demand 2,700 4.350 07/01/26 2,700 -------- 4,300 -------- Michigan - 2.1% Jackson County, Michigan Economic Development Corp. Limited Obligation Revenue, weekly demand 1,500 4.325 12/01/14 1,500 Michigan, State of, Building Authority Revenue, Series II (pre-refunded 09/01/00)(b) 1,880 7.250 09/01/00 1,880 Okemos, Michigan Public School District, General Obligation, Series I (pre-refunded 05/01/01)(a)(b) 2,200 6.900 05/01/11 2,279 -------- 5,659 -------- Minnesota - 1.5% Minnesota, State of, Housing Finance Agency, Series G, semiannual demand 3,000 4.350 07/01/25 3,000 Olmsted County, Minnesota Housing & Redevelopment Authority Revenue (pre-refunded 02/01/01)(b) 1,025 7.000 02/01/05 1,036 -------- 4,036 --------
12 Annual Report SSgA Tax Free Money Market Fund Statement of Net Assets, continued August 31, 2000
Principal Amount Date Value (000) Rate of (000) $ % Maturity* $ --------- ------- --------- ------- Missouri - 5.7% Kansas City, Missouri Industrial Development Authority Multi-family Housing Revenue, monthly demand 2,220 4.600 12/01/15 2,220 Kansas City, Missouri Municipal Assistance Corp. Revenue, Series B (pre-refunded 4/15/01)(a)(b) 1,030 6.000 04/15/20 1,041 Missouri, State of, Health & Educational Facilities Authority Revenue, Series A, weekly demand 1,800 4.200 09/01/10 1,800 Missouri, State of, Health & Educational Facilities Authority Revenue, Series A, weekly demand 1,000 4.250 12/01/19 1,000 Missouri, State of, Health & Educational Facilities Authority Revenue, Series B, weekly demand 1,100 4.250 06/01/14 1,100 Missouri, State of, Health & Educational Facilities Authority Revenue, Series C, weekly demand 3,200 4.250 06/01/19 3,200 Missouri, State of, Health & Educational Facilities Authority Revenue, Series C, weekly demand 1,100 4.250 12/01/19 1,100 Missouri, State of, Health & Educational Facilities Authority Revenue, Series D, weekly demand 4,100 4.250 06/01/19 4,100 -------- 15,561 -------- Nevada - 1.0% Las Vegas, Nevada General Obligation, Series A (a) 1,210 4.750 11/01/00 1,211 Nevada Housing Division Revenue, Series A, weekly demand 1,030 4.400 10/01/30 1,030 Nevada Housing Division Revenue, Series E, weekly demand 400 4.400 10/01/30 400 -------- 2,641 -------- New Hampshire - 0.7% New Hampshire, State of, Business Finance Authority Resource Recovery Revenue, Series A, weekly demand 300 4.250 01/01/18 300 New Hampshire, State of, Higher Educational & Health Facilities Authority Revenue, Series A, weekly demand (a) 600 4.250 12/01/25 600 New Hampshire, State of, Higher Educational & Health Facilities Authority Revenue, Series E, weekly demand (a) 1,000 4.250 12/01/25 1,000 -------- 1,900 -------- New Jersey - 0.4% New Jersey Economic Development Authority Pollution Control Revenue, Series A, weekly demand (a) 1,000 4.150 03/01/12 1,000 --------
Annual Report 13 SSgA Tax Free Money Market Fund Statement of Net Assets, continued August 31, 2000
Principal Amount Date Value (000) Rate of (000) $ % Maturity* $ --------- ------- --------- ------- New York - 7.3% New York, New York General Obligation, Series A-9, weekly demand 2,550 4.250 08/01/18 2,550 New York, New York General Obligation, Series B, weekly demand 1,300 4.050 08/15/24 1,300 New York, New York Municipal Trust, Series SGB 36, weekly demand 1,100 4.200 06/01/22 1,100 New York, New York Transitional Finance Authority Revenue, Series A-1, weekly demand 4,160 4.300 11/15/22 4,160 New York, New York Transitional Finance Authority Revenue, Series A-2, weekly demand 2,100 4.050 11/15/21 2,100 New York, New York Transitional Finance Authority Revenue, Series A-2, weekly demand 3,100 4.050 11/15/22 3,100 New York, New York Transitional Finance Authority Revenue, Series A-2, weekly demand 3,300 4.050 11/15/27 3,300 Suffolk County, New York Industrial Development Agency Revenue, weekly demand 2,315 4.000 02/01/07 2,315 -------- 19,925 -------- North Carolina - 1.0% Charlotte, North Carolina Airport Revenue, Series A, weekly demand (a) 775 4.250 07/01/16 775 University of North Carolina School of Medicine Ambulatory Care Clinic Revenue, weekly demand 2,000 4.300 07/01/12 2,000 -------- 2,775 -------- Ohio - 6.9% Clermont County, Ohio Hospital Facilities Revenue, Series A, weekly demand 400 4.300 12/01/21 400 Clermont County, Ohio Hospital Facilities Revenue, Series B, weekly demand 880 4.350 09/01/21 880 Franklin County, Ohio Hospital Revenue, weekly demand 8,700 4.250 06/01/16 8,700 Ohio, State of, Building Authority Revenue, Series B 1,000 4.500 09/01/00 1,000 Ohio, State of, Public Facilities Commission Revenue, Series II-A 5,500 4.500 12/01/00 5,506 Rocky River, Ohio City School District General Obligation, Series A (pre-refunded 12/01/00)(b) 2,220 6.900 12/01/11 2,278 -------- 18,764 -------- Oklahoma - 1.9% Muskogee, Oklahoma Industrial Trust Pollution Control Revenue, Series A, weekly demand 5,000 4.500 01/01/25 5,000 Oklahoma, State of, Industrial Authority Revenue, Series B, daily demand (a) 300 4.300 08/15/29 300 -------- 5,300 --------
14 Annual Report SSgA Tax Free Money Market Fund Statement of Net Assets, continued August 31, 2000
Principal Amount Date Value (000) Rate of (000) $ % Maturity* $ --------- ------- --------- ------- Pennsylvania - 0.4% Pennsylvania, State of, Higher Education Assistance Agency Student Loan Revenue, Series A, semiannual demand 1,000 4.625 12/01/00 1,001 -------- Rhode Island - 0.4% Rhode Island, State of, Public Buildings Authority Revenue, Series A (pre-refunded 02/01/01)(a)(b) 1,200 6.000 02/01/11 1,209 -------- South Carolina - 1.3% Piedmont, South Carolina Municipal Power Agency Electric Revenue, Series C, weekly demand (a) 500 4.200 01/01/19 500 York County, South Carolina Pollution Control Revenue, semiannual demand 3,000 4.050 09/15/14 3,000 -------- 3,500 -------- Tennessee - 2.1% Knox County, Tennessee Health Education & Housing Facilities Board Hospital Facilities Revenue, Series B, weekly demand 2,700 4.350 09/01/14 2,700 Memphis, Tennessee General Obligation, Series A, weekly demand 1,000 4.250 08/01/03 1,000 Memphis, Tennessee General Obligation, Series B, weekly demand 400 4.300 08/01/02 400 Shelby County, Tennessee General Obligation, Series A, weekly demand 1,500 4.200 03/01/08 1,500 -------- 5,600 -------- Texas - 10.4% Alief, Texas Independent School District General Obligation (pre-refunded 02/15/01)(b) 1,000 6.400 02/15/02 1,009 Brownsville, Texas Utility System Revenue (pre-refunded 09/01/00)(a)(b) 1,500 6.500 09/01/17 1,530 Harris County, Texas, Industrial Development Corp. Revenue, daily demand 1,000 4.300 04/01/27 1,000 Lower Neches Valley, Texas Authority Revenue, semiannual demand 1,000 4.250 02/15/17 1,000 San Antonio, Texas Electric & Gas Revenue 2,500 6.375 02/01/01 2,523 San Antonio, Texas Water Revenue, Series SGA 42, weekly demand (a) 4,115 4.300 05/15/26 4,115 Tarrant County, Texas Water Control & Improvement District Number 001 Revenue (pre-refunded 03/01/01)(b) 1,100 5.800 03/01/02 1,108 Tarrant County, Texas Water Control & Improvement District Number 001 Revenue (pre-refunded 03/01/01)(b) 1,000 6.000 03/01/10 1,008
Annual Report 15 SSgA Tax Free Money Market Fund Statement of Net Assets, continued August 31, 2000
Principal Amount Date Value (000) Rate of (000) $ % Maturity* $ --------- ------- --------- ------- Texas A&M University Revenue, weekly demand (a) 4,130 4.300 05/15/16 4,130 Texas, State of, Tax & Revenue Anticipation Notes 10,000 5.250 08/31/01 10,094 Texas, State of, Public Finance Authority General Obligation (pre-refunded 10/01/00)(b) 1,000 6.300 10/01/02 1,002 -------- 28,519 -------- Utah - 2.7% Intermountain Power Agency Utah Power Supply Revenue, Series E, semiannual demand (a) 2,000 4.075 07/01/14 2,000 Salt Lake City, Utah Revenue, Series A, weekly demand 5,450 4.200 01/01/20 5,450 -------- 7,450 -------- Vermont - 0.6% Vermont Educational & Health Buildings Financing Agency Revenue, Series B, weekly demand (a) 1,000 4.250 12/01/25 1,000 Vermont Educational & Health Buildings Financing Agency Revenue, Series D, weekly demand (a) 600 4.250 12/01/25 600 -------- 1,600 -------- Virginia - 0.4% Lynchburg, Virginia Industrial Development Authority Hospital Facilities Revenue, Series F, weekly demand (a) 700 4.250 12/01/25 700 Roanoke, Virginia Industrial Development Authority Hospital Revenue, Series A, daily demand 500 4.300 07/01/19 500 -------- 1,200 -------- Washington - 4.3% Benton County, Washington Public Utilities District Number 001 Electricity Revenue (a) 1,370 6.000 11/01/00 1,374 Kent, Washington General Obligation, Series SGA 27, weekly demand 5,300 4.300 12/01/16 5,300 King County, Washington General Obligation, Series A 1,000 6.800 12/01/00 1,007 Port of Kalama, Washington Public Corp. Port, weekly demand 725 4.400 01/01/04 725 Port of Seattle, Washington Revenue, Series A (pre-refunded 12/01/00)(a)(b) 3,250 6.000 12/01/14 3,264 -------- 11,670 --------
16 Annual Report SSgA Tax Free Money Market Fund Statement of Net Assets, continued August 31, 2000
Principal Amount Date Value (000) Rate of (000) $ % Maturity* $ --------- ------- --------- ------- West Virginia - 0.2% West Virginia, State of, Hospital Finance Authority Revenue, Series A, weekly demand (a) 600 4.250 12/01/25 600 -------- Total Investments - 99.6% (amortized cost $271,043)(c) 271,043 Other Assets and Liabilities, Net - 0.4% 1,162 -------- Net Assets - 100.0% 272,205 ========
(a) Bond is insured by AMBAC, FGIC, or MBIA/BIG. (b) Pre-refunded: These bonds are collateralized by U.S. Government Obligations, which are held in escrow by a trustee and are used to pay principal and interest on the tax-exempt issue and to retire the bonds in full at the earliest refunding date. The rate noted is for descriptive purposes; effective yield may vary. (c) The cost for federal income tax purposes is the same as shown above. * All securities with a maturity greater than thirteen months have a demand feature, or an optional or mandatory put, or are pre-refunded, resulting in an effective maturity of thirteen months or less. Additionally, all daily and weekly demand securities are backed by direct payment letters of credit. Annual Report 17 SSgA Tax Free Money Market Fund Statement of Net Assets, continued August 31, 2000 Quality Ratings as a % of Value (Unaudited) VMIG1, SP-1+ or equivalent * ........................ 100% Economic Sector Emphasis as a % of Value (Unaudited) Healthcare Revenue .................................. 22% General Obligation .................................. 20 Housing Revenue ..................................... 14 Pre-refunded ........................................ 11 Education Revenue ................................... 9 Industrial Revenue/Pollution Control Revenue ........ 9 Electricity & Power Revenue ......................... 6 Utility Revenue ..................................... 5 Stadium Revenue ..................................... 2 Highway Revenue ..................................... 1 Student Loan Revenue ................................ 1 ---- 100% ==== * VMIG1: The highest short-term municipal note credit rating given by Moody's Investors Services to notes with a demand feature which are of the best quality. SP-1+: The highest short-term municipal note credit rating given by Standard & Poor's Corporation to notes with a very strong or strong capacity to pay principal and interest. See accompanying notes which are an integral part of the financial statements. 18 Annual Report SSgA Tax Free Money Market Fund Statement of Assets and Liabilities Amounts in thousands (except per share amount) August 31, 2000 Assets Investments at amortized cost which approximates market ..................... $ 271,043 Interest receivable ......................................................... 2,151 --------- Total assets .......................................................... 273,194 Liabilities Payables: Dividends .................................................... $ 830 Accrued fees to affiliates ................................... 148 Other accrued expenses ....................................... 11 --------- Total liabilities ..................................................... 989 --------- Net Assets .................................................................. $ 272,205 ========= Net Assets Consist of: Accumulated net realized gain (loss) ........................................ $ (19) Shares of beneficial interest ............................................... 272 Additional paid-in capital .................................................. 271,952 --------- Net Assets .................................................................. $ 272,205 ========= Net Asset Value, offering and redemption price per share: ($272,204,817 divided by 272,228,388 shares of $.001 par value shares of beneficial interest outstanding) ............................ $ 1.00 =========
See accompanying notes which are an integral part of the financial statements. Annual Report 19 SSgA Tax Free Money Market Fund Statement of Operations Amounts in thousands For the Fiscal Year Ended August 31, 2000 Investment Income Interest ........................................................ $ 11,421 Expenses Advisory fees ........................................ $ 734 Administrative fees .................................. 103 Custodian fees ....................................... 96 Distribution fees .................................... 397 Transfer agent fees .................................. 48 Professional fees .................................... 16 Registration fees .................................... 44 Shareholder servicing fees ........................... 229 Trustees' fees ....................................... 10 Amortization of deferred organization expenses ....... 3 Miscellaneous ........................................ 19 --------- Expenses before reductions ........................... 1,699 Expense reductions ................................... (21) --------- Expenses, net ................................................ 1,678 --------- Net investment income .............................................. 9,743 --------- Net Realized Gain (Loss) Net realized gain (loss) on investments: ........................... (25) --------- Net increase in net assets from operations ......................... $ 9,718 --------- See accompanying notes which are an integral part of the financial statements. 20 Annual Report SSgA Tax Free Money Market Fund Statement of Changes in Net Assets Amounts in thousands For the Fiscal Years Ended August 31, 2000 1999 --------- --------- Increase (Decrease) in Net Assets Operations Net investment income ................................ $ 9,743 $ 7,575 Net realized gain (loss) ............................. (25) 34 --------- --------- Net increase in net assets from operations ........ 9,718 7,609 --------- --------- Distributions From net investment income ........................... (9,743) (7,575) --------- --------- Share Transactions Net increase in net assets from share transactions ... 9,837 2,275 --------- --------- Total net increase (decrease) in net assets ............. 9,812 2,309 Net Assets Beginning of period .................................. 262,393 260,084 --------- --------- End of period ........................................ $ 272,205 $ 262,393 ========= ========= See accompanying notes which are an integral part of the financial statements. Annual Report 21 SSgA Tax Free Money Market Fund Financial Highlights The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
Fiscal Years Ended August 31, ------------------------------------------------------- 2000 1999 1998 1997 1996 -------- -------- -------- -------- ------- Net Asset Value, Beginning of Period ......... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $1.0000 -------- -------- -------- -------- ------- Income From Operations Net investment income ..................... .0331 .0267 .0304 .0295 .0302 -------- -------- -------- -------- ------- Distributions From net investment income ................ (.0331) (.0267) (.0304) (.0295) (.0302) -------- -------- -------- -------- ------- Net Asset Value, End of Period ............... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $1.0000 ======== ======== ======== ======== ======= Total Return (%) ............................. 3.37 2.71 3.08 2.99 3.07 Ratios/Supplemental Data: Net Assets, end of period (in thousands)... 272,205 262,393 260,084 163,502 45,061 Ratios to average net assets (%): Operating expenses, net ................ .57 .56 .56 .58 .57 Operating expenses, gross .............. .58 .56 .56 .58 .57 Net investment income .................. 3.31 2.67 3.04 2.98 3.01
22 Annual Report SSgA Tax Free Money Market Fund Notes to Financial Statements August 31, 2000 1. Organization The SSgA Funds (the "Investment Company") is a series mutual fund, currently comprised of 24 investment portfolios which are in operation as of August 31, 2000. These financial statements report on one portfolio, the SSgA Tax Free Money Market Fund (the "Fund"). The Investment Company is a registered and diversified open-end investment company, as defined in the Investment Company Act of 1940, as amended (the "1940 Act"), that was organized as a Massachusetts business trust on October 3, 1987 and operates under a First Amended and Restated Master Trust Agreement, dated October 13, 1993, as amended (the "Agreement"). The Investment Company's Agreement permits the Board of Trustees to issue an unlimited number of full and fractional shares of beneficial interest at a $.001 par value. 2. Significant Accounting Policies The Fund's financial statements are prepared in accordance with accounting principles generally accepted in the United States which require the use of management estimates. The following is a summary of the significant accounting policies consistently followed by the Fund in the preparation of its financial statements. Security valuation: The Fund utilizes the amortized cost valuation method in accordance with Rule 2a-7 of the 1940 Act, a method by which each portfolio instrument meeting certain materiality parameters and credit worthiness standards are initially valued at cost, and thereafter a constant accretion/amortization to maturity of any discount or premium is assumed. Securities transactions: Securities transactions are recorded on the trade date, which in most instances is the same as the settlement date. Realized gains and losses from the securities transactions, if any, are recorded on the basis of identified cost. Investment income: Interest income is recorded daily on the accrual basis. Federal income taxes: Since the Investment Company is a Massachusetts business trust, each fund is a separate corporate taxpayer and determines its net investment income and capital gains (or losses) and the amounts to be distributed to each fund's shareholders without regard to the income and capital gains (or losses) of the other funds. It is the Fund's intention to qualify as a regulated investment company, as defined by the Internal Revenue Code of 1986, as amended. This requires the Fund to distribute all of its taxable income. Therefore, the Fund paid no federal income tax and no federal income tax provision was required. At August 31, 2000, the Fund had a net tax basis capital loss carryover of $758, which may be applied against any realized net taxable gains in each succeeding year or until its expiration date of August 31, 2008, whichever comes first. As permitted by tax regulations, the Fund intends to defer a net realized capital loss of $23,922 incurred from November 1, 1999 to August 31, 2000 and treat it as arising in fiscal year 2001. Dividends and distributions to shareholders: The Fund declares and records dividends on net investment income daily and pays them monthly. Capital gain distributions, if any, are generally declared and paid annually. An additional distribution may be paid by the Fund to avoid imposition of federal income tax on any remaining undistributed net investment income and capital gains. The Fund may periodically make reclassifications among Annual Report 23 SSgA Tax Free Money Market Fund Notes to Financial Statements, continued August 31, 2000 certain of its capital accounts without impacting net asset value for differences between federal tax regulations and generally accepted accounting principles. Expenses: Most expenses can be directly attributed to the Fund. Expenses of the investment company which cannot be directly attributed are allocated among all funds based principally on their relative net assets. Deferred organization expenses: The Fund has incurred expenses in connection with its organization. These costs were deferred and are being amortized over 60 months on a straight-line basis. 3. Securities Transactions Investment transactions: For the year ended August 31, 2000, purchases, sales and maturities of tax-exempt obligations were $1,418,614,799, $1,237,459,974, and $170,685,000, respectively. 4. Related Parties Adviser: The Investment Company has an investment advisory agreement with State Street Bank and Trust Company (the "Adviser") under which the Adviser, through State Street Global Advisors, the investment management group of the Adviser, directs the investments of the Fund in accordance with its investment objectives, policies, and limitations. For these services, the Fund pays a fee to the Adviser, calculated daily and paid monthly, at the annual rate of .25% of its average daily net assets. The Investment Company also has contracts with the Adviser to provide custody, shareholder servicing and transfer agent services to the Fund. These amounts are presented in the accompanying Statement of Operations. In addition, the Fund has entered into arrangements with its Adviser whereby custody credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund's expenses. During the year, the Fund's custodian fees were reduced by $21,121 under these arrangements. Administrator: The Investment Company has an administration agreement with Frank Russell Investment Management Company (the "Administrator"), a wholly-owned subsidiary of The Northwestern Mutual Life Insurance Company, under which the Administrator supervises all non-portfolio investment aspects of the Investment Company's operations and provides adequate office space and all necessary office equipment and services, including telephone service, utilities, stationery supplies, and similar items. The Investment Company pays the Administrator for services supplied by the Administrator pursuant to the Administration Agreement, an annual fee, payable monthly on a pro rata basis. For the period September 1, 1999 to April 30, 2000, the following percentages of the average daily net assets of all domestic funds: $0 up to and including $500 million - .06%; over $500 million up to and including $1 billion - .05%; over $1 billion - .03%. Effective May 1, 2000, the annual fee is based on the following percentages of the average daily net assets of all money market portfolios: $0 up to $15 billion - .0315%; over $15 billion - .029%. The Administrator will also charge a flat fee of $30,000 per year per Fund with less than $500 million in net assets and $1,500 per year for monthly performance reports and use of Russell Performance Universe software product. In addition, the Fund reimburses the Administrator for out-of-pocket expenses and start-up costs for new funds. Distributor and Shareholder Servicing: The Investment Company has a Distribution Agreement with Russell Fund Distributors (the "Distributor") which is a wholly-owned subsidiary of the Administrator to promote and offer shares of the Investment Company. The Distributor may enter into sub-distribution agreements with other 24 Annual Report SSgA Tax Free Money Market Fund Notes to Financial Statements, continued August 31, 2000 non-related parties. The amounts paid to the Distributor are included in the accompanying Statement of Operations. The Investment Company has a Distribution Plan pursuant to Rule 12b-1 (the "Plan" under the 1940 Act. Under this Plan, the Investment Company is authorized to make payments to the Distributor, or any Shareholder Servicing Agent, as defined in the Plan, for providing distribution and marketing services, for furnishing assistance to investors on an ongoing basis, and for the reimbursement of direct out-of-pocket expenses incurred by the Distributor in connection with the distribution and marketing of shares of the Investment Company and the servicing of investor accounts. The Fund has Shareholder Service Agreements with the Adviser, State Street Brokerage Services, Inc. ("SSBSI"), a wholly-owned subsidiary of the Adviser, the Adviser's Retirement Investment Services Division ("RIS"), the Adviser's Metropolitan Division of Commercial Banking ("Commercial Banking") and State Street Solutions ("Solutions")(collectively the "Agents"), as well as other non-related party service providers. For these services, the Fund pays .025%, .175%, .175%, .050%, and .175% to the Adviser, SSBSI, RIS, Commercial Banking, and Solutions, respectively, based upon the average daily value of all Fund shares held by or for customers of these Agents. For the year ended August 31, 2000, the Fund was charged shareholder servicing expenses of $73,345 and $158,931 by the Adviser and Commercial Banking, respectively. The Fund did not incur any expenses from SSBSI, RIS, or Solutions during this year. The combined distribution and shareholder servicing payments shall not exceed .25% of the average daily value of net assets of the Fund on an annual basis. The shareholder servicing payments shall not exceed .20% of the average daily value of net assets of the Fund on an annual basis. Payments that exceed the maximum amount of allowable reimbursement may be carried forward for two years following the year in which the expenditure was incurred so long as the plan is in effect. The Fund's responsibility for any such expenses carried forward shall terminate at the end of two years following the year in which the expenditure was incurred. The Trustees or a majority of the Fund's shareholders have the right, however, to terminate the Distribution Plan and all payments thereunder at any time. The Fund will not be obligated to reimburse the Distributor for carryover expenses subsequent to the Distribution Plan's termination or noncontinuance. There were no carryover expenses as of August 31, 2000. Board of Trustees: The Investment Company paid each Trustee not affiliated with the Investment Company an annual retainer, plus specified amounts for board and committee meetings attended. These expenses are allocated among all of the funds based upon their relative net assets. Accrued fees payable to affiliates and trustees as of August 31, 2000 were as follows: Advisory fees $ 57,253 Administration fees 10,891 Custodian fees 18,687 Distribution fees 25,558 Shareholder servicing fees 16,127 Transfer agent fees 18,059 Trustees' fees 1,110 ---------- $ 147,685 ========== Annual Report 25 SSgA Tax Free Money Market Fund Notes to Financial Statements, continued August 31, 2000 Beneficial Interest: As of August 31, 2000, three shareholders (two of which were also affiliates of the Investment Company) were record owners of approximately 40%, 25% and 16%, respectively, of the total outstanding shares of the Fund. 5. Fund Share Transactions (On a Constant Dollar Basis):
(amounts in thousands) Fiscal Years Ended August 31, ----------------------------- 2000 1999 ------------ --------- Proceeds from shares sold..................... 1,144,186 887,427 Proceeds from reinvestment of distributions... 4,975 4,738 Payments for shares redeemed.................. (1,139,324) (889,890) ------------ --------- Total net increase (decrease)................. 9,837 2,275 ============ =========
6. Interfund Lending Program The Fund and all other funds of the Investment Company received from the Securities and Exchange Commission an exemptive order on December 23, 1999 to establish and operate an Interfund Credit Facility. This allows the Funds to directly lend to and borrow money from the SSgA Money Market Fund for temporary purposes in accordance with certain conditions. The borrowing Funds are charged the average of the current Repo Rate and the Bank Loan Rate. The Fund did not utilize the interfund lending program during this year. 26 Annual Report SSgA Tax Free Money Market Fund Tax Information August 31, 2000 (Unaudited) Of the dividends paid by the Tax Free Money Market Fund from net investment income for the taxable year ended August 31, 2000, 100% were exempt interest dividends which are tax exempt for purposes of regular federal income tax, and for purposes of the federal alternative minimum tax. Please consult a tax advisor for any questions about federal or state income tax laws. Annual Report 27 SSgA Tax Free Money Market Fund One International Place, 27th Floor Boston, Massachusetts 02110 (800) 997-7327 -------------------------------------------------------------------------------- Trustees Lynn L. Anderson, Chairman William L. Marshall Steven J. Mastrovich Patrick J. Riley Richard D. Shirk Bruce D. Taber Henry W. Todd Officers Lynn L. Anderson, President, Treasurer and CEO Mark E. Swanson, Treasurer and Principal Accounting Officer J. David Griswold, Vice President and Secretary Deedra S. Walkey, Assistant Secretary Rick J. Chase, Assistant Treasurer Carla L. Anderson, Assistant Secretary Investment Adviser State Street Bank and Trust Company 225 Franklin Street Boston, Massachusetts 02110 Custodian, Transfer Agent and Office of Shareholder Inquiries State Street Bank and Trust Company 1776 Heritage Drive North Quincy, Massachusetts 02171 (800) 647-7327 Distributor Russell Fund Distributors, Inc. One International Place, 27th Floor Boston, Massachusetts 02110 (800) 997-7327 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 160 Federal Street Boston, Massachusetts 02110 28 Annual Report [COVER GRAPHIC] SSgA(R) funds ANNUAL REPORT US Government Money Market Fund August 31, 2000 SSgA(R) Funds US Government Money Market Fund Annual Report August 31, 2000 Table of Contents Page Chairman's Letter................................................... 4 Portfolio Management Discussion and Analysis........................ 6 Report of Independent Accountants................................... 8 Financial Statements................................................ 9 Financial Highlights................................................ 14 Notes to Financial Statements....................................... 15 Fund Management and Service Providers............................... 19 "SSgA(R)" is a registered trademark of State Street Corporation and is licensed for use by the SSgA Funds. This report is prepared from the books and records of the Fund and it is submitted for the general information of shareholders. This information is for distribution to prospective investors only when preceded or accompanied by a SSgA Funds Prospectus containing more complete information concerning the investment objective and operations of the Fund, charges and expenses. The Prospectus should be read carefully before an investment is made. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. An investment in a money market fund is neither insured nor guaranteed by the US government. There can be no assurance that a money market fund will be able to maintain a stable net asset value of $1.00 per share. Russell Fund Distributors, Inc., is the distributor of the SSgA Funds. SSgA US Government Money Market Fund -------------------------------------------------------------------------------- Letter From the Chairman of State Street Global Advisors -------------------------------------------------------------------------------- Dear Shareholders, It is our pleasure to provide you with the SSgA Funds annual report for the fiscal year ended August 31, 2000. The SSgA Fund Family has grown to include twenty-four portfolios with over $21 billion in assets as of August 31, 2000. The Fund Family provides a wide range of strategies covering the world's major markets. The enclosed information provides an overview of the investment process for the SSgA US Government Money Market Fund. This overview contains the portfolio management discussion, performance updates and financial information for the Fund. In an ongoing effort to develop competitive products and services that provide investment solutions for our clients, we have added the SSgA Intermediate Municipal Bond Fund to the SSgA Fund Family. This Fund's investment objective seeks to provide federally tax-exempt current income by investing primarily in a diversified portfolio of municipal debt securities with a dollar-weighted average maturity between three and ten years. We are also pleased with the success of our SSgA Emerging Markets and SSgA Growth and Income Funds as they were included in Money(R) Magazine's June 2000 issue listing of the 'Top 100 Mutual Funds'. This is the second year in a row that these funds have been selected. Additionally, the SSgA Tax Free Money Market and the SSgA Active International Funds have achieved five-year performance history during the 2000 fiscal year. Currently, all of our SSgA Money Market Funds have at least a five-year performance history. We strive to meet our clients' needs by providing funds with long-term records and competitive performance. We would like to thank you for choosing the SSgA Funds. Our reputation is based on our tradition of designing and delivering exceptional financial services to our clients. We look forward to continue sharing the benefit of our experience with you. /s/ Nicholas A. Lopardo Nicholas A. Lopardo State Street Global Advisors Chairman and Chief Executive Officer /s/ Timothy B. Harbert Timothy B. Harbert State Street Global Advisors President and Chief Operating Officer, SSgA 4 Annual Report SSgA US Government Money Market Fund -------------------------------------------------------------------------------- Management of the Funds -------------------------------------------------------------------------------- [PHOTO] Nicholas A. Lopardo Chairman and Chief Executive Officer [PHOTO] Timothy B. Harbert President and Chief Operating Officer A Team Approach to Investment Management Our investment strategies are the product of the combined experience of our professional staff. Portfolio Managers work together to develop and enhance the techniques that drive our investment processes. As a result, the portfolios we manage benefit from the knowledge of the entire team. Ms. Lisa Hatfield, Principal, has been the portfolio manager primarily responsible for investment decisions regarding the SSgA US Government Money Market Fund since June 1994. Ms. Hatfield is the Unit Head of the cash desk with responsibility for the SSgA money market funds, several short-term funds and enhanced cash portfolios. Prior to joining SSgA, she was a portfolio manager with State Street's Investment Research Department, where she managed the securities lending reinvestment funds since their inception in 1987, as well as other money market portfolios. She received a BS from Suffolk University. There are ten other portfolio managers working with Ms. Hatfield. Annual Report 5 SSgA US Government Money Market Fund -------------------------------------------------------------------------------- Portfolio Management Discussion and Analysis -------------------------------------------------------------------------------- Objective: Maximize current income while preserving capital and liquidity. Invests in: US Government Treasury and Agency notes, and repurchase agreements backed by those securities. Strategy: Fund Managers base their decisions on the relative attractiveness of different money market investments, which vary depending on the general level of interest rates as well as supply and demand imbalances in the market. -------------------------------------------------------------------------------- GROWTH OF A $10,000 INVESTMENT Dates US Gov't Money Market Salomon Smith Barney 3-Month Treasury Fund T-Bill Index** Inception* $10,000 $10,000 1991 $10,306 $10,293 1992 $10,769 $10,731 1993 $11,100 $11,061 1994 $11,466 $11,454 1995 $12,083 $12,093 1996 $12,720 $12,740 1997 $13,381 $13,409 1998 $14,094 $14,109 1999 $14,762 $14,765 2000 $15,597 $15,578 ================================================================================ Performance Review The Fund had a total return of 5.65% for the fiscal year ended August 31, 2000. This compared favorably to the Salomon Smith Barney 3-Month Treasury Bill Index return of 5.51% for the same period. The Fund's performance is net of operating expenses, while Index results do not include expenses of any kind. The Salomon Smith Barney 3-Month Treasury Bill Index was chosen as a standard, well-known representation of money market rates. The market environment for the last year began with the Federal Open Market Committee (FOMC) tightening monetary policy due to strong domestic growth and rejuvenated demand from abroad. The FOMC raised rates by 25 basis points in June, August and November 1999, bringing the Fed Funds target from 4.75% to 5.50%. The FOMC took no action at its December meeting, but followed a strategy of injecting the economy with massive amounts of cash to ease Y2K liquidity -------------------------------------------------------------------------------- SSgA US Government Money Market Fund -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return ------------------- --------------- -------- 1 Year $ 10,565 5.65% 5 Years $ 12,907 5.24%+ Inception $ 15,597 4.79%+ -------------------------------------------------------------------------------- Salomon Smith Barney 3-Month Treasury Bill Index -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return ------------------- --------------- -------- 1 Year $ 10,551 5.51% 5 Years $ 12,882 5.20%+ Inception $ 15,578 4.78%+ See related Notes on following page. 6 Annual Report SSgA US Government Money Market Fund -------------------------------------------------------------------------------- Portfolio Management Discussion and Analysis -------------------------------------------------------------------------------- concerns. Fourth quarter GDP logged an impressive 8.3% due to Y2K inventory building supported by the generous liquidity provisions from the Federal Reserve. This surfeit of liquidity, in effect, loosened monetary policy when in fact tight labor markets and excess demand called for tightening. First quarter 2000 GDP followed with a 4.8% growth rate. The Federal Reserve Board needed to take back the excess liquidity and slow the economy. The FOMC did so by raising interest rates by 100 basis points in the first half of 2000. Although GDP advanced 5.4% throughout the second quarter of 2000, fears of inflation were tempered by the fact that productivity grew at 5% for the same period. The FOMC opted to leave rates unchanged at the June and August meetings while maintaining a cautious stance going forward. The Manager continues to be cautious about future FOMC policy, considering the trend in rising oil prices as well as the upcoming presidential election. Market and Portfolio Highlights In the last fiscal year, the SSgA US Government Money Market Fund was managed consistently with its objective of providing safety of principal and liquidity by investing in US Government Treasury and Agency securities and providing competitive returns. The Fund's net assets increased in size by $286 million or 23.1% over the past year to $1.5 billion at August 31, 2000. During the fall tightening period the Fund was managed with liquidity as a primary concern, with maturing positions remaining in cash and very liquid short-term securities throughout the last calendar quarter of 1999. This large cash position served to hedge against Y2K liquidity concerns and helped with the substantial swings in assets related to calendar year-end 1999. The 100 basis points of tightening in the first half of 2000, combined with the market's concern of further tightening, resulted in a very steep yield curve, with the 6-month LIBOR at 7.10% and the 12-month LIBOR at 7.50%. Additionally, comments from Treasury officials questioning the implicit government guarantee of the Federal agencies widened spreads for these securities, particularly those issued by FNMA and FHLMC. The Fund took the opportunity to buy on market weakness and extended the Fund's average maturity. By end of August, the yield curve had stabilized with the 3-month LIBOR at 6.67%, the 6-month LIBOR at 6.80% and the 12-month LIBOR at 6.92%. The Fund's average maturity ranged between 34 and 60 days, ending at 55 days at August 31, 2000, longer than its peer group average of 51 days as measured by iMoneyNet, Inc. (formerly IBC Financial Data). The Fund increased exposure in floating rate securities from 38% on August 31, 1999 to 46% at August 31, 2000. This offered protection in rising and falling rate environments. The Manager concentrated primarily on indices such as one- and three-month LIBOR, with a small allocation based on Fed Funds and Prime rates. With the yield curve's potential to steepen on negative inflation news, the Manager will look for those opportunities to extend duration and add yield. ------------------------------ Notes: The following notes relate to the Growth of $10,000 graph and table on the preceding page. * The Fund commenced operations on March 1, 1991. Index comparison also began on March 1, 1991. ** Equal dollar amounts of 3-month Treasury bills are purchased at the beginning of each of three consecutive months. As each bill matures, all proceeds are rolled over or reinvested in a new 3-month bill. The income used to calculate the monthly return is derived by subtracting the original amount invested from the maturity value. The yield curve average is the basis for calculating the return on the Index. The Index is rebalanced monthly by market capitalization. + Annualized. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. An investment in a money market fund is neither insured nor guaranteed by the US Government. There can be no assurance that a money market fund will be able to maintain a stable net asset value of $1.00 per share. Annual Report 7 Report of Independent Accountants To the Shareholders and Board of Trustees of the SSgA Funds: In our opinion, the accompanying statement of assets and liabilities and statement of net assets, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of SSgA US Government Money Market Fund (the "Fund") at August 31, 2000, the results of its operations for the fiscal year then ended and the changes in its net assets for each of the two fiscal years in the period then ended, and the financial highlights for each of the five fiscal years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 2000 by correspondence with the custodian, provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP Boston, Massachusetts October 11, 2000 8 Annual Report SSgA US Government Money Market Fund Statement of Net Assets August 31, 2000
Principal Amount Date Value (000) Rate of (000) $ % Maturity $ -------- ------ -------- ------- United States Government Agencies - 85.9% Federal Farm Credit Bank (a) 30,000 6.460 10/20/00 29,998 Federal Home Loan Bank (a) 50,000 6.470 09/28/00 49,999 Federal Home Loan Bank 28,250 6.350 02/02/01 28,237 Federal Home Loan Bank 20,000 6.668 04/06/01 19,993 Federal Home Loan Bank (a) 50,000 6.480 07/18/01 49,969 Federal Home Loan Bank (a) 50,000 6.430 07/20/01 49,974 Federal Home Loan Bank (a) 50,000 6.419 08/15/01 49,967 Federal Home Loan Bank (a) 75,000 6.460 08/17/01 74,951 Federal Home Loan Bank Discount Notes 30,000 6.490 09/20/00 29,897 Federal Home Loan Bank Discount Notes 30,000 6.450 09/27/00 29,860 Federal Home Loan Bank Discount Notes 50,000 6.480 12/13/00 49,073 Federal Home Loan Mortgage Association (a) 35,000 6.525 01/10/01 34,988 Federal Home Loan Mortgage Association 20,000 6.255 01/12/01 19,993 Federal Home Loan Mortgage Corp. (a) 50,000 6.525 12/20/00 49,974 Federal Home Loan Mortgage Corp. 25,000 6.330 07/19/01 23,589 Federal Home Loan Mortgage Corp. (a) 50,000 6.430 07/19/01 49,974 Federal Home Loan Mortgage Corp. (a) 50,000 6.425 07/26/01 49,969 Federal Home Loan Mortgage Corp. (a) 50,000 6.450 08/17/01 49,967 Federal Home Loan Mortgage Corp. Discount Notes 50,000 6.495 09/21/00 49,820 Federal Home Loan Mortgage Corp. Discount Notes 50,000 6.440 09/26/00 49,776 Federal Home Loan Mortgage Corp. Discount Notes 25,000 6.520 09/28/00 24,878 Federal Home Loan Mortgage Corp. Discount Notes 49,025 6.400 02/01/01 47,692 Federal National Mortgage Association (a) 25,000 6.461 11/13/00 24,996 Federal National Mortgage Association 25,000 5.600 02/02/01 24,905 Federal National Mortgage Association 25,000 6.570 02/22/01 24,997 Federal National Mortgage Association 15,000 6.550 03/20/01 14,996 Federal National Mortgage Association (a) 40,000 6.530 05/24/01 40,000 Federal National Mortgage Association (a) 40,000 6.485 06/07/01 39,975 Federal National Mortgage Association Discount Notes 25,000 6.465 10/19/00 24,785 Federal National Mortgage Association Discount Notes 25,000 6.695 11/16/00 24,647 Federal National Mortgage Association Discount Notes 40,000 6.460 01/11/01 39,053 Federal National Mortgage Association Discount Notes 50,000 6.400 02/08/01 48,577 Student Loan Marketing Association 15,000 5.900 12/01/00 14,994 Student Loan Marketing Association (a) 75,000 6.773 08/08/01 74,965 --------- Total United States Government Agencies (cost $1,309,428) 1,309,428 --------- Total Investments (amortized cost $1,309,428) 1,309,428 =========
Annual Report 9 SSgA US Government Money Market Fund Statement of Net Assets, continued August 31, 2000
Value (000) $ --------- Repurchase Agreements - 14.4% Agreement with ABN Amro Bank and Bank of New York (Tri-Party) of $60,056 acquired August 31, 2000 at 6.660% to be repurchased at $60,067 on September 1, 2000, collateralized by: $59,570 Federal Home Loan Bank securities 5.750% due 09/01/00, valued at $61,262 60,056 Agreement with Banc One Corp. and Chase Bank (Tri-Party) of $50,000 acquired August 31, 2000 at 6.660% to be repurchased at $50,009 on September 1, 2000, collateralized by: $51,235 Federal National Mortgage Association Discount Notes due 9/25/00, valued at $51,004 50,000 Agreement with Deutsche Bank of $110,000, acquired August 31, 2000 at 6.660% to be repurchased at $110,020 on September 1, 2000, collateralized by: $111,905 Federal National Mortgage Corporation securities 6.400% due 02/08/01, valued at $112,205 110,000 --------- Total Repurchase Agreements (identified cost $220,056) 220,056 --------- Total Investments and Repurchase Agreements - 100.3% (cost $1,529,484)(b) 1,529,484 Other Assets and Liabilities, Net - (0.3%) (4,219) --------- Net Assets - 100.0% 1,525,265 =========
(a) Adjustable or floating rate security. (b) The identified cost for federal income tax purposes is the same as shown above. See accompanying notes which are an integral part of the financial statements. 10 Annual Report SSgA US Government Money Market Fund Statement of Assets and Liabilities Amounts in thousands (except per share amount) August 31, 2000 Assets Investments at amortized cost which approximates market ............................................ $1,309,428 Repurchase agreements (identified cost $220,056) ................................................... 220,056 Interest receivable ................................................................................ 5,084 ---------- Total assets ................................................................................. 1,534,568 Liabilities Payables: Dividends ............................................................................ $ 8,350 Accrued fees to affiliates ........................................................... 909 Other accrued expenses ............................................................... 44 -------- Total liabilities ............................................................................ 9,303 ---------- Net Assets ......................................................................................... $1,525,265 ========== Net Assets Consist of: Accumulated net realized gain (loss) ............................................................... $ 56 Shares of beneficial interest ...................................................................... 1,525 Additional paid-in capital ......................................................................... 1,523,684 ---------- Net Assets ......................................................................................... $1,525,265 ========== Net Asset Value, offering and redemption price per share: ($1,525,264,979 divided by 1,525,208,558 shares of $.001 par value shares of beneficial interest outstanding) ................................................... $ 1.00 ==========
See accompanying notes which are an integral part of the financial statements. Annual Report 11 SSgA US Government Money Market Fund Statement of Operations Amounts in thousands For the Fiscal Year Ended August 31, 2000 Investment Income Interest ........................................................................................ $ 84,302 Expenses Advisory fees ....................................................................... $ 3,529 Administrative fees ................................................................. 454 Custodian fees ...................................................................... 387 Distribution fees ................................................................... 277 Transfer agent fees ................................................................. 141 Professional fees ................................................................... 30 Registration fees ................................................................... 65 Shareholder servicing fees .......................................................... 1,022 Trustees' fees ...................................................................... 25 Miscellaneous ....................................................................... 46 ---------- Expenses before reduction ........................................................... 5,976 Expense reductions .................................................................. (15) ---------- Expenses, net ................................................................................ 5,961 ---------- Net investment income .............................................................................. 78,341 ---------- Net Realized Gain (Loss) Net realized gain (loss) on investments ............................................................ 27 ---------- Net increase in net assets from operations ......................................................... $ 78,368 ==========
See accompanying notes which are an integral part of the financial statements. 12 Annual Report SSgA US Government Money Market Fund Statement of Changes in Net Assets Amounts in thousands For the Fiscal Years Ended August 31,
2000 1999 ------------ ------------ Increase (Decrease) in Net Assets Operations Net investment income ............................................................... $ 78,341 $ 61,120 Net realized gain (loss) ............................................................ 27 2 ---------- ---------- Net increase in net assets from operations ....................................... 78,368 61,122 ---------- ---------- Distributions From net investment income .......................................................... (78,341) (61,120) ---------- ---------- Share Transactions Net increase (decrease) in net assets from share transactions ....................... 285,934 293,405 ---------- ---------- Total net increase (decrease) in net assets ............................................ 285,961 293,407 Net Assets Beginning of period ................................................................. 1,239,304 945,897 ---------- ---------- End of period ....................................................................... $1,525,265 $1,239,304 ========== ==========
See accompanying notes which are an integral part of the financial statements. Annual Report 13 SSgA US Government Money Market Fund Financial Highlights The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
Fiscal Years Ended August 31, ------------------------------------------------------------------ 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- Net Asset Value, Beginning of Period .......... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 ---------- ---------- ---------- ---------- ---------- Income From Operations Net investment income ...................... .0551 .0462 .0500 .0500 .0515 ---------- ---------- ---------- ---------- ---------- Distributions From net investment income ................. (.0551) (.0462) (.0500) (.0500) (.0515) ---------- ---------- ---------- ---------- ---------- Net Asset Value, End of Period ................ $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 ========== ========== ========== ========== ========== Total Return (%) .............................. 5.65 4.74 5.33 5.19 5.27 Ratios/Supplemental Data: Net Assets, end of period (in thousands) ... 1,525,265 1,239,304 945,897 904,483 683,210 Ratios to average net assets (%): Operating expenses ...................... .42 .42 .42 .44 .40 Net investment income ................... 5.55 4.62 5.20 5.08 5.12
14 Annual Report SSgA US Government Money Market Fund Notes to Financial Statements August 31, 2000 1. Organization The SSgA Funds (the "Investment Company") is a series mutual fund, currently comprised of 24 investment portfolios which are in operation as of August 31, 2000. These financial statements report on one portfolio, the SSgA US Government Money Market Fund (the "Fund"). The Investment Company is a registered and diversified open-end investment company, as defined in the Investment Company Act of 1940, as amended (the "1940 Act"), that was organized as a Massachusetts business trust on October 3, 1987 and operates under a First Amended and Restated Master Trust Agreement, dated October 13, 1993, as amended (the "Agreement"). The Investment Company's Agreement permits the Board of Trustees to issue an unlimited number of full and fractional shares of beneficial interest at a $.001 par value. 2. Significant Accounting Policies The Fund's financial statements are prepared in accordance with accounting principles generally accepted in the United States which require the use of management estimates. The following is a summary of the significant accounting policies consistently followed by the Fund in the preparation of its financial statements. Security valuation: The Fund utilizes the amortized cost valuation method in accordance with Rule 2a-7 of the 1940 Act, a method by which each portfolio instrument meeting certain materiality parameters and credit worthiness standards are initially valued at cost, and thereafter a constant accretion/amortization to maturity of any discount or premium is assumed. Securities transactions: Securities transactions are recorded on the trade date, which in most instances is the same as the settlement date. Realized gains and losses from the securities transactions, if any, are recorded on the basis of identified cost. Investment income: Interest income is recorded daily on the accrual basis. Federal income taxes: Since the Investment Company is a Massachusetts business trust, each fund is a separate corporate taxpayer and determines its net investment income and capital gains (or losses) and the amounts to be distributed to each fund's shareholders without regard to the income and capital gains (or losses) of the other funds. It is the Fund's intention to qualify as a regulated investment company, as defined by the Internal Revenue Code of 1986, as amended. This requires the Fund to distribute all of its taxable income. Therefore, the Fund paid no federal income taxes and no federal income tax provision was required. Dividends and distributions to shareholders: The Fund declares and records dividends on net investment income daily and pays them monthly. Capital gain distributions, if any, are generally declared and paid annually. An additional distribution may be paid by the Fund to avoid imposition of federal income tax on any remaining undistributed net investment income and capital gains. The Fund may periodically make reclassifications among certain of its capital accounts without impacting net asset value for differences between federal tax regulations and generally accepted accounting principles. Expenses: Most expenses can be directly attributed to the Fund. Expenses of the investment company which cannot be directly attributed are allocated among all funds based principally on their relative net assets. Annual Report 15 SSgA US Government Money Market Fund Notes to Financial Statements, continued August 31, 2000 Repurchase agreements: The Fund may engage in repurchase and tri-party repurchase agreements with certain qualified financial institutions whereby the Fund, through its custodian or third-party custodian, receives delivery of the underlying securities. The market value of these securities (including accrued interest) on acquisition date is required to be an amount equal to at least 102% of the repurchase price. State Street Bank and Trust Company (the "Adviser") will monitor repurchase agreements daily to determine that the market value (including accrued interest) of the underlying securities remains equal to at least 102% of the repurchase price at Fedwire closing time. The Adviser or third-party custodian will notify the seller to immediately increase the collateral on the repurchase agreement to 102% of the repurchase price if collateral falls below 102%. 3. Securities Transactions Investment transactions: For the year ended August 31, 2000, purchases, sales and maturities of US Government and Agency obligations, excluding repurchase agreements aggregated to $3,805,303,846, $629,554,079 and $2,840,887,000, respectively. 4. Related Parties Adviser: The Investment Company has an investment advisory agreement with State Street Bank and Trust Company under which the Adviser, through State Street Global Advisors, the investment management group of the Adviser, directs the investments of the Fund in accordance with its investment objectives, policies, and limitations. For these services, the Fund pays a fee to the Adviser, calculated daily and paid monthly, at the annual rate of .25% of its average daily net assets. The Investment Company also has contracts with the Adviser to provide custody, shareholder servicing and transfer agent services to the Fund. These amounts are presented in the accompanying Statement of Operations. In addition, the Fund has entered into arrangements with its Adviser whereby custody credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund's expenses. During the year, the Fund's custodian fees were reduced by $14,984 under these arrangements. Administrator: The Investment Company has an administration agreement with Frank Russell Investment Management Company (the "Administrator"), a wholly-owned subsidiary of The Northwestern Mutual Life Insurance Company, under which the Administrator supervises all non-portfolio investment aspects of the Investment Company's operations and provides adequate office space and all necessary office equipment and services, including telephone service, utilities, stationery supplies, and similar items. The Investment Company pays the Administrator for services supplied by the Administrator pursuant to the Administration Agreement, an annual fee, payable monthly on a pro rata basis. For the period September 1, 1999 to April 30, 2000, the following percentages of the average daily net assets of all domestic funds: $0 up to and including $500 million - .06%; over $500 million up to and including $1 billion - .05%; over $1 billion - .03%. Effective May 1, 2000, the annual fee is based on the following percentages of the average daily net assets of all money market portfolios: $0 up to $15 billion - .0315%; over $15 billion - .029%. The Administrator will also charge a flat fee of $30,000 per year per Fund with less than $500 million in net assets and $1,500 per year for monthly performance reports and use of Russell Performance Universe software product. In addition, the Fund reimburses the Administrator for out-of-pocket expenses and start-up costs for new funds. 16 Annual Report SSgA US Government Money Market Fund Notes to Financial Statements, continued August 31, 2000 Distributor and Shareholder Servicing: The Investment Company has a Distribution Agreement with Russell Fund Distributors (the "Distributor") which is a wholly-owned subsidiary of the Administrator to promote and offer shares of the Investment Company. The Distributor may enter into sub-distribution agreements with other non-related parties. The amounts paid to the Distributor are included in the accompanying Statement of Operations. The Investment Company has a Distribution Plan pursuant to Rule 12b-1 (the "Plan") under the 1940 Act. Under this Plan, the Investment Company is authorized to make payments to the Distributor, or any Shareholder Servicing Agent, as defined in the Plan, for providing distribution and marketing services, for furnishing assistance to investors on an ongoing basis, and for the reimbursement of direct out-of-pocket expenses charged by the Distributor in connection with the distribution and marketing of shares of the Investment Company and the servicing of investor accounts. The Fund has Shareholder Service Agreements with the Adviser, State Street Brokerage Services, Inc. ("SSBSI"), a wholly-owned subsidiary of the Adviser, the Adviser's Retirement Investment Services Division ("RIS"), the Adviser's Metropolitan Division of Commercial Banking ("Commercial Banking") and State Street Solutions ("Solutions")(collectively the "Agents"), as well as other non-related party service providers. For these services, the Fund pays .025%, .175%, .175%, .175%, and .175% to the Adviser, SSBSI, RIS, Commercial Banking, and Solutions, respectively, based upon the average daily value of all Fund shares held by or for customers of these Agents. For the year ended August 31, 2000, the Fund was charged shareholder servicing expenses of $352,865, $14,186 and $351,002 by the Adviser, RIS and Commercial Banking, respectively. The Fund did not incur any expenses from SSBSI or Solutions during the year. The combined distribution and shareholder servicing payments shall not exceed .25% of the average daily value of net assets of the Fund on an annual basis. The shareholder servicing payments shall not exceed .20% of the average daily value of net assets of the Fund on an annual basis. Payments that exceed the maximum amount of allowable reimbursement may be carried forward for two years following the year in which the expenditure was incurred so long as the plan is in effect. The Fund's responsibility for any such expenses carried forward shall terminate at the end of two years following the year in which the expenditure was incurred. The Trustees or a majority of the Fund's shareholders have the right, however, to terminate the Distribution Plan and all payments thereunder at any time. The Fund will not be obligated to reimburse the Distributor for carryover expenses subsequent to the Distribution Plan's termination or noncontinuance. There were no carryover expenses as of August 31, 2000. Board of Trustees: The Investment Company paid each Trustee not affiliated with the Investment Company an annual retainer, plus specified amounts for board and committee meeting attended. These expenses are allocated among all of the funds based upon their relative net assets. Annual Report 17 SSgA US Government Money Market Fund Notes to Financial Statements, continued August 31, 2000 Accrued fees payable to affiliates and trustees as of August 31, 2000 were as follows: Advisory fees $ 334,932 Administration fees 52,886 Custodian fees 54,621 Distribution fees 14,530 Shareholder servicing fees 408,861 Transfer agent fees 42,816 Trustees' fees 755 --------- $ 909,401 ========= Beneficial Interest: As of August 31, 2000, one shareholder (who was also an affiliate of the Investment Company) was a record owner of approximately 13% of the total outstanding shares of the Fund. 5. Fund Share Transactions (On a Constant Dollar Basis): (amounts in thousands) Fiscal Years Ended August 31, ----------------------------- 2000 1999 ------------- ------------ Proceeds from shares sold .............. 15,303,660 11,294,180 Proceeds from reinvestment of distributions ........................ 55,819 46,676 Payments for shares redeemed ........... (15,073,545) (11,047,451) ------------- ------------ Total net increase (decrease) .......... 285,934 293,405 ============= ============ 6. Interfund Lending Program The Fund and all other funds of the Investment Company received from the Securities and Exchange Commission an exemptive order on December 23, 1999 to establish and operate an Interfund Credit Facility. This allows the Funds to directly lend to and borrow money from the SSgA Money Market Fund for temporary purposes in accordance with certain conditions. The borrowing Funds are charged the average of the current Repo Rate and the Bank Loan Rate. The Fund did not utilize the interfund lending program during this year. 18 Annual Report SSgA US Government Money Market Fund One International Place, 27th Floor Boston, Massachusetts 02110 (800) 997-7327 -------------------------------------------------------------------------------- Trustees Lynn L. Anderson, Chairman William L. Marshall Steven J. Mastrovich Patrick J. Riley Richard D. Shirk Bruce D. Taber Henry W. Todd Officers Lynn L. Anderson, President, Treasurer and CEO Mark E. Swanson, Treasurer and Principal Accounting Officer J. David Griswold, Vice President and Secretary Deedra S. Walkey, Assistant Secretary Rick J. Chase, Assistant Treasurer Carla L. Anderson, Assistant Secretary Investment Adviser State Street Bank and Trust Company 225 Franklin Street Boston, Massachusetts 02110 Custodian, Transfer Agent and Office of Shareholder Inquiries State Street Bank and Trust Company 1776 Heritage Drive North Quincy, Massachusetts 02171 (800) 647-7327 Distributor Russell Fund Distributors, Inc. One International Place, 27th Floor Boston, Massachusetts 02110 (800) 997-7327 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 160 Federal Street Boston, Massachusetts 02110 Annual Report 19 [COVER GRAPHIC] SSgA(R) funds ANNUAL REPORT Growth and Income Fund August 31, 2000 SSgA(R) Funds Growth and Income Fund Annual Report August 31, 2000 Table of Contents Page Chairman's Letter......................................................... 4 Portfolio Management Discussion and Analysis.............................. 6 Report of Independent Accountants......................................... 8 Financial Statements...................................................... 9 Financial Highlights...................................................... 14 Notes to Financial Statements............................................. 15 Tax Information........................................................... 20 Fund Management and Service Providers..................................... 21 "SSgA(R)" is a registered trademark of State Street Corporation and is licensed for use by the SSgA Funds. This report is prepared from the books and records of the Fund and it is submitted for the general information of shareholders. This information is for distribution to prospective investors only when preceded or accompanied by a SSgA Funds Prospectus containing more complete information concerning the investment objective and operations of the Fund, charges and expenses. The Prospectus should be read carefully before an investment is made. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. Russell Fund Distributors, Inc., is the distributor of the SSgA Funds. SSgA Growth and Income Fund -------------------------------------------------------------------------------- Letter From the Chairman of State Street Global Advisors -------------------------------------------------------------------------------- Dear Shareholders, It is our pleasure to provide you with the SSgA Funds annual report for the fiscal year ended August 31, 2000. The SSgA Fund Family has grown to include twenty-four portfolios with over $21 billion in assets as of August 31, 2000. The Fund Family provides a wide range of strategies covering the world's major markets. The enclosed information provides an overview of the investment process for the SSgA Growth and Income Fund. This overview contains the portfolio management discussion, performance updates and financial information for the Fund. In an ongoing effort to develop competitive products and services that provide investment solutions for our clients, we have added the SSgA Intermediate Municipal Bond Fund to the SSgA Fund Family. This Fund's investment objective seeks to provide federally tax-exempt current income by investing primarily in a diversified portfolio of municipal debt securities with a dollar-weighted average maturity between three and ten years. We are also pleased with the success of our SSgA Emerging Markets and SSgA Growth and Income Funds as they were included in Money(R) Magazine's June 2000 issue listing of the 'Top 100 Mutual Funds'. This is the second year in a row that these funds have been selected. Additionally, the SSgA Tax Free Money Market and the SSgA Active International Funds have achieved five-year performance history during the 2000 fiscal year. Currently, all of our SSgA Money Market Funds have at least a five-year performance history. We strive to meet our clients' needs by providing funds with long-term records and competitive performance. We would like to thank you for choosing the SSgA Funds. Our reputation is based on our tradition of designing and delivering exceptional financial services to our clients. We look forward to continue sharing the benefit of our experience with you. Sincerely, /s/ Nicholas A. Lopardo Nicholas A. Lopardo State Street Global Advisors Chairman and Chief Executive Officer /s/ Timothy B. Harbert Timothy B. Harbert State Street Global Advisors President and Chief Operating Officer, SSgA 4 Annual Report SSgA Growth and Income Fund -------------------------------------------------------------------------------- Management of the Funds -------------------------------------------------------------------------------- [PHOTO] Nicholas A. Lopardo Chairman and Chief Executive Officer [PHOTO] Timothy B. Harbert President and Chief Operating Officer A Team Approach to Investment Management Our investment strategies are the product of the combined experience of our professional staff. Portfolio Managers work together to develop and enhance the techniques that drive our investment processes. As a result, the portfolios we manage benefit from the knowledge of the entire team. Mr. L. Emerson Tuttle, CFA, Principal, is the portfolio manager primarily responsible for investment decisions regarding the SSgA Growth and Income Fund, and also provides investment management services for employee benefit plans and endowments. Mr. Tuttle joined State Street in 1981, and has over 20 years of investment experience. From 1987 to 1989, Mr. Tuttle was a portfolio manager at private Client Services at State Street Bank in Zurich, Switzerland. Mr. Tuttle is a magna cum laude from Suffolk Law School, and is a member of the Massachusetts Bar and the Boston Security Analysts Society. There are four other portfolio managers working with Mr. Tuttle. Annual Report 5 SSgA Growth and Income Fund -------------------------------------------------------------------------------- Portfolio Management Discussion and Analysis -------------------------------------------------------------------------------- Objective: Achieve long-term capital growth, current income, and growth of income. Invests in: US equity securities. Strategy: Fund Managers concentrate in securities with larger market capitalizations, in a range of $1.9 billion to $580 billion. Stock selection focuses on individual companies and the strength of characteristics. In addition, the Fund can invest in IPOs (Initial Public Offerings). -------------------------------------------------------------------------------- GROWTH OF A $10,000 INVESTMENT Dates Growth and Income Fund S&P 500(R) Index** Inception* $10,000 $10,000 1994 $10,623 $10,547 1995 $12,287 $12,809 1996 $13,954 $15,208 1997 $19,668 $21,391 1998 $21,818 $23,122 1999 $30,882 $32,330 2000 $39,301 $37,610 ================================================================================ Performance Review For the fiscal year ended August 31, 2000, the SSGA Growth and Income Fund gained 27.26%, versus 16.33% for the S&P 500(R) Index. Fund performance is net of operating expenses, whereas Index results do not include expenses of any kind. The fiscal year-end performance of the Fund has benefitted from investments made in Initial Public Offerings (IPOs). There is no guarantee that the Fund will continue to participate in the IPO market, and due to their volatility, there can be no assurance that the IPOs will continue to have a positive impact on Fund performance. The Fund benefited from an overweighting in the Energy and Technology sectors throughout the period, and from an overweighting in Financial Services beginning in the second calendar quarter of 2000. The Fund is underweight versus the S&P 500(R) Index in basic materials, industrials, and consumer -------------------------------------------------------------------------------- SSgA Growth and Income Fund -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return -------------- ------------ ------- 1 Year $12,726 27.26% 5 Years $31,987 26.18%+ Inception $39,301 21.59%+ -------------------------------------------------------------------------------- Standard and Poor's(R) 500 Composite Stock Price Index -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return -------------- ------------ ------- 1 Year $11,633 16.33% 5 Years $29,362 24.04%+ Inception $37,610 20.83%+ See related Notes on following page. 6 Annual Report SSgA Growth and Income Fund -------------------------------------------------------------------------------- Portfolio Management Discussion and Analysis -------------------------------------------------------------------------------- cyclicals, where the Manager anticipates lower growth rates in the near term. Strong individual stock selection across economic sectors was the primary reason for the Fund's outperformance relative to the benchmark. Among Technology stocks, Corning, Inc., EMC Corp., Applied Materials, Inc., and Linear Technology Corp. were the strongest performers, returning 393%, 227%, 143%, and 129%, respectively. The Fund's Energy sector exposure benefited from Anadarko Petroleum Co., which gained 93% during the fiscal year. VoiceStream, a leading global telecommunications firm returned 173% for the period, while SPX Corporation, a leading provider of products and services to the automotive industry, gained 95% since its purchase in February. Market and Portfolio Highlights After retreating in October to first quarter 1999 levels, the S&P 500(R) Index rallied, posting a 14.9% return for the fourth quarter 1999. Since December, the stock market has continued to be volatile, remaining in a fairly narrow trading range and gaining only 4.1%. Market leadership has also shifted away from Technology and Telecommunications stocks. The Index's best performing sectors in 2000 have been electric Utilities and Financial Services (up 39% and 20% respectively), which rallied as the Federal Reserve approached the end of a fifteen-month period of tight monetary policy. Duke Energy Corp., the Fund's fourth largest holding, posted a return of 49%, reflecting the Utilities sector's strength during the period. The Financial Services sector benefited from Morgan Stanley Dean Witter and Mellon Financial, gaining 51% and 33% respectively. Health Care (up 19%) was where continued product development and the long-term demand from an aging population outweighed concerns over more stringent government regulation. Within this sector both Medtronic, Inc. and Pfizer boosted Fund results, posting gains of 41% and 33%, respectively. Energy (up 11%) driven by higher oil and gas prices, which resulted in positive returns from both Anadarko Petroleum Co. and Baker-Hughes, Inc. of 93% and 74%, respectively. The Fund is well diversified, with exposure to all major sectors of the US economy. The individual holdings reflect the Manager's conviction that long-term investors will be rewarded for owning companies with favorable long-term growth prospects, strong management, identifiable competitive advantages, and significant or fast-growing market share. The long-term investment horizon used in evaluating both market sectors and individual securities has resulted in the distribution of only modest realized capital gains. -------------------------------------------------------- Top Ten Equity Holdings (as a percent of Total Investments) August 31, 2000 -------------------------------------------------------- General Electric Co. 4.6% Cisco Systems, Inc. 3.7 Intel Corp. 3.6 Duke Energy Corp. 3.6 Citigroup, Inc. 3.4 Mellon Financial Corp. 3.1 Pfizer, Inc. 3.0 Procter & Gamble Co. 3.0 AT&T Corp. 2.8 Microsoft Corp. 2.7 -------------------------------------------------------- --------------------- Notes: The following notes relate to the Growth of $10,000 graph and table on the preceding page. * The Growth and Income Fund commenced operations on September 1, 1993. Index comparison also began on September 1, 1993. ** The Standard & Poor's(R) 500 Composite Stock Index is composed of 500 common stocks which are chosen by Standard & Poor's Corporation 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. + Annualized. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. Annual Report 7 Report of Independent Accountants To the Shareholders and Board of Trustees of the SSgA Funds: In our opinion, the accompanying statement of assets and liabilities and statement of net assets, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of SSgA Growth and Income Fund (the "Fund") at August 31, 2000, the results of its operations for the fiscal year then ended and the changes in its net assets for each of the two fiscal years in the period then ended, and the financial highlights for each of the five fiscal years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 2000 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. Boston, Massachusetts October 11, 2000 /s/ PricewaterhouseCoopers LLP 8 Annual Report SSgA Growth and Income Fund Statement of Net Assets August 31, 2000 Market Number Value of (000) Shares $ ------- -------- Common Stocks - 98.6% Basic Industries - 3.0% E.I. du Pont de Nemours & Co. 150,000 6,731 Illinois Tool Works, Inc. 105,000 5,887 Smurfit-Stone Container Corp. (a) 220,000 2,860 -------- 15,478 -------- Capital Goods - 7.1% General Electric Co. 410,000 24,062 SPX Corp. (a) 80,000 13,120 -------- 37,182 -------- Consumer Basics - 15.4% ALZA Corp. (a) 80,000 6,050 American Home Products Corp. 115,000 6,232 Bestfoods 75,000 5,297 Coca-Cola Co. (The) 80,000 4,210 Medtronic, Inc. 215,000 11,019 PepsiCo, Inc. 220,000 9,378 Pfizer, Inc. 360,000 15,570 Procter & Gamble Co. 250,000 15,452 Stryker Corp. 160,000 7,170 -------- 80,378 -------- Consumer Non-Durables - 3.1% Home Depot, Inc. (The) 110,000 5,287 Wal-Mart Stores, Inc. 234,000 11,100 -------- 16,387 -------- Energy - 5.8% Anadarko Petroleum Corp. 100,000 6,577 Baker Hughes, Inc. 215,000 7,861 Burlington Resources, Inc. 115,000 4,521 Exxon Mobil Corp. 100,000 8,163 Noble Drilling Corp. (a) 61,000 2,958 -------- 30,080 -------- Finance - 16.3% Bank of America Corp. 235,000 12,587 Capital One Financial Corp. 74,500 4,493 Citigroup, Inc. 306,667 17,902 FleetBoston Financial Corp. 130,000 5,549 Marsh & McLennan Cos., Inc. 80,000 9,500 Mellon Financial Corp. 360,000 16,290 MetLife, Inc. New (a) 124,375 3,024 Morgan Stanley Dean Witter & Co. 100,000 10,756 Stilwell Financial, Inc. (a) 100,000 4,838 -------- 84,939 -------- General Business - 4.8% Automatic Data Processing, Inc. 220,000 13,118 Comcast Corp. Special Class A 182,500 6,798 SBC Communications, Inc. 125,000 5,218 -------- 25,134 -------- Technology - 32.1% America Online, Inc. (a) 80,000 4,690 Analog Devices, Inc. (a) 32,000 3,216 Applied Materials, Inc. (a) 88,000 7,596 Cisco Systems, Inc. (a) 280,000 19,233 Dell Computer Corp. (a) 125,000 5,453 EMC Corp. (a) 110,000 10,780 Gentex Corp. (a) 140,000 3,623 Hewlett-Packard Co. 77,000 9,298 Intel Corp. 250,000 18,719 International Business Machines Corp. 105,000 13,860 Linear Technology Corp. 140,000 10,045 Lucent Technologies, Inc. 200,000 8,363 Microsoft Corp. (a) 205,000 14,312 Motorola, Inc. 255,000 9,196 Oracle Systems Corp. (a) 115,000 10,451 Sun Microsystems, Inc. (a) 70,000 8,885 VeriSign, Inc. (a) 38,000 7,556 Veritas Software Corp. (a) 22,000 2,650 -------- 167,926 -------- Annual Report 9 SSgA Growth and Income Fund Statement of Net Assets, continued August 31, 2000 Market Number Value of (000) Shares $ ------- -------- Utilities - 11.0% Alltel Corp. 137,000 6,927 Amdocs, Ltd. (a) 30,000 2,143 AT&T Corp. 460,060 14,492 Corning, Inc. 21,000 6,887 Duke Energy Corp. 248,000 18,554 VoiceStream Wireless Corp. (a) 45,000 5,064 WorldCom, Inc. (a) 100,000 3,650 -------- 57,717 -------- Total Common Stocks (cost $422,136) 515,221 -------- Principal Market Amount Value (000) (000) $ $ --------- -------- Short-Term Investments - 1.4% AIM Short Term Investment Prime Portfolio Class A (b) 3,587 3,587 Federated Government Obligations Fund (b) 3,586 3,586 -------- Total Short-Term Investments (cost $7,173) 7,173 -------- Total Investments - 100.0% (identified cost $429,309) 522,394 Other Assets and Liabilities, Net - 0.0% 115 -------- Net Assets - 100.0% 522,509 ======== (a) Nonincome-producing security. (b) At amortized cost, which approximates market. See accompanying notes which are an integral part of the financial statements. 10 Annual Report SSgA Growth and Income Fund Statement of Assets and Liabilities Amounts in thousands (except per share amount) August 31, 2000 Assets Investments at market (identified cost $429,309) .................................. $ 522,394 Receivables: Dividends ...................................................................... 560 Fund shares sold ............................................................... 513 Prepaid Expenses .................................................................. 25 Short-term investments held as collateral for securities loaned, at market ........ 7,471 --------- Total assets ................................................................ 530,963 Liabilities Payables: Investments purchased .............................................. $ 64 Fund shares redeemed ............................................... 348 Accrued fees to affiliates ......................................... 571 Payable upon return of securities loaned, at market ................... 7,471 --------- Total liabilities ........................................................... 8,454 --------- Net Assets ........................................................................ $ 522,509 ========= Net Assets Consist of: Undistributed net investment income ............................................... $ 221 Accumulated net realized gain (loss) .............................................. 22,960 Unrealized appreciation (depreciation) on investments ............................. 93,085 Shares of beneficial interest ..................................................... 19 Additional paid-in capital ........................................................ 406,224 --------- Net Assets ........................................................................ $ 522,509 ========= Net Asset Value, offering and redemption price per share: ($522,509,413 divided by 19,203,708 shares of $.001 par value shares of beneficial interest outstanding) .................................. $ 27.21 =========
See accompanying notes which are an integral part of the financial statements. Annual Report 11 SSgA Growth and Income Fund Statement of Operations Amounts in thousands For the Fiscal Year Ended August 31, 2000 Investment Income Dividends ...................................................................... $ 5,218 Securities Lending Income ...................................................... 276 --------- Total investment income ..................................................... 5,494 Expenses Advisory fees ...................................................... $ 3,466 Administrative fees ................................................ 140 Custodian fees ..................................................... 79 Distribution fees .................................................. 341 Transfer agent fees ................................................ 80 Professional fees .................................................. 19 Registration fees .................................................. 40 Shareholder servicing fees ......................................... 482 Trustees' fees ..................................................... 11 Miscellaneous ...................................................... 13 --------- Expenses before reductions ......................................... 4,671 Expense reductions ................................................. (173) --------- Expenses, net ............................................................... 4,498 --------- Net investment income ............................................................. 996 --------- Net Realized and Unrealized Gain (Loss) Net realized gain (loss) on investments ........................................... 25,416 Net change in unrealized appreciation (depreciation) on investments ............... 71,444 --------- Net realized and unrealized gain (loss) ........................................... 96,860 --------- Net increase (decrease) in net assets from operations ............................. $97,856 =========
See accompanying notes which are an integral part of the financial statements. 12 Annual Report SSgA Growth and Income Fund Statement of Changes in Net Assets Amounts in thousands For the Fiscal Years Ended August 31,
2000 1999 --------- --------- Increase (Decrease) in Net Assets Operations Net investment income .............................................. $ 996 $ 927 Net realized gain (loss) ........................................... 25,416 41,787 Net change in unrealized appreciation (depreciation) ............... 71,444 9,643 --------- --------- Net increase (decrease) in net assets from operations ........... 97,856 52,357 --------- --------- Distributions From net investment income ......................................... (1,055) (813) From net realized gain ............................................. (15,079) (16,521) --------- --------- Net decrease in net assets from distributions ................... (16,134) (17,334) --------- --------- Share Transactions Net increase (decrease) in net assets from share transactions ...... 149,071 145,067 --------- --------- Total net increase (decrease) in net assets ........................... 230,793 180,090 Net Assets Beginning of period ................................................ 291,716 111,626 --------- --------- End of period (including undistributed net investment income of $221 and $280, respectively) .................................... $ 522,509 $ 291,716 ========= =========
See accompanying notes which are an integral part of the financial statements. Annual Report 13 SSgA Growth and Income Fund Financial Highlights The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
Fiscal Years Ended August 31, ------------------------------------------------------ 2000 1999 1998 1997 1996 -------- -------- -------- ------- ------- Net Asset Value, Beginning of Period ..... $ 22.53 $ 18.10 $ 18.08 $ 13.36 $ 11.95 -------- -------- -------- ------- ------- Income From Operations Net investment income (a) ............. .06 .09 .11 .12 .15 Net realized and unrealized gain (loss) 5.77 6.79 1.83 5.18 1.46 -------- -------- -------- ------- ------- Total income from operations ....... 5.83 6.88 1.94 5.30 1.61 -------- -------- -------- ------- ------- Distributions From net investment income ............ (.07) (.09) (.11) (.14) (.16) From net realized gain ................ (1.08) (2.36) (1.81) (.44) (.04) -------- -------- -------- ------- ------- Total distributions ................ (1.15) (2.45) (1.92) (.58) (.20) -------- -------- -------- ------- ------- Net Asset Value, End of Period ........... $ 27.21 $ 22.53 $ 18.10 $ 18.08 $ 13.36 ======== ======== ======== ======= ======= Total Return (%) ......................... 27.26 41.55 10.93 40.95 13.57 Ratios/Supplemental Data: Net Assets, end of period (in thousands) ......................... 522,509 291,716 111,626 71,736 55,823 Ratios to average net assets (%): Operating expenses, net (b) ........ 1.10 1.03 .95 .95 .95 Operating expenses, gross (b) ...... 1.15 1.11 1.14 1.21 1.40 Net investment income .............. .24 .41 .57 .82 1.15 Portfolio turnover rate (%) ........... 49.72 72.27 66.44 29.88 38.34
(a) For the periods subsequent to August 31, 1998, average month-end shares outstanding were used for this calculation. (b) See Note 4 for current period amounts. 14 Annual Report SSgA Growth and Income Fund Notes to Financial Statements August 31, 2000 1. Organization The SSgA Funds (the "Investment Company") is a series mutual fund, currently comprised of 24 investment portfolios which are in operation as of August 31, 2000. These financial statements report on one portfolio, the SSgA Growth and Income Fund (the "Fund"). The Investment Company is a registered and diversified open-end investment company, as defined in the Investment Company Act of 1940, as amended (the "1940 Act"), that was organized as a Massachusetts business trust on October 3, 1987 and operates under a First Amended and Restated Master Trust Agreement, dated October 13, 1993, as amended (the "Agreement"). The Investment Company's Agreement permits the Board of Trustees to issue an unlimited number of full and fractional shares of beneficial interest at a $.001 par value. 2. Significant Accounting Policies The Fund's financial statements are prepared in accordance with accounting principles generally accepted in the United States which require the use of management estimates. The following is a summary of the significant accounting policies consistently followed by the Fund in the preparation of its financial statements. Security valuation: United States equity securities listed and traded principally on any national securities exchange are valued on the basis of the last sale price or, lacking any sale, at the closing bid price, on the primary exchange on which the security is traded. United States over-the-counter equities are valued on the basis of the closing bid price. 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 the mean of bid prices. In the absence of a last sale or mean bid price, respectively, 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. Money market instruments maturing within 60 days of the valuation date are valued at amortized cost. The Fund may 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. Securities transactions: Securities transactions are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the basis of identified cost. Investment income: Dividend income is recorded on the ex-dividend date and interest income is recorded daily on the accrual basis. Amortization and accretion: All zero-coupon bond discounts and original issue discounts are accreted for both tax and financial reporting purposes. All short- and long-term market premiums/discounts are amortized/accreted for both tax and financial reporting purposes. Federal income taxes: Since the Investment Company is a Massachusetts business trust, each fund is a separate corporate taxpayer and determines its net investment income and capital gains (or losses) and the amounts to be distributed to each fund's shareholders without regard to the income and capital gains (or losses) of the other funds. Annual Report 15 SSgA Growth and Income Fund Notes to Financial Statements, continued August 31, 2000 It is the Fund's intention to qualify as a regulated investment company, as defined by the Internal Revenue Code of 1986, as amended. This requires the Fund to distribute all of its taxable income. Therefore, the Fund paid no federal income taxes and no federal income tax provision was required. The Fund's aggregate cost of investments and the composition of unrealized appreciation and depreciation of investment securities for federal income tax purposes as of August 31, 2000 are as follows: Net Unrealized Federal Tax Unrealized Unrealized Appreciation Cost Appreciation (Depreciation) (Depreciation) ------------ ------------ -------------- -------------- $429,716,717 $112,712,713 $ (20,035,349) $ 92,677,364 Dividends and distributions to shareholders: Income dividends and capital gain distributions, if any, are recorded on the ex-dividend date. Dividends are generally declared and paid quarterly. Capital gain distributions are generally declared and paid annually. An additional distribution may be paid by the Fund to avoid imposition of federal income tax on any remaining undistributed net investment income and capital gains. The timing and characterization of certain income and capital gain distributions are determined in accordance with federal tax regulations which may differ from generally accepted accounting principles ("GAAP"). As a result, net investment income and net realized gain (or loss) from investment transactions for a reporting year may differ significantly from distributions during such year. The differences between tax regulations and GAAP relate primarily to investments in certain securities sold at a loss. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting its net asset value. Expenses: Most expenses can be directly attributed to the Fund. Expenses of the investment company which cannot be directly attributed are allocated among all funds based principally on their relative net assets. 3. Securities Transactions Investment transactions: For the year ended August 31, 2000, purchases and sales of investment securities, excluding short-term investments, aggregated to $334,335,447, and $197,946,007, respectively. Securities lending: The Investment Company has a securities lending program whereby each Fund can loan securities with a value up to 33 1/3% of its total assets to certain brokers. The Fund receives cash (U.S. currency), U.S. Government or U.S. Government agency obligations as collateral against the loaned securities. To the extent that a loan is secured by cash collateral, such collateral shall be invested by State Street Bank and Trust Company in short-term instruments, money market mutual funds, and such other short-term investments, provided the investments meet certain quality and diversification requirements. Under the securities lending arrangement, the collateral received is recorded on the Fund's statement of assets and liabilities along with the related obligation to return the collateral. In those situations where the Company has relinquished control of securities transferred, it derecognizes the securities and records a receivable from the counterparty. 16 Annual Report SSgA Growth and Income Fund Notes to Financial Statements, continued August 31, 2000 Income generated from the investment of cash collateral, less negotiated rebate fees paid to participating brokers and transaction costs, is divided between the Fund and State Street Bank and Trust Company and is recorded as interest income for the Fund. To the extent that a loan is secured by non-cash collateral, brokers pay the Fund negotiated lenders' fees, which are divided between the Fund and State Street Bank and Trust Company and are recorded as interest income for the Fund. All collateral received will be in an amount at least equal to 102% (for loans of U.S. securities) or 105% (for non-U.S. securities) of the market value of the loaned securities at the inception of each loan. Should the borrower of the securities fail financially, there is a risk of delay in recovery of the securities or loss of rights in the collateral. Consequently, loans are made only to borrowers which are deemed to be of good financial standing. As of August 31, 2000, the value of outstanding securities on loan and the value of collateral amounted to $7,306,574 and $7,470,530, respectively. 4. Related Parties Adviser: The Investment Company has an investment advisory agreement with State Street Bank and Trust Company (the "Adviser") under which the Adviser, through State Street Global Advisors, the investment management group of the Adviser, directs the investments of the Fund in accordance with its investment objectives, policies, and limitations. For these services, the Fund pays a fee to the Adviser, calculated daily and paid monthly, at the annual rate of .85% of its average daily net assets. The Adviser has voluntarily agreed to reimburse the Fund for all expenses in excess of 1.10% of average daily net asset on an annual basis. The total amount of the reimbursement for the year ended August 31, 2000 was $168,469. As of August 31, 2000, the receivable due from the Adviser for reimbursed expenses in excess of the expense cap has been netted against the Advisory fee payable. The Investment Company also has contracts with the Adviser to provide custody, shareholder servicing and transfer agent services to the Fund. These amounts are presented in the accompanying Statement of Operations. In addition, the Fund has entered into arrangements with its Adviser whereby custody credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund's expenses. During the year, the Fund's custodian fees were reduced by $4,381 under these arrangements. Administrator: The Investment Company has an administration agreement with Frank Russell Investment Management Company (the "Administrator"), a wholly-owned subsidiary of The Northwestern Mutual Life Insurance Company, under which the Administrator supervises all non-portfolio investment aspects of the Investment Company's operations and provides adequate office space and all necessary office equipment and services, including telephone service, utilities, stationery supplies, and similar items. The Investment Company pays the Administrator for services supplied by the Administrator pursuant to the Administration Agreement, an annual fee, payable monthly on a pro rata basis. For the period September 1, 1999 to April 30, 2000 the following percentages of the combined average daily net assets of all domestic funds: $0 up to and including $500 million - .06%; over $500 million up to and including $1 billion - .05%; over $1 billion - .03%. Effective May 1, 2000, the annual fee is based on the following percentages of the average daily net assets of all U.S. Equity portfolios: $0 to $2 billion - .0315%; over $2 billion - .029%. The Administrator will charge a flat fee of $30,000 per year per Fund with less than $500 million in net assets and $1,500 per year for monthly performance reports and use of Russell Performance Universe software product. In addition, the Fund reimburses the Administrator for out-of-pocket expenses and start-up costs for new funds. Annual Report 17 SSgA Growth and Income Fund Notes to Financial Statements, continued August 31, 2000 Distributor and Shareholder Servicing: The Investment Company has a Distribution Agreement with Russell Fund Distributors (the "Distributor") which is a wholly-owned subsidiary of the Administrator to promote and offer shares of the Investment Company. The Distributor may enter into sub-distribution agreements with other non-related parties. The amounts paid to the Distributor are included in the accompanying Statement of Operations. The Investment Company has a Distribution Plan pursuant to Rule 12b-1 (the "Plan") under the 1940 Act. Under this Plan, the Investment Company is authorized to make payments to the Distributor, or any Shareholder Servicing Agent, as defined in the Plan, for providing distribution and marketing services, for furnishing assistance to investors on an ongoing basis, and for the reimbursement of direct out-of-pocket expenses charged by the Distributor in connection with the distribution and marketing of shares of the Investment Company and the servicing of investor accounts. The Fund has Shareholder Service Agreements with the Adviser, State Street Brokerage Services, Inc. ("SSBSI"), a wholly-owned subsidiary of the Adviser, the Adviser's Retirement Investment Services Division ("RIS"), the Adviser's Metropolitan Division of Commercial Banking ("Commercial Banking") and State Street Solutions ("Solutions")(collectively the "Agents"), as well as several unaffiliated service providers. For these services, the Fund pays .025%, .175%, .175%, .175%, and .175% to the Adviser, SSBSI, RIS, Commercial Banking, and Solutions, respectively, based upon the average daily value of all Fund shares held by or for customers of these Agents. For the year ended August 31, 2000, the Fund was charged shareholder servicing expenses of $101,948, $29,292, $26,602, $3,329 and $276,294 by the Adviser, SSBSI, RIS, Commercial Banking, and Solutions, respectively. The combined distribution and shareholder servicing payments shall not exceed .25% of the average daily value of net assets of the Fund on an annual basis. The shareholder servicing payments shall not exceed .20% of the average daily value of net assets of the Fund on an annual basis. Payments that exceed the maximum amount of allowable reimbursement may be carried forward for two years following the year in which the expenditure was incurred so long as the plan is in effect. The Fund's responsibility for any such expenses carried forward shall terminate at the end of two years following the year in which the expenditure was incurred. The Trustees or a majority of the Fund's shareholders have the right, however, to terminate the Distribution Plan and all payments thereunder at any time. The Fund will not be obligated to reimburse the Distributor for carryover expenses subsequent to the Distribution Plan's termination or noncontinuance. There were no carryover expenses as of August 31, 2000. Affiliated Brokerage: The Fund placed a portion of its portfolio transactions with SSBSI, an affiliated broker dealer of the Fund's Adviser. The commissions paid to SSBSI were $82,885 for the year ended August 31, 2000. Board of Trustees: The Investment Company paid each Trustee not affiliated with the Investment Company an annual retainer, plus specified amounts for board and committee meetings attended. These expenses are allocated among all of the funds based upon their relative net assets. 18 Annual Report SSgA Growth and Income Fund Notes to Financial Statements, continued August 31, 2000 Accrued fees payable to affiliates and trustees as of August 31, 2000 were as follows: Advisory fees $ 467,229 Administration fees 17,702 Custodian fees 3,886 Distribution fees 15,077 Shareholder servicing fees 64,715 Transfer agent fees 1,746 Trustees' fees 940 ---------- $ 571,295 ========== Beneficial Interest: As of August 31, 2000, two shareholders (one of which was also an affiliate of the Investment Company) were record owners of approximately 33% and 12%, respectively, of the total outstanding shares of the Fund. 5. Fund Share Transactions (amounts in thousands)
Fiscal Years Ended August 31, ---------------------------------------------------- 2000 1999 ------------------------ ------------------------ Shares Dollars Shares Dollars ---------- ---------- ---------- ---------- Proceeds from shares sold 9,805 $ 238,027 11,203 $ 241,058 Proceeds from reinvestment of distributions 692 14,880 900 16,164 Payments for shares redeemed (4,244) (103,836) (5,320) (112,155) ---------- ---------- ---------- ---------- Total net increase (decrease) 6,253 $ 149,071 6,783 $ 145,067 ========== ========== ========== ==========
6. Interfund Lending Program The Fund and all other funds of the Investment Company received from the Securities and Exchange Commission an exemptive order on December 23, 1999 to establish and operate an Interfund Credit Facility. This allows the Funds to directly lend to and borrow money from the SSgA Money Market Fund for temporary purposes in accordance with certain conditions. The borrowing Funds are charged the average of the current Repo Rate and the Bank Loan Rate. The Fund did not utilize the interfund lending program during this year. 7. Dividends On September 1, 2000, the Board of Trustees declared a dividend of $.0112 from net investment income, payable on September 8, 2000 to shareholders of record on September 5, 2000. Annual Report 19 SSgA Growth and Income Fund Tax Information August 31, 2000 (Unaudited) The Fund paid a distribution of $14,323,649 from net long-term capital gains during its taxable year ended August 31, 2000. Please consult a tax advisor for questions about federal or state income tax laws. 20 Annual Report SSgA Growth and Income Fund One International Place, 27th Floor Boston, Massachusetts 02110 (800) 997-7327 -------------------------------------------------------------------------------- Trustees Lynn L. Anderson, Chairman William L. Marshall Steven J. Mastrovich Patrick J. Riley Richard D. Shirk Bruce D. Taber Henry W. Todd Officers Lynn L. Anderson, President, Treasurer and CEO Mark E. Swanson, Treasurer and Principal Accounting Officer J. David Griswold, Vice President and Secretary Deedra S. Walkey, Assistant Secretary Rick J. Chase, Assistant Treasurer Carla L. Anderson, Assistant Secretary Investment Adviser State Street Bank and Trust Company 225 Franklin Street Boston, Massachusetts 02110 Custodian, Transfer Agent and Office of Shareholder Inquiries State Street Bank and Trust Company 1776 Heritage Drive North Quincy, Massachusetts 02171 (800) 647-7327 Distributor Russell Fund Distributors, Inc. One International Place, 27th Floor Boston, Massachusetts 02110 (800) 997-7327 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 160 Federal Street Boston, Massachusetts 02110 Annual Report 21 [COVER GRAPHIC] SSgA(R) funds ANNUAL REPORT Intermediate Fund August 31, 2000 SSgA(R) Funds Intermediate Fund Annual Report August 31, 2000 Table of Contents Page Chairman's Letter......................................................... 4 Portfolio Management Discussion and Analysis.............................. 6 Report of Independent Accountants......................................... 8 Financial Statements...................................................... 9 Financial Highlights...................................................... 16 Notes to Financial Statements............................................. 17 Tax Information........................................................... 23 Fund Management and Service Providers..................................... 24 "SSgA(R)" is a registered trademark of State Street Corporation and is licensed for use by the SSgA Funds. This report is prepared from the books and records of the Fund and it is submitted for the general information of shareholders. This information is for distribution to prospective investors only when preceded or accompanied by a SSgA Funds Prospectus containing more complete information concerning the investment objective and operations of the Fund, charges and expenses. The Prospectus should be read carefully before an investment is made. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. Russell Fund Distributors, Inc., is the distributor of the SSgA Funds. SSgA Intermediate Fund -------------------------------------------------------------------------------- Letter From the Chairman of State Street Global Advisors -------------------------------------------------------------------------------- Dear Shareholders, It is our pleasure to provide you with the SSgA Funds annual report for the fiscal year ended August 31, 2000. The SSgA Fund Family has grown to include twenty-four portfolios with over $21 billion in assets as of August 31, 2000. The Fund Family provides a wide range of strategies covering the world's major markets. The enclosed information provides an overview of the investment process for the SSgA Intermediate Fund. This overview contains the portfolio management discussion, performance updates and financial information for the Fund. In an ongoing effort to develop competitive products and services that provide investment solutions for our clients, we have added the SSgA Intermediate Municipal Bond Fund to the SSgA Fund Family. This Fund's investment objective seeks to provide federally tax-exempt current income by investing primarily in a diversified portfolio of municipal debt securities with a dollar-weighted average maturity between three and ten years. We are also pleased with the success of our SSgA Emerging Markets and SSgA Growth and Income Funds as they were included in Money(R) Magazine's June 2000 issue listing of the 'Top 100 Mutual Funds'. This is the second year in a row that these funds have been selected. Additionally, the SSgA Tax Free Money Market and the SSgA Active International Funds have achieved five-year performance history during the 2000 fiscal year. Currently, all of our SSgA Money Market Funds have at least a five-year performance history. We strive to meet our clients' needs by providing funds with long-term records and competitive performance. We would like to thank you for choosing the SSgA Funds. Our reputation is based on our tradition of designing and delivering exceptional financial services to our clients. We look forward to continue sharing the benefit of our experience with you. Sincerely, /s/ Nicholas A. Lopardo Nicholas A. Lopardo State Street Global Advisors Chairman and Chief Executive Officer /s/ Timothy B. Harbert Timothy B. Harbert State Street Global Advisors President and Chief Operating Officer, SSgA 4 Annual Report SSgA Intermediate Fund -------------------------------------------------------------------------------- Management of the Funds -------------------------------------------------------------------------------- [PHOTO] Nicholas A. Lopardo Chairman and Chief Executive Officer [PHOTO] Timothy B. Harbert President and Chief Operating Officer A Team Approach to Investment Management Our investment strategies are the product of the combined experience of our professional staff. Portfolio Managers work together to develop and enhance the techniques that drive our investment processes. As a result, the portfolios we manage benefit from the knowledge of the entire team. Mr. John Kirby, Principal, has been the portfolio manager primarily responsible for investment decisions regarding the SSgA Intermediate Fund since November 1995. Prior to joining State Street Bank in 1995, Mr. Kirby was an Account Manager with Lowell, Blake & Associates. Prior to that, he was a portfolio manager with One Federal Asset Management, and an asset/liability risk specialist at Cambridgeport Savings. He has a BA degree from Boston College and is a CFA candidate. There are six other portfolio managers working with Mr. Kirby. Annual Report 5 SSgA Intermediate Fund -------------------------------------------------------------------------------- Portfolio Management Discussion and Analysis -------------------------------------------------------------------------------- Objective: Maximize total return by investing in fixed income securities. Invests in: Investment grade debt instruments including: US Government Treasuries and agencies, corporate bonds, asset-backed securities, mortgage-backed securities and CMBS. Strategy: Fund Managers seek to exceed the return of the Lehman Brothers Intermediate Government/Credit Index. The Fund seeks to match the Index's duration at all times while adding value through issue and sector selection. -------------------------------------------------------------------------------- GROWTH OF A $10,000 INVESTMENT Lehman Brothers Intermediate Government/ Dates Intermediate Fund Credit Index** Inception* $10,000 $10,000 1994 $9,658 $9,967 1995 $10,629 $10,911 1996 $11,066 $11,395 1997 $11,952 $12,357 1998 $12,985 $13,466 1999 $13,162 $13,763 2000 $13,967 $14,626 ================================================================================ Performance Review For the year ended August 31, 2000, the SSgA Intermediate Bond Market Fund returned 6.12% versus its benchmark, the Lehman Brothers Intermediate Government/Credit Index, which posted a return of 6.27%. The Fund's performance includes sixty basis points in fees, whereas the Index does not include expenses of any kind. The Fund outperformed the benchmark by 45 basis points with the expense differential included. The Fund's overweight allocation to mortgage-backed securities, corporate bonds and asset-backed securities was the primary driver to the Fund's outperformance versus the Index. The fact that the Fund doesn't invest in corporate or asset backed securities with maturities longer than ten years helped the strategy during the period. This was due, in part, to the effects of the Treasury buybacks and diminished auction supply, which were much more pronounced in the greater-than-ten-year maturities. With long Treasury bonds rallying the to the greatest degree, the longer corporate bond sector -------------------------------------------------------------------------------- SSgA Intermediate Fund -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return --------------------- ------------ ------- 1 Year $ 10,612 6.12% 5 Years $ 13,141 5.61%+ Inception $ 13,967 4.89%+ -------------------------------------------------------------------------------- Lehman Brothers Intermediate Government/Credit Index -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return --------------------- ------------ ------- 1 Year $ 10,627 6.27% 5 Years $ 13,405 6.04%+ Inception $ 14,626 5.58%+ See related Notes on following page. 6 Annual Report SSgA Intermediate Fund -------------------------------------------------------------------------------- Portfolio Management Discussion and Analysis -------------------------------------------------------------------------------- spreads widened significantly and most of the underperformance occurred in the longer sectors. Portfolio and Market Highlights The year was marked by a Federal Reserve policy of increasing short-term rates intended to slow down an overly robust economy. The resulting interest rate hikes implemented by the Fed during the period, as well as the US Treasury's announcement of aggressive bond buybacks and curtailed issuance in the future led to an inverted Treasury yield curve. The two-year Treasury note ended the fiscal year at 6.17%, while the thirty-year bond was at 5.67%. At the beginning of the year, thepse two securities were yielding 5.73% and 6.07% respectively. As a result of this inversion, longer corporate bond spreads widened relative to their Treasury benchmarks. Additionally, comments made by a Treasury department official in first quarter 2000 questioning the implicit government guarantee of the Federal Agencies, such as FNMA and FHLMC, further aggravated spreads. Finally, the continued lower risk profile on the part of the Wall Street dealer community, evidenced by less inventory and reduced market making, made it much more difficult to buy and sell corporate securities, encouraging wider spreads to persist in that sector. The Fund continues to be overweighted in spread product, although the current positions constitute its lowest level of the year. Additionally, the composition of that overweight is changing, as the Fund sold longer corporate bonds and invested in mortgage backed, Federal agency and asset backed securities. The Manager felt that it was prudent to lower Fund exposure to Corporates, a very technical and illiquid sector. The Manager moved the Fund into more liquid sectors such as mortgage-backed securities, allowing it to continue taking advantage of the unusually wide spreads. As a result, the Fund is only slightly overweight Corporates, and primarily in the shorter end. The Fund continues to be overweight in the Mortgage and the Asset-Backed sectors, which comprise the bulk of the portfolio's overweight exposure to the spread sectors. The Fund seeks to enhance returns through overweight allocations the Corporate and Mortgage-Backed sectors relative to its benchmark. These weightings are reduced or increased throughout the year in response to the Manager's outlook on the market. The Fund can carry an overweight to non-index sectors such as Asset-Backed securities. The Fund does not take explicit active interest rate risk, but by utilizing duration as its measurement, seeks to match that of the Index. -------------------------------------------------------- Top Ten Issuers (as a percent of Total Investments) August 31, 2000 -------------------------------------------------------- United States Government Treasuries 32.5% Federal National Mortgage Association 13.8 Federal Home Loan Bank 6.9 Federal Home Loan Mortgage Corporation 6.5 General Motors Acceptance Corporation 2.8 Ford Motor Credit Co. 2.3 AT&T Canada Inc. 1.4 Korea Development Bank 1.4 CIT Group, Inc. 1.3 Enron Corp. 1.3 -------------------------------------------------------- --------------------------- Notes: The following notes relate to the Growth of $10,000 graph and table on the preceding page. * The Intermediate Fund commenced operations on September 1, 1993. Index comparisons also began on September 1, 1993. ** The Lehman Brothers Intermediate Government/Credit Index is composed of all bonds covered by the Lehman Brothers Government/ Credit Index with maturities between one and 9.99 years. + Annualized. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. Annual Report 7 Report of Independent Accountants To the Shareholders and Board of Trustees of the SSgA Funds: In our opinion, the accompanying statement of assets and liabilities and statement of net assets, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of SSgA Intermediate Fund (the "Fund") at August 31, 2000, the results of its operations for the fiscal year then ended and the changes in its net assets for each of the two fiscal years in the period then ended, and the financial highlights for each of the five fiscal years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 2000 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. Boston, Massachusetts October 11, 2000 /s/ PricewaterhouseCoopers LLP 8 Annual Report SSgA Intermediate Fund Statement of Net Assets August 31, 2000 Principal Market Amount Value (000) (000) $ $ --------- ------ Long-Term Investments - 96.0% Asset-Backed Securities - 2.9% CNH Equipment Trust Series 2000-A Class A4 7.340% due 02/15/07 250 252 Discover Card Master Trust I Series 1998-7 Class A 5.600% due 05/16/06 500 480 Ford Credit Auto Owner Trust Series 2000-B Class A5 7.070% due 04/15/04 500 502 Honda Automobile Lease Trust Series 1999-A Class A5 6.650% due 07/15/05 350 349 MBNA Master Credit Card Trust Series 2000-I Class A 6.900% due 01/15/08 250 249 USAA Auto Loan Grantor Trust Series 1998-1 Class A 5.800% due 01/15/05 71 70 ------- 1,902 ------- Corporate Bonds and Notes - 23.1% Associates Corp. North America 5.800% due 04/20/04 250 238 BankAmerica Corp. 5.875% due 02/15/09 500 452 BankBoston Corp. 6.125% due 03/15/02 150 148 Chase Manhattan Corp. 7.875% due 06/15/10 350 359 CIT Group, Inc. 5.800% due 03/26/02 500 489 5.910% due 11/10/03 500 479 Clear Channel Communications 7.875% due 06/15/05 150 153 DaimlerChrysler North America Holding Corp. Series B 6.630% due 09/21/01 300 298 El Paso Energy Corp. 6.750% due 05/15/09 200 189 Enron Corp. 6.500% due 08/01/02 750 740 9.125% due 04/01/03 200 208 EOP Operating, L.P. 6.500% due 01/15/04 250 241 6.800% due 01/15/09 250 231 Equitable Cos., Inc. 9.000% due 12/15/04 250 265 Equitable Life Assurance Society 6.950% due 12/01/05 300 288 Fleet National Bank Series BKNT 5.750% due 01/15/09 500 445 Ford Motor Credit Co. 6.110% due 12/28/01 700 691 6.500% due 02/28/02 500 495 7.500% due 01/15/03 500 503 GATX Capital Corp. 6.500% due 11/01/00 500 499 General Motors Acceptance Corp. 6.375% due 09/28/01 600 593 9.625% due 12/15/01 500 513 5.500% due 01/14/02 500 488 5.950% due 03/14/03 500 486 Goldman Sachs Group, Inc. 7.625% due 08/17/05 375 379 International Business Machines Corp. 5.250% due 12/01/03 500 476 International Paper Co. 8.000% due 07/08/03 165 167 Kemper Corp. 6.875% due 09/15/03 500 495 Lehman Brothers Holdings, Inc. 6.625% due 04/01/04 100 97 Lockheed Martin Corp. 7.950% due 12/01/05 150 152 Mellon Financial Co. 5.750% due 11/15/03 500 482 Annual Report 9 SSgA Intermediate Fund Statement of Net Assets, continued August 31, 2000 Principal Market Amount Value (000) (000) $ $ --------- ------ MidAmerican Funding LLC 6.339% due 03/01/09 150 137 Morgan Stanley Dean Witter & Co. 7.125% due 01/15/03 400 401 5.625% due 01/20/04 500 478 Norfolk Southern Corp. 8.375% due 05/15/05 190 197 Phillips Petroleum Co. 8.500% due 05/25/05 190 199 Sprint Capital Corp. 6.500% due 11/15/01 500 495 7.625% due 06/10/02 300 302 Time Warner, Inc. 8.180% due 08/15/07 552 572 Tosco Corp. 7.250% due 01/01/07 250 246 Union Pacific Corp. 7.375% due 09/15/09 300 294 United Mexican States Series A 8.500% due 02/01/06 100 100 Vastar Resources, Inc. 6.500% due 04/01/09 250 239 ------- 15,399 ------- Eurodollar Bonds - 5.6% Alberta, Province of 4.875% due 10/29/03 300 283 Cable & Wireless Optus, Ltd. 8.000% due 06/22/10 300 306 Chile, Republic of 6.875% due 04/28/09 200 188 Korea Development Bank 7.125% due 04/22/04 470 459 Korea, Republic of 8.750% due 04/15/03 350 359 Ontario, Province of 7.375% due 01/27/03 500 505 Quebec, Province of Canada 5.750% due 02/15/09 250 228 Telekomunikacja Polska SA 7.125% due 12/10/03 550 534 7.750% due 12/10/08 30 29 Toyota Motor Credit Corp. 5.625% due 11/13/03 400 385 United Mexican States 8.625% due 03/12/08 250 250 Series XW 10.375% due 02/17/09 200 220 ------- 3,746 ------- Mortgage-Backed Securities - 14.4% COMM Mortgage Trust Series 1999-1 Class A1 6.145% due 02/15/08 580 560 Federal Home Loan Mortgage Corp. (a) 6.500% 30 year TBA 475 454 7.500% 30 year TBA 2,815 2,798 Federal Home Loan Mortgage Corp. Participation Certificate 4.500% due 2001 320 313 Federal National Mortgage Association 8.000% 30 year TBA (a) 975 984 6.000% due 01/01/09 328 319 7.125% due 06/15/10 1,700 1,731 6.000% due 09/01/14 260 249 6.000% due 05/01/29 480 446 6.000% due 06/01/29 930 864 6.000% due 09/01/29 57 53 Heller Financial Commercial Mortgage Asset Co. Series 1999-PH1 Class A1 6.500% due 05/15/31 828 807 Nomura Asset Securities Corp. 6.590% due 03/17/28 20 19 ------- 9,597 ------- 10 Annual Report SSgA Intermediate Fund Statement of Net Assets, continued August 31, 2000 Principal Market Amount Value (000) (000) $ $ --------- ------ United States Government Agencies - 7.7% Federal Home Loan Bank 6.875% due 07/18/02 2,500 2,507 Federal Home Loan Mortgage Corp. 7.000% due 03/15/10 490 494 6.625% due 09/15/09 740 726 Federal National Mortgage Association 7.125% due 02/15/05 500 507 6.400% due 05/14/09 400 378 7.250% due 01/15/10 490 502 ------- 5,114 ------- United States Government Treasuries - 36.1% United States Treasury Bonds 10.000% due 05/15/10 320 368 12.000% due 08/15/13 1,600 2,182 United States Treasury Notes 6.375% due 04/30/02 3,185 3,191 6.625% due 05/31/02 825 830 6.375% due 06/30/02 450 451 6.250% due 07/31/02 2,000 2,002 6.125% due 08/31/02 1,500 1,499 5.250% due 08/15/03 500 489 5.875% due 11/15/04 1,120 1,114 7.875% due 11/15/04 250 266 6.750% due 05/15/05 4,495 4,634 6.500% due 08/15/05 310 316 6.875% due 05/15/06 250 260 6.500% due 10/15/06 250 256 5.625% due 05/15/08 2,500 2,451 3.875% due 01/15/09 1,050 1,039 6.500% due 02/15/10 1,565 1,634 5.750% due 08/15/10 1,075 1,076 ------- 24,058 ------- Yankee Bonds - 6.2% Abitibi-Consolidated, Inc. 8.300% due 08/01/05 150 153 AT & T Canada, Inc. 7.650% due 09/15/06 500 503 Canadian National Railroad 6.625% due 05/15/03 500 491 Ireland, Republic of 7.125% due 07/15/02 600 602 Korea Development Bank 7.625% due 10/01/02 600 600 Kowloon-Canton Railway 8.000% due 03/15/10 565 577 Metronet Communications Corp. 10.750% due 11/01/07 (b) 330 299 12.000% due 08/15/07 500 563 Orange PLC 9.000% due 06/01/09 150 157 Svenska Handelsbanken 8.350% due 07/15/04 200 205 ------- 4,150 ------- Total Long-Term Investments (cost $64,032) 63,966 ------- Annual Report 11 SSgA Intermediate Fund Statement of Net Assets, continued August 31, 2000 Principal Market Amount Value (000) (000) $ $ --------- ------ Short-Term Investments - 15.0% Federal Home Loan Bank Consolidated Discount Note 6.510% due 09/01/00 (c)(d) 2,600 2,600 Federal National Mortgage Association Discount Note 6.403% due 09/14/00 (c)(d) 4,200 4,191 Federated Investors Prime Cash Obligations Fund (c) 3,176 3,176 ------- Total Short-Term Investments (cost $9,967) 9,967 ------- Total Investments - 111.0% (identified cost $73,999) 73,933 Other Assets and Liabilities, Net - (11.0%) (7,312) ------- Net Assets - 100.0% 66,621 ======= (a) Forward commitment. (b) Adjustable or floating rate security. (c) At amortized cost, which approximates market. (d) Rate noted is yield to maturity from date of acquisition. Abbreviations: TBA - To Be Announced Security See accompanying notes which are an integral part of the financial statements. 12 Annual Report SSgA Intermediate Fund Statement of Asset and Liabilities Amounts in thousands (except per share amount) August 31, 2000 Assets Investments at market (identified cost $73,999) ............................................... $73,933 Receivables: Interest ................................................................................... 869 Investments sold ........................................................................... 175 Fund shares sold ........................................................................... 24 ------- Total assets ............................................................................ 75,001 Liabilities Payables: Investments purchased (regular settlement) ..................................... $4,085 Investments purchased (delayed settlement) ..................................... 4,232 Fund shares redeemed ........................................................... 7 Accrued fees to affiliates ..................................................... 34 Other accrued expenses ......................................................... 22 ------ Total liabilities ....................................................................... 8,380 ------- Net Assets .................................................................................... $66,621 ======= Net Assets Consist of: Undistributed net investment income ........................................................... $ 995 Accumulated net realized gain (loss) .......................................................... (2,290) Unrealized appreciation (depreciation) on investments ......................................... (66) Shares of beneficial interest ................................................................. 7 Additional paid-in capital .................................................................... 67,975 ------- Net Assets .................................................................................... $66,621 ======= Net Asset Value, offering and redemption price per share: ($66,620,778 divided by 6,995,308 shares of $.001 par value shares of beneficial interest outstanding) .............................................. $ 9.52 =======
See accompanying notes which are an integral part of the financial statements. Annual Report 13 SSgA Intermediate Fund Statement of Operations Amounts in thousands For the Fiscal Year Ended August 31, 2000 Investment Income Interest ................................................................................... $ 4,002 Dividends .................................................................................. 191 ------- Total investment income ................................................................. 4,193 Expenses Advisory fees .................................................................. $ 520 Administrative fees ............................................................ 32 Custodian fees ................................................................. 49 Distribution fees .............................................................. 28 Transfer agent fees ............................................................ 27 Professional fees .............................................................. 15 Registration fees .............................................................. 30 Shareholder servicing fees ..................................................... 54 Trustees' fees ................................................................. 6 Miscellaneous .................................................................. 7 ----- Expenses before reductions ..................................................... 768 Expense reductions ............................................................. (378) ----- Expenses, net ........................................................................... 390 ------- Net investment income ......................................................................... 3,803 ------- Net Realized and Unrealized Gain (Loss) Net realized gain (loss) on investments ....................................................... (1,721) Net change in unrealized appreciation (depreciation) on investments ........................... 1,757 ------- Net realized and unrealized gain (loss) ....................................................... 36 ------- Net increase (decrease) in net assets from operations ......................................... $ 3,839 =======
See accompanying notes which are an integral part of the financial statements. 14 Annual Report SSgA Intermediate Fund Statement of Changes in Net Assets Amounts in thousands For the Fiscal Years Ended August 31,
2000 1999 -------- -------- Increase (Decrease) in Net Assets Operations Net investment income .......................................... $ 3,803 $ 3,876 Net realized gain (loss) ....................................... (1,721) (9) Net change in unrealized appreciation (depreciation) ........... 1,757 (2,882) -------- -------- Net increase (decrease) in net assets from operations ....... 3,839 985 -------- -------- Distributions From net investment income ..................................... (3,806) (3,873) From net realized gain ......................................... (50) (1,163) -------- -------- Net decrease in net assets from distributions ............... (3,856) (5,036) -------- -------- Share Transactions Net increase (decrease) in net assets from share transactions .. (4,912) (1,090) -------- -------- Total net increase (decrease) in net assets ....................... (4,929) (5,141) Net Assets Beginning of period ............................................ 71,550 76,691 -------- -------- End of period (including undistributed net investment income of $995 and $992, respectively) ................................ $ 66,621 $ 71,550 ======== ========
See accompanying notes which are an integral part of the financial statements. Annual Report 15 SSgA Intermediate Fund Financial Highlights The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
Fiscal Years Ended August 31, -------------------------------------------------------- 2000 1999 1998 1997 1996 -------- -------- -------- -------- -------- Net Asset Value, Beginning of Period ......... $ 9.51 $ 10.04 $ 9.76 $ 9.57 $ 9.72 -------- -------- -------- -------- -------- Income From Operations Net investment income (a) ................. .55 .49 .53 .54 .53 Net realized and unrealized gain (loss) ... .01 (.35) .28 .20 (.14) -------- -------- -------- -------- -------- Total income from operations ........... .56 .14 .81 .74 .39 -------- -------- -------- -------- -------- Distributions From net investment income ................ (.54) (.51) (.53) (.55) (.54) From net realized gain .................... (.01) (.16) -- -- -- -------- -------- -------- -------- -------- Total distributions .................... (.55) (.67) (.53) (.55) (.54) -------- -------- -------- -------- -------- Net Asset Value, End of Period ............... $ 9.52 $ 9.51 $ 10.04 $ 9.76 $ 9.57 ======== ======== ======== ======== ======== Total Return (%) ............................. 6.12 1.36 8.64 8.00 4.12 Ratios/Supplemental Data: Net Assets, end of period (in thousands) .. 66,621 71,550 76,691 53,834 41,518 Ratios to average net assets (%): Operating expenses, net (b) ............ .60 .60 .60 .60 .60 Operating expenses, gross (b) .......... 1.18 1.11 1.13 1.30 1.38 Net investment income .................. 5.85 5.02 5.51 5.78 5.57 Portfolio turnover rate (%) ............... 225.31 304.47 244.58 242.76 221.73
(a) For the periods subsequent to August 31, 1998, average month-end shares outstanding were used for this calculation. (b) See Note 4 for current period amounts. 16 Annual Report SSgA Intermediate Fund Notes to Financial Statements August 31, 2000 1. Organization The SSgA Funds (the "Investment Company") is a series mutual fund, currently comprised of 24 investment portfolios which are in operation as of August 31, 2000. These financial statements report on one portfolio, the SSgA Intermediate Fund (the "Fund"). The Investment Company is a registered and diversified open-end investment company, as defined in the Investment Company Act of 1940, as amended (the "1940 Act"), that was organized as a Massachusetts business trust on October 3, 1987 and operates under a First Amended and Restated Master Trust Agreement, dated October 13, 1993, as amended (the "Agreement"). The Investment Company's Agreement permits the Board of Trustees to issue an unlimited number of full and fractional shares of beneficial interest at a $.001 par value. 2. Significant Accounting Policies The Fund's financial statements are prepared in accordance with accounting principles generally accepted in the United States which require the use of management estimates. The following is a summary of the significant accounting policies consistently followed by the Fund in the preparation of its financial statements. Security valuation: United States 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 sale, at the closing bid price, on the primary exchange on which the security is traded. United States over-the-counter, fixed-income securities and options are valued on the basis of the closing bid price. Many fixed-income securities do not trade each day, and thus last sale or bid prices are frequently not available. Fixed-income securities may be valued using prices provided by a pricing service when such prices are believed to reflect the market value of such securities. Money market instruments maturing within 60 days of the valuation date are valued at amortized cost. The Fund may 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. Securities transactions: Securities transactions are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the basis of identified cost. Investment income: Dividend income is recorded on the ex-dividend date and interest income is recorded daily on the accrual basis. Amortization and accretion: All zero-coupon bond discounts and original issue discounts are accreted for both tax and financial reporting purposes. All short- and long-term market premiums/discounts are amortized/accreted for both tax and financial reporting purposes. Federal income taxes: Since the Investment Company is a Massachusetts business trust, each fund is a separate corporate taxpayer and determines its net investment income and capital gains (or losses) and the amounts to be distributed to each fund's shareholders without regard to the income and capital gains (or losses) of the other funds. It is the Fund's intention to qualify as a regulated investment company, as defined by the Internal Revenue Code of 1986, as amended. This requires the Fund to distribute all of its taxable income. Therefore, the Fund paid no Annual Report 17 SSgA Intermediate Fund Notes to Financial Statements, continued August 31, 2000 federal income taxes and no federal income tax provision was required. At August 31, 2000, the Fund had net tax basis capital loss carryover of $726,691, which may be applied against any realized net taxable gains in each succeeding year or until its expiration date of August 31, 2008. As permitted by tax regulations, the Fund intends to defer a net realized capital loss of $1,465,188 incurred from November 1, 1999 to August 31, 2000, and treat it as arising in the fiscal year 2001. The Fund's aggregate cost of investments and the composition of unrealized appreciation and depreciation of investment securities for federal income tax purposes as of August 31, 2000 are as follows: Net Unrealized Unrealized Unrealized Appreciation Federal Tax Cost Appreciation (Depreciation) (Depreciation) ---------------- ------------ -------------- -------------- $74,097,500 $750,661 $(855,046) $(104,385) Dividends and distributions to shareholders: Income dividends and capital gain distributions, if any, are recorded on the ex-dividend date. Dividends are generally declared and paid quarterly. Capital gain distributions are generally declared and paid annually. An additional distribution may be paid by the Fund to avoid imposition of federal income tax on any remaining undistributed net investment income and capital gains. The timing and characterization of certain income and capital gain distributions are determined in accordance with federal tax regulations which may differ from generally accepted accounting principles ("GAAP"). As a result, net investment income and net realized gain (or loss) on investment transactions for a reporting year may differ significantly from distributions during such year. The differences between tax regulations and GAAP relate primarily to investments in certain mortgage-backed securities and certain securities sold at a loss. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting its net asset value. Expenses: Most expenses can be directly attributed to the Fund. Expenses of the investment company which cannot be directly attributed are allocated among all funds based principally on their relative net assets. Forward commitments/Mortgage dollar rolls: The Fund may contract to purchase securities for a fixed price at a future date beyond customary settlement time (not to exceed 120 days)(i.e., a "forward commitment" or "delayed settlement" transaction, e.g., to be announced ("TBA")) consistent with a Fund's ability to manage its investment portfolio and meet redemption requests. The price of the underlying securities and the date upon which the securities will be delivered and paid for are fixed at the time the transaction is negotiated. The Fund may dispose of a forward commitment transaction prior to settlement, if it is appropriate to do so, and realize short-term gains (or losses) upon such sale. When effecting such transactions, cash or liquid high-grade debt obligations of the Fund will be segregated on the Fund's records in a dollar amount sufficient to make payment for the portfolio securities to be purchased at the trade date and maintained until the transaction is settled. A forward commitment transaction involves a risk of loss if the value of the security to be purchased declines prior to the settlement date or the other party to the transaction fails to complete the transaction. 18 Annual Report SSgA Intermediate Fund Notes to Financial Statements, continued August 31, 2000 3. Securities Transactions Investment transactions: For the year ended August 31, 2000, purchases and sales of investment securities, excluding US Government and Agency obligations and short-term investments, aggregated to $28,125,292 and $42,448,141, respectively. For the year ended August 31, 2000, purchases and sales of US Government and Agency obligations, excluding short-term investments, aggregated to $112,974,855 and $102,743,755, respectively. Securities lending: The Investment Company has a securities lending program whereby each Fund can loan securities with a value up to 33 1/3% of its total assets to certain brokers. The Fund receives cash (U.S. currency), U.S. Government or U.S. Government agency obligations as collateral against the loaned securities. To the extent that a loan is secured by cash collateral, such collateral shall be invested by State Street Bank and Trust Company in short-term instruments, money market mutual funds, and such other short-term investments, provided the investments meet certain quality and diversification requirements. Under the securities lending arrangement, the collateral received is recorded on the Fund's statement of assets and liabilities along with the related obligation to return the collateral. In those situations where the Company has relinquished control of securities transferred, it derecognizes the securities and records a receivable from the counterparty. Income generated from the investment of cash collateral, less negotiated rebate fees paid to participating brokers and transaction costs, is divided between the Fund and State Street Bank and Trust Company and is recorded as interest income for the Fund. To the extent that a loan is secured by non-cash collateral, brokers pay the Fund negotiated lenders' fees, which are divided between the Fund and State Street Bank and Trust Company and are recorded as interest income for the Fund. All collateral received will be in an amount at least equal to 102% (for loans of U.S. securities) or 105% (for non-U.S. securities) of the market value of the loaned securities at the inception of each loan. Should the borrower of the securities fail financially, there is a risk of delay in recovery of the securities or loss of rights in the collateral. Consequently, loans are made only to borrowers which are deemed to be of good financial standing. As of August 31, 2000, there were no outstanding securities on loan and no income earned during the year. 4. Related Parties Adviser: The Investment Company has an investment advisory agreement with State Street Bank and Trust Company (the "Adviser") under which the Adviser, through State Street Global Advisors, the investment management group of the Adviser, directs the investments of the Fund in accordance with its investment objectives, policies, and limitations. For these services, the Fund pays a fee to the Adviser, calculated daily and paid monthly, at the annual rate of .80% of its average daily net assets. For the period January 1, 2000 to August 31, 2000, the Adviser has voluntarily agreed to waive .50% of its .80% advisory fee. The Adviser has also voluntarily agreed to reimburse the Fund for all expenses in excess of .60% of average daily net assets on an annual basis. The total amounts of the waiver and reimbursement for the year ended August 31, 2000 were $208,577 and $168,103, respectively. As of August 31, 2000, the receivable due from the Adviser for reimbursed expenses in excess of the expense cap has been netted against the Advisory fee payable. The Investment Company also has contracts with the Adviser to provide custody, shareholder servicing and transfer agent services to the Fund. These amounts are presented in the accompanying Statement of Operations. Annual Report 19 SSgA Intermediate Fund Notes to Financial Statements, continued August 31, 2000 In addition, the Fund has entered into arrangements with its Adviser whereby custody credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund's expenses. During the year, the Fund's custodian fees were reduced by $850 under these arrangements. Administrator: The Investment Company has an administration agreement with Frank Russell Investment Management Company (the "Administrator"), a wholly-owned subsidiary of The Northwestern Mutual Life Insurance Company, under which the Administrator supervises all non-portfolio investment aspects of the Investment Company's operations and provides adequate office space and all necessary office equipment and services, including telephone service, utilities, stationery supplies, and similar items. The Investment Company pays the Administrator for services supplied by the Administrator pursuant to the Administration Agreement, an annual fee, payable monthly on a pro rata basis. For the period September 1, 1999 to April 30, 2000, it is based on the following percentages of the average daily net assets of all domestic funds: $0 up to and including $500 million - .06%; over $500 million up to and including $1 billion - .05%; over $1 billion - .03%. Effective May 1, 2000, the annual fee is based on the following percentages of the average daily net assets of all U.S. Fixed Income portfolios: $0 up to $1 billion - .0315%; over $1 billion - .029%. The Administrator will also charge a flat fee of $30,000 per year per Fund with less than $500 million in net assets and $1,500 per year for monthly performance reports and use of Russell Performance Universe software product. In addition, the Fund reimburses the Administrator for out-of-pocket expenses and start-up costs for new funds. Distributor and Shareholder Servicing: The Investment Company has a Distribution Agreement with Russell Fund Distributors (the "Distributor") which is a wholly-owned subsidiary of the Administrator to promote and offer shares of the Investment Company. The Distributor may enter into sub-distribution agreements with other non-related parties. The amounts paid to the Distributor are included in the accompanying Statement of Operations. The Investment Company has a Distribution Plan pursuant to Rule 12b-1 (the "Plan") under the 1940 Act. Under this Plan, the Investment Company is authorized to make payments to the Distributor, or any Shareholder Servicing Agent, as defined in the Plan, for providing distribution and marketing services, for furnishing assistance to investors on an ongoing basis, and for the reimbursement of direct out-of-pocket expenses charged by the Distributor in connection with the distribution and marketing of shares of the Investment Company and the servicing of investor accounts. The Fund has Shareholder Service Agreements with the Adviser, State Street Brokerage Services, Inc. ("SSBSI"), a wholly-owned subsidiary of the Adviser, the Adviser's Retirement Investment Services Division ("RIS"), the Adviser's Metropolitan Division of Commercial Banking ("Commercial Banking") and State Street Solutions ("Solutions") (collectively the "Agents"), as well as several unaffiliated service providers. For these services, the Fund pays .025%, .175%, .175%, .175%, and .175% to the Adviser, SSBSI, RIS, Commercial Banking, and Solutions, respectively, based upon the average daily value of all Fund shares held by or for customers of these Agents. For the year ended August 31, 2000, the Fund was charged shareholder servicing expenses of $15,938, $2,407, $3,826, $2,172 and $30,516, by the Adviser, SSBSI, RIS, Commercial Banking, and Solutions, respectively. The combined distribution and shareholder servicing payments shall not exceed .25% of the average daily value of net assets of the Fund on an annual basis. The shareholder servicing payments shall not exceed .20% of the 20 Annual Report SSgA Intermediate Fund Notes to Financial Statements, continued August 31, 2000 average daily value of net assets of the Fund on an annual basis. Payments that exceed the maximum amount of allowable reimbursement may be carried forward for two years following the year in which the expenditure was incurred so long as the plan is in effect. The Fund's responsibility for any such expenses carried forward shall terminate at the end of two years following the year in which the expenditure was incurred. The Trustees or a majority of the Fund's shareholders have the right, however, to terminate the Distribution Plan and all payments thereunder at any time. The Fund will not be obligated to reimburse the Distributor for carryover expenses subsequent to the Distribution Plan's termination or noncontinuance. There were no carryover expenses as of August 31, 2000. Board of Trustees: The Investment Company paid each Trustee not affiliated with the Investment Company an annual retainer, plus specified amounts for board and committee meetings attended. These expenses are allocated among all of the funds based upon their relative net assets. Accrued fees payable to affiliates and trustees as of August 31, 2000 were as follows: Advisory fees $11,794 Administration fees 5,387 Custodian fees 5,552 Distribution fees 1,139 Shareholder servicing fees 4,852 Transfer agent fees 4,502 Trustees' fees 998 ------- $34,224 ======= Beneficial Interest: As of August 31, 2000, one shareholder (who was also an affiliate of the Investment Company) was a record owner of approximately 24% of the total outstanding shares of the Fund. 5. Fund Share Transactions
Fiscal Years Ended August 31, -------------------------------------------- 2000 1999 -------------------- -------------------- Shares Dollars Shares Dollars -------- -------- -------- -------- Proceeds from shares sold .................... 3,076 $ 28,880 4,663 $ 45,790 Proceeds from reinvestment of distributions .. 338 3,145 444 4,359 Payments for shares redeemed ................. (3,945) (36,937) (5,220) (51,239) -------- -------- -------- -------- Total net increase (decrease) ................ (531) $ (4,912) (113) $ (1,090) ======== ======== ======== ========
Annual Report 21 SSgA Intermediate Fund Notes to Financial Statements, continued August 31, 2000 6. Interfund Lending Program The Fund and all other funds of the Investment Company received from the Securities and Exchange Commission an exemptive order on December 23, 1999 to establish and operate an Interfund Credit Facility. This allows the Funds to directly lend to and borrow money from the SSgA Money Market Fund for temporary purposes in accordance with certain conditions. The borrowing Funds are charged the average of the current Repo Rate and the Bank Loan Rate. The Fund did not utilize the interfund lending program during this year. 7. Dividends On September 1, 2000, the Board of Trustees declared a dividend of $.1401 from net investment income, payable on September 8, 2000 to shareholders of record on September 5, 2000. 22 Annual Report SSgA Intermediate Fund Tax Information August 31, 2000 (Unaudited) The Fund paid a distribution of $49,873 from net long-term capital gains during its taxable year ended August 31, 2000. Please consult a tax advisor for questions about federal or state income tax laws. Annual Report 23 SSgA Intermediate Fund One International Place, 27th Floor Boston, Massachusetts 02110 (800) 997-7327 -------------------------------------------------------------------------------- Trustees Lynn L. Anderson, Chairman William L. Marshall Steven J. Mastrovich Patrick J. Riley Richard D. Shirk Bruce D. Taber Henry W. Todd Officers Lynn L. Anderson, President, Treasurer and CEO Mark E. Swanson, Treasurer and Principal Accounting Officer J. David Griswold, Vice President and Secretary Deedra S. Walkey, Assistant Secretary Rick J. Chase, Assistant Treasurer Carla L. Anderson, Assistant Secretary Investment Adviser State Street Bank and Trust Company 225 Franklin Street Boston, Massachusetts 02110 Custodian, Transfer Agent and Office of Shareholder Inquiries State Street Bank and Trust Company 1776 Heritage Drive North Quincy, Massachusetts 02171 (800) 647-7327 Distributor Russell Fund Distributors, Inc. One International Place, 27th Floor Boston, Massachusetts 02110 (800) 997-7327 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 160 Federal Street Boston, Massachusetts 02110 24 Annual Report [COVER GRAPHIC] SSgA(R) funds ANNUAL REPORT Intermediate Municipal Bond Fund August 31, 2000 SSgA(R) Funds Intermediate Municipal Bond Fund Annual Report August 31, 2000 Table of Contents Page Chairman's Letter....................................................... 4 Portfolio Management Discussion and Analysis............................ 6 Report of Independent Accountants....................................... 8 Financial Statements.................................................... 9 Financial Highlights.................................................... 16 Notes to Financial Statements........................................... 17 Tax Information......................................................... 22 Fund Management and Service Providers................................... 23 "SSgA(R)" is a registered trademark of State Street Corporation and is licensed for use by the SSgA Funds. This report is prepared from the books and records of the Fund and it is submitted for the general information of shareholders. This information is for distribution to prospective investors only when preceded or accompanied by a SSgA Funds Prospectus containing more complete information concerning the investment objective and operations of the Fund, charges and expenses. The Prospectus should be read carefully before an investment is made. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. Russell Fund Distributors, Inc., is the distributor of the SSgA Funds. SSgA Intermediate Municipal Bond Fund -------------------------------------------------------------------------------- Letter From the Chairman of State Street Global Advisors -------------------------------------------------------------------------------- Dear Shareholders, It is our pleasure to provide you with the SSgA Funds annual report for the fiscal year ended August 31, 2000. The SSgA Fund Family has grown to include twenty-four portfolios with over $21 billion in assets as of August 31, 2000. The Fund Family provides a wide range of strategies covering the world's major markets. The enclosed information provides an overview of the investment process for the SSgA Intermediate Municipal Bond Fund. This overview contains the portfolio management discussion, performance updates and financial information for the Fund. In an ongoing effort to develop competitive products and services that provide investment solutions for our clients, we have added the SSgA Intermediate Municipal Bond Fund to the SSgA Fund Family. This Fund's investment objective seeks to provide federally tax-exempt current income by investing primarily in a diversified portfolio of municipal debt securities with a dollar-weighted average maturity between three and ten years. We are also pleased with the success of our SSgA Emerging Markets and SSgA Growth and Income Funds as they were included in Money(R) Magazine's June 2000 issue listing of the 'Top 100 Mutual Funds'. This is the second year in a row that these funds have been selected. Additionally, the SSgA Tax Free Money Market and the SSgA Active International Funds have achieved five-year performance history during the 2000 fiscal year. Currently, all of our SSgA Money Market Funds have at least a five-year performance history. We strive to meet our clients' needs by providing funds with long-term records and competitive performance. We would like to thank you for choosing the SSgA Funds. Our reputation is based on our tradition of designing and delivering exceptional financial services to our clients. We look forward to continue sharing the benefit of our experience with you. Sincerely, /s/ Nicholas A. Lopardo Nicholas A. Lopardo State Street Global Advisors Chairman and Chief Executive Officer /s/ Timothy B. Harbert Timothy B. Harbert State Street Global Advisors President and Chief Operating Officer, SSgA 4 Annual Report SSgA Intermediate Municipal Bond Fund -------------------------------------------------------------------------------- Management of the Funds -------------------------------------------------------------------------------- [PHOTO] Nicholas A. Lopardo Chairman and Chief Executive Officer [PHOTO] Timothy B. Harbert President and Chief Operating Officer A Team Approach to Investment Management Our investment strategies are the product of the combined experience of our professional staff. Portfolio Managers work together to develop and enhance the techniques that drive our investment processes. As a result, the portfolios we manage benefit from the knowledge of the entire team. Deborah B. Vargo, Principal, is the portfolio manager primarily responsible for investment decisions regarding the SSgA Intermediate Municipal Bond Fund since its inception in June 2000. She joined the firm in 1984, and is responsible for the trading and management of portfolios pertaining to the tax-exempt municipal bond market. She has been dedicated to this asset class for over sixteen years. Ms. Vargo is currently responsible for corporate cash management, tax-exempt common trust funds, certain high net worth accounts, and a large public utility account. Prior to joining SSgA, she worked at Tucker, Anthony & R.L. Day. She has been working in the investment management field since 1982, and holds a BS in Finance from Boston University. There are five other portfolio managers working with Ms. Vargo. Annual Report 5 SSgA Intermediate Municipal Bond Fund -------------------------------------------------------------------------------- Portfolio Management Discussion and Analysis -------------------------------------------------------------------------------- Objective: To provide federally tax-exempt current income by investing primarily in a diversified portfolio of municipal debt securities. Invests in: Investment grade municipal debt instruments including: municipal securities, industrial development and private activity bonds and municipal leases. Strategy: Fund Managers base their decisions on the relative attractiveness of different municipal debt instruments which vary depending on the general level of interest rates as well as supply and demand imbalances in the market. -------------------------------------------------------------------------------- GROWTH OF A $10,000 INVESTMENT Dates Intermediate Municipal Bond Fund Lehman Brothers 1-10 Year Bond Inception* $10,000 $10,000 2000 $10,310 $10,412 ================================================================================ Performance Review From its inception on June 1, 2000, through August 31, 2000, the SSgA Intermediate Municipal Bond Fund had a total return of 3.10%. For the period of June 1, 2000 through August 31, 2000, the Lehman 1-10 Year Blend Index, gained 4.12%. The Fund's performance is net of operating expenses, whereas Index results do not include expenses of any kind. The Fund commenced operations with cash during a period of declining interest rates and extreme demand in the municipal market. Subsequent purchases of securities in the Fund over the next several weeks resulted in benchmark-relative underperformance due to cash levels in the Portfolio through this period. Since the end of May 2000, tax-exempt securities have reaped the benefit of lower issuance, strong retail demand, and a Federal Reserve that continues to be vigilant. Since June 30, -------------------------------------------------------------------------------- SSgA Intermediate Municipal Bond Fund -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return --------------------- ----------- -------- Inception $ 10,310 3.10% -------------------------------------------------------------------------------- Lehman Brothers 1-10 Year Blend -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return --------------------- ----------- -------- Inception $ 10,412 4.12% See related Notes on following page. 6 Annual Report SSgA Intermediate Municipal Bond Fund -------------------------------------------------------------------------------- Portfolio Management Discussion and Analysis -------------------------------------------------------------------------------- 2000, the municipal yield curve flattened 14 basis points in the 1-to-30 year maturity range, to 125 basis points, the narrowest spread since January 1998. Since January 1, 2000, the curve has flattened a full 73 basis points. Intermediate-term bonds witnessed a continuation of strong support during this period, as market participants reacted to the flatter yield curve environment and moved into the shorter maturity issues. For the three months ended August 31, 2000, all of the longer-duration securities in general performed better than those in the shorter range. Within individual sectors the highest returns were generated in Health Care and Lease-Backed. The Fund has neutral-to-underweighted exposure in both these sectors when compared to the benchmark. In general, as in most bond market rallies, lower-quality names performed better than high-grades, although select high-grade specialty sectors such as California, Massachusetts, and Puerto Rico continue to reap the benefits of low supply and unabated demand from high-tax brackets participants. The current economy has been beneficial for most municipalities, allowing state and local governments to employ pay-as-you-go strategies. Issues backed by dedicated revenue streams need less funding and realized much lower net interest costs to fund their projects. Credit upgrades far exceed downgrades, as balance sheets improved within all sectors during the period. The exception to this scenario is the Health Care sector, which continues to be under pressure as a result of federal cutbacks employed in the Balanced Budget Act of l997. Market and Portfolio Highlights The Fund began with $13.6 million in assets on June 1, 2000. Investments were made across sectors, with slight benchmark-relative underweightings in the Health Care and the Leased-Back sectors. Maturity of the investments was concentrated in the four-to-six year range, with some exposure beyond 10 years. Overall, the portfolio's average maturity has fluctuated between 5.55 years and 5.96 years since it's inception, with an average modified duration ranging from 4.50 to 4.84, versus 4.35 for the Index. Average quality for the Fund was AA, as compared to the AA1/AA2 for its Index. The Fund held no securities rated below A as the quality spreads between Baa's and single-A's were too narrow to justify owning. In addition, single-A and higher rated securities maintain marketability and liquidity which is extremely important if conditions become more volatile. The Manager has and will continue to focus on quality and marketability in order to defend against market corrections. Strong performance for municipal bonds over the period pushed the Fund's net asset value up from its $10.00 starting price to $10.31 at August 31, 2000. The Fund will seek to continue exhibiting attractive yield and quality parameters. --------------------------------------------------------------- Top Ten Issuers (as a percent of Total Investments) August 31, 2000 --------------------------------------------------------------- District of Columbia General Obligation 10.1% Elba, New York Central School District General Obligation 5.3 Grand River Dam, Oklahoma Authority Revenue 5.1 Atlanta, Georgia Airport Revenue 5.0 Milwaukee, Wisconsin Metropolitan Sewer District General Obligation 5.0 Clark County, Nevada General Obligation 5.0 Madison, Wisconsin General Obligation 5.0 Maine, State of, General Obligation 4.9 Massachusetts State Development Finance Agency Revenue 4.9 Port of Seattle, Washington General Obligation 4.9 --------------------------------------------------------------- -------------------- Notes: The following notes relate to the Growth of $10,000 graph and table on the preceding page. * The Intermediate Municipal Bond Fund commenced operations on June 1, 2000. Index comparisons also began June 1, 2000. ** The Lehman Brothers 1-10 Year Blend Index includes bonds in the Lehman Municipal Indexes with effective maturities of 1-12 years. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. Annual Report 7 Report of Independent Accountants To the Shareholders and Board of Trustees of the SSgA Funds: In our opinion, the accompanying statement of assets and liabilities and statement of net assets, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of SSgA Intermediate Municipal Bond Fund (the "Fund") at August 31, 2000, the results of its operations, the changes in its net assets and the financial highlights for the period June 1, 2000 (commencement of operations) to August 31, 2000, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit, which included confirmation of securities at August 31, 2000 by correspondence with the custodian, provides a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP Boston, Massachusetts October 11, 2000 8 Annual Report SSgA Intermediate Municipal Bond Fund Statement of Net Assets August 31, 2000
Principal Market Amount Date Value (000) Rate of (000) $ % Maturity $ -------- ----- -------- ------- Municipal Bonds - 94.9% Arizona - 2.5% Salt River Project Arizona Agricultural Import & Power District Electric System Revenue, Series A 250 6.000 01/01/05 264 ------ District of Columbia - 10.0% District of Columbia General Obligation, Series B 500 5.500 06/01/10 524 District of Columbia General Obligation, Series B (d) 500 6.000 06/01/10 535 ------ 1,059 ------ Georgia - 7.2% Atlanta, Georgia Airport Revenue, Series A (d) 500 5.750 01/01/14 527 Georgia Municipal Electric Authority Power Revenue, Series C 125 5.550 01/01/07 130 Georgia Municipal Electric Authority Power Revenue, Series C 100 5.600 01/01/08 105 ------ 762 ------ Hawaii - 4.2% Honolulu, Hawaii City & County General Obligation, Series A (pre-refunded11/01/07) (c)(d) 410 6.000 11/01/09 451 ------ Illinois - 2.5% Metropolitan Pier & Exposition Authority Illinois Dedicated State Tax Revenue (pre-refunded 06/15/03)(c) 250 6.500 06/15/22 268 ------ Maine - 4.9% Maine, State of, General Obligation 500 5.500 06/15/03 515 ------ Maryland - 2.9% Montgomery County, Maryland Housing Opportunities Community Multifamily Revenue, Series B (a) 305 5.200 07/01/04 307 ------
Annual Report 9 SSgA Intermediate Municipal Bond Fund Statement of Net Assets, continued August 31, 2000
Principal Market Amount Date Value (000) Rate of (000) $ % Maturity $ -------- ----- -------- ------- Massachusetts - 9.5% Boston, Massachusetts Economic Development & Industrial Corporation 500 5.150 07/01/25 500 Massachusetts State Development Finance Agency Revenue, Series C 500 5.750 08/01/05 514 ------ 1,014 ------ Nevada - 4.9% Clark County, Nevada General Obligation 500 5.500 07/01/11 523 ------ New York - 10.7% Elba, New York Central School District General Obligation (d) 525 5.600 06/15/11 556 New York State Dormitory Authority Revenue (d) 240 5.250 05/15/13 246 Newark, New York Central School District General Obligation (d) 325 5.625 06/15/12 339 ------ 1,141 ------ Ohio - 3.0% Ohio, State of, General Obligation, Series A 300 5.750 06/15/10 322 ------ Oklahoma - 5.1% Grand River Dam, Oklahoma Authority Revenue (d) 500 6.000 06/01/07 541 ------ Pennsylvania - 2.3% East Allegheny, Pennsylvania School District General Obligation, Series A 250 4.875 08/01/03 250 ------ Tennessee - 3.6% Shelby County, Tennessee General Obligation, Series A 360 5.875 06/01/19 384 ------ Texas - 2.2% San Antonio, Texas Electric & Gas Revenue 225 5.800 02/01/06 238 ------ Virginia - 4.8% Virginia State Housing Development Authority Commonwealth Mortgage, Series C 500 5.450 07/01/02 507 ------
10 Annual Report SSgA Intermediate Municipal Bond Fund Statement of Net Assets, continued August 31, 2000
Principal Amount Date Value (000) Rate of (000) $ % Maturity $ -------- ----- -------- ------- Washington - 4.8% Port of Seattle, Washington General Obligation, Series B 500 5.100 12/01/06 511 ------ Wisconsin - 9.8% Madison, Wisconsin General Obligation, Series A 500 5.500 05/01/05 521 Milwaukee, Wisconsin Metropolitan Sewer District General Obligation, Series A 500 6.125 10/01/03 524 ------ 1,045 ------ Total Municipal Bonds (cost $9,924) 10,102 ------ Short-Term Investments - 3.9% AIM Tax Free Cash Reserve Money Market (b) 284 284 Federated Municipal Obligations Fund - Class A (b) 132 132 ------ Total Short-Term Investments (cost $416) 416 ------ Total Investments - 98.8% (identified cost $10,340) 10,518 Other Assets and Liabilities, Net - 1.2% 123 ------ Net Assets - 100.0% 10,641 ======
(a) Adjustable or floating rate security. (b) At amortized cost, which approximates market value. (c) Pre-refunded: These bonds are collateralized by U.S. Treasury Securities, which are held in escrow by a trustee and used to pay principal and interest in the tax exempt issue and to retire the bonds in full at the earliest refunding date. The rate is for descriptive purposes; effective yield may vary. (d) Bond is insured by AMBAC, FGIC or MBIA/BIG. Abbreviations: AMBAC - AMBAC Indemnity Corporation FGIC - Financial Guaranty Insurance Corporation MBIA - Municipal Bond Investors Assurance See accompanying notes which are an integral part of the financial statements. Annual Report 11 SSgA Intermediate Municipal Bond Fund Statement of Net Assets, continued August 31, 2000 Quality Ratings as a % of Value (Unaudited) AAA ................................................ 52% AA ................................................. 36 A .................................................. 12 ----- 100% ===== Economic Sector Emphasis as a % of Value (Unaudited) General Obligation ................................. 36% Electricity & Power Revenue ........................ 12 Education Revenue .................................. 11 Housing Revenue .................................... 8 Port Revenue ....................................... 7 Industrial Revenue/Pollution Control Revenue ....... 5 Utility Revenue .................................... 5 Airport Revenue .................................... 5 Public Agency Revenue .............................. 5 Other .............................................. 4 University Revenue ................................. 2 ----- 100% ===== See accompanying notes which are an integral part of the financial statements. 12 Annual Report SSgA Intermediate Municipal Bond Fund Statement of Assets and Liabilities Amounts in thousands (except per share amount) August 31, 2000 Assets Investments at market (identified cost $10,340) .................................................... $10,518 Receivables: Interest ........................................................................................ 127 From Adviser .................................................................................... 19 Deferred offering cost .......................................................................... 24 ------- Total assets ................................................................................. 10,688 Liabilities Payables: Accrued fees to affiliates ........................................................... $ 7 Other accrued expenses ............................................................... 40 -------- Total liabilities ............................................................................ 47 ------- Net Assets ......................................................................................... $10,641 ======= Net Assets Consist of: Undistributed net investment income ................................................................ $ 109 Accumulated net realized gain (loss) ............................................................... 48 Unrealized appreciation (depreciation) on investments .............................................. 178 Shares of beneficial interest ...................................................................... 1 Additional paid-in capital ......................................................................... 10,305 ------- Net Assets ......................................................................................... $10,641 ======= Net Asset Value, offering and redemption price per share: ($10,641,227 divided by 1,031,748 shares of $.001 par value shares of beneficial interest outstanding) ................................................... $ 10.31 =======
See accompanying notes which are an integral part of the financial statements. Annual Report 13 SSgA Intermediate Municipal Bond Fund Statement of Operations Amounts in thousands For the Period June 1, 2000 (Commencement of Operations) to August 31, 2000 Investment Income Interest ...................................................................................... $ 121 Dividends ..................................................................................... 5 ------ Total investment income ....................................................................... 126 Expenses Advisory fees ......................................................................... $ 8 Administrative fees ................................................................... 9 Custodian fees ........................................................................ 3 Transfer agent fees ................................................................... 5 Professional fees ..................................................................... 11 Registration fees ..................................................................... 1 Shareholder servicing fees ............................................................ 1 Amortization of deferred offering costs ............................................... 8 ------ Expenses before reductions ............................................................ 46 Expense reductions .................................................................... (29) ------ Expenses, net .............................................................................. 17 ------ Net investment income ............................................................................ 109 ------ Net Realized and Unrealized Gain (Loss) Net realized gain (loss) on investments .......................................................... 48 Net change in unrealized appreciation (depreciation) on investments .............................. 178 ------ Net realized and unrealized gain (loss) .......................................................... 226 ------ Net increase (decrease) in net assets from operations ............................................ $ 335 ======
See accompanying notes which are an integral part of the financial statements. 14 Annual Report SSgA Intermediate Municipal Bond Fund Statement of Changes in Net Assets Amounts in thousands For the Period June 1, 2000 (Commencement of Operations) to August 31, 2000 Increase (Decrease) in Net Assets Operations Net investment income .................................................................................... $ 109 Net realized gain (loss) ................................................................................. 48 Net change in unrealized appreciation (depreciation) ..................................................... 178 ------- Net increase (decrease) in net assets from operations ................................................. 335 ------- Share Transactions Net increase (decrease) in net assets from share transactions ............................................ 10,306 ------- Total net increase (decrease) in net assets ................................................................. 10,641 Net Assets Beginning of period ...................................................................................... -- ------- End of period (including undistributed net investment income of $109) .................................... $10,641 =======
See accompanying notes which are an integral part of the financial statements. Annual Report 15 SSgA Intermediate Municipal Bond Fund Financial Highlights The following table includes selected data for a share outstanding throughout the period and other performance information derived from the financial statements. 2000* ------- Net Asset Value, Beginning of Period ................................ $ 10.00 ------- Income From Operations Net investment income (a) ........................................ .11 Net realized and unrealized gain (loss) .......................... .20 ------- Total income from operations .................................. .31 ------- Net Asset Value, End of Period ...................................... $ 10.31 ======= Total Return (%)(b) ................................................. 3.10 Ratios/Supplemental Data: Net Assets, end of period (in thousands) ......................... 10,641 Ratios to average net assets (%)(c): Operating expenses, net (d) ................................... .65 Operating expenses, gross (d) ................................. 1.68 Net investment income ......................................... 4.21 Portfolio turnover rate (%) ...................................... 212.18% * For the period June 1, 2000 (Commencement of Operations) to August 31, 2000. (a) Average month-end shares outstanding were used for this calculation. (b) Not annualized. (c) The ratios for the period ended August 31, 2000 are annualized. (d) See Note 4 for current period amounts. 16 Annual Report SSgA Intermediate Municipal Bond Fund Notes to Financial Statements August 31, 2000 1. Organization The SSgA Funds (the "Investment Company") is a series mutual fund, currently comprised of 24 investment portfolios which are in operation as of August 31, 2000. These financial statements report on one portfolio, the SSgA Intermediate Municipal Bond Fund (the "Fund"). The Investment Company is a registered and diversified open-end investment company, as defined in the Investment Company Act of 1940, as amended (the "1940 Act"), that was organized as a Massachusetts business trust on October 3, 1987 and operates under a First Amended and Restated Master Trust Agreement, dated October 13, 1993, as amended (the "Agreement"). The Investment Company's Agreement permits the Board of Trustees to issue an unlimited number of full and fractional shares of beneficial interest at a $.001 par value. 2. Significant Accounting Policies The Fund's financial statements are prepared in accordance with accounting principles generally accepted in the United States which require the use of management estimates. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements. Security valuation: United States 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 sale, at the closing bid price, on the primary exchange on which the security is traded. United States over-the-counter, fixed-income securities and options are valued on the basis of the closing bid price. Many fixed-income securities do not trade each day, and thus last sale or bid prices are frequently not available. Fixed-income securities may be valued using prices provided by a pricing service when such prices are believed to reflect the market value of such securities. Money market instruments maturing within 60 days of the valuation date are valued at amortized cost. The Fund may 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. Securities transactions: Securities transactions are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the basis of identified cost. Investment income: Dividend income from tax-free money market funds is recorded on the ex-dividend date and interest income is recorded daily on the accrual basis. Amortization and accretion: All zero-coupon bond discounts and original issue discounts are accreted for both tax and financial reporting purposes. All short- and long-term market premiums/discounts are amortized/accreted for both tax and financial reporting purposes. Federal income taxes: Since the Investment Company is a Massachusetts business trust, each fund is a separate corporate taxpayer and determines its net investment income and capital gains (or losses) and the amounts to be distributed to each fund's shareholders without regard to the income and capital gains (or losses) of the other funds. Annual Report 17 SSgA Intermediate Municipal Bond Fund Notes to Financial Statements, continued August 31, 2000 It is the Fund's intention to qualify as a regulated investment company, as defined by the Internal Revenue Code of 1986, as amended. This requires the Fund to distribute all of its taxable income. Therefore, the Fund paid no federal income taxes and no federal income tax provision was required. The Fund's aggregate cost of investments and the composition of unrealized appreciation and depreciation of investment securities for federal income tax purposes as of August 31, 2000 are as follows: Net Unrealized Unrealized Unrealized Appreciation Federal Tax Cost Appreciation (Depreciation) (Depreciation) ---------------- ------------ -------------- -------------- $ 10,339,687 $ 179,295 $ (861) $ 178,434 Dividends and distributions to shareholders: Income dividends and capital gain distributions, if any, are recorded on the ex-dividend date. Dividends are generally declared and paid quarterly. Capital gain distributions are generally declared and paid annually. An additional distribution may be paid by the Fund to avoid imposition of federal income tax on any remaining undistributed net investment income and capital gains. The timing and characterization of certain income and capital gain distributions are determined in accordance with federal tax regulations which may differ from generally accepted accounting principles ("GAAP"). As a result, net investment income and net realized gain (or loss) on investment transactions for a reporting period may differ significantly from distributions during such period. The differences between tax regulations and GAAP relate primarily to investment in certain fixed income securities purchased at a discount and certain securities sold at a loss. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting its net asset value. Expenses: Most expenses can be directly attributed to the Fund. Expenses of the investment company which cannot be directly attributed are allocated among all funds based principally on their relative net assets. Deferred offering expenses: The Fund incurred expenses in connection with its initial offering. These costs were deferred and are being amortized over 12 months on a straight-line basis. 3. Securities Transactions Investment transactions: For the period ended August 31, 2000, purchases and sales of investment securities, excluding short-term investments, aggregated to $31,630,329 and $21,741,860, respectively. Securities lending: The Investment Company has a securities lending program whereby each Fund can loan securities with a value up to 33 1/3% of its total assets to certain brokers. The Fund receives cash (U.S. currency), U.S. Government or U.S. Government agency obligations as collateral against the loaned securities. To the extent that a loan is secured by cash collateral, such collateral shall be invested by State Street Bank and Trust Company in short-term instruments, money market mutual funds, and such other short-term investments, provided the investments meet certain quality and diversification requirements. Under the securities lending arrangement, the collateral received is recorded on the Fund's statement of assets and liabilities along with the related obligation to return the collateral. In those situations where the Company has relinquished control of securities transferred, it derecognizes the securities and records a receivable from the counterparty. 18 Annual Report SSgA Intermediate Municipal Bond Fund Notes to Financial Statements, continued August 31, 2000 Income generated from the investment of cash collateral, less negotiated rebate fees paid to participating brokers and transaction costs, is divided between the Fund and State Street Bank and Trust Company and is recorded as interest income for the Fund. To the extent that a loan is secured by non-cash collateral, brokers pay the Fund negotiated lenders' fees, which are divided between the Fund and State Street Bank and Trust Company and are recorded as interest income for the Fund. All collateral received will be in an amount at least equal to 102% (for loans of U.S. securities) or 105% (for non-U.S. securities) of the market value of the loaned securities at the inception of each loan. Should the borrower of the securities fail financially, there is a risk of delay in recovery of the securities or loss of rights in the collateral. Consequently, loans are made only to borrowers which are deemed to be of good financial standing. As of August 31, 2000, there were no outstanding securities on loan and no income earned during the year. 4. Related Parties Adviser: The Investment Company has an investment advisory agreement with State Street Bank and Trust Company (the "Adviser") under which the Adviser, through State Global Advisors, the investment management group of the Adviser, directs the investments of the Fund in accordance with its investment objectives, policies, and limitations. For these services, the Fund pays a fee to the Adviser, calculated daily and paid monthly, at the annual rate of .30% of its average daily net assets. The Adviser has agreed to reimburse the Fund for all expenses in excess of .65% of average daily net assets on an annual basis. The total amount of the reimbursement for the period of June 1, 2000 (commencement of operations) to August 31, 2000 was $26,467. As of August 31, 2000, the receivable due from the Adviser for reimbursed expenses in excess of the expense cap has been netted against the Advisory fee payable. The Investment Company also has contracts with the Adviser to provide custody, shareholder servicing and transfer agent services to the Fund. These amounts are presented in the accompanying Statement of Operations. In addition, the Fund has entered into arrangements with its Adviser whereby custody credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund's expenses. During the period, the Fund's custodian fees were reduced by $2,852 under these arrangements. Administrator: The Investment Company has an administration agreement with Frank Russell Investment Management Company (the "Administrator"), a wholly-owned subsidiary of The Northwestern Mutual Life Insurance Company, under which the Administrator supervises all non-portfolio investment aspects of the Investment Company's operations and provides adequate office space and all necessary office equipment and services, including telephone service, utilities, stationery supplies, and similar items. The Investment Company pays the Administrator for services supplied by the Administrator pursuant to the Administration Agreement, an annual fee, payable monthly on a pro rata basis. For the period ending August 31, 2000, the annual fee is based on the following percentages of the average daily net assets of all U.S. Fixed Income portfolios: $0 up to $1 billion - .0315%; over $1 billion - .029%. The Administrator will also charge a flat fee of $30,000 per year per Fund with less than $500 million in net assets and $1,500 per year for monthly performance reports and use of Russell Performance Universe software product. In addition, the Fund reimburses the Administrator for out-of-pocket expenses and start-up costs for new funds. Distributor and Shareholder Servicing: The Investment Company has a Distribution Agreement with Russell Fund Distributors (the "Distributor") which is a wholly-owned subsidiary of the Administrator to promote and Annual Report 19 SSgA Intermediate Municipal Bond Fund Notes to Financial Statements, continued August 31, 2000 offer shares of the Investment Company. The Distributor may enter into sub-distribution agreements with other non-related parties. The amounts paid to the Distributor are included in the accompanying Statement of Operations. The Investment Company has a Distribution Plan pursuant to Rule 12b-1 (the "Plan") under the 1940 Act. Under this Plan, the Investment Company is authorized to make payments to the Distributor, or any Shareholder Servicing Agent, as defined in the Plan, for providing distribution and marketing services, for furnishing assistance to investors on an ongoing basis, and for the reimbursement of direct out-of-pocket expenses charged by the Distributor in connection with the distribution and marketing of shares of the Investment Company and the servicing of investor accounts. The Fund has Shareholder Service Agreements with the Adviser, State Street Brokerage Services, Inc. ("SSBSI"), a wholly-owned subsidiary of the Adviser, the Adviser's Retirement Investment Services Division ("RIS"), the Adviser's Metropolitan Division of Commercial Banking ("Commercial Banking") and State Street Solutions ("Solutions")(collectively the "Agents"), as well as several unaffiliated service providers. For these services, the Fund pays .025%, .175%, .175%, .175%, and .175% to the Adviser, SSBSI, RIS, Commercial Banking, and Solutions, respectively, based upon the average daily value of all Fund shares held by or for customers of these Agents. For the period ended August 31, 2000, the Fund was charged shareholder servicing expenses of $650 by the Adviser. The Fund did not incur any expenses from SSBSI, RIS, Commercial Banking and Solutions during this period. The combined distribution and shareholder servicing payments shall not exceed .25% of the average daily value of net assets of the Fund on an annual basis. The shareholder servicing payments shall not exceed .20% of the average daily value of net assets of the Fund on an annual basis. Payments that exceed the maximum amount of allowable reimbursement may be carried forward for two years following the year in which the expenditure was incurred so long as the plan is in effect. The Fund's responsibility for any such expenses carried forward shall terminate at the end of two years following the year in which the expenditure was incurred. The Trustees or a majority of the Fund's shareholders have the right, however, to terminate the Distribution Plan and all payments thereunder at any time. The Fund will not be obligated to reimburse the Distributor for carryover expenses subsequent to the Distribution Plan's termination or noncontinuance. There were no carryover expenses as of August 31, 2000. Board of Trustees: The Investment Company paid each Trustee not affiliated with the Investment Company an annual retainer, plus specified amounts for board and committee meetings attended. These expenses are allocated among all of the funds based upon their relative net assets. 20 Annual Report SSgA Intermediate Municipal Bond Fund Notes to Financial Statements, continued August 31, 2000 Accrued fees payable to affiliates and trustees as of August 31, 2000 were as follows: Administration fees $ 3,265 Custodian fees 372 Distribution fees 206 Shareholder servicing fees 220 Transfer agent fees 3,166 Trustees' fees 27 -------- $ 7,256 ======== Beneficial Interest: As of August 31, 2000, one shareholder (who is also an affiliate of the Investment Company) was a record owner of approximately 85% of the total outstanding shares of the Fund. 5. Fund Share Transactions (amounts in thousands) Period Ended August 31, ----------------------------- 2000* ----------------------------- Shares Dollars ---------- -------------- Proceeds from shares sold ............... 1,446 $ 14,466 Payments for shares redeemed ............ (414) (4,160) --------- ------------- Total net increase (decrease) ........... 1,032 $ 10,306 ========= ============= * For the period June 1, 2000 (commencement of operations) to August 31, 2000. 6. Interfund Lending Program The Fund and all other funds of the Investment Company received from the Securities and Exchange Commission an exemptive order on December 23, 1999 to establish and operate an Interfund Credit Facility. This allows the Funds to directly lend to and borrow money from the SSgA Money Market Fund for temporary purposes in accordance with certain conditions. The borrowing Funds are charged the average of the current Repo Rate and the Bank Loan Rate. The Fund did not utilize the interfund lending program during this period. 7. Dividends On September 1, 2000, the Board of Trustees declared a dividend of $.1053 from net investment income, payable on September 8, 2000 to shareholders of record on September 5, 2000. Annual Report 21 SSgA Intermediate Municipal Bond Fund Tax Information August 31, 2000 (Unaudited) Of the dividends paid by the Intermediate Municipal Bond Fund from net investment income for the taxable year ended August 31, 2000, 100% were exempt interest dividends which are tax exempt for purposes of regular federal income tax, and for purposes of the federal alternative minimum tax. Please consult a tax advisor for any questions about federal or state income tax laws. 22 Annual Report SSgA Intermediate Municipal Bond Fund One International Place, 27th Floor Boston, Massachusetts 02110 (800) 997-7327 -------------------------------------------------------------------------------- Trustees Lynn L. Anderson, Chairman William L. Marshall Steven J. Mastrovich Patrick J. Riley Richard D. Shirk Bruce D. Taber Henry W. Todd Officers Lynn L. Anderson, President, Treasurer and CEO Mark E. Swanson, Treasurer and Principal Accounting Officer J. David Griswold, Vice President and Secretary Deedra S. Walkey, Assistant Secretary Rick J. Chase, Assistant Treasurer Carla L. Anderson, Assistant Secretary Investment Adviser State Street Bank and Trust Company 225 Franklin Street Boston, Massachusetts 02110 Custodian, Transfer Agent and Office of Shareholder Inquiries State Street Bank and Trust Company 1776 Heritage Drive North Quincy, Massachusetts 02171 (800) 647-7327 Distributor Russell Fund Distributors, Inc. One International Place, 27th Floor Boston, Massachusetts 02110 (800) 997-7327 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 160 Federal Street Boston, Massachusetts 02110 Annual Report 23 [COVER GRAPHIC] SSgA(R) funds ANNUAL REPORT Emerging Markets Fund August 31, 2000 SSgA(R) Funds Emerging Markets Fund Annual Report August 31, 2000 Table of Contents Page Chairman's Letter..................................................... 4 Portfolio Management Discussion and Analysis.......................... 6 Report of Independent Accountants..................................... 8 Financial Statements.................................................. 9 Financial Highlights.................................................. 22 Notes to Financial Statements......................................... 23 Tax Information....................................................... 30 Fund Management and Service Providers................................. 31 "SSgA(R)" is a registered trademark of State Street Corporation and is licensed for use by the SSgA Funds. This report is prepared from the books and records of the Fund and it is submitted for the general information of shareholders. This information is for distribution to prospective investors only when preceded or accompanied by a SSgA Funds Prospectus containing more complete information concerning the investment objective and operations of the Fund, charges and expenses. The Prospectus should be read carefully before an investment is made. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. International markets entail different risks than those typically associated with domestic markets, including currency fluctuations, political and economic instability, accounting changes and foreign taxation. Securities may be less liquid and more volatile. Investments in emerging or developing markets involve exposure to economic structures that are generally less diverse and mature, and to political systems which can be expected to have less stability than those of more developed countries. Please see the Prospectus for further details. Russell Fund Distributors, Inc., is the distributor of the SSgA Funds. SSgA Emerging Markets Fund -------------------------------------------------------------------------------- Letter From the Chairman of State Street Global Advisors -------------------------------------------------------------------------------- Dear Shareholders, It is our pleasure to provide you with the SSgA Funds annual report for the fiscal year ended August 31, 2000. The SSgA Fund Family has grown to include twenty-four portfolios with over $21 billion in assets as of August 31, 2000. The Fund Family provides a wide range of strategies covering the world's major markets. The enclosed information provides an overview of the investment process for the SSgA Emerging Markets Fund. This overview contains the portfolio management discussion, performance updates and financial information for the Fund. In an ongoing effort to develop competitive products and services that provide investment solutions for our clients, we have added the SSgA Intermediate Municipal Bond Fund to the SSgA Fund Family. This Fund's investment objective seeks to provide federally tax-exempt current income by investing primarily in a diversified portfolio of municipal debt securities with a dollar-weighted average maturity between three and ten years. We are also pleased with the success of our SSgA Emerging Markets and SSgA Growth and Income Funds as they were included in Money(R) Magazine's June 2000 issue listing of the 'Top 100 Mutual Funds'. This is the second year in a row that these funds have been selected. Additionally, the SSgA Tax Free Money Market and the SSgA Active International Funds have achieved five-year performance history during the 2000 fiscal year. Currently, all of our SSgA Money Market Funds have at least a five-year performance history. We strive to meet our clients' needs by providing funds with long-term records and competitive performance. We would like to thank you for choosing the SSgA Funds. Our reputation is based on our tradition of designing and delivering exceptional financial services to our clients. We look forward to continue sharing the benefit of our experience with you. Sincerely, /s/ Nicholas A. Lopardo Nicholas A. Lopardo State Street Global Advisors Chairman and Chief Executive Officer /s/ Timothy B. Harbert Timothy B. Harbert State Street Global Advisors President and Chief Operating Officer, SSgA 4 Annual Report SSgA Emerging Markets Fund -------------------------------------------------------------------------------- Management of the Funds -------------------------------------------------------------------------------- [PHOTO] Nicholas A. Lopardo Chairman and Chief Executive Officer [PHOTO] Timothy B. Harbert President and Chief Operating Officer A Team Approach to Investment Management Our investment strategies are the product of the combined experience of our professional staff. Portfolio Managers work together to develop and enhance the techniques that drive our investment processes. As a result, the portfolios we manage benefit from the knowledge of the entire team. Mr. Brad Aham, CFA, Principal, has been the portfolio manager primarily responsible for investment decisions regarding the SSgA Emerging Markets Fund since September 1999. He has worked with the active emerging markets product since its inception. In addition to managing portfolios, Mr. Aham performs quantitative and qualitative research on SSgA's emerging markets products. He has been working in the investment management field since he joined the firm in 1993. He holds an MBA from Boston University and BA degrees from Brandeis University in Mathematics and Economics. There are seven other portfolio managers working with Mr. Aham. Annual Report 5 SSgA Emerging Markets Fund -------------------------------------------------------------------------------- Portfolio Management Discussion and Analysis -------------------------------------------------------------------------------- Objective: Maximize total return primarily through capital appreciation. Invests in: Equity securities of foreign issuers domiciled, or having a substantial portion of their business, in countries having a developing economy or securities market. Strategy: The Fund invests in securities of issuers located in emerging market countries with prospects for sustained macro economic growth. Through the use of proprietary evaluation models, the Fund invests primarily in the International Finance Corporation Investable ("IFCI") Index countries. As the IFCI Index introduces new emerging market countries, the Fund will expand to gain exposure to those countries. -------------------------------------------------------------------------------- GROWTH OF A $10,000 INVESTMENT Dates Emerging Markets Fund I F C Investable Composite Index** Inception* $10,000 $10,000 1994 $11,450 $10,529 1995 $10,387 $8,357 1996 $11,201 $8,881 1997 $12,895 $9,190 1998 $7,045 $4,830 1999 $11,713 $8,173 2000 $13,019 $8,682 ================================================================================ Performance Review For the fiscal year ended August 31, 2000, the SSGA Emerging Markets Fund posted a return of 11.05%. This compared favorably with the Fund's benchmark, the International Finance Corporation Investable (IFCI) Composite Index, which returned 6.22% over the same period. Market and Portfolio Highlights Emerging markets rallied for a second year in a row as this year's 11.05% rise added to fiscal year 1999's 66.41% return for the Fund. This year saw the markets weather Y2K concerns, numerous elections and a change in monetary conditions from easing to a more aggressive tightening posture. Economic conditions improved in most markets as the continued strong performance of the US economy provided the engine for global growth. Additionally, the strong performance of NASDAQ and Technology shares boosted many of the holdings in the Fund. However, rising oil prices and a series of interest rate hikes by the Federal Reserve served to caution the markets as the fiscal year ended. -------------------------------------------------------------------------------- SSgA Emerging Markets Fund -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return -------------------- ----------- ------------ 1 Year $ 11,105 11.05% 5 Years $ 12,534 4.62%+ Inception $ 13,019 4.14%+ -------------------------------------------------------------------------------- International Finance Corporation Investable Composite Index -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return -------------------- ----------- ------------ 1 Year $ 10,622 6.22% 5 Years $ 10,389 0.77%+ Inception $ 8,682 (2.15)%+ See related Notes on following page. 6 Annual Report SSgA Emerging Markets Fund -------------------------------------------------------------------------------- Portfolio Management Discussion and Analysis -------------------------------------------------------------------------------- Latin America was the top region in the IFC Investable Composite Index (the "Index"), returning 35% for the fiscal year. The star performer were Brazil holdings in the Index, surging an incredible 82% for the period. Much of the performance was generated in the fourth calendar quarter of 1999 when both the currency and the stock market rallied. Confirmation that inflation was under control and industrial production was increasing bolstered confidence in the market. The new central bank governor, Arminio Fraga, brought considerable credibility to monetary policy and engineered several interest rate cuts over the year. The Fund has been overweighted in Brazil since the end of 1999, contributing much of the benchmark-relative outperformance. Some of the Fund's strong performers in Brazil include Petrobras and Embratel, posting fiscal year returns of 114% and 229%, respectively. Elsewhere, Mexico saw the presidential victory of Vicente Fox, which solidified the democratization process by ending 71 years of single party rule. Mexican holdings in the Index were up 32% for the year. The Mexican securities markets benefited from a relatively calm election process, strong oil prices and the robust US economy. Telefonos de Mexico, the Fund's largest holding in Mexico and fourth largest position in the Fund, gained 45% over the year. Venezuela was the other big winner in the Latin America region in the Index, jumping 54% on the back of the takeover of Electricidad de Caracas by AES Corp. The Index's holdings in Eastern Europe gained 35% for the year, led by Russia and Turkey, which posted gains of 137% and 65%, respectively. Russia's economic outlook was uncertain when Boris Yeltsin resigned on New Year's Eve 1999, but Vladimir Putin's election win in March marked a great transition for the country. This political optimism, combined with stronger oil prices, led to a dramatic stock market rally, with the Fund's largest Russian holding, Surgutneftegaz, gaining 146% for the fiscal year. Turkey's economy has also been strong on the basis of a new coalition government and an IMF-endorsed anti-inflation program. The Fund benefited from its benchmark relative underweight of Greek securities. Greek holdings in the Index lost 43% during the fiscal year, as that market faced a lack of foreign interest and locals selling off after 1999's strong returns. Index holdings in the Mideast and Africa region, up 19% for the period, were powered by Israeli securities, which rose 70% for the year. Teva Pharmaceuticals rose over 150% on continued positive news over its multiple sclerosis drug, Copaxone. Another Israeli issue, Check Point Software, gained over 200% since the Fund purchased it in January 2000. The company is a global leader in Internet security software. The Fund has benchmark-relative overweight allocations in both Teva and Check Point. The Asian region of the Index experienced disappointing performance and lost over 8% for the period. The top performers within the Index were Chinese holdings, gaining 63% on the basis of improved economic data and strong expectations from WTO entry in 2000. The Fund's largest holding in China and second largest in the portfolio, China Telecom, rose 148% as its subscriber growth continues to be tremendous. Korean holdings lagged this year, as continued concerns over large conglomerates weighed on the market. The Fund's largest Korean holding, Samsung Electronics, managed to gain 22% as its DRAM business profited from strength in the global electronics market. However, Taiwan securities in the Index lost 1% for the year, where a focus on the presidential election and Chen Shui-bian's victory marked the end of over 50 years of KMT rule. The market declined after the election on uncertainty over the policies of the new administration. The Fund's underweight to the smaller markets in Asia helped performance as Index holdings in Indonesia, the Philippines and Thailand fell 35%, 38% and 32% respectively. ----------------------------------------------------------------------- Top Ten Equity Holdings (as a percent of Total Investments) August 31, 2000 ----------------------------------------------------------------------- Samsung Electronics 4.0% China Telecom (Hong Kong), Ltd. 2.5 Taiwan Semiconductor Manufacturing Co. 2.0 Telefonos de Mexico SA Series L - ADR 1.9 Surgutneftegaz SP - ADR 1.8 Petroleo Brasileiro SA 1.6 Telefonos de Mexico SA Series L 1.4 De Beers Centenary Linked Units 1.4 Teva Pharmaceutical Industries, Ltd. - ADR 1.3 Lukoil Oil Co. - ADR 1.3 ----------------------------------------------------------------------- ------------------------------- Notes: The following notes relate to the Growth of $10,000 graph and table on the preceding page. * The Fund commenced operations on March 1, 1994. Index comparison also began on March 1, 1994. ** The IFC Investable Composite Index is a market capitalization-weighted index of the performance of equity securities listed on the stock exchanges of emerging market countries. + Annualized. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. Investments in securities of non-US issuers and foreign currencies involve investment risks different from those of US issuers. The Prospectus contains further information and details regarding these risks. Annual Report 7 Report of Independent Accountants To the Shareholders and Board of Trustees of the SSgA Funds: In our opinion, the accompanying statement of assets and liabilities and statement of net assets, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of SSgA Emerging Markets Fund (the "Fund") at August 31, 2000, the results of its operations for the fiscal year then ended and the changes in its net assets for each of the two fiscal years in the period then ended, and the financial highlights for each of the five fiscal years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 2000 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. Boston, Massachusetts October 11, 2000 /s/ PricewaterhouseCoopers LLP 8 Annual Report SSgA Emerging Markets Fund Statement of Net Assets August 31, 2000 Market Number Value of (000) Shares $ ------ ------ Common Stocks - 82.0% Argentina - 0.5% Banco Frances Rio 31,214 228 El Sitio, Inc. (a) 11,858 47 Grupo Financiero Galicia SA Class B New (a) 163,800 288 Inversiones y Representaciones SA Class B 57,048 139 PC Holdings SA Class B 245,736 410 Siderca SAIC Class A 160,601 349 Telecom Argentina Class B 67,549 318 ------- 1,779 ------- Brazil - 4.0% Brasil Telecom Participacoes SA - ADR 14,000 986 Centrais Eletricas Brasileiras SA 101,358,600 1,900 Companhia Cervejaria Brahma 2,548,700 2,031 Companhia de Saneamento Basico do Estado de Sao Paulo 7,619,000 825 Companhia Siderurgica de Tubarao 7,300,000 79 Companhia Siderurgica Nacional 12,799,000 465 Embratel Participacoes SA 64,803,300 1,229 Globo Cabo SA - ADR 60,000 960 Petroleo Brasileiro SA 59,268 1,878 Petroleo Brasileiro SA - ADR (a) 21,500 684 Souza Cruz 147,977 728 Tele Celular Sul Participacoes SA 151,907,296 484 Tele Centro Sul Participacoes SA 89,564,096 984 Tele Norte Leste Participacoes SA 136,572,192 2,680 ------- 15,913 ------- Chile - 1.0% Banco de A. Edwards Series A - ADR 15,553 205 Banco Santander Chile Series A - ADR 13,400 203 Chile Fund, Inc. 130,700 1,242 Compania de Telecomunicaciones de Chile SA - ADR 38,850 685 Cristalerias de Chile - ADR 7,500 118 Embotelladora Andina SA Series A - ADR 20,200 263 Enersis SA - ADR 21,300 367 Five Arrows Chile Investment Trust (a)(d) 330,000 452 Gener SA - ADR 31,300 399 Vina Concha Y Toro SA - ADR 4,800 173 ------- 4,107 ------- China - 3.7% Beijing Datang Power Generation Co., Ltd. Class H 2,646,000 621 China Merchants Holdings International Co., Ltd. 768,000 601 China Resources Enterprise, Ltd. 278,000 413 China Shipping Development Co., Ltd. Class H (a) 690,000 135 China Telecom (Hong Kong), Ltd. (a) 1,221,100 9,394 Cosco Pacific, Ltd. 685,100 619 Guangdong Kelon Electrical Holdings Co., Ltd. Class H 694,000 229 Guangshen Railway Co., Ltd. 1,858,000 253 Huaneng Power International, Inc. Class H 2,162,000 901 PetroChina Co., Ltd. Class H New 4,246,200 1,013 Shanghai Petrochemical Co., Ltd. Class H 704,000 115 Yizheng Chemical Fibre Class H 1,700,000 436 ------- 14,730 ------- Annual Report 9 SSgA Emerging Markets Fund Statement of Net Assets, continued August 31, 2000 Market Number Value of (000) Shares $ ------ ------ Egypt - 0.5% Commercial International Bank 31,070 302 Eastern Co. Tobacco & Cigarettes 9,800 206 Egyptian Mobile Phone Network (a) 21,899 561 National Societe Generale Bank 22,760 188 Orascom Construction (a) 37,500 443 Suez Cement Co. - GDR 24,970 233 ------- 1,933 ------- Greece - 2.1% Aluminum Co. of Greece SA 10,260 373 Bank of Piraues 27,580 439 Commercial Bank of Greece 17,714 717 Credit Bank (Regd) 31,910 973 EFG Eurobank 26,160 592 Hellenic Bottling Co. SA 30,380 335 Hellenic Petroleum SA 26,442 278 Hellenic Technodomiki SA 11,800 215 Hellenic Telecommunication Organization SA - GDR 48,411 900 Intracom SA 19,606 608 Michaniki SA 19,400 98 Minoan Lines Shipping SA 32,746 281 National Bank of Greece SA 36,583 1,236 Panafon Hellenic Telecom SA 68,320 664 Papastratos Cigarettes Co. 10,260 127 Titan Cement Co. SA 10,680 371 ------- 8,207 ------- Hong Kong - 1.2% China Eastern Airlines Corp., Ltd. (a) 904,000 151 China Everbright - IHD Pacific, Ltd. 252,000 236 China Unicom, Ltd. (a) 928,000 2,154 Citic Pacific, Ltd. 106,000 506 Legend Holdings, Ltd. 1,320,000 1,404 Shanghai Industrial Holdings, Ltd. 76,000 162 ------- 4,613 ------- Hungary - 1.3% BorsodChem Rt. 4,600 146 Danubius Hotel (Regd) 9,317 174 Egis Gyogyszergyar 5,743 281 Gedeon Richter, Ltd. - GDR 6,300 351 Magyar Olaj Es Gas 26,082 356 Magyar Tavkozlesi Rt. (Regd) 509,550 2,814 Mol Magyar Olaj-Es Gazipari Rt. - GDR 10,300 140 OTP Bank Rt. 13,685 734 Tiszai Vegyi Kombinat Rt. 15,790 188 ------- 5,184 ------- India - 0.9% Bharat Heavy Electricals, Ltd. 34,200 99 Bharat Petroleum Corp., Ltd. 18,400 71 CESC, Ltd. (a) 87,500 43 Dr. Reddy's Laboratories, Ltd. 5,500 159 Hindustan Lever, Ltd. 256,000 1,379 ITC, Ltd. 27,400 465 Madras Refineries, Ltd. 105,300 69 Mahanagar Telephone Nigam, Ltd. 25,100 84 Mahindra & Mahindra, Ltd. 12,500 50 Reliance Industries, Ltd. 96,200 708 Tata Engineering and Locomotive Co., Ltd. 72,850 159 Tata Iron and Steel Co., Ltd. 64,700 153 Videsh Sanchar Nigam, Ltd. 16,900 299 ------- 3,738 ------- Israel - 6.2% Agis Industries, Ltd. 49,363 485 Bank Hapoalim Ltd. - GDR 12,210 192 Bank Hapoalim, Ltd. 913,375 2,908 Bank Leumi Le-Israel 762,483 1,756 Bezeq Israeli Telecommunication Corp., Ltd. 189,650 1,177 Check Point Software Technologies, Ltd. (a) 10,000 1,458 10 Annual Report SSgA Emerging Markets Fund Statement of Net Assets, continued August 31, 2000 Market Number Value of (000) Shares $ ------ ------ Clal Industries, Ltd. 28,086 348 ECI Telecom, Ltd. 19,100 598 Elco Holdings, Ltd. 28,761 286 F.I.B.I. Holdings, Ltd. 20,537 206 Formula Systems (1985), Ltd. (a) 10,187 514 Gilat Satellite Networks, Ltd. (a) 3,278 262 IDB Development Corp., Ltd. 23,338 1,090 IDB Holding Corp., Ltd. 33,514 1,414 Israel Chemicals, Ltd. 467,764 585 Koor Industries, Ltd. 13,135 1,394 Leumi Insurance Holdings 471,227 507 Magic Software Enterprises, Ltd. (a) 9,170 82 NICE Systems, Ltd. (a) 13,033 1,038 Optibase, Ltd. (a) 10,810 212 Orbotech, Ltd. NPV (a) 4,166 403 Osem Investment, Ltd. 86,545 644 RADVision, Ltd. (a) 9,899 317 Supersol, Ltd. 159,451 598 Teva Pharmaceutical Industries, Ltd. 13,497 829 Teva Pharmaceutical Industries, Ltd. - ADR 83,693 5,075 ------- 24,378 ------- Malaysia - 5.2% AMMB Holdings Berhad 121,000 398 Arab Malaysian Finance (Alien Market) 238,000 248 Berjaya Sports 134,000 215 Commerce Asset-Holding Berhad 359,000 945 Edaran Otomobil 182,000 498 Faber Group Berhad (a) 445,600 46 Genting Berhad 311,000 876 Golden Hope Plantation 390,000 380 Hong Leong Credit 140,000 258 Hong Leong Industries Berhad 159,000 515 IGB Corp. Berhad 175,000 58 IOI Corporated Berhad 1,109,000 946 Kuala Lumpur Kepong 259,000 368 Magnum CP Berhad 1,403,000 882 Malakoff Berhad 152,000 396 Malayan Banking Berhad 827,000 3,177 Malaysian International Shipping Corp. Berhad (Alien Market) 551,000 834 Malaysian Pacific 91,000 790 Perlis Plantations 157,000 186 Petronas Gas Berhad 565,000 892 Public Bank Berhad (Alien Market) 565,000 494 Resorts World Berhad 204,000 421 RHB Capital Berhad 403,000 437 Rothmans of Pall Mall (Malaysia) Berhad 196,000 1,831 Sime Darby Berhad 1,058,000 1,175 Tanjong PLC 185,000 402 Telekom Malaysia Berhad 317,000 901 Tenaga Nasional Berhad 346,000 1,156 YTL Corp. Berhad 701,600 885 ------- 20,610 ------- Mexico - 11.8% Alfa SA de CV Class A 454,662 1,253 Altos Hornos de Mexico SA (a)(d) 499,000 0 Carso Global Telecom Series A1 (a) 1,358,000 3,498 Cemex SA de CV 727,159 3,414 Cemex SA de CV 2002 Warrants (a) 43,000 21 Compania Cervecerias Unidas SA - ADR 9,750 225 Controladora Comercial Mexicana SA de CV Units 842,000 1,080 El Puerto de Liverpool SA de CV 220,000 311 Empresa Nacional de Electricidad SA - ADR 19,650 210 Fomento Economico Mexicano SA de CV Units 204,000 922 Fomento Economico Mexicano SA de CV Series B - ADR 19,400 884 Grupo Bimbo SA de CV Series A 708,761 1,132 Grupo Carso Series A1 (a) 442,000 1,571 Annual Report 11 SSgA Emerging Markets Fund Statement of Net Assets, continued August 31, 2000 Market Number Value of (000) Shares $ ------ ------ Grupo Cementos Chihuahua Series B 180,000 137 Grupo Financiero Banamex Accival SA de CV (Banacci) Class O (a) 735,000 3,754 Grupo Financiero Banorte SA de CV (a) 364,000 483 Grupo Financiero Class O (a) 3,086,000 1,851 Grupo Gigante SA (a) 598,333 1,027 Grupo Herdez SA Class B 1,408,000 413 Grupo Iusacell SA de CV - ADR (a) 44,000 561 Grupo Mexico SA Series B 436,108 1,948 Grupo Televisa SA (a) 447,000 1,445 Grupo Television SA de CV - GDR (a) 27,330 1,770 Kimberly-Clark, Mexico Class A 257,000 799 Organizacion Soriana SA de CV Series B 225,000 971 Savia SA de CV (a) 78,000 355 Telefonos de Mexico SA Series L 1,953,800 5,330 Telefonos de Mexico SA Series L - ADR 133,400 7,262 TV Azteca SA de CV 515,000 429 Wal-Mart de Mexico SA de CV Series V (a) 1,513,661 3,785 ------- 46,841 ------- Russia - 3.6% Golden Telecom, Inc. (a) 10,100 306 Lukoil Oil Co. - ADR 77,410 5,016 Rostelecom - ADR 43,607 627 Surgutneftegaz SP - ADR (a) 359,335 6,989 Unified Energy Systems - ADR 4,345 73 Unified Energy Systems - GDR 78,295 1,324 ------- 14,335 ------- South Africa - 10.2% AECI, Ltd. 367,402 701 Amalgamated Banks of South Africa 358,867 1,482 Anglo American Platinum Corp., Ltd. 85,500 3,342 AngloGold, Ltd. 37,742 1,472 Anglovaal Industries, Ltd. 424,839 448 Barlow, Ltd. 60,500 395 Bidvest Group, Ltd. 162,112 1,174 Coronation Holdings, Ltd. Class N 27,000 441 De Beers Centenary Linked Units 188,444 5,242 Del Monte Royal Food, Ltd. 764,539 489 Driefontein Consolidated 186,800 688 Ellerine Holdings, Ltd. 173,000 614 FirstRand, Ltd. 1,322,600 1,451 Foschini, Ltd. 269,200 432 Gencor, Ltd. 219,800 812 Impala Platinum Holdings, Ltd. 34,000 1,609 Imperial Holdings, Ltd. (a) 68,336 657 Investec Group, Ltd. 20,800 746 Iscor, Ltd. (a) 487,255 1,132 Johnnies Industrial Corp., Ltd. 54,400 753 Liberty Life Association of Africa 176,600 1,646 M-Cell, Ltd. 32,900 142 Murray & Roberts Holdings, Ltd. 624,600 298 Nedcor, Ltd. 107,139 2,427 Persetel Holdings, Ltd. 236,700 367 Rembrandt Group, Ltd. 277,594 2,747 Reunert, Ltd. 391,700 657 Sanlam, Ltd. 1,609,470 1,939 Sappi, Ltd. 165,432 1,447 Sasol 348,946 2,852 Standard Bank Investment Corp., Ltd. 350,700 1,483 Tongaat-Hulett Group, Ltd. 67,719 349 ------- 40,434 ------- 12 Annual Report SSgA Emerging Markets Fund Statement of Net Assets, continued August 31, 2000 Market Number Value of (000) Shares $ ------ ------ South Korea - 13.3% Anam Semiconductor, Inc. (a) 44,810 412 Cheil Jedang Corp. 9,880 414 Dacom Corp. (a) 5,230 472 Daum Communications Corp. (a) 2,400 150 Dongwon Securities 28,814 182 Haansoft, Inc. (a) 13,000 154 Hana Bank 60,720 326 Hanjin Heavy Industries 87,171 226 Housing & Commercial Bank, Korea 77,957 1,666 Hyosung T&C Co. 33,507 316 Hyundai Electronics Industries Co. (a) 153,710 2,814 Hyundai Motor Co., Ltd. 81,260 1,231 Kookmin Bank 130,410 1,588 Korea Electric Power Corp. 121,650 3,577 Korea Telecom Corp. 52,090 3,566 Korea Telecom Freetel (a) 6,390 295 Korean Air 29,557 210 LG Cable & Machinery, Ltd. 25,700 355 LG Chemical, Ltd. 62,520 1,054 LG Electronics, Inc. 76,440 1,944 LG Securities 87,420 919 Nong Shim Co., Ltd. 7,533 272 Pacific Corp. 13,300 329 Pohang Iron & Steel Co., Ltd. 18,020 1,333 Poongsan Corp. 39,260 247 Samsung Corp. 72,490 657 Samsung Display Devices Co. 23,660 1,056 Samsung Electro-Mechanics Co. (a) 25,150 1,068 Samsung Electronics 61,711 15,223 Samsung Fire & Marine Insurance 25,537 682 Samsung Heavy Industries (a) 130,482 512 Samsung Securities Co., Ltd. 53,438 1,089 SEROME Technology, Inc. 6,340 143 Shin Han Bank 124,020 1,353 Shinsegae Department Store Co. 9,150 456 Sindo Ricoh Co. 12,121 300 SK Corp. 55,290 937 SK Global 28,600 306 SK Telecom Co., Ltd. (a) 18,270 4,021 Ssangyong Oil Refining Co. 23,000 532 Trigem Computer, Inc. (a) 21,580 378 ------- 52,765 ------- Taiwan - 10.3% Acer, Inc. 589,070 734 Advanced Semiconductor Engineering, Inc. (a) 262,026 485 Asia Cement Corp. 721,492 393 Asustek Computer, Inc. 246,298 1,516 Cathay Construction Corp. 613,200 164 Cathay Life Insurance 815,456 1,878 Chang Hwa Bank 206,800 129 China Development Industrial Bank (a) 1,150,830 1,190 China Steel Corp. 2,131,569 1,415 Chinatrust Commercial Bank (a) 923,452 729 CMC Magnetics Corp. (a) 284,600 623 Compal Electronics, Inc. 446,420 856 Delta Electronics, Inc. 129,000 495 Ensure Co., Ltd. (a) 151,008 21 Evergreen Marine Corp. (a) 135,302 87 Far Eastern Department Stores, Ltd. 759,132 382 Far Eastern Textile Co., Ltd. 520,733 580 First Commercial Bank 341,000 297 Formosa Chemicals & Fibre Corp. 1,404,031 1,578 Formosa Plastics Corp. 672,028 1,083 Formosa Taffeta Co. 734,202 466 Fubon Insurance Co. 299,574 200 GigaMedia, Ltd. (a) 19,630 206 Hon Hai Precision Industry Co. 284,960 2,176 Hua Nan Bank 399,386 317 International Bank of Taipei (a) 617,017 256 International Commercial Bank of China 538,450 423 Inventec Co., Ltd. 194,640 323 Annual Report 13 SSgA Emerging Markets Fund Statement of Net Assets, continued August 31, 2000 Market Number Value of (000) Shares $ ------ ------ Lite-On Electronics, Inc. 241,776 315 Macronix International Co., Ltd. (a) 445,170 968 Mosel Vitelic, Inc. (a) 722,400 1,245 Nan Ya Plastic Corp. 860,805 1,428 Pacific Electrical Wire & Cable (a) 691,271 514 Ritek, Inc. (a) 121,108 478 Taiwan Cement Corp. 173,448 110 Taiwan Semiconductor Manufacturing Co. (a) 1,772,119 7,679 Tatung Co., Ltd. 803,396 497 Teco Electric & Machinery 367,736 320 United Microelectronics Corp., Ltd. (a) 1,847,080 4,909 Walsin Lihwa Wire 1,093,288 796 Winbond Electronics Corp. (a) 599,590 1,487 Yageo Corp. 617,665 740 Yang Ming Marine Transport 373,120 140 Yue Loong Motor 244,600 174 ------- 40,802 ------- Thailand - 0.0% Finance One Public Co., Ltd. (Alien Market) (a)(d) 158,300 0 ------- Turkey - 4.5% Akbank TAS 128,896,352 787 Aksigorta AS 21,882,000 418 Anadolu Isuzu Otom 5,843,000 526 Arcelik AS 17,595,900 557 Brisa Bridgestone Sabanci Lastik San. Ve Tic AS 9,898,000 680 Dogan Sirketler Grubu Holding AS (a) 25,544,800 595 Eregli Demir ve Celik Fabrikalari TAS (a) 18,630,000 619 Ford Otomotiv Sanayi AS (a) 5,120,000 293 Haci Omer Sabanci Holding AS 170,503,808 1,666 Koc Holding AS 23,800,000 1,308 Migros 2,907,000 395 Tupras 9,850,000 444 Turkcell Iletisim Hizmetleri AS (a) 6,472,000 346 Turkcell Iletisim Hizmetleri AS - ADR (a) 170,230 2,287 Turkiye Garanti Bankasi AS (a) 125,882,400 1,288 Turkiye Is Bankasi 191,065,792 3,865 Yapi ve Kredi Bankasi AS 189,801,776 1,593 ------- 17,667 ------- United Kingdom - 1.2% Dimension Data Holdings PLC (a) 447,140 4,360 Old Mutual PLC 82,000 205 ------- 4,565 ------- United States - 0.2% Comverse Technology, Inc. (a) 4,570 420 StarMedia Network, Inc. (a) 24,235 206 ------- 626 ------- Venezuela - 0.3% Banco Provincial SA 222,000 160 Companhia Anonima Nacional Telefonos de Venezuela - ADR 32,000 788 Corp. Industrial de Energia 1,536,172 16 Mavesa SA 2,019,899 134 Venezolana de Cementos S.A.C.A. 821,169 279 ------- 1,377 ------- Total Common Stocks (cost $294,922) 324,604 ------- Preferred Stocks - 8.8% Brazil - 8.3% Aracruz Celulose SA Class B 402,100 809 Banco Bradesco SA 289,755,680 2,437 Banco do Estado de Sao Paulo 18,432,200 625 Banco Itau SA 24,010,300 2,296 CIA Energetica De Minas Gerais 51,839,044 929 Companhia Cervejaria Brahma 1,427,000 1,431 14 Annual Report SSgA Emerging Markets Fund Statement of Net Assets, continued August 31, 2000 Market Number Value of (000) Shares $ ------ ------ Companhia Paranaense de Energia - Copel Class B 60,462,900 549 Companhia Siderurgica de Tubarao 39,236,900 524 Companhia Vale Do Rio Doce Series A 103,565 2,800 Copene-Petroquimica do Nordeste Series A (Regd) 2,509,541 1,048 Embratel Participacoes SA - ADR 124,500 2,723 Gerdau SA 54,388,200 780 Itausa Investimentos Itau SA 1,001,179 1,062 Petroleo Brasileiro SA 202,650 6,137 Tele Centro Oeste Celular Participacoes SA - ADR 79,500 1,014 Tele Centro Sul Participacoes SA 18,314,200 262 Tele Norte Leste Participacoes SA 39,368,240 997 Tele Norte Leste Participacoes SA - ADR 33,736 860 Telecomunicacoes de Minas Gerais Class B 14,825,100 649 Telesp Celular Participacoes SA 70,440,048 1,041 Telesp Celular Participacoes SA - ADR 24,050 884 Uniao de Bancos Brasileiros SA (Units) 18,015,700 1,257 Usinas Siderurgicas de Minas Gerais SA 217,100 1,265 Votorantim Celulose e Papel SA 14,214,000 563 ------- 32,942 ------- South Africa - 0.0% Mobile Industries, Ltd. (conv.) (a) 4,083 1 ------- South Korea - 0.5% Hyundai Motor Co., Ltd. 62,500 321 Samsung Electronics, Ltd. 14,050 1,622 ------- 1,943 ------- Total Preferred Stocks (cost $28,169) 34,886 ------- Principal Amount (000) $ ----------- Long-Term Investments - 0.1% Chile - 0.1% Five Arrows Chile Investment Trust (conv.) 3.500% due 11/13/40 (a)(d) 220 308 ------- Total Long-Term Investments (cost $336) 308 ------- Short-Term Investments - 5.7% United States - 5.7% AIM Short-Term Investment Prime Portfolio Class A (b) 6,784 6,784 Associates Corp. of North America 6.910% due 06/14/01 (e) 2,000 2,001 Federated Investors Prime Cash Obligations Fund (b) 7,528 7,528 Fleet Boston Financial Corp. Series P 6.707% due 03/13/01 (e) 3,200 3,200 Ford Motor Credit Co. 6.904% due 07/16/01 (c)(e) 3,100 3,101 ------- Total Short-Term Investments (cost $22,618) 22,614 ------- Annual Report 15 SSgA Emerging Markets Fund Statement of Net Assets, continued August 31, 2000 Market Value (000) $ ----------- Total Investments - 96.6% (identified cost $346,045) 382,412 ------- Other Assets and Liabilities, Net - 3.4% 13,514 ------- Net Assets - 100.0% 395,926 ======= (a) Nonincome-producing security. (b) At amortized cost, which approximates market. (c) Adjustable or floating rate security. (d) These securities have been valued by the Security Valuation Committee of The Board of Trustees. It is possible that the estimated value may differ significantly from the amount that might ultimately be realized. (e) Held as collateral in connection with equity swap agreements held by the Fund. (f) At August 31, 2000, $844 cash was held as collateral in connection with open futures contracts held by the Fund. Abbreviations: ADR - American Depositary Receipt GDR - Global Depositary Receipt Foreign Currency Abbreviations: BRL - Brazilian real GRD - Greek drachma HKD - Hong Kong dollar IDR - Indonesian rupiah KRW - South Korean won USD - United States dollar ZAR - South African rand Unrealized Number Appreciation of (Depreciation) Contracts (000) --------- -------------- MSCI Index Futures Contracts (Taiwan) expiration date 09/00 270 $ (774) -------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts Purchased (f) $ (774) ======== Forward Foreign Currency Exchange Contracts Unrealized Contracts to In Exchange Appreciation Deliver For Settlement (Depreciation) (000) (000) Date (000) --------------- ------------------ ---------- -------------- USD 13,887 GRD 5,137,605 11/17/00 $ (416) USD 4,879 IDR 41,094,636 11/17/00 (6) BRL 8,564 USD 4,617 11/17/00 10 HKD 41,318 USD 5,305 11/17/00 2 KRW 5,287,446 USD 4,729 11/17/00 (50) ZAR 22,621 USD 3,236 11/17/00 18 -------- $ (442) ======== See accompanying notes which are an integral part of the financial statements. 16 Annual Report SSgA Emerging Markets Fund Statement of Net Assets, continued August 31, 2000 Market % of Value Industry Diversification Net (000) (Unaudited) Assets $ ------ ------- Basic Industries 9.8% 38,811 Capital Goods 4.5 17,907 Consumer Basics 5.8 23,061 Consumer Durables 2.0 7,958 Consumer Non-Durables 2.8 11,088 Consumer Services 0.7 2,608 Consumer Staples 0.5 1,831 Energy 7.3 28,814 Finance 17.7 70,100 General Business 1.7 6,666 Miscellaneous 3.0 12,084 Producer Durables 0.1 300 Shelter 0.1 397 Technology 14.8 58,548 Transportation 0.6 2,322 Utilities 19.5 77,303 Short-Term Investments 5.7 22,614 ------ ------- Total Investments 96.6 382,412 Other Assets and Liabilities, Net 3.4 13,514 ------ ------- Net Assets 100.0% 395,926 ====== ======= Market % of Value Geographic Diversification Net (000) (Unaudited) Assets $ ------ ------- Africa 10.2% 40,435 Europe 4.5 17,956 Latin America 26.1 103,267 Middle East 12.1 47,716 Pacific Basin 34.2 135,463 Other 3.8 14,961 Short-Term Investments 5.7 22,614 ------ ------- Total Investments 96.6 382,412 Other Assets and Liabilities, Net 3.4 13,514 ------ ------- Net Assets 100.0% 395,926 ====== ======= See accompanying notes which are an integral part of the financial statements. Annual Report 17 SSgA Emerging Markets Fund Statement of Net Assets, continued August 31, 2000 Equity Swaps
Notional Unrealized Amount Appreciation (000) Termination (Depreciation) Underlying Security Index $ Floating Rate Date (000) -------------------------------- -------- -------------------------- ----------- -------------- IFC Emerging Markets Investable Total Return Chile Index 3,238 USD LIBOR-BBA minus .60% 03/30/01 $ (122) IFC Emerging Markets Investable Total Return India Index 3,047 USD LIBOR-BBA minus 3.75% 06/29/01 (326) IFC Emerging Markets Investable Total Return Russia Index 2,000 USD LIBOR-BBA minus 3.00% 06/25/01 584 ------ $ 136 ======
See accompanying notes which are an integral part of the financial statements. 18 Annual Report SSgA Emerging Markets Fund Statement of Assets and Liabilities Amounts in thousands (except per share amount) August 31, 2000 Assets Investments at market (identified cost $346,045) ................................................... $ 382,412 Cash ............................................................................................... 844 Foreign currency holdings (identified cost $2,201) ................................................. 2,184 Unrealized appreciation on forward foreign currency exchange contracts ............................. 30 Receivables: Dividends and interest .......................................................................... 926 Investments sold ................................................................................ 530 Fund shares sold ................................................................................ 9,915 Daily variation margin on futures contracts ..................................................... 137 Prepaid expenses ................................................................................... 11 Short-term investments held as collateral for securities loaned, at market ......................... 29,332 Receivable for equity swap ......................................................................... 136 --------- Total assets ................................................................................. 426,457 Liabilities Payables: Investments purchased ................................................................ $ 116 Fund shares redeemed ................................................................. 175 Accrued fees to affiliates ........................................................... 436 Unrealized depreciation on forward foreign currency exchange contracts .................. 472 Payable upon return of securities loaned, at market ..................................... 29,332 --------- Total liabilities ............................................................................ 30,531 --------- Net Assets ......................................................................................... $ 395,926 ========= Net Assets Consist of: Accumulated distributions in excess of net investment income ....................................... $ (65) Accumulated net realized gain (loss) ............................................................... (6,277) Unrealized appreciation (depreciation) on: Investments ..................................................................................... 36,367 Futures contracts ............................................................................... (774) Equity swaps .................................................................................... 136 Foreign currency-related transactions ........................................................... (505) Shares of beneficial interest ...................................................................... 35 Additional paid-in capital ......................................................................... 367,009 --------- Net Assets ......................................................................................... $ 395,926 ========= Net Asset Value, offering and redemption price per share: ($395,926,475 divided by 34,819,927 shares of $.001 par value shares of beneficial interest outstanding) ................................................... $ 11.37 =========
See accompanying notes which are an integral part of the financial statements. Annual Report 19 SSgA Emerging Markets Fund Statement of Operations Amounts in thousands For the Fiscal Year Ended August 31, 2000 Investment Income Dividends (net of foreign taxes withheld of $737) ............................................... $ 7,832 Interest ........................................................................................ 226 --------- Total investment income ...................................................................... 8,058 Expenses Advisory fees ........................................................................ $ 2,821 Administrative fees .................................................................. 270 Custodian fees ....................................................................... 1,293 Distribution fees .................................................................... 330 Transfer agent fees .................................................................. 82 Professional fees .................................................................... 33 Registration fees .................................................................... 47 Shareholder servicing fees ........................................................... 267 Trustees' fees ....................................................................... 12 Miscellaneous ........................................................................ 18 --------- Expenses before reductions ........................................................... 5,173 Expense reductions ................................................................... (471) --------- Expenses, net ................................................................................ 4,702 --------- Net investment income .............................................................................. 3,356 --------- Net Realized and Unrealized Gain (Loss) Net realized gain (loss) on: Investments .......................................................................... 21,207 Futures contracts .................................................................... 187 Equity swaps ......................................................................... (100) Foreign currency-related transactions ................................................ (1,736) 19,558 --------- Net change in unrealized appreciation (depreciation) on: Investments .......................................................................... 17,703 Futures contracts .................................................................... (1,038) Equity swaps ......................................................................... (235) Foreign currency-related transactions ................................................ (384) 16,046 --------- --------- Net realized and unrealized gain (loss) ............................................................ 35,604 --------- Net increase (decrease) in net assets from operations .............................................. $ 38,960 =========
See accompanying notes which are an integral part of the financial statements. 20 Annual Report SSgA Emerging Markets Fund Statement of Changes in Net Assets Amounts in thousands For the Fiscal Year Ended August 31,
2000 1999 --------- --------- Increase (Decrease) in Net Assets Operations Net investment income .................................................................. $ 3,356 $ 4,830 Net realized gain (loss) ............................................................... 19,558 (8,139) Net change in unrealized appreciation (depreciation) ................................... 16,046 135,065 --------- --------- Net increase (decrease) in net assets from operations ............................... 38,960 131,756 --------- --------- Distributions From net investment income ............................................................. (7,555) (8,219) --------- --------- Share Transactions Net increase (decrease) in net assets from share transactions .......................... 28,866 5,748 --------- --------- Total net increase (decrease) in net assets ............................................... 60,271 129,285 Net Assets Beginning of period .................................................................... 335,655 206,370 --------- --------- End of period (including accumulated distributions in excess of net investment income of $65 and undistributed net investment income of $5,540, respectively) ............ $ 395,926 $ 335,655 ========= =========
See accompanying notes which are an integral part of the financial statements. Annual Report 21 SSgA Emerging Markets Fund Financial Highlights The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
Fiscal Years Ended August 31, ----------------------------------------------------------------------- 2000 1999 1998 1997 1996 ----------- ----------- ----------- ----------- ----------- Net Asset Value, Beginning of Period .......... $ 10.47 $ 6.52 $ 12.33 $ 10.87 $ 10.30 ----------- ----------- ----------- ----------- ----------- Income From Operations Net investment income (a) .................. .09 .15 .18 .12 .11 Net realized and unrealized gain (loss) .... 1.04 4.07 (5.58) 1.51 .68 ----------- ----------- ----------- ----------- ----------- Total income from operations ............ 1.13 4.22 (5.40) 1.63 .79 ----------- ----------- ----------- ----------- ----------- Distributions From net investment income ................. (.23) (.27) (.15) (.11) (.12) From net realized gain ..................... -- -- (.26) (.06) (.10) ----------- ----------- ----------- ----------- ----------- Total distributions ..................... (.23) (.27) (.41) (.17) (.22) ----------- ----------- ----------- ----------- ----------- Net Asset Value, End of Period ................ $ 11.37 $ 10.47 $ 6.52 $ 12.33 $ 10.87 =========== =========== =========== =========== =========== Total Return (%) .............................. 11.05 66.41 (45.36) 15.12 7.83 Ratios/Supplemental Data: Net Assets, end of period (in thousands) ... 395,926 335,655 206,370 252,708 120,216 Ratios to average net assets (%): Operating expenses, net (b) ............. 1.25 1.25 1.25 1.25 1.28 Operating expenses, gross (b) ........... 1.38 1.34 1.38 1.51 1.67 Net investment income ................... .89 1.78 1.85 1.07 1.10 Portfolio turnover rate (%) ................ 55.62 39.64 38.94 15.00 4.36
(a) For the periods subsequent to August 31, 1998, average month-end shares outstanding were used for this calculation. (b) See Note 4 for current period amounts. 22 Annual Report SSgA Emerging Markets Fund Notes to Financial Statements August 31, 2000 1. Organization The SSgA Funds (the "Investment Company") is a series mutual fund, currently comprised of 24 investment portfolios which are in operation as of August 31, 2000. These financial statements report on one portfolio, the SSgA Emerging Markets Fund (the "Fund"). The Investment Company is a registered and diversified open-end investment company, as defined in the Investment Company Act of 1940, as amended (the "1940 Act"), that was organized as a Massachusetts business trust on October 3, 1987 and operates under a First Amended and Restated Master Trust Agreement, dated October 13, 1993, as amended (the "Agreement"). The Investment Company's Agreement permits the Board of Trustees to issue an unlimited number of full and fractional shares of beneficial interest at a $.001 par value. 2. Significant Accounting Policies The Fund's financial statements are prepared in accordance with accounting principles generally accepted in the United States which require the use of management estimates. The following is a summary of the significant accounting policies consistently followed by the Fund in the preparation of its financial statements. Security valuation: International equity and fixed-income 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 the mean of bid prices. In the absence of a last sale or mean bid price, respectively, 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. Money market instruments maturing within 60 days of the valuation date are valued at amortized cost. The Fund may value certain 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. Securities transactions: Securities transactions are recorded on the trade date basis. Realized gains and losses from the securities transactions are recorded on the basis of identified cost. Investment income: Dividend income is recorded on the ex-dividend date and interest income is recorded daily on the accrual basis. Amortization and accretion: All zero-coupon bond discounts and original issue discounts are accreted for both tax and financial reporting purposes. All short- and long-term market premiums/discounts are amortized/accreted for both tax and financial reporting purposes. Federal income taxes: Since the Investment Company is a Massachusetts business trust, each fund is a separate corporate taxpayer and determines its net investment income and capital gains (or losses) and the amounts to be distributed to each fund's shareholders without regard to the income and capital gains (or losses) of the other funds. It is the Fund's intention to qualify as a regulated investment company, as defined by the Internal Revenue Code of 1986, as amended. This requires the Fund to distribute all of its taxable income. Therefore, the Fund paid no federal income taxes and no federal income tax provision was required. At August 31, 2000, the Fund had net tax basis capital loss carryover of $5,809,147 which may be applied against any realized net taxable gains in each year or until its expiration date of August 31, 2007. Annual Report 23 SSgA Emerging Markets Fund Notes to Financial Statements, continued August 31, 2000 The Fund's aggregate cost of investments and the composition of unrealized appreciation and depreciation of investment securities for federal income tax purposes as of August 31, 2000 are as follows: Net Unrealized Federal Tax Unrealized Unrealized Appreciation Cost Appreciation (Depreciation) (Depreciation) ------------ ------------ -------------- -------------- $347,971,837 $68,599,492 $(34,158,838) $34,440,654 Dividends and distributions to shareholders: Income dividends and capital gain distributions, if any, are recorded on the ex-dividend date. The Fund declares and pays dividends annually. Capital gain distributions, if any, are generally declared and paid annually. An additional distribution may be paid by the Fund to avoid imposition of federal income tax on any remaining undistributed net investment income and capital gains. The timing and characterization of certain income and capital gain distributions are determined in accordance with federal tax regulations which may differ from generally accepted accounting principles ("GAAP"). As a result, net investment income and net realized gain (or loss) on investment and foreign currency-related transactions for a reporting year may differ significantly from distributions during such year. The differences between tax regulations and GAAP relate primarily to investments in swaps, futures, forward contracts, passive foreign investment companies, foreign denominated investments, and certain securities sold at a loss. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting its net asset value. Expenses: Most expenses can be directly attributed to the Fund. Expenses of the investment company which cannot be directly attributed are allocated among all funds based principally on their relative net assets. Foreign currency translations: The books and records of the Fund are maintained in US dollars. Foreign currency amounts and transactions of the Fund are translated into US dollars on the following basis: (a) Market value of investment securities, other assets and liabilities at the closing rate of exchange on the valuation date. (b) Purchases and sales of investment securities and income at the closing rate of exchange prevailing on the respective trade dates of such transactions. Reported net realized gains or losses from foreign currency-related transactions arise from sales and maturities of short-term securities; sales of foreign currencies; currency gains or losses realized between the trade and settlement dates on securities transactions; and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books and the US dollar equivalent of the amounts actually received or paid. Net unrealized gains or losses from foreign currency-related transactions arise from changes in the value of assets and liabilities, other than investments in securities, at fiscal year-end, resulting from changes in the exchange rates. It is not practical to isolate that portion of the results of operations of the Fund that arises as a result of changes in exchange rates from that portion that arises from changes in market prices of investments during the year. Such fluctuations are included with the net realized and unrealized gain or loss from investments. However, for federal 24 Annual Report SSgA Emerging Markets Fund Notes to Financial Statements, continued August 31, 2000 income tax purposes the Fund does isolate the effects of changes in foreign exchange rates from the fluctuations arising from changes in market prices for realized gain (or loss) on debt obligations. Derivatives: To the extent permitted by the investment objectives, restrictions and policies set forth in the Fund's Prospectus and Statement of Additional Information, the Fund may participate in various derivative-based transactions. Derivative securities are instruments or agreements whose value is derived from an underlying security or index. They include options, futures, swaps, forwards, structured notes and stripped securities. These instruments offer unique characteristics and risks that assist the Fund in meeting its investment strategies. The Fund typically uses derivatives in three ways: cash equitization, hedging, and return enhancement. Cash equitization is a technique that may be used by the Fund through the use of options and futures to earn "market-like" returns with the Fund's excess and liquidity reserve cash balances. Hedging is used by the fund to limit or control risks, such as adverse movements in exchange rates and interest rates. Return enhancement can be accomplished through the use of derivatives in the Fund. By purchasing certain instruments, the Fund may more effectively achieve the desired portfolio characteristics that assist in meeting the Fund's investment objectives. Depending on how the derivatives are structured and utilized, the risks associated with them may vary widely. These risks are generally categorized as market risk, liquidity risk and counterparty or credit risk. Foreign currency exchange contracts: In connection with portfolio purchases and sales of securities denominated in a foreign currency, the Fund may enter into foreign currency exchange spot contracts and forward foreign currency exchange contracts ("contracts"). The Fund may enter into foreign currency forward overlays on liquidity reserve balances. Additionally, from time to time the Fund may enter into contracts to hedge certain foreign currency-denominated assets. Contracts are recorded at market value. Certain risks may arise upon entering into these contracts from the potential inability of counterparties to meet the terms of their contracts and are generally limited to the amount of unrealized gain on the contracts, if any, that are recognized in the accompanying Statement of Assets and Liabilities. Realized gains or losses arising from such transactions are included in net realized gain (or loss) from foreign currency-related transactions. Open forward contracts at August 31, 2000 are presented in the accompanying Statement of Net Assets. Futures: The Fund is currently utilizing exchange-traded futures contracts. The primary risks associated with the use of futures contracts are an imperfect correlation between the change in market value of the securities held by the Fund and the prices of futures contracts and the possibility of an illiquid market. Changes in initial settlement value are accounted for as unrealized appreciation (depreciation) until the contracts are terminated, at which time realized gains and losses are recognized. Equity swaps: The Fund has entered into several equity swap agreements in order to efficiently participate in certain foreign markets. Pursuant to these agreements, the Fund pays the swap counterparties based on the notional amount and an agreed upon rate (eg. the 12-month USD LIBOR BBA rate). During the terms of the agreements, changes in the underlying values of the swaps are recorded as unrealized gain (loss) and are based on changes in the value of the underlying index. The underlying index is valued at the published daily closing price. Accrued interest expense to be paid to the swap counterparties or accrued interest income to be paid to the Fund, at the agreed upon dates, are recognized as unrealized gain (loss). Amounts paid to the swap counterparties representing capital depreciation on the underlying securities and accrued interest expense and interest income are recorded as net realized gain (loss). The Fund is exposed to credit risk in the event of non-performance by the swap Annual Report 25 SSgA Emerging Markets Fund Notes to Financial Statements, continued August 31, 2000 counterparties; however, the Fund does not anticipate non-performance by the counterparties. The Fund has segregated certain short-term investments (identified in the accompanying Statement of Net Assets) as collateral for the notional amount under the equity swap agreements. Investment in emerging markets: Investing in emerging markets may involve special risks and considerations not typically associated with investing in the United States markets. These risks include revaluation of currencies, high rates of inflation, repatriation, restrictions on income and capital, and future adverse political and economic developments. Moreover, securities issued in these markets may be less liquid, subject to government ownership controls, delayed settlements, and their prices more volatile than those of comparable securities in the United States. 3. Securities Transactions Investment transactions: For the year ended August 31, 2000, purchases and sales of investment securities, excluding short-term investments and futures contracts, aggregated to $214,330,146 and $194,037,045, respectively. Securities lending: The Investment Company has a securities lending program whereby each Fund can loan securities with a value up to 33 1/3% of its total assets to certain brokers. The Fund receives cash (U.S. currency), U.S. Government or U.S. Government agency obligations as collateral against the loaned securities. To the extent that a loan is secured by cash collateral, such collateral shall be invested by State Street Bank and Trust Company in short-term instruments, money market mutual funds, and such other short-term investments, provided the investments meet certain quality and diversification requirements. Under the securities lending arrangement, the collateral received is recorded on the Fund's statement of assets and liabilities along with the related obligation to return the collateral. In those situations where the Company has relinquished control of securities transferred, it derecognizes the securities and records a receivable from the counterparty. Income generated from the investment of cash collateral, less negotiated rebate fees paid to participating brokers and transaction costs, is divided between the Fund and State Street Bank and Trust Company and is recorded as interest income for the Fund. To the extent that a loan is secured by non-cash collateral, brokers pay the Fund negotiated lenders' fees, which are divided between the Fund and State Street Bank and Trust Company and are recorded as interest income for the Fund. All collateral received will be in an amount at least equal to 102% (for loans of U.S. securities) or 105% (for non-U.S. securities) of the market value of the loaned securities at the inception of each loan. Should the borrower of the securities fail financially, there is a risk of delay in recovery of the securities or loss of rights in the collateral. Consequently, loans are made only to borrowers which are deemed to be of good financial standing. As of August 31, 2000, the value of outstanding securities on loan and the value of collateral amounted to $27,856,411 and $29,332,424, respectively. Included in interest income is securities lending income of $151,367 for the year ended August 31, 2000. 4. Related Parties Adviser: The Investment Company has an investment advisory agreement with State Street Bank and Trust Company (the "Adviser") under which the Adviser, through State Street Global Advisors, the investment management group of the Adviser, directs the investments of the Fund in accordance with its investment objectives, policies, and limitations. For these services, the Fund pays a fee to the Adviser, calculated daily and paid monthly, at the annual rate of .75% of its average daily net assets. The Adviser has voluntarily agreed to 26 Annual Report SSgA Emerging Markets Fund Notes to Financial Statements, continued August 31, 2000 reimburse the Fund for all expenses in excess of 1.25% of its average daily net assets on an annual basis. The total amount of the reimbursement for the year ended August 31, 2000 was $460,085. As of August 31, 2000, the receivable due from the Adviser for reimbursed expenses in excess of the expense cap has been netted against the Advisory fee payable. The Investment Company also has contracts with the Adviser to provide custody, shareholder servicing and transfer agent services to the Fund. These amounts are presented in the accompanying Statement of Operations. In addition, the Fund has entered into arrangements with its Adviser whereby custody credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund's expenses. During the year, the Fund's custodian fees were reduced by $10,704 under these arrangements. Administrator: The Investment Company has an administration agreement with Frank Russell Investment Management Company (the "Administrator"), a wholly-owned subsidiary of The Northwestern Mutual Life Insurance Company, under which the Administrator supervises all non-portfolio investment aspects of the Investment Company's operations and provides adequate office space and all necessary office and services, including telephone service, utilities, stationery supplies, and similar items. The Investment Company pays the Administrator for services supplied by the Administrator pursuant to the Administration Agreement, an annual fee, payable monthly on a pro rata basis. For the period September 1, 1999 to April 30, 2000, it is based on the following percentages of the average daily net assets of all International funds; $0 up to and including $500 million - .07%, over $500 million up to and including $1 billion - .06%, over $1 billion up to and including $1.5 billion - .04%, over $1.5 billion - .03%. Effective May 1, 2000, the annual fee is based on the following percentages of the average daily net assets of all International portfolios: $0 up to $1 billion - .07%; over $1 billion - .05%. The Administrator will also charge a flat fee of $30,000 per year per Fund with less than $500 million in net assets and $1,500 per year for monthly performance reports and use of Russell Performance Universe software product. In addition, the Fund reimburses the Administrator for out-of-pocket expenses and start-up costs for new funds. Distributor and Shareholder Servicing: The Investment Company has a Distribution Agreement with Russell Fund Distributors (the "Distributor") which is a wholly-owned subsidiary of the Administrator to promote and offer shares of the Investment Company. The Distributor may enter into sub-distribution agreements with other non-related parties. The amounts paid to the Distributor are included in the accompanying Statement of Operations. The Investment Company has a Distribution Plan pursuant to Rule 12b-1 (the "Plan") under the 1940 Act. Under this Plan, the Investment Company is authorized to make payments to the Distributor, or any Shareholder Servicing Agent, as defined in the Plan, for providing distribution and marketing services, for furnishing assistance to investors on an ongoing basis, and for the reimbursement of direct out-of-pocket expenses charged by the Distributor in connection with the distribution and marketing of shares of the Investment Company and the servicing of investor accounts. The Fund has Shareholder Service Agreements with the Adviser, State Street Brokerage Services, Inc. ("SSBSI"), a wholly-owned subsidiary of the Adviser, the Adviser's Retirement Investment Services Division ("RIS"), the Adviser's Metropolitan Division of Commercial Banking ("Commercial Banking") and State Street Solutions ("Solutions")(collectively the "Agents"), as well as several unaffiliated service providers. For these services, the Annual Report 27 SSgA Emerging Markets Fund Notes to Financial Statements, continued August 31, 2000 Fund pays .025%, .175%, .175%, .175% and .175%, to the Adviser, SSBSI, RIS, Commercial Banking, and Solutions, respectively, based upon the average daily value of all Fund shares held by or for customers of these Agents. For the year ended August 31, 2000, the Fund was charged shareholder servicing expenses of $93,363, $3,478, $32,873, $484 and $5,911 by the Adviser, SSBSI, RIS, Commercial Banking, and Solutions, respectively. The combined distribution and shareholder servicing payments shall not exceed .25% of the average daily value of net assets of the Fund on an annual basis. The shareholder servicing payments shall not exceed .20% of the average daily value of net assets of the Fund on an annual basis. Payments that exceed the maximum amount of allowable reimbursement may be carried forward for two years following the year in which the expenditure was incurred so long as the plan is in effect. The Fund's responsibility for any such expenses carried forward shall terminate at the end of two years following the year in which the expenditure was incurred. The Trustees or a majority of the Fund's shareholders have the right, however, to terminate the Distribution Plan and all payments thereunder at any time. The Fund will not be obligated to reimburse the Distributor for carryover expenses subsequent to the Distribution Plan's termination or noncontinuance. There were no carryover expenses as of August 31, 2000. Board of Trustees: The Investment Company paid each Trustee not affiliated with the Investment Company an annual retainer, plus specified amounts for board and committee meetings attended. These expenses are allocated among all of the funds based upon their relative net assets. Accrued fees payable to affiliates and trustees as of August 31, 2000 were as follows: Advisory fees $208,849 Administration fees 21,375 Custodian fees 99,001 Distribution fees 9,082 Shareholder servicing fees 80,233 Transfer agent fees 14,887 Trustees' fees 2,148 -------- $435,575 ======== Beneficial Interest: As of August 31, 2000, one shareholder was a record owner of approximately 31% of the total outstanding shares of the Fund. 28 Annual Report SSgA Emerging Markets Fund Notes to Financial Statements, continued August 31, 2000 5. Fund Share Transactions (amounts in thousands)
Fiscal Years Ended August 31, ------------------------------------------- 2000 1999 -------------------- ------------------- Shares Dollars Shares Dollars ------- -------- ------- -------- Proceeds from shares sold ...................... 40,913 $ 479,583 25,947 $ 225,323 Proceeds from reinvestment of distributions .... 642 6,594 993 7,446 Payments for shares redeemed ................... (38,779) (457,311) (26,560) (227,021) ------- --------- ------- --------- Total net increase (decrease) .................. 2,776 $ 28,866 380 $ 5,748 ======= ========= ======= =========
6. Interfund Lending Program The Fund and all the other funds of the Investment Company received from the Securities and Exchange Commission an exemptive order on December 23, 1999 to establish and operate an Interfund Credit Facility. This allows the Funds to directly lend to and borrow money from the SSgA Money Market Fund for temporary purposes in accordance with certain conditions. The borrowing Funds are charged the average of the current Repo Rate and the Bank Loan Rate. Miscellaneous Expenses on the Statement of Operations include $3,024 of interest expense paid under the interfund lending program. Annual Report 29 SSgA Emerging Markets Fund Tax Information August 31, 2000 (Unaudited) The Fund paid foreign taxes of $737,001 and recognized $7,396,017 of foreign source income during the taxable year ended August 31, 2000. Pursuant to Section 853 of the Internal Revenue Code, the Fund designates $.0212 per share of foreign taxes paid and $.2124 of gross income earned from foreign sources in the taxable year ended August 31, 2000. Please consult a tax advisor for questions about federal or state income tax laws. 30 Annual Report SSgA Emerging Markets Fund One International Place, 27th Floor Boston, Massachusetts 02110 (800) 997-7327 -------------------------------------------------------------------------------- Trustees Lynn L. Anderson, Chairman William L. Marshall Steven J. Mastrovich Patrick J. Riley Richard D. Shirk Bruce D. Taber Henry W. Todd Officers Lynn L. Anderson, President, Treasurer and CEO Mark E. Swanson, Treasurer and Principal Accounting Officer J. David Griswold, Vice President and Secretary Deedra S. Walkey, Assistant Secretary Rick J. Chase, Assistant Treasurer Carla L. Anderson, Assistant Secretary Investment Adviser State Street Bank and Trust Company 225 Franklin Street Boston, Massachusetts 02110 Custodian, Transfer Agent and Office of Shareholder Inquiries State Street Bank and Trust Company 1776 Heritage Drive North Quincy, Massachusetts 02171 (800) 647-7327 Distributor Russell Fund Distributors, Inc. One International Place, 27th Floor Boston, Massachusetts 02110 (800) 997-7327 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 160 Federal Street Boston, Massachusetts 02110 Annual Report 31 [COVER GRAPHIC] SSgA(R) funds ANNUAL REPORT Tuckerman Active REIT Fund August 31, 2000 SSgA(R) Funds Tuckerman Active REIT Fund Annual Report August 31, 2000 Table of Contents Page Chairman's Letter......................................................... 4 Portfolio Management Discussion and Analysis.............................. 6 Report of Independent Accountants......................................... 8 Financial Statements...................................................... 9 Financial Highlights...................................................... 13 Notes to Financial Statements............................................. 14 Fund Management and Service Providers..................................... 19 "SSgA(R)" is a registered trademark of State Street Corporation and is licensed for use by the SSgA Funds. This report is prepared from the books and records of the Fund and it is submitted for the general information of shareholders. This information is for distribution to prospective investors only when preceded or accompanied by a SSgA Funds Prospectus containing more complete information concerning the investment objective and operations of the Fund, charges and expenses. The Prospectus should be read carefully before an investment is made. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. Russell Fund Distributors, Inc., is the distributor of the SSgA Funds. SSgA Tuckerman Active REIT Fund -------------------------------------------------------------------------------- Letter From the Chairman of State Street Global Advisors -------------------------------------------------------------------------------- Dear Shareholders, It is our pleasure to provide you with the SSgA Funds annual report for the fiscal year ended August 31, 2000. The SSgA Fund Family has grown to include twenty-four portfolios with over $21 billion in assets as of August 31, 2000. The Fund Family provides a wide range of strategies covering the world's major markets. The enclosed information provides an overview of the investment process for the SSgA Tuckerman Active REIT Fund. This overview contains the portfolio management discussion, performance updates and financial information for the Fund. In an ongoing effort to develop competitive products and services that provide investment solutions for our clients, we have added the SSgA Intermediate Municipal Bond Fund to the SSgA Fund Family. This Fund's investment objective seeks to provide federally tax-exempt current income by investing primarily in a diversified portfolio of municipal debt securities with a dollar-weighted average maturity between three and ten years. We are also pleased with the success of our SSgA Emerging Markets and SSgA Growth and Income Funds as they were included in Money(R) Magazine's June 2000 issue listing of the `Top 100 Mutual Funds'. This is the second year in a row that these funds have been selected. Additionally, the SSgA Tax Free Money Market and the SSgA Active International Funds have achieved five-year performance history during the 2000 fiscal year. Currently, all of our SSgA Money Market Funds have at least a five-year performance history. We strive to meet our clients' needs by providing funds with long-term records and competitive performance. We would like to thank you for choosing the SSgA Funds. Our reputation is based on our tradition of designing and delivering exceptional financial services to our clients. We look forward to continue sharing the benefit of our experience with you. Sincerely, /s/ Nicholas A. Lopardo Nicholas A. Lopardo State Street Global Advisors Chairman and Chief Executive Officer /s/ Timothy B. Harbert Timothy B. Harbert State Street Global Advisors President and Chief Operating Officer, SSgA 4 Annual Report SSgA Tuckerman Active REIT Fund -------------------------------------------------------------------------------- Management of the Funds -------------------------------------------------------------------------------- [PHOTO] Nicholas A. Lopardo Chairman and Chief Executive Officer [PHOTO] Timothy B. Harbert President and Chief Operating Officer A Team Approach to Investment Management Our investment strategies are the product of the combined experience of our professional staff. Portfolio Managers work together to develop and enhance the techniques that drive our investment processes. As a result, the portfolios we manage benefit from the knowledge of the entire team. Mr. Arthur J. Hurley, CFA, Principal, has been the portfolio manager primarily responsible for investment decisions regarding the SSgA Tuckerman Active REIT Fund since May 2000. He also acts as the Senior Equity Analyst for the Tuckerman Group. Mr. Hurley joined State Street in 1995. He also is in charge of the creation and modification of model REIT portfolios. Prior to his current responsibilities, he was an Equity Analyst, specializing in Real Estate Investment Trusts for the Tuckerman Group. Before joining the Tuckerman Group, Mr. Hurley worked for SSgA's Active Fixed Income Group where he managed portfolios, traded fixed income instruments, and conducted credit analyses. He holds a BA in Finance from the University of Massachusetts/Dartmouth. There are two other portfolio managers working with Mr. Hurley. Annual Report 5 SSgA Tuckerman Active REIT Fund -------------------------------------------------------------------------------- Portfolio Management Discussion and Analysis -------------------------------------------------------------------------------- Objective: Provide income and capital growth by investing primarily in publicly traded securities of real estate companies. Invests in: Real Estate Investment Trust (REIT) securities, primarily from those securities in the Wilshire REIT Index and across different types and regions based on the fundamental research of the Advisor Strategy: The Fund seeks to meet its objective primarily 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 Manager conducts through its strategy and research analyst team. -------------------------------------------------------------------------------- GROWTH OF A $10,000 INVESTMENT
Dates Tuckerman Active REIT Fund Wilshire REIT Index ** S&P(R)REIT Index *** Inception* $10,000 $10,000 $10,000 1998 $8,201 $8,357 $8,228 1999 $8,700 $8,831 $8,447 2000 $10,571 $10,208 $9,422
================================================================================ Performance Review For the fiscal year ended August 31, 2000, the SSgA Tuckerman Active REIT Fund had a total return of 21.51%, outperforming the Wilshire REIT Index return of 15.63% by 5.88%. The Fund's performance is net of operating expenses, whereas the Index results do not include expenses of any kind. Market and Portfolio Highlights While the technical dynamics in the market did not favor REITs in late 1999, the fundamentals of the real estate market remained strong, and sentiment finally changed for REITs in the spring of 2000. The REIT rally of the first half of 2000 began in March, and coincided almost perfectly with the peak of the NASDAQ market. Investors suddenly became much less attracted to the "new economy" stocks with very little near term positive cash flows, and turned to investments with stable cash flows and high current returns. REITs with attractive valuations, a dividend yield of approximately 9.00% during this time and stable cash flows attracted investors to the sector. -------------------------------------------------------------------------------- SSgA Tuckerman Active REIT Fund -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return -------------- ------------ ------- 1 Year $ 12,151 21.51% Inception $ 10,571 2.41%+ -------------------------------------------------------------------------------- Wilshire REIT Index -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return -------------- ------------ ------- 1 Year $ 11,563 15.63% Inception $ 10,208 0.88%+ -------------------------------------------------------------------------------- Standard & Poor's(R) REIT Index -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return -------------- ------------ ------- 1 Year $ 11,158 11.58% Inception $ 9,422 (2.52)%+ See related Notes on following page. 6 Annual Report SSgA Tuckerman Active REIT Fund -------------------------------------------------------------------------------- Portfolio Management Discussion and Analysis -------------------------------------------------------------------------------- While REIT share prices suffered over the last two years, the fundamentals of the real estate market continued to be strong. The real estate market remains in a state of equilibrium, with the recent supply of space in balance with the near term demand. With limited new supply, and continued strength in the US economy, vacancy rates are at or near all time lows in most property types. This has allowed real estate owners to raise rents to very attractive rates, and as a result, many REITs exceeded expectations in the second quarter of 2000. The Manager continues to find attractive valuations in the REIT group. A year ago, REITs were trading at discounts of 15-20% of their liquidation values. As of August 31, 2000, however, the Manager estimates the REIT group is trading at a discount to liquidation value of approximately 5-8%. In August 2000, the Fund moved from an overweighting to an underweighting in the hotel sector versus the benchmark. Prior to August 2000, this segment was significantly undervalued when compared to other property types, considering the strong economic environment they were operating under. As the hotel REITs reported financial results well ahead of expectations in both the first and second quarters of 2000, their share prices began to better reflect the positive fundamentals of the underlying business. As of August 31, 2000, hotel REITs are up 32.71%, well ahead of the Wilshire REIT Index. Due to the strong price move, and what the Manager believes to be less favorable fundamentals looking forward, the Manager has decided to capitalize on profits in this property type and reduce the weighting in the portfolio. At August 31, 2000, the Fund held a 5.2% weighting in hotels versus the benchmark weighting of 6.2%. The Fund maintained its overweight position in the office segment throughout the fiscal year, which helped the benchmark-relative performance for the period. At August 31, 2000, the Fund held 32.2% in office REITs versus the benchmark weight of 26.0%. The Manager continues to favor office companies focused in the downtown markets where supply of space is inherently constrained. These companies have been able to raise rents to attractive rates, and generate internal growth well in excess of their peers. The Fund also benefited significantly from its overweight to the Apartment sector. As of August 31, 2000, the Fund held 28.2% in the apartment property type versus the Wilshire REIT Index weight of 24.2%. The Apartment sector has benefited from the limited supply of available multi-family units, and the continued demand from strong job growth in the US. Similar to the Office sector, the Manager also focuses on apartment REITs operating in inherently supply-constrained areas located in the Northeast and West Coast. Because the development process in the Southeast and the Southwest are much slower and more difficult than in any other region in the US, these regions continue to be underweighted to the Index. --------------------------------------------------------- Top Ten Equity Holdings (as a percent of Total Investments) August 31, 2000 --------------------------------------------------------- Equity Office Properties Trust 10.6% Equity Residential Properties Trust 9.6 Apartment Investment & Management Co. Class A 6.8 Duke Weeks Realty Corp. 6.7 Avalonbay Communities, Inc. 6.5 Simon Property Group, Inc. 5.5 Spieker Properties, Inc. 5.3 MeriStar Hospitality Corp. 5.2 Alexandria Real Estate Equities, Inc. 4.9 Chelsea GCA Realty, Inc. 4.6 --------------------------------------------------------- --------------------- Notes: The following notes relate to the Growth of $10,000 graph and table on the preceding page. * The Fund commenced operations on May 1, 1998. Index comparison also began May 1, 1998. ** The Wilshire REIT Index is a market capitalization-weighted index comprised of publicly traded Real Estate Investment Trusts (REITs). No special purpose or healthcare REITs are included. The index is rebalanced monthly and reconstituted quarterly. *** The Standard & Poor's(R) REIT Composite Index is capitalization-weighted index of 100 stocks designed to measure the performance of Real Estate Investment Trusts, commonly know as REITs. The Index was developed with a base value of 100 as of December 31, 1996. + Annualized. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. Annual Report 7 Report of Independent Accountants To the Shareholders and Board of Trustees of the SSgA Funds: In our opinion, the accompanying statement of assets and liabilities and statement of net assets, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of SSgA Tuckerman Active REIT Fund (the "Fund") at August 31, 2000, the results of its operations for the fiscal year then ended and the changes in its net assets for each of the two fiscal years in the period then ended and the financial highlights for each of the two fiscal years in the period then ended and for the period May 1, 1998 (commencement of operations) to August 31, 1998, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 2000 by correspondence with the custodian, provide a reasonable basis for our opinion. Boston, Massachusetts October 11, 2000 /s/ PricewaterhouseCoopers LLP 8 Annual Report SSgA Tuckerman Active REIT Fund Statement of Net Assets August 31, 2000 Market Number Value of (000) Shares $ ------ ------ Common Stocks (a) - 98.3% Apartment - 28.1% Apartment Investment & Management Co. Class A 66,500 2,984 Archstone Communities Trust 39,800 980 Avalonbay Communities, Inc. 63,700 2,847 Equity Residential Properties Trust 87,500 4,200 Essex Property Trust, Inc. 26,200 1,289 ------- 12,300 ------- Hotels/Leisure - 1.3% LaSalle Hotel Properties 39,800 572 ------- Leasing - 6.9% Captec Net Lease Realty, Inc. 75,000 769 MeriStar Hospitality Corp. 101,900 2,254 ------- 3,023 ------- Office/Industrial - 44.2% Alexandria Real Estate Equities, Inc. 60,900 2,132 Boston Properties, Inc. 29,000 1,173 Brandywine Realty Trust 70,000 1,435 CenterPoint Properties Corp. 31,000 1,358 Duke-Weeks Realty Corp. 122,498 2,910 Equity Office Properties Trust 160,500 4,634 Prentiss Properties Trust 18,800 457 ProLogis Trust 43,900 1,004 SL Green Realty Corp. 71,200 1,909 Spieker Properties, Inc. 42,600 2,327 ------- 19,339 ------- Outlet Centers - 4.6% Chelsea GCA Realty, Inc. 59,600 2,000 ------- Regional Malls - 8.8% CBL & Associates Properties, Inc. 58,900 1,406 Simon Property Group, Inc. 105,700 2,411 ------- 3,817 ------- Shopping Center - 4.4% Equity One, Inc. 21,600 219 Kimco Realty Corp. 42,200 1,714 ------- 1,933 ------- Total Common Stocks (cost $36,972) 42,984 ------- Principal Amount (000) $ --------- Short-Term Investments - 1.5% AIM Short Term Investment Prime Portfolio Class A (b) 632 632 Federated Investors Prime Cash Obligations Fund (b) 26 26 ------- Total Short-Term Investments (cost $658) 658 ------- Total Investments - 99.8% (identified cost $37,630) 43,642 Other Assets and Liabilities, Net - 0.2% 106 ------- Net Assets - 100.0% 43,748 ======= (a) All common stocks held are Real Estate Investment Trusts (REITs). (b) At amortized cost, which approximates market. See accompanying notes which are an integral part of the financial statements. Annual Report 9 SSgA Tuckerman Active REIT Fund Statement of Assets and Liabilities Amounts in thousands (except per share amount) August 31, 2000 Assets Investments at market (identified cost $37,630) ............................................ $ 43,642 Receivables: Dividends ............................................................................... 4 Investments sold ........................................................................ 17 Fund shares sold ........................................................................ 188 Prepaid expenses ........................................................................... 4 Short-term investments held as collateral for securities loaned, at market ................. 2,801 -------- Total assets ......................................................................... 46,656 Liabilities Payables: Fund shares redeemed ......................................................... $ 62 Accrued fees to affiliates ................................................... 35 Other accrued expenses ....................................................... 10 Payable upon return of securities loaned, at market ............................. 2,801 -------- Total liabilities .................................................................... 2,908 -------- Net Assets ................................................................................. $ 43,748 ======== Net Assets Consist of: Undistributed net investment income ........................................................ $ 153 Accumulated net realized gain (loss) ....................................................... (4,330) Unrealized appreciation (depreciation) on investments ...................................... 6,012 Shares of beneficial interest .............................................................. 5 Additional paid-in capital ................................................................. 41,908 -------- Net Assets ................................................................................. $ 43,748 ======== Net Asset Value, offering and redemption price per share: ($43,747,616 divided by 4,779,470 shares of $.001 par value shares of beneficial interest outstanding) ........................................... $ 9.15 ========
See accompanying notes which are an integral part of the financial statements. 10 Annual Report SSgA Tuckerman Active REIT Fund Statement of Operations Amounts in thousands For the Fiscal Year Ended August 31, 2000 Investment Income Dividends ........................................................................ $ 2,728 Interest ......................................................................... 10 ------- Total investment income ....................................................... 2,738 Expenses Advisory fees .......................................................... $ 237 Administrative fees .................................................... 23 Custodian fees ......................................................... 18 Distribution fees ...................................................... 19 Transfer agent fees .................................................... 28 Professional fees ...................................................... 15 Registration fees ...................................................... 30 Shareholder servicing fees ............................................. 11 Trustees' fees ......................................................... 5 Miscellaneous .......................................................... 5 ------- Expenses before reductions ............................................. 391 Expense reductions ..................................................... (26) ------- Expenses, net ................................................................. 365 ------- Net investment income ............................................................... 2,373 ------- Net Realized and Unrealized Gain (Loss) Net realized gain (loss) on investments ............................................. (2,540) Net change in unrealized appreciation (depreciation) on investments ................. 6,565 ------- Net realized and unrealized gain (loss) ............................................. 4,025 ------- Net increase (decrease) in net assets from operations ............................... $ 6,398 =======
See accompanying notes which are an integral part of the financial statements. Annual Report 11 SSgA Tuckerman Active REIT Fund Statement of Changes in Net Assets Amounts in thousands For the Fiscal Years Ended August 31,
2000 1999 -------- -------- Increase (Decrease) in Net Assets Operations Net investment income ............................................... $ 2,373 $ 2,248 Net realized gain (loss) ............................................ (2,540) (3,566) Net change in unrealized appreciation (depreciation) ................ 6,565 3,593 -------- -------- Net increase (decrease) in net assets from operations ............ 6,398 2,275 -------- -------- Distributions From net investment income .......................................... (2,369) (2,374) -------- -------- Share Transactions Net increase (decrease) in net assets from share transactions ....... (5,809) 27,169 -------- -------- Total net increase (decrease) in net assets ............................ (1,780) 27,070 Net Assets Beginning of period ................................................. 45,528 18,458 -------- -------- End of period (including undistributed net investment income of $153 and $149, respectively) ..................................... $ 43,748 $ 45,528 ======== ========
See accompanying notes which are an integral part of the financial statements. 12 Annual Report SSgA Tuckerman Active REIT Fund Financial Highlights The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements. Fiscal Years Ended August 31, ----------------------------- 2000 1999 1998* ------- ------- ------- Net Asset Value, Beginning of Period .......... $ 8.08 $ 8.17 $ 10.00 ------- ------- ------- Income From Operations Net investment income (a) .................. .52 .50 .15 Net realized and unrealized gain (loss) .... 1.10 (.01) (1.94) ------- ------- ------- Total income from operations ............ 1.62 .49 (1.79) ------- ------- ------- Distributions From net investment income ................. (.55) (.58) (.04) ------- ------- ------- Net Asset Value, End of Period ................ $ 9.15 $ 8.08 $ 8.17 ======= ======= ======= Total Return (%)(b) ........................... 21.51 6.09 (17.99) Ratios/Supplemental Data: Net Assets, end of period (in thousands) ... 43,748 45,528 18,458 Ratios to average net assets (%)(c): Operating expenses, net (d) ............. 1.00 1.00 1.00 Operating expenses, gross (d) ........... 1.07 1.09 1.38 Net investment income ................... 6.51 6.25 5.21 Portfolio turnover rate (%) ................ 102.88 60.13 17.36 * For the period May 1, 1998 (commencement of operations) to August 31, 1998. (a) For the periods subsequent to August 31, 1998, average month-end shares outstanding were used for this calculation. (b) Periods less than one year are not annualized. (c) The ratios for the period ended August 31, 1998 are annualized. (d) See Note 4 for current period amounts. Annual Report 13 SSgA Tuckerman Active REIT Fund Notes to Financial Statements August 31, 2000 1. Organization The SSgA Funds (the "Investment Company") is a series mutual fund, currently comprised of 24 investment portfolios which are in operation as of August 31, 2000. These financial statements report on one portfolio, the SSgA Tuckerman Active REIT Fund (formerly SSgA Real Estate Equity Fund)(the "Fund"). The Investment Company is a registered and open-end investment company, as defined in the Investment Company Act of 1940, as amended (the "1940 Act"), that was organized as a Massachusetts business trust on October 3, 1987 and operates under a First Amended and Restated Master Trust Agreement, dated October 13, 1993, as amended (the "Agreement"). The Investment Company's Agreement permits the Board of Trustees to issue an unlimited number of full and fractional shares of beneficial interest at a $.001 par value. 2. Significant Accounting Policies The Fund's financial statements are prepared in accordance with accounting principles generally accepted in the United States which require the use of management estimates. The following is a summary of the significant accounting policies consistently followed by the Fund in the preparation of its financial statements. Security valuation: United States equity securities listed and traded principally on any national securities exchange are valued on the basis of the last sale price or, lacking any sale, at the closing bid price, on the primary exchange on which the security is traded. United States over-the-counter equities are valued on the basis of the closing bid price. Money market instruments maturing within 60 days of the valuation date are valued at amortized cost. The Fund may 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. Securities transactions: Securities transactions are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the basis of identified cost. Investment income: Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Amortization and accretion: All zero-coupon bond discounts and original issue discounts are accreted for both tax and financial reporting purposes. All short- and long-term market premiums/discounts are amortized/accreted for both tax and financial reporting purposes. Federal income taxes: Since the Investment Company is a Massachusetts business trust, each fund is a separate corporate taxpayer and determines its net investment income and capital gains (or losses) and the amounts to be distributed to each fund's shareholders without regard to the income and capital gains (or losses) of the other funds. 14 Annual Report SSgA Tuckerman Active REIT Fund Notes to Financial Statements, continued August 31, 2000 It is the Fund's intention to qualify as a regulated investment company, as defined by the Internal Revenue Code of 1986, as amended. This requires the Fund to distribute all of its taxable income. Therefore, the Fund paid no federal income taxes and no federal income tax provision was required. At August 31, 2000, the Fund had a net tax basis capital loss carryovers of $471,979 and $3,092,433, which may be applied against any realized net taxable gains in each succeeding year or until its expiration dates of August 31, 2007 and August 31, 2008, respectively, whichever occurs first. The Fund's aggregate cost of investments and the composition of unrealized appreciation and depreciation of investment securities for federal income tax purposes as of August 31, 2000 are as follows: Net Unrealized Federal Tax Unrealized Unrealized Appreciation Cost Appreciation (Depreciation) (Depreciation) ----------- ------------ -------------- -------------- $38,396,202 $5,496,104 $(250,046) $5,246,058 Dividends and distributions to shareholders: Income dividends and capital gain distributions, if any, are recorded on the ex-dividend date. Dividends are generally declared and paid monthly. Capital gain distributions are generally declared and paid annually. An additional distribution may be paid by the Fund to avoid imposition of federal income tax on any remaining undistributed net investment income and capital gains. The timing and characterization of certain income and capital gain distributions are determined in accordance with federal tax regulations which may differ from generally accepted accounting principles ("GAAP"). As a result, net investment income and net realized gain (or loss) on investment transactions for a reporting year may differ significantly from distributions during such year. The differences between tax regulations and GAAP relate primarily to certain securities sold at a loss. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting its net asset value. Expenses: Most expenses can be directly attributed to the Fund. Expenses of the investment company which cannot be directly attributed are allocated among all funds based principally on their relative net assets. 3. Securities Transactions Investment transactions: For the year ended August 31, 2000, purchases and sales of investment securities, excluding short-term investments, aggregated to $36,750,299 and $43,058,786, respectively. A redemption in-kind of securities resulted in a realized gain of $1,828,694. Securities lending: The Investment Company has a securities lending program whereby each Fund can loan securities with a value up to 33 1/3% of its total assets to certain brokers. The Fund receives cash (U.S. currency), U.S. Government or U.S. Government agency obligations as collateral against the loaned securities. To the extent that a loan is secured by cash collateral, such collateral shall be invested by State Street Bank and Trust Company in short-term instruments, money market mutual funds, and such other short-term investments, provided the investments meet certain quality and diversification requirements. Under the securities lending arrangement, the collateral received is recorded on the Fund's statement of assets and liabilities along with the related obligation to return the collateral. In those situations where the Company has relinquished control of securities transferred, it derecognizes the securities and records a receivable from the counterparty. Annual Report 15 SSgA Tuckerman Active REIT Fund Notes to Financial Statements, continued August 31, 2000 Income generated from the investment of cash collateral, less negotiated rebate fees paid to participating brokers and transaction costs, is divided between the Fund and State Street Bank and Trust Company and is recorded as interest income for the Fund. To the extent that a loan is secured by non-cash collateral, brokers pay the Fund negotiated lenders' fees, which are divided between the Fund and State Street Bank and Trust Company and are recorded as interest income for the Fund. All collateral received will be in an amount at least equal to 102% (for loans of U.S. securities) or 105% (for non-U.S. securities) of the market value of the loaned securities at the inception of each loan. Should the borrower of the securities fail financially, there is a risk of delay in recovery of the securities or loss of rights in the collateral. Consequently, loans are made only to borrowers which are deemed to be of good financial standing. As of August 31, 2000, the value of outstanding securities on loan and the value of collateral amounted to $2,702,913 and $2,800,682, respectively. Included in interest income is securities lending income of $7,251 for the year ended August 31, 2000. 4. Related Parties Adviser: The Investment Company has an investment advisory agreement with State Street Bank and Trust Company (the "Adviser") under which the Adviser, through State Street Global Advisors, the investment management group of the Adviser, directs the investments of the Fund in accordance with its investment objectives, policies, and limitations. For these services, the Fund pays a fee to the Adviser calculated daily and paid monthly, at an annual rate of .65% of its average daily net assets. The Adviser voluntarily agreed to reimburse up to the full amount of its Advisory fee to the extent that total expenses exceed 1.00% of average daily net assets on an annual basis. The total amount of reimbursement for the year ended August 31, 2000 was $25,828. As of August 31, 2000, the receivable due from the Adviser for reimbursed expenses in excess of the expense cap has been netted against the Advisory fee payable. The Investment Company also has contracts with the Adviser to provide custody, shareholder servicing and transfer agent services to the Fund. These amounts are presented in the accompanying Statement of Operations. In addition, the Fund has entered into arrangements with its Adviser whereby custody credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund's expenses. During the year, the Fund's custodian fees were reduced by $555 under these arrangements. Administrator: The Investment Company has an administration agreement with Frank Russell Investment Management Company (the "Administrator"), a wholly-owned subsidiary of The Northwestern Mutual Life Insurance Company, under which the Administrator supervises all non-portfolio investment aspects of the Investment Company's operations and provides adequate office space and all necessary office equipment and services, including telephone service, utilities, stationery supplies, and similar items. The Investment Company pays the Administrator for services supplied by the Administrator pursuant to the Administration Agreement, an annual fee, payable monthly on a pro rata basis. For the period September 1, 1999 to April 30, 2000, it is based on the following percentages of the combined average daily net assets of all domestic funds: $0 up to and including $500 million - .06%; over $500 million up to and including $1 billion - .05%; over $1 billion - .03%. Effective May 1, 2000, the annual fee is based on the following percentages of the average daily net assets of all U.S. Equity portfolios: $0 to $2 billion - .0315%; over $2 billion - .029%. The Administrator will charge a flat fee of $30,000 per year per Fund with less than $500 million in net assets and $1,500 per year for monthly performance reports and use of Russell Performance Universe software product. In addition, the Fund reimburses the Administrator for out-of-pocket expenses and start-up costs for new funds. 16 Annual Report SSgA Tuckerman Active REIT Fund Notes to Financial Statements, continued August 31, 2000 Distributor and Shareholder Servicing: The Investment Company has a Distribution Agreement with Russell Fund Distributors (the "Distributor") which is a wholly-owned subsidiary of the Administrator to promote and offer shares of the Investment Company. The Distributor may have entered into sub-distribution agreements with other non-related parties. The amounts paid to the Distributor are included in the accompanying Statement of Operations. The Investment Company has a Distribution Plan pursuant to Rule 12b-1 (the "Plan") under the 1940 Act. Under this Plan, the Investment Company is authorized to make payments to the Distributor, or any Shareholder Servicing Agent, as defined in the Plan, for providing distribution and marketing services, for furnishing assistance to investors on an ongoing basis, and for the reimbursement of direct out-of-pocket expenses charged by the Distributor in connection with the distribution and marketing of shares of the Investment Company and the servicing of investor accounts. The Fund has Shareholder Service Agreements with the Adviser, State Street Brokerage Services, Inc. ("SSBSI"), a wholly-owned subsidiary of the Adviser, the Adviser's Retirement Investment Services Division ("RIS"), the Adviser's Metropolitan Division of Commercial Banking ("Commercial Banking") and State Street Solutions ("Solutions")(collectively the "Agents"), as well as several unaffiliated service providers. For these services, the Fund pays .025%, .175%, .175%, .175% and .175% to the Adviser, SSBSI, RIS, Commercial Banking, and Solutions, respectively, based upon the average daily value of all Fund shares held by or for customers of these Agents. For the year August 31, 2000, the Fund was charged shareholder servicing expenses of $9,111, $1,164 and $271 by the Adviser, SSBSI, and Commercial Banking, respectively. The Fund did not incur any expenses from RIS and Solutions during this year. The combined distribution and shareholder servicing payments shall not exceed .25% of the average daily value of net assets of the Fund on an annual basis. The shareholder servicing payments shall not exceed .20% of the average daily value of net assets of the Fund on an annual basis. Payments that exceed the maximum amount of allowable reimbursement may be carried forward for two years following the year in which the expenditure was incurred so long as the plan is in effect. The Fund's responsibility for any such expenses carried forward shall terminate at the end of two years following the year in which the expenditure was incurred. The Trustees or a majority of the Fund's shareholders have the right, however, to terminate the Distribution Plan and all payments thereunder at any time. The Fund will not be obligated to reimburse the Distributor for carryover expenses subsequent to the Distribution Plan's termination or noncontinuance. There were no carryover expenses as of August 31, 2000. Affiliated Brokerage: The Fund placed a portion of its portfolio transactions with SSBSI, an affiliated broker dealer of the Fund's Adviser. The commissions paid to SSBSI were $6,640 for the year ended August 31, 2000. Board of Trustees: The Investment Company paid each Trustee not affiliated with the Investment Company an annual retainer, plus specified amounts for board and committee meetings attended. These expenses are allocated among all of the funds based upon their relative net assets. Annual Report 17 SSgA Tuckerman Active REIT Fund Notes to Financial Statements, continued August 31, 2000 Accrued fees payable to affiliates and trustees as of August 31, 2000 were as follows: Advisory fees $25,883 Administration fees 5,007 Custodian fees 399 Distribution fees 794 Shareholder servicing fees 1,731 Transfer agent fees 1,360 Trustees' fees 227 ------- $35,401 ======= Beneficial Interest: As of August 31, 2000, two shareholders (one of which was also an affiliate of the Investment Company) were record owners of approximately 12% and 10%, respectively, of the total outstanding shares of the Fund. 5. Fund Share Transactions (amounts in thousands)
Fiscal Years Ended August 31, ------------------------------------------ 2000 1999 ------------------ ------------------ Shares Dollars Shares Dollars ------ -------- ------ -------- Proceeds from shares sold ........................ 3,132 $ 26,729 3,647 $ 29,401 Proceeds from reinvestment of distributions ...... 74 595 139 1,135 Payments for shares redeemed ..................... (4,062) (33,133) (411) (3,367) ------ -------- ------ -------- Total net increase (decrease) .................... (856) $ (5,809) 3,375 $ 27,169 ====== ======== ====== ========
6. Interfund Lending Program The Fund and all other funds of the Investment Company received from the Securities and Exchange Commission an exemptive order on December 23, 1999 to establish and operate an Interfund Credit Facility. This allows the Funds to directly lend to and borrow money from the SSgA Money Market Fund for temporary purposes in accordance with certain conditions. The borrowing Funds are charged the average of the current Repo Rate and the Bank Loan Rate. The Fund did not utilize the interfund lending program during this year. 7. Dividends On September 1, 2000, the Board of Trustees declared a dividend of $.0322 from net investment income, payable on September 8, 2000 to shareholders of record on September 5, 2000. 18 Annual Report SSgA Tuckerman Active REIT Fund One International Place, 27th Floor Boston, Massachusetts 02110 (800) 997-7327 -------------------------------------------------------------------------------- Trustees Lynn L. Anderson, Chairman William L. Marshall Steven J. Mastrovich Patrick J. Riley Richard D. Shirk Bruce D. Taber Henry W. Todd Officers Lynn L. Anderson, President, Treasurer and CEO Mark E. Swanson, Treasurer and Principal Accounting Officer J. David Griswold, Vice President and Secretary Deedra S. Walkey, Assistant Secretary Rick J. Chase, Assistant Treasurer Carla L. Anderson, Assistant Secretary Investment Adviser State Street Bank and Trust Company 225 Franklin Street Boston, Massachusetts 02110 Custodian, Transfer Agent and Office of Shareholder Inquiries State Street Bank and Trust Company 1776 Heritage Drive North Quincy, Massachusetts 02171 (800) 647-7327 Distributor Russell Fund Distributors, Inc. One International Place, 27th Floor Boston, Massachusetts 02110 (800) 997-7327 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 160 Federal Street Boston, Massachusetts 02110 Annual Report 19 [COVER GRAPHIC] SSgA(R) funds ANNUAL REPORT International Growth Opportunities Fund August 31, 2000 SSgA(R) Funds International Growth Opportunities Fund Annual Report August 31, 2000 Table of Contents Page Chairman's Letter......................................................... 4 Portfolio Management Discussion and Analysis.............................. 6 Report of Independent Accountants......................................... 8 Financial Statements...................................................... 9 Financial Highlights...................................................... 16 Notes to Financial Statements............................................. 17 Tax Information........................................................... 23 Fund Management and Service Providers..................................... 24 "SSgA(R)" is a registered trademark of State Street Corporation and is licensed for use by the SSgA Funds. This report is prepared from the books and records of the Fund and it is submitted for the general information of shareholders. This information is for distribution to prospective investors only when preceded or accompanied by a SSgA Funds Prospectus containing more complete information concerning the investment objective and operations of the Fund, charges and expenses. The Prospectus should be read carefully before an investment is made. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. International markets entail different risks than those typically associated with domestic markets, including currency fluctuations, political and economic instability, accounting changes and foreign taxation. Securities may be less liquid and more volatile. Please see the Prospectus for further details. Russell Fund Distributors, Inc., is the distributor of the SSgA Funds. SSgA International Growth Opportunities Fund -------------------------------------------------------------------------------- Letter From the Chairman of State Street Global Advisors -------------------------------------------------------------------------------- Dear Shareholders, It is our pleasure to provide you with the SSgA Funds annual report for the fiscal year ended August 31, 2000. The SSgA Fund Family has grown to include twenty-four portfolios with over $21 billion in assets as of August 31, 2000. The Fund Family provides a wide range of strategies covering the world's major markets. The enclosed information provides an overview of the investment process for the SSgA International Growth Opportunities Fund. This overview contains the portfolio management discussion, performance updates and financial information for the Fund. In an ongoing effort to develop competitive products and services that provide investment solutions for our clients, we have added the SSgA Intermediate Municipal Bond Fund to the SSgA Fund Family. This Fund's investment objective seeks to provide federally tax-exempt current income by investing primarily in a diversified portfolio of municipal debt securities with a dollar-weighted average maturity between three and ten years. We are also pleased with the success of our SSgA Emerging Markets and SSgA Growth and Income Funds as they were included in Money(R) Magazine's June 2000 issue listing of the `Top 100 Mutual Funds'. This is the second year in a row that these funds have been selected. Additionally, the SSgA Tax Free Money Market and the SSgA Active International Funds have achieved five-year performance history during the 2000 fiscal year. Currently, all of our SSgA Money Market Funds have at least a five-year performance history. We strive to meet our clients' needs by providing funds with long-term records and competitive performance. We would like to thank you for choosing the SSgA Funds. Our reputation is based on our tradition of designing and delivering exceptional financial services to our clients. We look forward to continue sharing the benefit of our experience with you. Sincerely, /s/ Nicholas A. Lopardo Nicholas A. Lopardo State Street Global Advisors Chairman and Chief Executive Officer /s/ Timothy B. Harbert Timothy B. Harbert State Street Global Advisors President and Chief Operating Officer, SSgA 4 Annual Report SSgA International Growth Opportunities Fund -------------------------------------------------------------------------------- Management of the Funds -------------------------------------------------------------------------------- [PHOTO] Nicholas A. Lopardo Chairman and Chief Executive Officer [PHOTO] Timothy B. Harbert President and Chief Operating Officer A Team Approach to Investment Management Our investment strategies are the product of the combined experience of our professional staff. Portfolio Managers work together to develop and enhance the techniques that drive our investment processes. As a result, the portfolios we manage benefit from the knowledge of the entire team. Mr. Ed Allinson, CFA, Principal, has been the portfolio manager primarily responsible for investment decisions regarding the SSgA International Growth Opportunities Fund since December 1999. Prior to joining SSgA, he worked at Brown Brothers Harriman, New York, as Senior Portfolio Manager in the International Equities Group, managing pension, endowment, and mutual fund assets, including the highly successful 59 Wall Street Pacific Basin Fund. Before this, he worked at First Pacific Securities, Hong Kong, as Assistant Director in institutional Asian equity sales. Mr. Allinson has been in the investment field since 1985. He earned his BA at the University of Pennsylvania and holds an MBA in Finance from the Wharton School. There are three other portfolio managers working with Mr. Allinson. Annual Report 5 SSgA International Growth Opportunities Fund -------------------------------------------------------------------------------- Portfolio Management Discussion and Analysis -------------------------------------------------------------------------------- Objective: Provide long-term capital growth by investing primarily in securities of foreign issuers. Invests in: Primarily securities of foreign issuers included in the MSCI EAFE (Morgan Stanley Capital International Europe, Australia, Far East) Index. Strategy: The Fund will attempt to meet its objective through the active selection of foreign equity securities based on the fundamental analysis of companies and investment themes. The investment approach is defined predominantly by a bottom-up stock selection process, informed by a top-down macroeconomic outlook.
------------------------------------------------------------------------------------------------------------------------------- GROWTH OF A $10,000 INVESTMENT Dates International Growth Opportunities Fund MSCI EAFE Index ** MSCI All Country World Ex-US *** Inception* $10,000 $10,000 $10,000 1998 $8,420 [NEED PLOT POINTS] $8,463 1999 $11,374 [NEED PLOT POINTS] $11,054 2000 $14,651 $12,292 $12,386 ==============================================================================================================================
Performance Review For the fiscal year ended August 31, 2000, the Fund gained 28.82% versus the MSCI-EAFE return of 9.81%. International markets in general, and growth stocks in particular, performed well throughout much of this time. Despite a moderate correction in the international markets during the spring, many of the Fund's holdings had staged a modest recovery by August 1, 2000. Market and Portfolio Highlights The fiscal year started well in September 1999, with the Energy and Financial sectors rising strongly. Supported by a general market recovery, the Fund's Japanese holdings also reacted with performance results moving upward. Throughout the remainder of 1999 the Fund's benchmark-relative overweight positions in Technology and Communications issues propelled the Fund far ahead of its benchmark. Sony, Nokia, Ericsson and SAP, all -------------------------------------------------------------------------------- SSgA International Growth Opportunities Fund -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return ------------------- ------------ -------- 1 Year $ 12,882 28.82% Inception $ 14,651 17.78%+ -------------------------------------------------------------------------------- MSCI EAFE Index -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return ------------------- ------------ -------- 1 Year $ 10,981 9.81% Inception $ 12,292 9.25%+ -------------------------------------------------------------------------------- MSCI All Country World Ex-US -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return ------------------- ------------ -------- 1 Year $ 11,202 12.02% Inception $ 12,386 9.61%+ See related Notes on following page. 6 Annual Report SSgA International Growth Opportunities Fund -------------------------------------------------------------------------------- Portfolio Management Discussion and Analysis -------------------------------------------------------------------------------- held by the Fund, ended calendar year 1999 at or near their highs. Partly as a reaction to the huge absolute returns chalked up over the previous four months, the Manager began 2000 by adopting a slightly more defensive position. Some of the Fund's winning growth stocks were liquidated, and those proceeds reassigned into the Health Care sector, specifically biotech companies such as Biovail of Canada. Retaining an overweighting in the financial services sector, the Manager shifted emphasis away from banks and towards more defensive insurance stocks, including Allianz and Munich Reinsurance. Similarly, the Fund invested in some domestic-oriented Japanese stocks such as Uni-Charm, a sanitary products company, rather than the export-driven companies the Fund previously favored. At the same time, the Fund added to holdings within the Consumer Cyclicals sector, including positions in Philips Electronics, Sony and Hutchison Whampoa. Finally, the Fund maintained an overweighting in energy stocks, and through April this paid off handsomely, especially with the European economies growing at a reasonable clip. Mergers and acquisitions activity continued apace in the Telecommunications industry, albeit not quite at the heady pace of 1999, fueling further rises in the sector. The environment changed towards the end of March 2000, after a NASDAQ market correction in the wake of the Federal Reserve's decision to tighten monetary policy. Amid renewed fears of inflation within the US, international markets followed suit. The three months ending June 30, 2000 witnessed a wave of unrelieved selling among growth stocks, notably among Technology and Communications issues. This sell off was due to both the markets' reaction to Fed policy, as well as the high valuation levels previously reached. Compounding anxieties, energy prices began to accelerate sharply at the same time. As a result, the Fund lost 9.49% for the quarter ended June 30, 2000. Throughout this time, the Fund maintained its positions based on the view that the market was overreacting on seasonally thin volume. The last two months of the fiscal year saw some buying in these extremely depressed sectors, enabling the Fund to post a loss of 1.75% and a gain of 2.20% for July and August respectively. ------------------------------------------------------------- Top Ten Equity Holdings (as a percent of Total Investments) August 31, 2000 ------------------------------------------------------------- Vodafone Airtouch PLC 3.4% Takeda Chemical Industries 2.9 Alcatel Alsthom Compagnie Generale d'Electricite - ADR 2.9 Uni-Charm Corp. 2.5 Elan Corp. PLC - ADR 2.3 HSBC Holdings PLC 2.3 Cap Gemini Sogeti 2.3 Telefonaktiebolaget LM Ericsson Class B - ADR 2.2 Cable & Wireless PLC 2.1 Telefonaktiebolaget LM Ericsson AB 2.1 ------------------------------------------------------------- ---------------------- Notes: The following notes relate to the Growth of $10,000 graph and table on the preceding page. * The Fund commenced operations on May 1, 1998. Index comparisons also began May 1, 1998. ** The Morgan Stanley Capital International Europe, Australia, Far East Index is an index composed of an arithmetic, market value-weighted average of the performance of over 1,100 securities listed on the stock exchanges of the countries of Europe, Australia, and the Far East. The Index is calculated on a total-return basis, which includes reinvestment of net dividends after deduction of withholding taxes. *** The Morgan Stanley Capital International All Country World Ex-US Index is a market capitalization-weighted index that tracks the daily price and total return performance of international common or ordinary shares in developed markets worldwide. The Index, which aims to capture 60% of the total market capitalization at both the participating country and industry level, includes securities domiciled in 22 development countries in Asia/Pacific, Europe and North America. + Annualized. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. Investments in securities of non-US issuers and foreign currencies involve investment risks different from those of US issuers. The Prospectus contains further information and details regarding these risks. Annual Report 7 Report of Independent Accountants To the Shareholders and Board of Trustees of the SSgA Funds: In our opinion, the accompanying statement of assets and liabilities and statement of net assets, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of SSgA International Growth Opportunities Fund (the "Fund") at August 31, 2000, the results of its operations for the fiscal year then ended and the changes in its net assets for each of the two fiscal years in the period then ended and the financial highlights for each of the two fiscal years in the period then ended and for the period May 1, 1998 (commencement of operations) to August 31, 1998, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 2000 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. Boston, Massachusetts October 11, 2000 /s/ PricewaterhouseCoopers LLP 8 Annual Report SSgA International Growth Opportunities Fund Statement of Net Assets August 31, 2000 Market Number Value of (000) Shares $ --------- ------- Common Stocks - 95.2% Canada - 2.2% Alberta Energy Co., Ltd. 34,400 1,267 Biovail Corp. (a) 27,800 1,781 -------- 3,048 -------- Denmark - 1.2% Tele Danmark A/S 11,900 716 Tele Danmark A/S - ADR 29,720 882 -------- 1,598 -------- Finland - 2.6% Nokia Oyj 39,900 1,749 Nokia Corp. - ADR 39,840 1,790 -------- 3,539 -------- France - 11.9% Alcatel Alsthom Compagnie Generale d'Electricite - ADR 48,450 4,016 AXA - ADR 22,740 1,599 AXA 12,400 1,765 Banque Nationale Paris 29,300 2,692 Cap Gemini Sogeti 15,000 3,129 Sanofi-Synthelabo SA 39,000 1,901 Total Fina SA Class B 4,100 608 Total Fina SA - ADR 8,850 659 -------- 16,369 -------- Germany - 6.0% Allianz AG 7,230 2,436 Bayer AG 16,600 700 Bayer AG - ADR 22,180 938 DaimlerChrysler AG 25,000 1,291 Muenchener Rueckversicherungs- Gesellschaft AG 5,450 1,494 SAP AG - ADR 22,740 1,461 -------- 8,320 -------- Hong Kong - 2.1% Hutchison Whampoa, Ltd. 201,900 2,848 -------- Ireland - 1.1% Jefferson Smurfit Group PLC 773,400 1,526 -------- Japan - 23.3% Bank of Tokyo - Mitsubishi, Ltd. 129,000 1,580 Bank of Tokyo - Mitsubishi, Ltd. - ADR 87,940 1,077 Canon, Inc. 38,000 1,700 Canon, Inc. - ADR 38,980 1,759 Fuji Bank, Ltd. 94,000 715 Honda Motor Co., Ltd. 37,000 1,353 Honda Motor Co., Ltd. - ADR 10,640 771 Internet Initiative Japan, Inc. - ADR (a) 11,900 427 Matsushita Electric Industrial Co., Ltd. 102,000 2,793 Nikko Securities Co., Ltd. 236,000 2,277 Nomura Securities Co., Ltd. 97,000 2,269 NTT Data Corp. 99 1,095 NTT Mobile Communication Network, Inc. 75 1,983 Sony Corp. 22,600 2,522 Sony Corp. - ADR 19,220 2,196 Takeda Chemical Industries 68,100 4,029 Uni-Charm Corp. 68,000 3,539 -------- 32,085 -------- Netherlands - 10.4% ING Groep 40,000 2,677 Koninklijke (Royal) Philips Electronics (a) 24,840 1,208 Koninklijke (Royal) Philips Electronics ADR (a) 37,147 1,832 Koninklijke Ahold 46,559 1,315 Koninklijke KPN (a) 74,818 1,993 Royal Dutch Petroleum Co. 20,600 1,253 Royal Dutch Petroleum Co. - ADR 18,010 1,102 Annual Report 9 SSgA International Growth Opportunities Fund Statement of Net Assets, continued August 31, 2000 Market Number Value of (000) Shares $ --------- ------- United Pan-Europe Communications (a) 77,300 1,888 United Pan-Europe Communications - ADR (a) 45,300 1,088 -------- 14,356 -------- Spain - 4.5% Banco Santander Central Hispano SA 191,800 2,060 Endesa SA 33,700 657 Endesa SA - ADR 29,450 578 Telefonica de Espana SA - ADR (a) 24,767 1,419 Telefonica SA (a) 55,000 1,055 Terra Networks SA (a) 9,295 437 Terra Networks SA Rights (a) 9,295 1 -------- 6,207 -------- Sweden - 4.4% Tele1 Europe Holding AB - ADR (a) 14,235 173 Telefonaktiebolaget LM Ericsson AB (a) 142,800 2,882 Telefonaktiebolaget LM Ericsson Class B - ADR 147,280 3,019 -------- 6,074 -------- Switzerland - 1.1% Zurich Allied AG 3,000 1,545 -------- United Kingdom - 22.6% AstraZeneca Group PLC - ADR 15,170 691 Barclays PLC 80,100 1,999 Barclays PLC - ADR 7,090 730 BP Amoco PLC 229,600 2,101 BP Amoco PLC - ADR 12,694 701 British Telecom PLC 137,300 1,743 British Telecom PLC - ADR 3,850 492 Cable & Wireless PLC 158,800 2,933 Cable & Wireless PLC - ADR 5,400 298 Diageo PLC 242,200 2,067 Diageo PLC - ADR 39,160 1,349 Elan Corp. PLC - ADR (a) 55,420 3,232 HSBC Holdings PLC 219,584 3,158 Unilever PLC 250,600 1,569 Unilever PLC - ADR 34,163 871 Vodafone Group PLC 1,174,365 4,742 Vodafone Group PLC - ADR 19,300 790 Zeneca Group PLC 34,900 1,590 -------- 31,056 -------- United States - 1.8% Global TeleSystems Group, Inc. (a) 132,200 1,140 Schlumberger, Ltd. 15,800 1,348 -------- 2,488 -------- Total Common Stocks (cost $119,003) 131,059 -------- Preferred Stocks - 0.3% Germany - 0.3% SAP AG 1,900 479 -------- Total Preferred Stocks (cost $417) 479 -------- 10 Annual Report SSgA International Growth Opportunities Fund Statement of Net Assets, continued August 31, 2000 Principal Market Amount Value (000) (000) $ $ --------- ------- Short-Term Investments - 5.3% United States - 5.3% AIM Short Term Investment Prime Portfolio (b) 4,707 4,707 Federated Investors Prime Cash Obligations Fund (b) 2,581 2,581 -------- Total Short-Term Investments (cost $7,288) 7,288 -------- Total Investments - 100.8% (identified cost $126,708) 138,826 Other Assets and Liabilities, Net - (0.8%) (1,187) Net Assets - 100.0% 137,639 ======== (a) Nonincome-producing security. (b) At amortized cost, which approximates market. Abbreviations: ADR - American Depositary Receipt See the accompanying notes which are an integral part of the financial statements. Annual Report 11 SSgA International Growth Opportunities Fund Statement of Net Assets, continued August 31, 2000 Market % of Value Industrial Diversification Net (000) (Unaudited) Assets $ -------- ------- Basic Industries 2.3% 3,165 Capital Goods 5.1 7,055 Consumer Basics 17.4 23,933 Consumer Durables 7.9 10,926 Consumer Non-Durables 1.2 1,700 Consumer Services 2.3 3,129 Energy 7.0 9,617 Finance 21.8 30,074 General Business 0.9 1,181 Miscellaneous 2.1 2,849 Technology 8.4 11,558 Utilities 19.1 26,351 Short-Term Investments 5.3 7,288 ----- ------- Total Investments 100.8 138,826 Other Assets and Liabilities, Net (0.8) (1,187) ----- ------- Net Assets 100.0% 137,639 ===== ======= Market % of Value Geographic Diversification Net (000) (Unaudited) Assets $ -------- ------- Europe 43.5% 60,013 Japan 23.3 32,085 Other 4.0 5,536 Pacific Basin 2.1 2,848 United Kingdom 22.6 31,056 Short-Term Investments 5.3 7,288 ----- ------- Total Investments 100.8 138,826 Other Assets and Liabilities, Net (0.8) (1,187) ----- ------- Net Assets 100.0% 137,639 ===== ======= See the accompanying notes which are an integral part of the financial statements. 12 Annual Report SSgA International Growth Opportunities Fund Statement of Assets and Liabilities Amounts in thousands (except per share amount) August 31, 2000 Assets Investments at market (identified cost $126,708) ........................................... $138,826 Foreign currency holdings (identified cost $103) ........................................... 101 Receivables: Dividends ............................................................................... 298 Fund shares sold ........................................................................ 1,455 Prepaid expenses ........................................................................... 3 Short-term investments held as collateral for securities loaned, at market ................. 34,144 -------- Total assets ......................................................................... 174,827 Liabilities Payables: Investments purchased ........................................................ $ 2,158 Fund shares redeemed ......................................................... 739 Accrued fees to affiliates ................................................... 117 Other accrued expenses ....................................................... 30 Payable upon return of securities loaned, at market ............................. 34,144 -------- Total liabilities .................................................................... 37,188 -------- Net Assets ................................................................................. $137,639 ======== Net Assets Consist of: Undistributed net investment income ........................................................ $ 608 Accumulated net realized gain (loss) ....................................................... 6,858 Unrealized appreciation (depreciation) on investments ...................................... 12,118 Shares of beneficial interest .............................................................. 10 Additional paid-in capital ................................................................. 118,045 -------- Net Assets ................................................................................. $137,639 ======== Net Asset Value, offering and redemption price per share: ($137,638,831 divided by 9,576,677 shares of $.001 par value shares of beneficial interest outstanding) ........................................... $ 14.37 ========
See accompanying notes which are an integral part of the financial statements. Annual Report 13 SSgA International Growth Opportunities Fund Statement of Operations Amounts in thousands For the Fiscal Year Ended August 31, 2000 Investment Income Dividends (net of foreign taxes withheld of $168) ............................... $ 1,383 Securities Lending Income ....................................................... 110 -------- Total investment income ...................................................... 1,493 Expenses Advisory fees ....................................................... $ 707 Administrative fees ................................................. 76 Custodian fees ...................................................... 131 Distribution fees ................................................... 45 Transfer agent fees ................................................. 39 Professional fees ................................................... 21 Registration fees ................................................... 35 Shareholder servicing fees .......................................... 31 Trustees' fees ...................................................... 7 Miscellaneous ....................................................... 6 -------- Expenses before reductions .......................................... 1,098 Expense reductions .................................................. (61) -------- Expenses, net ................................................................ 1,037 -------- Net investment income .............................................................. 456 -------- Net Realized and Unrealized Gain (Loss) Net realized gain (loss) on: Investments ......................................................... 8,033 Foreign currency-related transactions ............................... 218 8,251 -------- Net change in unrealized appreciation (depreciation) on investments ................ 6,686 -------- Net realized and unrealized gain (loss) ............................................ 14,937 -------- Net increase (decrease) in net assets from operations .............................. $ 15,393 ========
See accompanying notes which are an integral part of the financial statements. 14 Annual Report SSgA International Growth Opportunities Fund Statement of Changes in Net Assets Amounts in thousands For the Fiscal Years Ended August 31,
2000 1999 --------- --------- Increase (Decrease) in Net Assets Operations Net investment income ............................................... $ 456 $ 433 Net realized gain (loss) ............................................ 8,251 (650) Net change in unrealized appreciation (depreciation) ................ 6,686 10,342 --------- --------- Net increase (decrease) in net assets from operations ............ 15,393 10,125 --------- --------- Distributions From net investment income .......................................... (400) (140) From net realized gain .............................................. (529) --------- --------- Net decrease in net assets from distributions .................... (929) (140) --------- --------- Share Transactions Net increase (decrease) in net assets from share transactions ....... 69,759 20,465 --------- --------- Total net increase (decrease) in net assets ............................ 84,223 30,450 Net Assets Beginning of period ................................................. 53,416 22,966 --------- --------- End of period (including undistributed net investment income of $608 and $334, respectively) ..................................... $ 137,639 $ 53,416 ========= =========
See accompanying notes which are an integral part of the financial statements. Annual Report 15 SSgA International Growth Opportunities Fund Financial Highlights The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
Fiscal Years Ended August 31, -------------------------------- 2000 1999 1998* -------- -------- -------- Net Asset Value, Beginning of Period ............. $ 11.31 $ 8.42 $ 10.00 -------- -------- -------- Income From Operations Net investment income (a) ..................... .07 .11 .03 Net realized and unrealized gain (loss) ....... 3.17 2.83 (1.61) -------- -------- -------- Total income from operations ............... 3.24 2.94 (1.58) -------- -------- -------- Distributions From net investment income .................... (.08) (.05) -- From net realized gain ........................ (.10) -- -- -------- -------- -------- Total distributions ........................ (.18) (.05) -- -------- -------- -------- Net Asset Value, End of Period ................... $ 14.37 $ 11.31 $ 8.42 ======== ======== ======== Total Return (%)(b) .............................. 28.82 35.08 (15.80) Ratios/Supplemental Data: Net Assets, end of period (in thousands) ...... 137,639 53,416 22,966 Ratios to average net assets (%)(c): Operating expenses, net (d) ................ 1.10 1.10 1.10 Operating expenses, gross (d) .............. 1.16 1.30 1.66 Net investment income ...................... .48 1.16 1.27 Portfolio turnover rate (%)(c) ................ 45.76 39.19 17.24
* For the period May 1, 1998 (commencement of operations) to August 31, 1998. (a) For the period subsequent to August 31, 1998, average month-end shares outstanding were used for this calculation. (b) Periods less than one year are not annualized. (c) The ratios for the period ended August 31, 1998 are annualized. (d) See Note 4 for current period amounts. 16 Annual Report SSgA International Growth Opportunities Fund Notes to Financial Statements August 31, 2000 1. Organization The SSgA Funds (the Investment Company) is a series mutual fund, currently comprised of 24 investment portfolios which are in operation as of August 31, 2000. These financial statements report on one portfolio, the SSgA International Growth Opportunities Fund (the "Fund"). The Investment Company is a registered and diversified open-end investment company, as defined in the Investment Company Act of 1940, as amended (the "1940 Act"), that was organized as a Massachusetts business trust on October 3, 1987 and operates under a First Amended and Restated Master Trust Agreement, dated October 13, 1993, as amended (the "Agreement"). The Investment Company's Agreement permits the Board of Trustees to issue an unlimited number of full and fractional shares of beneficial interest at a $.001 par value. 2. Significant Accounting Policies The Fund's financial statements are prepared in accordance with accounting principles generally accepted in the United States which require the use of management estimates. The following is a summary of the significant accounting policies consistently followed by the Fund in the preparation of its financial statements. Security valuation: International equity and fixed-income 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 the mean of bid prices. In the absence of a last sale or mean bid price, respectively, 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. Money market instruments maturing within 60 days of the valuation date are valued at amortized cost. The Fund may value certain 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. Securities transactions: Securities transactions are recorded on the trade date basis. Realized gains and losses from the securities transactions are recorded on the basis of identified cost. Investment income: Dividend income is recorded on the ex-dividend date and interest income is recorded daily on the accrual basis. Federal income taxes: Since the Investment Company is a Massachusetts business trust, each fund is a separate corporate taxpayer and determines its net investment income and capital gains (or losses) and the amounts to be distributed to each fund's shareholders without regard to the income and capital gains (or losses) of the other funds. It is the Fund's intention to qualify as a regulated investment company, as defined by the Internal Revenue Code of 1986, as amended. This requires the Fund to distribute all of its taxable income. Therefore, the Fund paid no federal income taxes and no federal income tax provision was required. Annual Report 17 SSgA International Growth Opportunities Fund Notes to Financial Statements, continued August 31, 2000 The Fund's aggregate cost of investments and the composition of unrealized appreciation and depreciation of investment securities for federal income tax purposes as of August 31, 2000 are as follows: Net Unrealized Federal Tax Unrealized Unrealized Appreciation Cost Appreciation (Depreciation) (Depreciation) ------------ ------------ -------------- -------------- $126,810,654 $20,077,223 $(8,061,396) $12,015,827 Dividends and distributions to shareholders: Income dividends and capital gain distributions, if any, are recorded on the ex-dividend date. The Fund declares and pays dividends annually. Capital gain distributions, if any, are generally declared and paid annually. An additional distribution may be paid by the Fund to avoid imposition of federal income tax on any remaining undistributed net investment income and capital gains. The timing and characterization of certain income and capital gain distributions are determined in accordance with federal tax regulations which may differ from generally accepted accounting principles ("GAAP"). As a result, net investment income and net realized gain (or loss) on investment and foreign currency-related transactions for a reporting year may differ significantly from distributions during such year. The differences between tax regulations and GAAP relate primarily to investments in foreign denominated investments, passive foreign investment companies, foreign currency contracts and certain securities sold at a loss. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting its net asset value. Expenses: Most expenses can be directly attributed to the individual Fund. Expenses of the investment company which cannot be directly attributed are allocated among all funds based principally on their relative net assets. Foreign currency translations: The books and records of the Fund are maintained in US dollars. Foreign currency amounts and transactions of the Fund are translated into US dollars on the following basis: (a) Market value of investment securities, other assets and liabilities at the closing rate of exchange on the valuation date. (b) Purchases and sales of investment securities and income at the closing rate of exchange prevailing on the respective trade dates of such transactions. Reported net realized gains or losses from foreign currency-related transactions arise from sales and maturities of short-term securities; sales of foreign currencies; currency gains or losses realized between the trade and settlement dates on securities transactions; and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books and the US dollar equivalent of the amounts actually received or paid. Net unrealized gains or losses from foreign currency-related transactions arise from changes in the value of assets and liabilities, other than investments in securities, at fiscal year-end, resulting from changes in the exchange rates. It is not practical to isolate that portion of the results of operations of the Fund that arises as a result of changes in exchange rates, from that portion that arises from changes in market prices of investments during the year. Such fluctuations are included with the net realized and unrealized gain or loss from investments. However, for federal 18 Annual Report SSgA International Growth Opportunities Fund Notes to Financial Statements, continued August 31, 2000 income tax purposes the Fund does isolate the effects of changes in foreign exchange rates from the fluctuations arising from changes in market prices for realized gain (or loss) on debt obligations. Derivatives: To the extent permitted by the investment objectives, restrictions and policies set forth in the Fund's Prospectus and Statement of Additional Information, the Fund may participate in various derivative-based transactions. Derivative securities are instruments or agreements whose value is derived from an underlying security or index. They include options, futures, swaps, forwards, structured notes and stripped securities. These instruments offer unique characteristics and risks that assist the Fund in meeting its investment strategies. The Fund typically uses derivatives in three ways: cash equitization, hedging, and return enhancement. Cash equitization is a technique that may be used by the Fund through the use of options and futures to earn "market-like" returns with the Fund's excess and liquidity reserve cash balances. Hedging is used by the Fund to limit or control risks, such as adverse movements in exchange rates and interest rates. Return enhancement can be accomplished through the use of derivatives in the Fund. By purchasing certain instruments, the Fund may more effectively achieve the desired portfolio characteristics that assist in meeting the Fund's investment objectives. Depending on how the derivatives are structured and utilized, the risks associated with them may vary widely. These risks are generally categorized as market risk, liquidity risk and counterparty or credit risk. Foreign currency exchange contracts: In connection with portfolio purchases and sales of securities denominated in a foreign currency, the Fund may enter into foreign currency exchange spot contracts and forward foreign currency exchange contracts ("contracts"). Contracts are recorded at market value. Certain risks may arise upon entering into these contracts from the potential inability of counterparties to meet the terms of their contracts and are generally limited to the amount of unrealized gain on the contracts, if any, that are recognized in the accompanying Statement of Assets and Liabilities. Realized gains or losses arising from such transactions are included in net realized gain (or loss) from foreign currency-related transactions. Investment in international markets: Investing in international markets may involve special risks and considerations not typically associated with investing in the United States markets. These risks include revaluation of currencies, high rates of inflation, repatriation, restrictions on income and capital, and future adverse political and economic developments. Moreover, securities issued in these markets may be less liquid, subject to government ownership controls, delayed settlements, and their prices more volatile than those of comparable securities in the United States. 3. Securities Transactions Investment transactions: For the year ended August 31, 2000, purchases and sales of investment securities, excluding short-term investments, aggregated to $105,149,976 and $41,154,383, respectively. Securities lending: The Investment Company has a securities lending program whereby each Fund can loan securities with a value up to 33 1/3% of its total assets to certain brokers. The Fund receives cash (U.S. currency), U.S. Government or U.S. Government agency obligations as collateral against the loaned securities. To the extent that a loan is secured by cash collateral, such collateral shall be invested by State Street Bank and Trust Company in short-term instruments, money market mutual funds, and such other short-term investments, provided the investments meet certain quality and diversification requirements. Under the securities lending arrangement, the Annual Report 19 SSgA International Growth Opportunities Fund Notes to Financial Statements, continued August 31, 2000 collateral received is recorded on the Fund's statement of assets and liabilities along with the related obligation to return the collateral. In those situations where the Company has relinquished control of securities transferred, it derecognizes the securities and records a receivable from the counterparty. Income generated from the investment of cash collateral, less negotiated rebate fees paid to participating brokers and transaction costs, is divided between the Fund and State Street Bank and Trust Company and is recorded as interest income for the Fund. To the extent that a loan is secured by non-cash collateral, brokers pay the Fund negotiated lenders' fees, which are divided between the Fund and State Street Bank and Trust Company and are recorded as interest income for the Fund. All collateral received will be in an amount at least equal to 102% (for loans of U.S. securities) or 105% (for non-U.S. securities) of the market value of the loaned securities at the inception of each loan. Should the borrower of the securities fail financially, there is a risk of delay in recovery of the securities or loss of rights in the collateral. Consequently, loans are made only to borrowers which are deemed to be of good financial standing. As of August 31, 2000, the value of outstanding securities on loan and the value of collateral amounted to $33,012,944 and $34,143,582, respectively. Securities lending income of $110,000 is included in the Statement of Operations for the year ended August 31, 2000. 4. Related Parties Adviser: The Investment Company has an investment advisory agreement with State Street Bank and Trust Company (the "Adviser") under which the Adviser, through State Global Advisors, the investment management group of the Adviser, directs the investments of the Fund in accordance with its investment objectives, policies, and limitations. For these services, the Fund pays a fee to the Adviser, calculated daily and paid monthly, at the annual rate of .75% of its average daily net assets. The Adviser voluntarily agreed to reimburse the Fund for all expenses in excess of 1.10% of its average daily net assets on an annual basis. The total amount of the reimbursement for the year ended August 31, 2000 was $59,768. As of August 31, 2000, the receivable due from the Adviser for reimbursed expenses in excess of the expense cap has been netted against the Advisory fees payable. The Investment Company also has contracts with the Adviser to provide custody, shareholder servicing and transfer agent services to the Fund. These amounts are presented in the accompanying Statement of Operations. In addition, the Fund has entered into arrangements with its Adviser whereby custody credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund's expenses. During the year, the Fund's custodian fees were reduced by $1,197 under these arrangements. Administrator: The Investment Company has an administration agreement with Frank Russell Investment Management Company (the "Administrator"), a wholly-owned subsidiary of The Northwestern Mutual Life Insurance Company, under which the Administrator supervises all non-portfolio investment aspects of the Investment Company's operations and provides adequate office space and all necessary office equipment and services, including telephone service, utilities, stationery supplies, and similar items. The Investment Company pays the Administrator for services supplied by the Administrator pursuant to the Administration Agreement, an annual fee, payable monthly on a pro rata basis. For the period September 1, 1999 to April 30, 2000, it is based on the following percentages of the average daily net assets of all international funds: $0 up to and including $500 million - .07%, over $500 million up to and including $1 billion - .06%, over $1 billion to and including $1.5 billion - .04%, over $1.5 billion - .03%. Effective May 1, 2000, the annual fee is based on the following 20 Annual Report SSgA International Growth Opportunities Fund Notes to Financial Statements, continued August 31, 2000 percentages of the average daily net assets of all International portfolios: $0 up to $1 billion - .07%; over $1 billion - .05%. The Administrator will also charge a flat fee of $30,000 per year per Fund with less than $500 million in net assets and $1,500 per year for monthly performance reports and use of Russell Performance Universe software product. In addition, the Fund reimburses the Administrator for out-of-pocket expenses and start-up costs for new funds. Distributor and Shareholder Servicing: The Investment Company has a Distribution Agreement with Russell Fund Distributors (the "Distributor") which is a wholly-owned subsidiary of the Administrator to promote and offer shares of the Investment Company. The Distributor may enter into sub-distribution agreements with other non-related parties. The amounts paid to the Distributor are included in the accompanying Statement of Operations. The Investment Company has a Distribution Plan pursuant to Rule 12b-1 (the "Plan") under the 1940 Act. Under this Plan, the Investment Company is authorized to make payments to the Distributor, or any Shareholder Servicing Agent, as defined in the Plan, for providing distribution and marketing services, for furnishing assistance to investors on an ongoing basis, and for the reimbursement of direct out-of-pocket expenses charged by the Distributor in connection with the distribution and marketing of shares of the Investment Company and the servicing of investor accounts. The Fund has Shareholder Service Agreements with the Adviser, State Street Brokerage Services, Inc. ("SSBSI"), a wholly-owned subsidiary of the Adviser, the Adviser's Retirement Investment Services Division ("RIS"), the Adviser's Metropolitan Division of Commercial Banking ("Commercial Banking") and State Street Solutions ("Solutions")(collectively the "Agents"), as well as several unaffiliated service providers. For these services, the Fund pays .025%, .175%, .175%, .175% and .175%, to the Adviser, SSBSI, RIS, Commercial Banking, and Solutions, respectively, based upon the average daily value of all Fund shares held by or for customers of these Agents. For the year ended August 31, 2000, the Fund was charged shareholder servicing expenses of $23,581, $1,218, $3,635, $28 and $2,348 by the Adviser, SSBSI, Commercial Banking, RIS and Solutions, respectively. The combined distribution and shareholder servicing payments shall not exceed .25% of the average daily value of net assets of the Fund on an annual basis. The shareholder servicing payments shall not exceed .20% of the average daily value of net assets of the Fund on an annual basis. Payments that exceed the maximum amount of allowable reimbursement may be carried forward for two years following the year in which the expenditure was incurred so long as the plan is in effect. The Fund's responsibility for any such expenses carried forward shall terminate at the end of two years following the year in which the expenditure was incurred. The Trustees or a majority of the Fund's shareholders have the right, however, to terminate the Distribution Plan and all payments thereunder at any time. The Fund will not be obligated to reimburse the Distributor for carryover expenses subsequent to the Distribution Plan's termination or noncontinuance. There were no carryover expenses as of August 31, 2000. Board of Trustees: The Investment Company paid each Trustee not affiliated with the Investment Company an annual retainer, plus specified amounts for board and committee meetings attended. These expenses are allocated among all of the funds based upon their relative net assets. Annual Report 21 SSgA International Growth Opportunities Fund Notes to Financial Statements, continued August 31, 2000 Accrued fees payable to affiliates and trustees as of August 31, 2000 were as follows: Advisory fees $ 83,255 Administration fees 9,442 Custodian fees 13,613 Distribution fees 4,260 Shareholder servicing fees 2,683 Transfer agent fees 2,439 Trustees' fees 1,686 -------- $117,378 ======== 5. Fund Share Transactions (amounts in thousands)
Fiscal Years Ended August 31, --------------------------------------------- 2000 1999 ------------------- ------------------- Shares Dollars Shares Dollars ------ --------- ------ --------- Proceeds from shares sold ........................ 10,511 $ 150,525 2,497 $ 25,720 Proceeds from reinvestment of distributions ...... 30 397 5 43 Payments for shares redeemed ..................... (5,689) (81,163) (504) (5,298) ------ --------- ------ --------- Total net increase (decrease) .................... 4,852 $ 69,759 1,998 $ 20,465 ====== ========= ====== =========
6. Interfund Lending Program The Fund and all other funds of the Investment Company received from the Securities and Exchange Commission an exemptive order on December 23, 1999 to establish and operate an Interfund Credit Facility. This allows the Funds to directly lend to and borrow money from the SSgA Money Market Fund for temporary purposes in accordance with certain conditions. The borrowing Funds are charged the average of the current Repo Rate and the Bank Loan Rate. The Fund did not utilize the interfund lending program during this year. 22 Annual Report SSgA International Growth Opportunities Fund Tax Information August 31, 2000 (Unaudited) The Fund paid distributions of $529,854 from net long-term capital gains during its taxable year ended August 31, 2000. The Fund paid foreign taxes of $167,522 and recognized $725,611 of foreign source income during the taxable year ended August 31, 2000. Pursuant to Section 853 of the Internal Revenue Code, the Fund designates $.0175 per share of foreign taxes paid and $.0758 of gross income earned from foreign sources in the taxable year ended August 31, 2000. Please consult a tax advisor for questions about federal or state income tax laws. Annual Report 23 SSgA International Growth Opportunities Fund One International Place, 27th Floor Boston, Massachusetts 02110 (800) 997-7327 -------------------------------------------------------------------------------- Trustees Lynn L. Anderson, Chairman William L. Marshall Steven J. Mastrovich Patrick J. Riley Richard D. Shirk Bruce D. Taber Henry W. Todd Officers Lynn L. Anderson, President, Treasurer and CEO Mark E. Swanson, Treasurer and Principal Accounting Officer J. David Griswold, Vice President and Secretary Deedra S. Walkey, Assistant Secretary Rick J. Chase, Assistant Treasurer Carla L. Anderson, Assistant Secretary Investment Adviser State Street Bank and Trust Company 225 Franklin Street Boston, Massachusetts 02110 Custodian, Transfer Agent and Office of Shareholder Inquiries State Street Bank and Trust Company 1776 Heritage Drive North Quincy, Massachusetts 02171 (800) 647-7327 Distributor Russell Fund Distributors, Inc. One International Place, 27th Floor Boston, Massachusetts 02110 (800) 997-7327 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 160 Federal Street Boston, Massachusetts 02110 24 Annual Report [COVER GRAPHIC] SSgA(R) funds ANNUAL REPORT High Yield Bond Fund August 31, 2000 SSgA(R) Funds High Yield Bond Fund Annual Report August 31, 2000 Table of Contents Page Chairman's Letter............................................. 4 Portfolio Management Discussion and Analysis.................. 6 Report of Independent Accountants............................. 8 Financial Statements.......................................... 9 Financial Highlights.......................................... 15 Notes to Financial Statements................................. 16 Fund Management and Service Providers......................... 21 "SSgA(R)" is a registered trademark of State Street Corporation and is licensed for use by the SSgA Funds. This report is prepared from the books and records of the Fund and it is submitted for the general information of shareholders. This information is for distribution to prospective investors only when preceded or accompanied by a SSgA Funds Prospectus containing more complete information concerning the investment objective and operations of the Fund, charges and expenses. The Prospectus should be read carefully before an investment is made. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. Russell Fund Distributors, Inc., is the distributor of the SSgA Funds. SSgA High Yield Bond Fund -------------------------------------------------------------------------------- Letter From the Chairman of State Street Global Advisors -------------------------------------------------------------------------------- Dear Shareholders, It is our pleasure to provide you with the SSgA Funds annual report for the fiscal year ended August 31, 2000. The SSgA Fund Family has grown to include twenty-four portfolios with over $21 billion in assets as of August 31, 2000. The Fund Family provides a wide range of strategies covering the world's major markets. The enclosed information provides an overview of the investment process for the SSgA High Yield Bond Fund. This overview contains the portfolio management discussion, performance updates and financial information for the Fund. In an ongoing effort to develop competitive products and services that provide investment solutions for our clients, we have added the SSgA Intermediate Municipal Bond Fund to the SSgA Fund Family. This Fund's investment objective seeks to provide federally tax-exempt current income by investing primarily in a diversified portfolio of municipal debt securities with a dollar-weighted average maturity between three and ten years. We are also pleased with the success of our SSgA Emerging Markets and SSgA Growth and Income Funds as they were included in Money(R) Magazine's June 2000 issue listing of the 'Top 100 Mutual Funds'. This is the second year in a row that these funds have been selected. Additionally, the SSgA Tax Free Money Market and the SSgA Active International Funds have achieved five-year performance history during the 2000 fiscal year. Currently, all of our SSgA Money Market Funds have at least a five-year performance history. We strive to meet our clients' needs by providing funds with long-term records and competitive performance. We would like to thank you for choosing the SSgA Funds. Our reputation is based on our tradition of designing and delivering exceptional financial services to our clients. We look forward to continue sharing the benefit of our experience with you. Sincerely, /s/ Nicholas A. Lopardo Nicholas A. Lopardo State Street Global Advisors Chairman and Chief Executive Officer /s/ Timothy B. Harbert Timothy B. Harbert State Street Global Advisors President and Chief Operating Officer, SSgA 4 Annual Report SSgA High Yield Bond Fund -------------------------------------------------------------------------------- Management of the Funds -------------------------------------------------------------------------------- [PHOTO] Nicholas A. Lopardo Chairman and Chief Executive Officer [PHOTO] Timothy B. Harbert President and Chief Operating Officer A Team Approach to Investment Management Our investment strategies are the product of the combined experience of our professional staff. Portfolio Managers work together to develop and enhance the techniques that drive our investment processes. As a result, the portfolios we manage benefit from the knowledge of the entire team. Mr. Bruce Walbridge, Principal, has been the portfolio manager primarily responsible for investment decisions regarding the SSgA High Yield Bond Fund since its inception in April 1998. He joined the firm in 1987. Before joining the Fixed Income Group in July 1993 as a credit analyst, Mr. Walbridge was an assistant portfolio manager in the International Equities Group. Prior to the launch of the SSgA High Yield Bond Fund, he managed several domestic bond portfolios. Utilizing his credit analysis background, Mr. Walbridge's focus over the last six years has been on corporate bond analysis and trading. There are three other portfolio managers working with Mr. Walbridge. Annual Report 5 SSgA High Yield Bond Fund -------------------------------------------------------------------------------- Portfolio Management Discussion and Analysis -------------------------------------------------------------------------------- Objective: Maximize total return by investing primarily in non investment grade corporate bonds. Invests in: Primarily domestic, non-investment grade corporate bonds. Strategy: Fund managers make investment decisions that enables the Fund to seek excess returns over the Lehman Brothers High Yield Bond Index. -------------------------------------------------------------------------------- GROWTH OF A $10,000 INVESTMENT Dates High Yield Bond Fund Lehman Brothers High Yield Bond Index ** Inception* $10,000 $10,000 1998 $9,941 $9,569 1999 $11,056 $9,962 2000 $11,904 $10,074 ================================================================================ Performance Review For the fiscal year ended August 31, 2000, the SSgA High Yield Bond Fund posted a gain of 7.67% versus 1.13% for the Lehman Brothers High Yield Bond Index. The Fund outperformed the benchmark during the first four months of the fiscal year due primarily to its underweighted position in lower quality and smaller size issues. Larger and higher quality issues outperformed due to the premium placed on liquidity. Uncertainty regarding the direction of interest rates, stock market volatility, rising default rates, and the limited flow of new money into the high yield market resulted in defensive posturing by portfolio managers as markets moved toward Y2K. The Fund outperformed the benchmark during the remaining eight months primarily due to superior sector selection and -------------------------------------------------------------------------------- SSgA High Yield Fund -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return -------------- ------------ ------- 1 Year $ 10,767 7.67% Inception $ 11,904 7.75%+ -------------------------------------------------------------------------------- Lehman Brothers High Yield Bond Index -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return -------------- ------------ ------- 1 Year $ 10,113 1.13% Inception $ 10,074 0.32%+ See related Notes on following page. 6 Annual Report SSgA High Yield Bond Fund -------------------------------------------------------------------------------- Portfolio Management Discussion and Analysis -------------------------------------------------------------------------------- security selection. Careful sector selection was critical, and continued to be rewarded, due to wide sector return dispersions in a difficult market environment. Through May 2000 the capital markets were focused on the Federal Reserve's need to slow the economy in order to reduce inflation fears. In June 2000 the capital markets embraced the notion that the Fed was on hold, and the high yield market turned in three consecutive months of positive total return. Market and Portfolio Highlights The Fund's objective is to invest in companies that have strong management teams, assets that can be valued, and predictable capital requirements. The Fund's current sector allocations include an overweight in Energy, Technology and Telecommunications. The Fund has benchmark-relative neutral weight targets for Consumer Cyclicals, Media, and Utilities and an underweight target to Basic Industries, Capital Goods and Consumer Non-Cyclicals. The Fund's largest overweighting is in Telecommunications, where the Manager believes this position will continue to have a positive impact on performance on a long-term basis. Telecommunications is currently an attractive sector due to the growth in data traffic driven by the Internet, multimedia applications and the need for network capacity. The Fund will seek to underweight the lowest quality securities. The Fund's tremendous performance over the last year was also due in part to avoidance of any distressed securities within the lowest quality securities. The Fund was managed consistently with its objective to maximize total return by investing in fixed income securities, including those represented in the Lehman Brothers High Yield Bond Index. At August 31, 2000 The Fund's duration was 4.16 versus 4.59 for the Index. The Fund seeks to track the duration of the Index with a minimal level of variance. -------------------------------------------------------- Top Ten Issuers (as a percent of Total Investments) August 31, 2000 -------------------------------------------------------- Federal Home Loan Bank 11.4% NTL, Inc. 2.9 Calpine Corp. 2.9 Williams Communications Group, Inc. 2.8 Metromedia Fiber Network, Inc. 2.4 Ocean Energy, Inc. 2.3 KPNQwest BV 2.2 Lear Corp. 2.1 R & B Falcon Corp. 2.1 Fairchild Semiconductor Corp. 2.0 -------------------------------------------------------- -------------------- Notes: The following notes relate to the Growth of $10,000 graph and table on the preceding page. * The High Yield Bond Fund commenced operations on May 5, 1998. Index comparisons began May 1, 1998. ** The Lehman Brothers High Yield Bond Index includes all fixed income securities having a maximum quality rating of Ba1 (including defaulted issues), a minimum amount outstanding of $100 million, and at least 1 year to maturity; PIKs and Eurodollars are excluded. + Annualized. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. Annual Report 7 Report of Independent Accountants To the Shareholders and Board of Trustees of the SSgA Funds: In our opinion, the accompanying statement of assets and liabilities and statement of net assets, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of SSgA High Yield Bond Fund (the "Fund") at August 31, 2000, the results of its operations for the fiscal year then ended and the changes in its net assets for each of the two fiscal years in the period then ended and the financial highlights for each of the two fiscal years in the period then ended and for the period May 5, 1998 (commencement of operations) to August 31, 1998, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 2000 by correspondence with the custodian, provide a reasonable basis for our opinion. Boston, Massachusetts October 11, 2000 /s/ PricewaterhouseCoopers LLP 8 Annual Report SSgA High Yield Bond Fund Statement of Net Assets August 31, 2000 Principal Market Amount Value (000) (000) $ $ --------- --------- Long-Term Investments - 84.0% Corporate Bonds and Notes - 72.9% Acme Television Step Up Bond Series B Zero Coupon due 09/30/04 (a) 500 475 Adelphia Communications Corp. Series B 7.750% due 01/15/09 500 423 Argosy Gaming Co. 10.750% due 06/01/09 500 526 Alamosa PCS Holdings, Inc. Step Up Bond Zero Coupon due 02/15/10 (a) 1,000 570 Calpine Corp. 8.250% due 08/15/05 500 497 8.625% due 08/15/10 1,000 1,019 Canandaigua Brands, Inc. 8.500% due 03/01/09 500 480 Citadel Broadcasting Co. 9.250% due 11/15/08 1,000 999 Coaxial Communications of Central Ohio, Inc. 10.000% due 08/15/06 500 493 Concentra Operating Corp. 13.000% due 08/15/09 500 448 Crown Castle International Corp. Step Up Bond Zero Coupon due 05/15/11 (a) 1,000 650 CSC Holdings, Inc. 9.250% due 11/01/05 600 606 Echostar DBS Corp. 9.250% due 02/01/06 500 493 Exodus Communications, Inc. 11.625% due 07/15/10 500 510 Fairchild Semiconductor Corp. 10.375% due 10/01/07 1,000 1,023 Flowserve Corp. 12.250% due 08/15/10 500 506 Focal Communications Corp. 11.875% due 01/15/10 500 455 Globix Corp. 12.500% due 02/01/10 1,000 750 Grey Wolf, Inc. 8.875% due 07/01/07 825 804 Gulf Canada Resources, Ltd. 9.625% due 07/01/05 500 513 Hayes Lemmerz International, Inc. 9.125% due 07/15/07 350 320 HCA - The Healthcare Co. 8.750% due 09/01/10 500 499 HMH Properties, Inc. Series A 7.875% due 08/01/05 1,000 950 Huntsman ICI Chemicals 10.125% due 07/01/09 500 509 Interface, Inc. Series B 9.500% due 11/15/05 250 228 Intersil Corp. 13.250% due 08/15/09 575 661 Iron Mountain, Inc. 8.750% due 09/30/09 450 424 ITC Deltacom, Inc. 9.750% due 11/15/08 500 410 K. Hovnanian Enterprises 9.125% due 05/01/09 500 468 L-3 Communications Corp. 8.500% due 05/15/08 525 478 Lear Corp. 9.500% due 07/15/06 600 609 Series B 7.960% due 05/15/05 500 481 Level 3 Communications Step Up Bond Zero Coupon due 03/15/10 (a) 1,500 851 Mandalay Resort Group 9.500% due 08/01/08 250 256 Annual Report 9 SSgA High Yield Bond Fund Statement of Net Assets, continued August 31, 2000 Principal Market Amount Value (000) (000) $ $ --------- --------- McLeodUSA, Inc. 8.125% due 02/15/09 750 683 Metromedia Fiber Network, Inc. 10.000% due 12/15/09 1,250 1,234 MGC Communications, Inc. 13.000% due 04/01/10 500 420 MGM Grand, Inc. 9.750% due 06/01/07 500 524 NEXTLINK Communications, Inc. Step Up Bond Zero Coupon due 06/01/09 (a) 1,500 845 Nortek, Inc. 9.875% due 03/01/04 500 483 NorthPoint Communications Group, Inc. 12.875% due 02/15/10 500 486 NTL, Inc. Step Up Bond Series A 12.750% due 04/15/05 (a) 1,500 1,530 Ocean Energy, Inc. 8.625% due 08/01/05 700 686 Series B 8.375% due 07/01/08 500 499 Plains Resources, Inc. Series B 10.250% due 03/15/06 830 840 R&B Falcon Corp. 9.500% due 12/15/08 1,000 1,080 RCN Corp. Step Up Bond Zero Coupon due 10/15/07 (a) 750 446 Riverwood International Corp. 10.625% due 08/01/07 750 743 Santa Fe Snyder Corp. 8.050% due 06/15/04 500 493 Sinclair Broadcast Group, Inc. 10.000% due 09/30/05 1,000 970 Spectrasite Holdings, Inc. Series B 10.750% due 03/15/10 750 750 Station Casinos, Inc. 8.875% due 12/01/08 500 473 9.875% due 07/01/10 500 495 Team Health, Inc. Series B 12.000% due 03/15/09 500 430 Telecorp PCS, Inc. 10.625% due 07/15/10 250 259 Telecorp PCS, Inc. Step Up Bond 11.625% due 04/15/09 (a) 1,000 695 Verio, Inc. 10.625% due 11/15/09 500 588 Voicestream Wireless Corp. Step-Up Bond 11.875% due 11/15/09 (a) 1,000 730 Williams Communications Group, Inc. 10.875% due 10/01/09 1,000 964 11.875% due 08/01/10 500 498 Willis Corroon Corp. 9.000% due 02/01/09 500 454 Worldwide Fiber, Inc. 12.000% due 08/01/09 500 452 XM Satellite Radio Holdings, Inc. 14.000% due 03/15/10 500 462 Ziff Davis Media, Inc. 12.000% due 07/15/10 500 517 ------ 39,113 ------ Eurodollar Bonds - 7.3% Energis PLC 9.750% due 06/15/09 1,000 995 Flextronics International, Ltd. 9.875% due 07/01/10 500 518 GT Group Telecom, Inc. Step Up Bond Series UNIT 13.250% due 02/01/10 (a) 1,500 773 10 Annual Report SSgA High Yield Bond Fund Statement of Net Assets, continued August 31, 2000 Principal Market Amount Value (000) (000) $ $ --------- --------- KPNQwest BV 8.125% due 06/01/09 1,250 1,150 Ono Finance PLC 13.000% due 05/01/09 500 474 ------ 3,910 ------ Yankee Bonds - 3.8% Iron Mountain, Inc. 8.125% due 05/15/08 700 632 Millar Western Forest Products 9.875% due 05/15/08 1,000 990 Versatel Telecom International 11.875% due 07/15/09 500 450 ------ 2,072 ------ Total Long-Term Investments (cost $45,901) 45,095 ------ Number of Shares ------ Preferred Stocks - 0.9% Global Crossing Holdings, Ltd. 5,000 500 ------ Total Preferred Stocks (cost $580) 500 ------ Principal Amount (000) $ --------- Short-Term Investments - 11.9% Federal Home Loan Bank Consolidated Discount Note 6.510% due 09/01/00 (b) 6,000 6,000 Federated Investors Prime Cash Obligations Fund (b) 378 378 ------ Total Short-Term Investments (cost $6,378) 6,378 ------ Number of Shares ------ Warrants - 0.9% Intersil Corp., expiration date 08/15/09 500 414 Ono Finance PLC, expiration date 05/31/09 500 50 ------ Total Warrants (cost $0) 464 ------ Total Investments - 97.7% (identified cost $52,859) 52,437 Other Assets and Liabilities, Net - 2.3% 1,252 ------ Net Assets - 100.0% 53,689 ====== (a) Adjustable floating rate security. (b) At amortized cost, which approximates market. See accompanying notes which are an integral part of the financial statements. Annual Report 11 SSgA High Yield Bond Fund Statement of Assets and Liabilities Amounts in thousands (except per share amount) August 31, 2000 Assets Investments at market (identified cost $52,859) ................................... $ 52,437 Receivables: Dividends and interest ......................................................... 967 Investments sold ............................................................... 65 Fund shares sold ............................................................... 298 ----------- Total assets ................................................................ 53,767 Liabilities Payables: Fund shares redeemed ........................................... $ 40 Accrued fees to affiliates ..................................... 25 Other accrued expenses ......................................... 13 ========== Total liabilities ........................................................... 78 ----------- Net Assets ........................................................................ $ 53,689 =========== Net Assets Consist of: Undistributed net investment income ............................................... $ 1,067 Accumulated net realized gain (loss) .............................................. (863) Unrealized appreciation (depreciation) on investments ............................. (422) Shares of beneficial interest ..................................................... 5 Additional paid-in capital ........................................................ 53,902 ----------- Net Assets ........................................................................ $ 53,689 =========== Net Asset Value, offering and redemption price per share: ($53,688,831 divided by 5,294,782 shares of $.001 par value shares of beneficial interest outstanding) .................................. $ 10.14 ===========
See accompanying notes which are an integral part of the financial statements. 12 Annual Report SSgA High Yield Bond Fund Statement of Operations Amounts in thousands For the Fiscal Year Ended August 31, 2000 Investment Income Interest ................................................................................. $ 3,868 Dividends ................................................................................ 200 ---------- Total investment income ............................................................... 4,068 Expenses Advisory fees ............................................................. $ 119 Administrative fees ....................................................... 24 Custodian fees ............................................................ 25 Distribution fees ......................................................... 13 Transfer agent fees ....................................................... 29 Professional fees ......................................................... 14 Registration fees ......................................................... 34 Shareholder servicing fees ................................................ 9 Trustees' fees ............................................................ 5 Miscellaneous ............................................................. 7 --------- Expenses before reductions ................................................ 279 Expense reductions ........................................................ (8) --------- Expenses, net ......................................................................... 271 ---------- Net investment income ....................................................................... 3,797 ---------- Net Realized and Unrealized Gain (Loss) Net realized gain (loss) on investments ..................................................... (863) Net change in unrealized appreciation (depreciation) on investments ......................... 71 ---------- Net realized and unrealized gain (loss) ..................................................... (792) ---------- Net increase (decrease) in net assets from operations ....................................... $ 3,005 ==========
See accompanying notes which are an integral part of the financial statements. Annual Report 13 SSgA High Yield Bond Fund Statement of Changes in Net Assets Amounts in thousands For the Fiscal Years Ended August 31,
2000 1999 ----------- ----------- Increase (Decrease) in Net Assets Operations Net investment income .......................................... $ 3,797 $ 1,677 Net realized gain (loss) ....................................... (863) 9 Net change in unrealized appreciation (depreciation) ........... 71 (158) ----------- ---------- Net increase (decrease) in net assets from operations ....... 3,005 1,528 ----------- ---------- Distributions From net investment income ..................................... (3,379) (1,196) From net realized gain ......................................... (1) (1) ----------- ---------- Net decrease in net assets from distributions ............... (3,380) (1,197) ----------- ---------- Share Transactions Net increase (decrease) in net assets from share transactions .. 19,217 22,608 ----------- ---------- Total net increase (decrease) in net assets ....................... 18,842 22,939 Net Assets Beginning of period ............................................ 34,847 11,908 ----------- ---------- End of period (including undistributed net investment income of $1,067 and $649, respectively) .............................. $ 53,689 $ 34,847 =========== ==========
See accompanying notes which are an integral part of the financial statements. 14 Annual Report SSgA High Yield Bond Fund Financial Highlights The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements. Fiscal Years Ended August 31, ------------------------------- 2000 1999 1998* -------- -------- -------- Net Asset Value, Beginning of Period ......... $ 10.32 $ 9.90 $ 10.00 Income From Operations Net investment income (a) ................. .96 .78 .18 Net realized and unrealized gain (loss) ... (.21) .30 (.24) -------- -------- -------- Total income from operations ........... .75 1.08 (.06) -------- -------- -------- Distributions From net investment income ................ (.93) (.66) (.04) From net realized gain .................... -- -- -------- -------- -------- Net Asset Value, End of Period ............... $ 10.14 $ 10.32 $ 9.90 ======== ======== ======== Total Return (%)(b) .......................... 7.67 11.21 (.59) Ratios/Supplemental Data: Net Assets, end of period (in thousands) .. 53,689 34,847 11,908 Ratios to average net assets (%)(c): Operating expenses, net (d) ............ .68 .65 .65 Operating expenses, gross (d) .......... .69 .87 1.66 Net investment income .................. 9.56 7.97 6.38 Portfolio turnover rate (%)(e) ............ 164.01 234.31 173.64 * For the period May 5, 1998 (commencement of operations) to August 31, 1998. (a) For the period subsequent to August 31, 1998, average month-end shares outstanding were used for this calculation. (b) Periods less than one year are not annualized. (c) The ratios for the period ended August 31, 1998 are annualized. (d) See Note 4 for current period amounts. (e) The ratio for the period ended August 31, 1998 has not been annualized due to the Fund's short period of operations. Annual Report 15 SSgA High Yield Bond Fund Notes to Financial Statements August 31, 2000 1. Organization The SSgA Funds (the "Investment Company") is a series mutual fund, currently comprised of 24 investment portfolios which are in operation as of August 31, 2000. These financial statements report on one portfolio, the SSgA High Yield Bond Fund (the "Fund"). The Investment Company is a registered and diversified open-end investment company, as defined in the Investment Company Act of 1940, as amended (the "1940 Act"), that was organized as a Massachusetts business trust on October 3, 1987 and operates under a First Amended and Restated Master Trust Agreement, dated October 13, 1993, as amended (the "Agreement"). The Investment Company's Agreement permits the Board of Trustees to issue an unlimited number of full and fractional shares of beneficial interest at a $.001 par value. 2. Significant Accounting Policies The Fund's financial statements are prepared in accordance with accounting principles generally accepted in the United States which require the use of management estimates. The following is a summary of the significant accounting policies consistently followed by the Fund in the preparation of its financial statements. Security valuation: United States 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 sale, at the closing bid price, on the primary exchange on which the security is traded. United States over-the-counter, fixed-income securities and options are valued on the basis of the closing bid price. Many fixed-income securities do not trade each day, and thus last sale or bid prices are frequently not available. Fixed-income securities may be valued using prices provided by a pricing service when such prices are believed to reflect the market value of such securities. Money market instruments maturing within 60 days of the valuation date are valued at amortized cost. The Fund may 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. Securities transactions: Securities transactions are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the basis of identified cost. Investment income: Dividend income is recorded on the ex-dividend date and interest income is recorded daily on the accrual basis. Amortization and accretion: All zero-coupon bond discounts and original issue discounts are accreted for both tax and financial reporting purposes. All short- and long-term market premiums/discounts are amortized/accreted for both tax and financial reporting purposes. Federal income taxes: Since the Investment Company is a Massachusetts business trust, each fund is a separate corporate taxpayer and determines its net investment income and capital gains (or losses) and the amounts to be distributed to each fund's shareholders without regard to the income and capital gains (or losses) of the other funds. 16 Annual Report SSgA High Yield Bond Fund Notes to Financial Statements, continued August 31, 2000 It is the Fund's intention to qualify as a regulated investment company, as defined by the Internal Revenue Code of 1986, as amended. This requires the Fund to distribute all of its taxable income. Therefore, the Fund paid no federal income taxes and no federal income tax provision was required. At August 31, 2000 the Fund had net tax basis capital loss carryover of $108,278, which may be applied against realized net taxable gains in each succeeding year or until its expiration date of August 31, 2008. As permitted by tax regulations, the Fund intends to defer a net realized capital loss of $740,464 incurred from November 1, 1999 to August 31, 2000, and treat it as arising in fiscal year 2001. The Fund's aggregate cost of investments and the composition of unrealized appreciation and depreciation of investment securities for federal income tax purposes as of August 31, 2000 are as follows: Net Unrealized Federal Tax Unrealized Unrealized Appreciation Cost Appreciation (Depreciation) (Depreciation) ----------- ------------ -------------- -------------- $52,873,130 $ 1,214,791 $ (1,651,254) $ (436,463) Dividends and distributions to shareholders: Income dividends and capital gain distributions, if any, are recorded on the ex-dividend date. Dividends are generally declared and paid quarterly. Capital gain distributions are generally declared and paid annually. An additional distribution may be paid by the Fund to avoid imposition of federal income tax on any remaining undistributed net investment income and capital gains. The timing and characterization of certain income and capital gain distributions are determined in accordance with federal tax regulations which may differ from generally accepted accounting principles ("GAAP"). As a result, net investment income and net realized gain (or loss) on investment transactions for a reporting year may differ significantly from distributions during such year. The differences between tax regulations and GAAP relate primarily to investment in certain fixed income securities purchased at a discount, mortgage-backed securities and certain securities sold at a loss. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting its net asset value. Expenses: Most expenses can be directly attributed to the Fund. Expenses of the investment company which cannot be directly attributed are allocated among all funds based principally on their relative net assets. 3. Securities Transactions Investment transactions: For the year ended August 31, 2000, purchases and sales of investment securities, excluding US Government and Agency obligations and short-term investments, aggregated to $73,473,834 and $60,254,280, respectively. Securities lending: The Investment Company has a securities lending program whereby each Fund can loan securities with a value up to 33 1/3% of its total assets to certain brokers. The Fund receives cash (U.S. currency), U.S. Government or U.S. Government agency obligations as collateral against the loaned securities. To the extent that a loan is secured by cash collateral, such collateral shall be invested by State Street Bank and Trust Company in short-term instruments, money market mutual funds, and such other short-term investments, provided the investments meet certain quality and diversification requirements. Under the securities lending arrangement, the collateral received is recorded on the Fund's statement of assets and liabilities along with the related obligation to Annual Report 17 SSgA High Yield Bond Fund Notes to Financial Statements, continued August 31, 2000 return the collateral. In those situations where the Company has relinquished control of securities transferred, it derecognizes the securities and records a receivable from the counterparty. Income generated from the investment of cash collateral, less negotiated rebate fees paid to participating brokers and transaction costs, is divided between the Fund and State Street Bank and Trust Company and is recorded as interest income for the Fund. To the extent that a loan is secured by non-cash collateral, brokers pay the Fund negotiated lenders' fees, which are divided between the Fund and State Street Bank and Trust Company and are recorded as interest income for the Fund. All collateral received will be in an amount at least equal to 102% (for loans of U.S. securities) or 105% (for non-U.S. securities) of the market value of the loaned securities at the inception of each loan. Should the borrower of the securities fail financially, there is a risk of delay in recovery of the securities or loss of rights in the collateral. Consequently, loans are made only to borrowers which are deemed to be of good financial standing. As of August 31, 2000, there were no outstanding securities on loan and no income earned during the year. 4. Related Parties Adviser: The Investment Company has an investment advisory agreement with State Street Bank and Trust Company (the "Adviser") under which the Adviser, through State Street Global Advisors, the investment management group of the Adviser, directs the investments of the Fund in accordance with its investment objectives, policies, and limitations. For these services, the Fund pays a fee to the Adviser, calculated daily and paid monthly, at the annual rate of .30% of its average daily net assets. For the period September 1, 1999 to December 31, 1999, the Adviser has agreed to reimburse the Fund for all expenses in excess of .65% of average daily net assets on an annual basis. Effective January 1, 2000, the Adviser has agreed to reimburse the Fund for all expenses in excess of .75% of its average daily net assets on an annual basis. The total amount of reimbursement for the year ended August 31, 2000 was $2,074. As of August 31, 2000, the receivable due from the Adviser for reimbursed expenses in excess of the expense cap has been netted against the Advisory fee payable. The Investment Company also has contracts with the Adviser to provide custody, shareholder servicing and transfer agent services to the Fund. These amounts are presented in the accompanying Statement of Operations. In addition, the Fund has entered into arrangements with its Adviser whereby custody credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund's expenses. During the year, the Fund's custodian fees were reduced by $5,770 under these arrangements. Administrator: The Investment Company has an administration agreement with Frank Russell Investment Management Company (the "Administrator"), a wholly-owned subsidiary of The Northwestern Mutual Life Insurance Company, under which the Administrator supervises all non-portfolio investment aspects of the Investment Company's operations and provides adequate office space and all necessary office equipment and services, including telephone service, utilities, stationery supplies, and similar items. The Investment Company pays the Administrator for services supplied by the Administrator pursuant to the Administration Agreement, an annual fee, payable monthly on a pro rata basis. For the period September 1, 1999 to April 30, 2000, it is based on the following percentages of the average daily net assets of all domestic funds: $0 up to and including $500 million - .06%; over $500 million up to and including $1 billion - .05%; over $1 billion - .03%. Effective May 1, 2000, the annual fee is based on the following percentages of the average daily net assets of all U.S. Fixed Income portfolios: $0 up to $1 billion - .0315%; over $1 billion - .029%. The Administrator will also charge a flat fee of 18 Annual Report SSgA High Yield Bond Fund Notes to Financial Statements, continued August 31, 2000 $30,000 per year per Fund with less than $500 million in net assets and $1,500 per year for monthly performance reports and use of Russell Performance Universe software product. In addition, the Fund reimburses the Administrator for out-of-pocket expenses and start-up costs for new funds. Distributor and Shareholder Servicing: The Investment Company has a Distribution Agreement with Russell Fund Distributors (the "Distributor") which is a wholly-owned subsidiary of the Administrator to promote and offer shares of the Investment Company. The Distributor may enter into sub-distribution agreements with other non-related parties. The amounts paid to the Distributor are included in the accompanying Statement of Operations. The Investment Company has a Distribution Plan pursuant to Rule 12b-1 (the "Plan") under the 1940 Act. Under this Plan, the Investment Company is authorized to make payments to the Distributor, or any Shareholder Servicing Agent, as defined in the Plan, for providing distribution and marketing services, for furnishing assistance to investors on an ongoing basis, and for the reimbursement of direct out-of-pocket expenses charged by the Distributor in connection with the distribution and marketing of shares of the Investment Company and the servicing of investor accounts. The Fund has Shareholder Service Agreements with the Adviser, State Street Brokerage Services, Inc. ("SSBSI"), a wholly-owned subsidiary of the Adviser, the Adviser's Retirement Investment Services Division ("RIS"), the Adviser's Metropolitan Division of Commercial Banking ("Commercial Banking") and State Street Solutions ("Solutions")(collectively the "Agents"), as well as several unaffiliated service providers. For these services, the Fund pays .025%, .175%, .175%, .175%, and .175% to the Adviser, SSBSI, RIS, Commercial Banking, and Solutions, respectively, based upon the average daily value of all Fund shares held by or for customers of these Agents. For the year ended August 31, 2000, the Fund was charged shareholder servicing expenses of $8,017, $212, $28 and $30 by the Adviser, SSBSI, Commercial Banking and Solutions, respectively. The Fund did not incur any expenses from RIS during this year. The combined distribution and shareholder servicing payments shall not exceed .25% of the average daily value of net assets of the Fund on an annual basis. The shareholder servicing payments shall not exceed .20% of the average daily value of net assets of the Fund on an annual basis. Payments that exceed the maximum amount of allowable reimbursement may be carried forward for two years following the year in which the expenditure was incurred so long as the plan is in effect. The Fund's responsibility for any such expenses carried forward shall terminate at the end of two years following the year in which the expenditure was incurred. The Trustees or a majority of the Fund's shareholders have the right, however, to terminate the Distribution Plan and all payments thereunder at any time. The Fund will not be obligated to reimburse the Distributor for carryover expenses subsequent to the Distribution Plan's termination or noncontinuance. There were no carryover expenses as of August 31, 2000. Board of Trustees: The Investment Company paid each Trustee not affiliated with the Investment Company an annual retainer, plus specified amounts for board and committee meetings attended. These expenses are allocated among all of the funds based upon their relative net assets. Annual Report 19 SSgA High Yield Bond Fund Notes to Financial Statements, continued August 31, 2000 Accrued fees payable to affiliates and trustees as of August 31, 2000 were as follows: Advisory fees $ 13,144 Administration fees 5,243 Custodian fees 1,495 Distribution fees 331 Shareholder servicing fees 1,904 Transfer agent fees 1,888 Trustees' fees 594 ---------- $ 24,599 ========== Beneficial Interest: As of August 31, 2000, two shareholders (who are also affiliates of the Investment Company) were record owners of approximately 15% and 10%, respectively, of the total outstanding shares of the Fund. 5. Fund Share Transactions (amounts in thousands)
Fiscal Years Ended August 31, ---------------------------------------------------------- 2000 1999 -------------------------- --------------------------- Shares Dollars Shares Dollars -------- -------- -------- --------- Proceeds from shares sold ....................................... 2,958 $ 29,717 2,289 $ 23,775 Proceeds from reinvestment of distributions ..................... 77 775 13 131 Payments for shares redeemed .................................... (1,118) (11,275) (127) (1,298) ------- -------- ------- -------- Total net increase (decrease) ................................... 1,917 $ 19,217 2,175 $ 22,608 ======= ======== ======= ========
6. Interfund Lending Program The Fund and all other funds of the Investment Company received from the Securities and Exchange Commission an exemptive order on December 23, 1999 to establish and operate an Interfund Credit Facility. This allows the Funds to directly lend to and borrow money from the SSgA Money Market Fund for temporary purposes in accordance with certain conditions. The borrowing Funds are charged the average of the current Repo Rate and the Bank Loan Rate. The Fund did not utilize the interfund lending program during this year. 7. Dividends On September 1, 2000, the Board of Trustees declared a dividend of $.2039 from net investment income, payable on September 8, 2000 to shareholders of record on September 5, 2000. 20 Annual Report SSgA High Yield Bond Fund One International Place, 27th Floor Boston, Massachusetts 02110 (800) 997-7327 -------------------------------------------------------------------------------- Trustees Lynn L. Anderson, Chairman William L. Marshall Steven J. Mastrovich Patrick J. Riley Richard D. Shirk Bruce D. Taber Henry W. Todd Officers Lynn L. Anderson, President, Treasurer and CEO Mark E. Swanson, Treasurer and Principal Accounting Officer J. David Griswold, Vice President and Secretary Deedra S. Walkey, Assistant Secretary Rick J. Chase, Assistant Treasurer Carla L. Anderson, Assistant Secretary Investment Adviser State Street Bank and Trust Company 225 Franklin Street Boston, Massachusetts 02110 Custodian, Transfer Agent and Office of Shareholder Inquiries State Street Bank and Trust Company 1776 Heritage Drive North Quincy, Massachusetts 02171 (800) 647-7327 Distributor Russell Fund Distributors, Inc. One International Place, 27th Floor Boston, Massachusetts 02110 (800) 997-7327 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 160 Federal Street Boston, Massachusetts 02110 Annual Report 21 [COVER GRAPHIC] SSgA(R) funds ANNUAL REPORT Special Equity Fund August 31, 2000 SSgA(R) Funds Special Equity Fund Annual Report August 31, 2000 Table of Contents Page Chairman's Letter ......................................................... 4 Portfolio Management Discussion and Analysis .............................. 6 Report of Independent Accountants ......................................... 8 Financial Statements ...................................................... 9 Financial Highlights ...................................................... 14 Notes to Financial Statements ............................................. 15 Fund Management and Service Providers ..................................... 20 "SSgA(R)" is a registered trademark of State Street Corporation and is licensed for use by the SSgA Funds. This report is prepared from the books and records of the Fund and it is submitted for the general information of shareholders. This information is for distribution to prospective investors only when preceded or accompanied by a SSgA Funds Prospectus containing more complete information concerning the investment objective and operations of the Fund, charges and expenses. The Prospectus should be read carefully before an investment is made. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. International markets entail different risks than those typically associated with domestic markets, including currency fluctuations, political and economic instability, accounting changes and foreign taxation. Securities may be less liquid and more volatile. Please see the Prospectus for further details. Russell Fund Distributors, Inc., is the distributor of the SSgA Funds. SSgA Special Equity Fund -------------------------------------------------------------------------------- Letter From the Chairman of State Street Global Advisors -------------------------------------------------------------------------------- Dear Shareholders, It is our pleasure to provide you with the SSgA Funds annual report for the fiscal year ended August 31, 2000. The SSgA Fund Family has grown to include twenty-four portfolios with over $21 billion in assets as of August 31, 2000. The Fund Family provides a wide range of strategies covering the world's major markets. The enclosed information provides an overview of the investment process for the SSgA Special Equity Fund. This overview contains the portfolio management discussion, performance updates and financial information for the Fund. In an ongoing effort to develop competitive products and services that provide investment solutions for our clients, we have added the SSgA Intermediate Municipal Bond Fund to the SSgA Fund Family. This Fund's investment objective seeks to provide federally tax-exempt current income by investing primarily in a diversified portfolio of municipal debt securities with a dollar-weighted average maturity between three and ten years. We are also pleased with the success of our SSgA Emerging Markets and SSgA Growth and Income Funds as they were included in Money(R) Magazine's June 2000 issue listing of the 'Top 100 Mutual Funds'. This is the second year in a row that these funds have been selected. Additionally, the SSgA Tax Free Money Market and the SSgA Active International Funds have achieved five-year performance history during the 2000 fiscal year. Currently, all of our SSgA Money Market Funds have at least a five-year performance history. We strive to meet our clients' needs by providing funds with long-term records and competitive performance. We would like to thank you for choosing the SSgA Funds. Our reputation is based on our tradition of designing and delivering exceptional financial services to our clients. We look forward to continue sharing the benefit of our experience with you. Sincerely, /s/ Nicholas A. Lopardo Nicholas A. Lopardo State Street Global Advisors Chairman and Chief Executive Officer /s/ Timothy B. Harbert Timothy B. Harbert State Street Global Advisors President and Chief Operating Officer, SSgA 4 Annual Report SSgA Special Equity Fund -------------------------------------------------------------------------------- Management of the Funds -------------------------------------------------------------------------------- [PHOTO] Nicholas A. Lopardo Chairman and Chief Executive Officer [PHOTO] Timothy B. Harbert President and Chief Operating Officer A Team Approach to Investment Management Our investment strategies are the product of the combined experience of our professional staff. Portfolio Managers work together to develop and enhance the techniques that drive our investment processes. As a result, the portfolios we manage benefit from the knowledge of the entire team. Mr. David B. Smith, CFA, Principal has been the portfolio manager primarily responsible for investment decisions regarding the SSgA Special Equity Fund since May 2000. Prior to his current responsibilities, he was Managing Director for the Tuckerman Group, SSgA's real estate subsidiary. In this role he developed, marketed and managed the SSgA Tuckerman Active REIT strategy. His experience also includes extensive equity analysis with various industry coverage responsibilities including the REITs, financial services, media, business services, waste management and cable television. Mr. Smith is also experienced in managing diversified equity and fixed income portfolios for SSgA's high net worth and charitable asset management clients. He holds a BA in Economics with a concentration in Financial Markets from the University of Massachusetts/Amherst and an MS in Finance from Suffolk University. Annual Report 5 SSgA Special Equity Fund -------------------------------------------------------------------------------- Portfolio Management Discussion and Analysis -------------------------------------------------------------------------------- Objective: The SSgA Special Equity Fund seeks to maximize total return through investments in mid- and small capitalization US equity securities. Invests in: Mid- and small capitalization US equity securities. Strategy: The Portfolio Management Team applies a disciplined fundamental investment approach to identify smaller companies positioned to outperform on a strategic basis. The investment approach emphasizes bottom-up stock selection informed by top-down macroeconomic analysis. The team focuses on identifying higher quality, smaller cap stocks with strong fundamentals. In addition, the Fund can invest in IPOs (Initial Public Offerings). -------------------------------------------------------------------------------- GROWTH OF A $10,000 INVESTMENT Russell Special Small Cap Dates Special Equity Fund Completeness Index ** Inception* $10,000 $10,000 1998 $7,170 $7,345 1999 $9,182 $10,113 2000 $16,495 $14,422 ================================================================================ -------------------------------------------------------------------------------- SSgA Special Equity Fund -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return -------------- ------------ ------- 1 Year $ 17,965 79.65% Inception $ 16,495 23.92%+ -------------------------------------------------------------------------------- Russell Special Small Cap Completeness Index -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return -------------- ------------ ------- 1 Year $ 14,261 42.61% Inception $ 14,422 16.99%+ See related Notes on following page. 6 Annual Report SSgA Special Equity Fund -------------------------------------------------------------------------------- Portfolio Management Discussion and Analysis -------------------------------------------------------------------------------- Performance Review For the fiscal year ended August 31, 2000, the SSgA Special Equity Fund gained 79.65% versus 42.61% for its benchmark, the Russell Small Cap Completeness Index. The fiscal year-end performance of the Fund can be, in part, attributed to investments made in Initial Public Offerings (IPOs). There is no guarantee that the Fund will continue to participate in the IPO market, and due to their inherent volatility, there can be no assurance that IPOs will continue to have a positive impact on Fund performance. The Fund's positive performance during the period was largely attributed to its exposure to the Technology and the Financial sectors. At fiscal year end, 40% of the portfolio was invested in Technology issues, versus a benchmark weighting of 31%. Within Technology, the Internet services and software firms were the strongest, led by BEA Systems, Micromuse, and Rational Software posting impressive gains of 1,029%, 432%, and 376%, respectively. The Fund's weighting of 11% in the Financials sector was slightly under the Index allocation of 14%, because many companies in the sector lacked strong growth prospects. However, two firms held in the Fund for the fiscal year, ACE Limited and Legg Mason, performed soundly versus the benchmark, returning 64% and 38%, respectively. Telecommunications issues continued to be positive contributors to Fund results. VoiceStream Wireless was the strongest performer in this sector, with a 173% return for the fiscal year. Within Health Care, biotech companies Human Genome Sciences and MedImmune Inc. posted gains of 391% and 143%, respectively. Market and Portfolio Highlights The small cap market rallied during the fiscal year, posting a return of 39.1% for small cap growth stocks, as measured by the Russell 2000(R) Growth Index. Mid-cap stocks performed in line with small caps, with the S&P(R) Mid-Cap 400 returning 39.8%. The large cap rally of the past several years appears to have abated relative to smaller companies, as the S&P 500(R) Index returned 16.3% for the twelve months ended August 31, 2000. While the strength of this return speaks for itself, it is still not up to par compared with recent small cap results. For the fiscal year ended August 31, 2000, the SSgA Special Equity Fund held 42 stocks with an average weighted market capitalization of $9.4 billion, versus $10.5 billion for the benchmark. The Fund has portfolio characteristics in line with those of the benchmark, reflecting the risk-controlled nature of the investment process. As the Fund's objective is achieved through active fundamental stock selection, the portfolio will seek to be fully invested at all times. -------------------------------------------------------- Top Ten Equity Holdings (as a percent of Total Investments) August 31, 2000 -------------------------------------------------------- Rational Software Corp. 4.3% Teekay Shipping Corp. 4.0 Brocade Communications Systems, Inc. 3.8 Apache Corp. 3.7 ACE, Ltd. 3.7 Avanex Corp. New 3.5 BEA Systems, Inc. 3.4 Legg Mason, Inc. 3.4 Noble Drilling Corp. 3.2 Exodus Communications, Inc. 2.9 -------------------------------------------------------- --------------------- Notes: The following notes relate to the Growth of $10,000 graph and table on the preceding page. * The Fund commenced operations on May 1, 1998. Index comparison also began May 1, 1998. ** The Russell Small Cap Completeness Index is defined as the Russell 3000(R) Index minus the S&P 500(R) Index. Approximately 40% of the Russell Small Cap Completeness Index is comprised of the small cap stocks, while the remaining 60% are mid-cap issues. + Annualized. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. Annual Report 7 Report of Independent Accountants To the Shareholders and Board of Trustees of the SSgA Funds: In our opinion, the accompanying statement of assets and liabilities and statement of net assets, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of SSgA Special Equity Fund (the "Fund") at August 31, 2000, the results of its operations for the fiscal year then ended and the changes in its net assets for each of the two fiscal years in the period ended and the financial highlights for each of the two fiscal years in the period ended and for the period May 1, 1998 (commencement of operations) to August 31, 1998, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 2000 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. Boston, Massachusetts October 11, 2000 /s/ PricewaterhouseCoopers LLP 8 Annual Report SSgA Special Equity Fund Statement of Net Assets August 31, 2000 Market Number Value of (000) Shares $ ------- ------- Common Stocks - 95.3% Basic Industries - 3.1% Smurfit-Stone Container Corp. (a) 112,800 1,466 Steel Dynamics, Inc. (a) 98,400 1,187 ------- 2,653 ------- Consumer Basics - 16.2% Biogen, Inc. (a) 12,700 878 Chiron Corp. (a) 34,300 1,848 Enzon, Inc. (a) 23,500 1,431 Hain Celestial Group, Inc. (a) 52,300 1,631 Human Genome Sciences, Inc. (a) 11,500 1,920 IDEC Pharmaceuticals Corp. (a) 16,000 2,234 MedImmune, Inc. (a) 29,000 2,445 Outback Steakhouse, Inc. (a) 63,400 1,454 ------- 13,841 ------- Consumer Durables - 0.8% Linens 'N Things, Inc. (a) 25,000 675 ------- Consumer Services - 1.9% Brinker International, Inc. (a) 51,700 1,641 ------- Energy - 11.2% Apache Corp. 50,200 3,163 Barrett Resources Corp. (a) 39,900 1,382 Noble Drilling Corp. (a) 56,600 2,745 Smith International, Inc. (a) 28,800 2,289 ------- 9,579 ------- Finance - 10.5% ACE, Ltd. 88,600 3,112 Affiliated Managers Group, Inc. (a) 29,300 1,633 Alexandria Real Estate Equities, Inc. 38,300 1,341 Legg Mason, Inc. 55,300 2,917 ------- 9,003 ------- General Business - 2.1% Entravision Communications Corp. Class A New (a) 49,145 974 USA Networks, Inc. (a) 33,600 806 ------- 1,780 ------- Technology - 39.9% Avanex Corp. New (a) 19,700 2,985 BEA Systems, Inc. (a) 42,900 2,917 Brocade Communications Systems, Inc. (a) 14,400 3,252 Conexant Systems, Inc. (a) 36,900 1,372 Digex, Inc. (a) 26,500 2,243 Entrust Technologies, Inc. (a) 32,600 968 Exodus Communications, Inc. (a) 36,300 2,484 Gentex Corp. (a) 75,500 1,954 Micromuse, Inc. (a) 14,500 2,202 Phone.com, Inc. (a) 21,200 1,960 Rational Software Corp. (a) 28,000 3,602 RF Micro Devices, Inc. (a) 43,800 1,955 VeriSign, Inc. (a) 10,600 2,108 Vitesse Semiconductor Corp. (a) 27,300 2,422 Zoran Corp. (a) 26,800 1,654 ------- 34,078 ------- Transportation - 4.0% Teekay Shipping Corp. 73,300 3,390 ------- Utilities - 5.6% Allegiance Telecom, Inc. (a) 28,200 1,406 Copper Mountain Networks, Inc. (a) 17,500 1,049 ITC^DeltaCom, Inc. (a) 48,400 678 VoiceStream Wireless Corp. (a) 14,900 1,677 ------- 4,810 ------- Total Common Stocks (cost $61,090) 81,450 ------- Annual Report 9 SSgA Special Equity Fund Statement of Net Assets, continued August 31, 2000 Principal Market Amount Value (000) (000) $ $ --------- ------- Short-Term Investments - 3.7% AIM Short-Term Investment Prime Portfolio Class A (b) 1,598 1,598 Federated Investors Prime Cash Obligations Fund (b) 1,598 1,598 ------- Total Short-Term Investments (cost $3,196) 3,196 ------- Total Investments - 99.0% (identified cost $64,286) 84,646 Other Assets and Liabilities, Net - 1.0% 843 ------- Net Assets - 100.0% 85,489 ======= (a) Nonincome-producing security. (b) At amortized cost, which approximates market. See accompanying notes which are an integral part of the financial statements. 10 Annual Report SSgA Special Equity Fund Statement of Assets and Liabilities Amounts in thousands (except per share amount) August 31, 2000 Assets Investments at market (identified cost $64,286) ...................................... $ 84,646 Receivables: Dividends ........................................................................ 16 Investments sold ................................................................. 662 Fund shares sold ................................................................. 281 Prepaid expenses ..................................................................... 4 Short-term investments held as collateral for securities loaned, at market............ 21,854 --------- Total assets ................................................................. 107,463 Liabilities Payables: Investments purchased ................................................ $ 16 Fund shares redeemed ................................................. 20 Accrued fees to affiliates ........................................... 67 Other accrued expenses ............................................... 17 Payable upon return of securities loaned, at market ...................... 21,854 --------- Total liabilities ............................................................ 21,974 --------- Net Assets ........................................................................... $ 85,489 ========= Net Assets Consist of: Accumulated net realized gain (loss) ................................................. $ (4,666) Unrealized appreciation (depreciation) on investments ................................ 20,360 Shares of beneficial interest ........................................................ 5 Additional paid-in capital ........................................................... 69,790 --------- Net Assets ........................................................................... $ 85,489 ========= Net Asset Value, offering and redemption price per share: ($85,488,647 divided by 5,191,980 shares of $.001 par value shares of beneficial interest outstanding) ................................... $ 16.47 =========
See accompanying notes which are an integral part of the financial statements. Annual Report 11 SSgA Special Equity Fund Statement of Operations Amounts in thousands For the Fiscal Year Ended August 31, 2000 Investment Income Dividends ................................................................ $ 254 Securities Lending Income ................................................ 55 Interest ................................................................. 22 -------- Total investment income .............................................. 331 Expenses Advisory fees ................................................. $ 341 Administrative fees ........................................... 26 Custodian fees ................................................ 24 Distribution fees ............................................. 24 Transfer agent fees ........................................... 34 Professional fees ............................................. 15 Registration fees ............................................. 34 Shareholder servicing fees .................................... 15 Trustees' fees ................................................ 4 Miscellaneous ................................................. 5 -------- Expenses before reductions .................................... 522 Expense reductions ............................................ (22) -------- Expenses, net ........................................................ 500 -------- Net investment income (loss) ................................................. (169) -------- Net Realized and Unrealized Gain (Loss) Net realized gain (loss) on investments ...................................... (1,693) Net change in unrealized appreciation (depreciation) on investments........... 19,293 -------- Net realized and unrealized gain (loss) ...................................... 17,600 -------- Net increase (decrease) in net assets from operations ........................ $ 17,431 ========
See accompanying notes which are an integral part of the financial statements. 12 Annual Report SSgA Special Equity Fund Statement of Changes in Net Assets Amounts in thousands For the Fiscal Years Ended August 31,
2000 1999 -------- -------- Increase (Decrease) in Net Assets Operations Net investment income (loss) ................................... $ (169) $ 1 Net realized gain (loss) ....................................... (1,693) (2,399) Net change in unrealized appreciation (depreciation) ........... 19,293 5,675 -------- -------- Net increase (decrease) in net assets from operations ...... 17,431 3,277 -------- -------- Distributions From net investment income ..................................... (6) (18) -------- -------- Share Transactions Net increase (decrease) in net assets from share transactions .. 57,443 (5,784) -------- -------- Total net increase (decrease) in net assets ........................ 74,868 (2,525) Net Assets Beginning of period ............................................ 10,621 13,146 -------- -------- End of period .................................................. $ 85,489 $ 10,621 ======== ========
See accompanying notes which are an integral part of the financial statements. Annual Report 13 SSgA Special Equity Fund Financial Highlights The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
Fiscal Years Ended August 31, -------------------------------- 2000 1999 1998* -------- -------- -------- Net Asset Value, Beginning of Period .......... $ 9.17 $ 7.17 $ 10.00 -------- -------- -------- Income From Operations Net investment income (loss)(a) ........... (.05) -- .01 Net realized and unrealized gain (loss) ... 7.35 2.01 (2.84) -------- -------- -------- Total income from operations .......... 7.30 2.01 (2.83) -------- -------- -------- Distributions From net investment income ................ -- (.01) -- -------- -------- -------- Net Asset Value, End of Period ................ $ 16.47 $ 9.17 $ 7.17 ======== ======== ======== Total Return (%)(b) ........................... 79.65 28.06 (28.30) Ratios/Supplemental Data: Net Assets, end of period (in thousands) .. 85,489 10,621 13,146 Ratios to average net assets (%)(c): Operating expenses, net (d) ........... 1.10 1.10 1.10 Operating expenses, gross (d) ......... 1.14 1.57 1.55 Net investment income (loss) .......... (.37) .01 .24 Portfolio turnover rate (%)(c) ............ 46.45 211.30 88.36
* For the period May 1, 1998 (commencement of operations) to August 31, 1998. (a) For the periods subsequent to August 31, 1998, average month-end shares outstanding were used for this calculation. (b) Periods less than one year are not annualized. (c) The ratios for the period ended August 31, 1998 are annualized. (d) See Note 4 for current period amounts. 14 Annual Report SSgA Special Equity Fund Notes to Financial Statements August 31, 2000 1. Organization The SSgA Funds (the "Investment Company") is a series mutual fund, currently comprised of 24 investment portfolios which are in operation as of August 31, 2000. These financial statements report on one portfolio, the SSgA Special Equity Fund (the "Fund"). The Investment Company is a registered and diversified open-end investment company, as defined in the Investment Company Act of 1940, as amended (the "1940 Act"), that was organized as a Massachusetts business trust on October 3, 1987 and operates under a First Amended and Restated Master Trust Agreement, dated October 13, 1993, as amended (the "Agreement"). The Investment Company's Agreement permits the Board of Trustees to issue an unlimited number of full and fractional shares of beneficial interest at a $.001 par value. 2. Significant Accounting Policies The Fund's financial statements are prepared in accordance with accounting principles generally accepted in the United States which require the use of management estimates. The following is a summary of the significant accounting policies consistently followed by the Fund in the preparation of its financial statements. Security valuation: United States equity securities listed and traded principally on any national securities exchange are valued on the basis of the last sale price or, lacking any sale, at the closing bid price, on the primary exchange on which the security is traded. United States over-the-counter equities are valued on the basis of the closing bid price. 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 the mean of bid prices. In the absence of a last sale or mean bid price, respectively, 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. Money market instruments maturing within 60 days of the valuation date are valued at amortized cost. The Fund may 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. Securities transactions: Securities transactions are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the basis of identified cost. Investment income: Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Amortization and accretion: All zero-coupon bond discounts and original issue discounts are accreted for both tax and financial reporting purposes. All short- and long-term market premiums/discounts are amortized/accreted for both tax and financial reporting purposes. Federal income taxes: Since the Investment Company is a Massachusetts business trust, each fund is a separate corporate taxpayer and determines its net investment income and capital gains (or losses) and the amounts to be distributed to each fund's shareholders without regard to the income and capital gains (or losses) of the other funds. Annual Report 15 SSgA Special Equity Fund Notes to Financial Statements, continued August 31, 2000 It is the Fund's intention to qualify as a regulated investment company, as defined by the Internal Revenue Code of 1986, as amended. This requires the Fund to distribute all of its taxable income. Therefore, the Fund paid no federal income taxes and no federal income tax provision was required. At August 31, 2000, the Fund had a net tax basis capital loss carryovers of $1,171,085 and $1,700,738, which may be applied against any realized net taxable gains in each succeeding year or until its expiration dates of August 31, 2007, and August 31, 2008, respectively, whichever occurs first. As permitted by tax regulations, the Fund intends to defer a net realized capital loss of $1,674,091 incurred from November 1, 1999 to August 31, 2000, and treat it as arising in fiscal year 2001. The Fund's aggregate cost of investments and the composition of unrealized appreciation and depreciation of investment securities for federal income tax purposes as of August 31, 2000 are as follows: Net Unrealized Federal Tax Unrealized Unrealized Appreciation Cost Appreciation (Depreciation) (Depreciation) ----------- ------------ -------------- -------------- $64,405,481 $ 24,119,529 $ (3,879,478) $ 20,240,051 Dividends and distributions to shareholders: Income dividends and capital gain distributions, if any, are recorded on the ex-dividend date. Dividends are generally declared and paid quarterly. Capital gain distributions are generally declared and paid annually. An additional distribution may be paid by the Fund to avoid imposition of federal income tax on any remaining undistributed net investment income and capital gains. The timing and characterization of certain income and capital gain distributions are determined in accordance with federal tax regulations which may differ from generally accepted accounting principles ("GAAP"). As a result, net investment income and net realized gain (or loss) on investment transactions for a reporting year may differ significantly from distributions during such year. The differences between tax regulations and GAAP relate primarily to certain securities sold at a loss. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting its net asset value. Expenses: Most expenses can be directly attributed to the Fund. Expenses of the investment company which cannot be directly attributed are allocated among all funds based principally on their relative net assets. 3. Securities Transactions Investment transactions: For the year ended August 31, 2000, purchases and sales of investment securities, excluding short-term investments and futures contracts, aggregated to $74,140,933 and $19,864,001, respectively. Securities lending: The Investment Company has a securities lending program whereby each Fund can loan securities with a value up to 33 1/3% of its total assets to certain brokers. The Fund receives cash (U.S. currency), U.S. Government or U.S. Government agency obligations as collateral against the loaned securities. To the extent that a loan is secured by cash collateral, such collateral shall be invested by State Street Bank and Trust Company in short-term instruments, money market mutual funds, and such other short-term investments, provided the investments meet certain quality and diversification requirements. Under the securities lending arrangement, the collateral received is recorded on the Fund's statement of assets and liabilities along with the related obligation to return the collateral. In those situations where the Company has relinquished control of securities transferred, it derecognizes the securities and records a receivable from the counterparty. 16 Annual Report SSgA Special Equity Fund Notes to Financial Statements, continued August 31, 2000 Income generated from the investment of cash collateral, less negotiated rebate fees paid to participating brokers and transaction costs, is divided between the Fund and State Street Bank and Trust Company and is recorded as interest income for the Fund. To the extent that a loan is secured by non-cash collateral, brokers pay the Fund negotiated lenders' fees, which are divided between the Fund and State Street Bank and Trust Company and are recorded as interest income for the Fund. All collateral received will be in an amount at least equal to 102% (for loans of U.S. securities) or 105% (for non-U.S. securities) of the market value of the loaned securities at the inception of each loan. Should the borrower of the securities fail financially, there is a risk of delay in recovery of the securities or loss of rights in the collateral. Consequently, loans are made only to borrowers which are deemed to be of good financial standing. As of August 31, 2000, the value of outstanding securities on loan and the value of collateral amounted to $21,196,708 and $21,853,786, respectively. 4. Related Parties Adviser: The Investment Company has an investment advisory agreement with State Street Bank and Trust Company (the "Adviser") under which the Adviser, through State Street Global Advisors, the investment management group of the Adviser, directs the investments of the Fund in accordance with its investment objectives, policies, and limitations. For these services, the Fund pays a fee to the Adviser calculated daily and paid monthly, at an annual rate of .75% of its average daily net assets. The Adviser 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 amount of the reimbursement for the year ended August 31, 2000 was $19,442. As of August 31, 2000, the receivable due from the Adviser for reimbursed expenses in excess of the expense cap has been netted against the Advisory fee payable. The Investment Company also has contracts with the Adviser to provide custody, shareholder servicing and transfer agent services to the Fund. These amounts are presented in the accompanying Statement of Operations. In addition, the Fund has entered into arrangements with its Adviser whereby custody credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund's expenses. During the year, the Fund's custodian fees were reduced by $3,016 under these arrangements. Administrator: The Investment Company has an administration agreement with Frank Russell Investment Management Company (the "Administrator"), a wholly-owned subsidiary of The Northwestern Mutual Life Insurance Company, under which the Administrator supervises all non-portfolio investment aspects of the Investment Company's operations and provides adequate office space and all necessary office equipment and services, including telephone service, utilities, stationery supplies, and similar items. The Investment Company pays the Administrator for services supplied by the Administrator pursuant to the Administration Agreement, an annual fee, payable monthly on a pro rata basis. For the period September 1, 1999 to April 30, 2000, the following percentages of the average daily net assets of all domestic funds: $0 up to and including $500 million - .06%; over $500 million up to and including $1 billion - .05%; over $1 billion - .03%. Effective May 1, 2000, the annual fee is based on the following percentages of the average daily net assets of all U.S. Equity portfolios: $0 to $2 billion - .0315%; over $2 billion - .029%. The Administrator will charge a flat fee of $30,000 per year per Fund with less than $500 million in net assets and $1,500 per year for monthly performance reports and use of Russell Performance Universe software product. In addition, the Fund reimburses the Administrator for out-of-pocket expenses and start-up costs for new funds. Annual Report 17 SSgA Special Equity Fund Notes to Financial Statements, continued August 31, 2000 Distributor and Shareholder Servicing: The Investment Company has a Distribution Agreement with Russell Fund Distributors (the "Distributor") which is a wholly-owned subsidiary of the Administrator to promote and offer shares of the Investment Company. The Distributor may enter into sub-distribution agreements with other non-related parties. The amounts paid to the Distributor are included in the accompanying Statement of Operations. The Investment Company has a Distribution Plan pursuant to Rule 12b-1 (the "Plan") under the 1940 Act. Under this Plan, the Investment Company is authorized to make payments to the Distributor, or any Shareholder Servicing Agent, as defined in the Plan, for providing distribution and marketing services, for furnishing assistance to investors on an ongoing basis, and for the reimbursement of direct out-of-pocket expenses charged by the Distributor in connection with the distribution and marketing of shares of the Investment Company and the servicing of investor accounts. The Fund has Shareholder Service Agreements with the Adviser, State Street Brokerage Services, Inc. ("SSBSI"), a wholly-owned subsidiary of the Adviser, the Adviser's Retirement Investment Services Division ("RIS"), the Adviser's Metropolitan Division of Commercial Banking ("Commercial Banking") and State Street Solutions ("Solutions")(collectively the "Agents"), as well as several unaffiliated service providers. For these services, the Fund pays .025%, .175%, .175%, .175% and .175% to the Adviser, SSBSI, RIS, Commercial Banking, and Solutions, respectively, based upon the average daily value of all Fund shares held by or for customers of these Agents. For the year ended August 31, 2000, the Fund was charged shareholder servicing expenses of $11,378, $755, $1,898, and $1,365 by the Adviser, SSBSI, Commercial Banking and Solutions, respectively. The Fund did not incur any expenses from RIS during this year. The combined distribution and shareholder servicing payments shall not exceed .25% of the average daily value of net assets of the Fund on an annual basis. The shareholder servicing payments shall not exceed .20% of the average daily value of net assets of the Fund on an annual basis. Payments that exceed the maximum amount of allowable reimbursement may be carried forward for two years following the year in which the expenditure was incurred so long as the plan is in effect. The Fund's responsibility for any such expenses carried forward shall terminate at the end of two years following the year in which the expenditure was incurred. The Trustees or a majority of the Fund's shareholders have the right, however, to terminate the Distribution Plan and all payments thereunder at any time. The Fund will not be obligated to reimburse the Distributor for carryover expenses subsequent to the Distribution Plan's termination or noncontinuance. There were no carryover expenses as of August 31, 2000. Affiliated Brokerage: The Fund placed a portion of its portfolio transactions with SSBSI, an affiliated broker dealer of the Fund's Adviser. The commissions paid to SSBSI were $1,170 for the year ended August 31, 2000. Board of Trustees: The Investment Company paid each Trustee not affiliated with the Investment Company an annual retainer, plus specified amounts for board and committee meetings attended. These expenses are allocated among all of the funds based upon their relative net assets. 18 Annual Report SSgA Special Equity Fund Notes to Financial Statements, continued August 31, 2000 Accrued fees payable to affiliates and trustees as of August 31, 2000 were as follows: Advisory fees $54,964 Administration fees 6,053 Custodian fees 941 Distribution fees 1,857 Shareholder servicing fees 1,936 Transfer agent fees 1,027 Trustees' fees 443 ------- $67,221 ======= 5. Fund Share Transactions (amounts in thousands)
Fiscal Years Ended August 31, ------------------------------------------ 2000 1999 ------------------ ------------------ Shares Dollars Shares Dollars ------ -------- ------ -------- Proceeds from shares sold ........ 5,282 $ 75,226 1,173 $ 10,190 Proceeds from reinvestment of distributions .................. -- -- 2 17 Payments for shares redeemed ..... (1,248) (17,783) (1,849) (15,991) ------ -------- ------ -------- Total net increase (decrease) .... 4,034 $ 57,443 (674) $ (5,784) ====== ======== ====== ========
6. Interfund Lending Program The Fund and all other funds of the Investment Company received from the Securities and Exchange Commission an exemptive orderon December 23, 1999 to establish and operate an Interfund Credit Facility. This allows the Funds to directly lend to and borrow money from the SSgA Money Market Fund for temporary purposes in accordance with certain conditions. The borrowing Funds are charged the average of the current Repo Rate and the Bank Loan Rate. The Fund did not utilize the interfund lending program during this year. Annual Report 19 SSgA Special Equity Fund One International Place, 27th Floor Boston, Massachusetts 02110 (800) 997-7327 -------------------------------------------------------------------------------- Trustees Lynn L. Anderson, Chairman William L. Marshall Steven J. Mastrovich Patrick J. Riley Richard D. Shirk Bruce D. Taber Henry W. Todd Officers Lynn L. Anderson, President, Treasurer and CEO Mark E. Swanson, Treasurer and Principal Accounting Officer J. David Griswold, Vice President and Secretary Deedra S. Walkey, Assistant Secretary Rick J. Chase, Assistant Treasurer Carla L. Anderson, Assistant Secretary Investment Adviser State Street Bank and Trust Company 225 Franklin Street Boston, Massachusetts 02110 Custodian, Transfer Agent and Office of Shareholder Inquiries State Street Bank and Trust Company 1776 Heritage Drive North Quincy, Massachusetts 02171 (800) 647-7327 Distributor Russell Fund Distributors, Inc. One International Place, 27th Floor Boston, Massachusetts 02110 (800) 997-7327 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 160 Federal Street Boston, Massachusetts 02110 20 Annual Report [COVER GRAPHIC] SSgA(R) funds ANNUAL REPORT Aggressive Equity Fund August 31, 2000 SSgA(R) Funds Aggressive Equity Fund Annual Report August 31, 2000 Table of Contents Page Chairman's Letter.......................................................... 4 Portfolio Management Discussion and Analysis............................... 6 Report of Independent Accountants.......................................... 8 Financial Statements....................................................... 9 Financial Highlights....................................................... 14 Notes to Financial Statements.............................................. 15 Fund Management and Service Providers...................................... 20 "SSgA(R)" is a registered trademark of State Street Corporation and is licensed for use by the SSgA Funds. This report is prepared from the books and records of the Fund and it is submitted for the general information of shareholders. This information is for distribution to prospective investors only when preceded or accompanied by a SSgA Funds Prospectus containing more complete information concerning the investment objective and operations of the Fund, charges and expenses. The Prospectus should be read carefully before an investment is made. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. International markets entail different risks than those typically associated with domestic markets, including currency fluctuations, political and economic instability, accounting changes and foreign taxation. Securities may be less liquid and more volatile. Please see the Prospectus for further details. Russell Fund Distributors, Inc., is the distributor of the SSgA Funds. SSgA Aggressive Equity Fund -------------------------------------------------------------------------------- Letter From the Chairman of State Street Global Advisors -------------------------------------------------------------------------------- Dear Shareholders, It is our pleasure to provide you with the SSgA Funds annual report for the fiscal year ended August 31, 2000. The SSgA Fund Family has grown to include twenty-four portfolios with over $21 billion in assets as of August 31, 2000. The Fund Family provides a wide range of strategies covering the world's major markets. The enclosed information provides an overview of the investment process for the SSgA Aggressive Equity Fund. This overview contains the portfolio management discussion, performance updates and financial information for the Fund. In an ongoing effort to develop competitive products and services that provide investment solutions for our clients, we have added the SSgA Intermediate Municipal Bond Fund to the SSgA Fund Family. This Fund's investment objective seeks to provide federally tax-exempt current income by investing primarily in a diversified portfolio of municipal debt securities with a dollar-weighted average maturity between three and ten years. We are also pleased with the success of our SSgA Emerging Markets and SSgA Growth and Income Funds as they were included in Money(R) Magazine's June 2000 issue listing of the 'Top 100 Mutual Funds'. This is the second year in a row that these funds have been selected. Additionally, the SSgA Tax Free Money Market and the SSgA Active International Funds have achieved five-year performance history during the 2000 fiscal year. Currently, all of our SSgA Money Market Funds have at least a five-year performance history. We strive to meet our clients' needs by providing funds with long-term records and competitive performance. We would like to thank you for choosing the SSgA Funds. Our reputation is based on our tradition of designing and delivering exceptional financial services to our clients. We look forward to continue sharing the benefit of our experience with you. Sincerely, /s/ Nicholas A. Lopardo Nicholas A. Lopardo State Street Global Advisors Chairman and Chief Executive Officer /s/ Timothy B. Harbert Timothy B. Harbert State Street Global Advisors President and Chief Operating Officer, SSgA 4 Annual Report SSgA Aggressive Equity Fund -------------------------------------------------------------------------------- Management of the Fund -------------------------------------------------------------------------------- [PHOTO] Nicholas A. Lopardo Chairman and Chief Executive Officer [PHOTO] Timothy B. Harbert President and Chief Operating Officer A Team Approach to Investment Management Our investment strategies are the product of the combined experience of our professional staff. Portfolio Managers work together to develop and enhance the techniques that drive our investment processes. As a result, the portfolios we manage benefit from the knowledge of the entire team. Mr. Richard B. Weed, CFA, Principal, is the portfolio manager primarily responsible for investment decisions regarding the SSgA Aggressive Equity Fund since its inception in December 1998. Mr. Weed joined SSgA in November 1995. His responsibilities include research, product development, and portfolio management for the US Active Strategy. He holds an MS in Finance and Accounting from the MIT Sloan School of Management, and has an MS in Chemical Engineering from Northeastern University, and a BS in Chemical Engineering from Worcester Polytech Institute. Mr. Weed is a member of the Boston Analysts Society and AIMR. There are seven other portfolio managers working with Mr. Weed. Annual Report 5 SSgA Aggressive Equity Fund -------------------------------------------------------------------------------- Portfolio Management Discussion and Analysis -------------------------------------------------------------------------------- Objective: Provide total returns that exceed over time the Russell 2500(TM)Growth Index. Invests in: US equity securities. Strategy: The Fund management team uses a systematic approach to uncover equity securities which are believed to be undervalued, with superior growth potential. This disciplined approach rests on a modeling process that evaluates vast amounts of financial and market data and corporate earnings forecasts. The result is an investment process that seeks to provide positive long-term total returns through strong bottom-up stock selection. In addition the Fund can invest in IPOs (Initial Public Offerings). -------------------------------------------------------------------------------- GROWTH OF A $10,000 INVESTMENT Dates Aggressive Equity Fund Russell 2500 Growth Index** Inception* $10,000 $10,000 1999 $12,730 $11,077 2000 $27,041 $17,295 ================================================================================ Performance Review For the fiscal year ended August 31, 2000, the SSgA Aggressive Equity Fund had a total return of 112.42%, as compared to the Russell 2500(TM) Growth Index gain of 56.13% for the same period. The Fund's performance is net of operating expenses, whereas Index results do not include expenses of any kind. The Fund did well this year primarily due to strong stock selection. Specifically, the Fund's investments in Initial Public Offerings (IPOs) resulted in a significant impact to current fiscal year-end performance. Although participating in IPOs is within the Fund's investment guidelines, there is no guarantee that the Fund will continue to participate in the IPO market in the future. Additionally, due to their inherent volatility, there can be no assurance that IPOs will continue to have a positive impact on Fund performance. Market and Portfolio Highlights For the twelve months ended August 31, 2000, the US equity market, as measured by the Russell 2500(TM) Growth Index, -------------------------------------------------------------------------------- SSgA Aggressive Equity Fund -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return ------------------------- --------------- ------------ 1 Year $ 21,242 112.42% Inception $ 27,041 81.48%+ -------------------------------------------------------------------------------- Russell 2500(TM) Growth Index -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return ------------------------- --------------- ------------ 1 Year $ 15,613 56.13% Inception $ 17,295 38.91%+ See related Notes on following page. 6 Annual Report SSgA Aggressive Equity Fund -------------------------------------------------------------------------------- Portfolio Management Discussion and Analysis -------------------------------------------------------------------------------- continued its momentum upward. However, valuations finally reached unsustainable levels and after attaining record highs in March, the market reacted with a correction in April. Subsequent to this event, valuations trended higher through the fiscal year-end. The correction was attributable, in part, to the Federal Reserve's previous short-term interest rate hikes which were intended to slow the economy and dampen inflation expectations. However, as fears of future aggressive rate increases subsided, the market was able to post additional gains late in the fiscal year. After generating solid performance in the first half of the fiscal year, Fund returns dropped in the third quarter and were mixed in the fourth quarter. In particular, the Manager's stock selection was effective with Internet-related issues such as Network Solutions, Broadcom, and BroadVision. Medical providers such as Express Scripts and Wellpoint Health also benefited the Fund's fiscal-year results. However, selection in the Technology sector, particularly stocks such as Network Appliance and Ciena, was disappointing. Returns in the apparel sector helped deflate Fund returns, with American Eagle Outfitters contributing some degree of under-performance. As of August 31, 2000, the Fund was overweighted in Consumer Cyclicals, with a 12.9% allocation versus the benchmark exposure of 8.1%. Additionally, the portfolio was underweight in the Communications Service sector, with an allocation of 0.0% at August 31, 2000, compared to 3.1% for the Index. The investment process employed by the Fund emphasizes quantitative modeling, which implements an integrated growth and value bottom-up stock selection method designed to outperform the benchmark index over the long-term. While risk controls are used in portfolio construction, the Fund takes controlled positions that deviate from the benchmark in those securities with fair valuations and strong long-term growth prospects. The Manager's stock evaluation process is industry-relative, and as a result, if the corporate fundamentals of two companies are equally sound, the Fund will invest in the company with the better relative valuation. Because value is an integral component of the investment process, the Fund will not be overweight in stocks in which the Manager views to be excessively expensive. As the Fund's investment process is disciplined and driven from the bottom-up, overall strategy and approach does not deviate during times of under-performance or market volatility. The Fund avoids responding suddenly to the current investment environment through sector timing or top-down thematic investing. At August 31, 2000, the SSgA Aggressive Equity Fund held 52 stocks with an average weighted market capitalization of $36.1 billion. Due to the risk-controlled nature of the investment process, the Fund maintains portfolio characteristics that are consistent with the Russell 2500(TM) Growth Index. As the Fund's objective is achieved through stock selections with a disciplined investment approach, the portfolio will seek to be fully invested at all times. -------------------------------------------------------------------------------- Top Ten Equity Holdings (as a percent of Total Investments) August 31, 2000 -------------------------------------------------------------------------------- Ariba, Inc. New 2.5% VeriSign, Inc. 2.5 Apple Computer, Inc. 2.4 EOG Resources, Inc. 2.3 Genzyme Corp. 2.3 Oxford Health Plans, Inc. 2.3 Integrated Device Technology, Inc. 2.2 Dell Computer Corp. 2.2 Anadarko Petroleum Corp. 2.2 EMC Corp. 2.2 -------------------------------------------------------------------------------- -------------------- Notes: The following notes relate to the Growth of $10,000 graph and table on the preceding page. * The Fund commenced operations on December 30, 1998. Index comparison also began December 30, 1998. ** The Russell 2500(TM) Growth Index represents the performance of small and mid-cap companies in the US. These 2500 companies represent the small end of the Russell 3000(R) Index, and about 23% of the total capitalization of the Russell 3000(R) Index. + Annualized. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. Annual Report 7 Report of Independent Accountants To the Shareholders and Board of Trustees of the SSgA Funds: In our opinion, the accompanying statement of assets and liabilities and statement of net assets, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of SSgA Aggressive Equity Fund (the "Fund") at August 31, 2000, the results of its operations for the fiscal year then ended, the changes in its net assets, and the financial highlights for the fiscal year then ended and for the period December 30, 1998 (commencement of operations) to August 31, 1999, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit, which included confirmation of securities at August 31, 2000 by correspondence with the custodian and brokers, provides a reasonable basis for our opinion. Boston, Massachusetts October 11, 2000 /s/ Pricewaterhousecoopers LLP 8 Annual Report SSgA Aggressive Equity Fund Statement of Net Assets August 31, 2000 Market Number Value of (000) Shares $ --------- ------ Common Stocks - 100.1% Basic Industries - 4.2% Advanced Energy Industries, Inc. (a) 3,100 177 Mentor Graphics Corp. 9,110 171 ----- 348 ----- Capital Goods - 6.9% Cognex Corp. (a) 1,840 74 DENTSPLY International, Inc. 4,500 150 Harman International Industries, Inc. 2,200 169 Novellus Systems, Inc. 2,940 181 ----- 574 ----- Consumer Basics - 18.0% Dura Pharmaceuticals, Inc. (a) 5,600 155 Edwards Lifesciences Corp. (a) 6,500 171 Genentech, Inc. (a) 700 133 Genzyme Corp. (a) 2,640 198 King Pharmaceuticals, Inc. (a) 4,240 136 Noven Pharmaceuticals, Inc. (a) 2,700 113 Oxford Health Plans, Inc. (a) 6,440 196 Pepsi Bottling Group, Inc. (The) 5,920 188 Topps Co., Inc. (a) 7,520 60 Wellpoint Health Networks, Inc. (a) 1,800 155 ----- 1,505 ----- Consumer Non-Durables - 4.9% Intimate Brands, Inc. Class A 8,810 141 Tiffany & Co. 4,100 171 Zale Corp. (a) 2,640 98 ----- 410 ----- Consumer Services - 2.2% International Game Technology (a) 6,400 186 ----- Energy - 4.6% Anadarko Petroleum Corp. 2,900 191 EOG Resources, Inc. 5,200 199 ----- 390 ----- Finance - 1.3% Security Capital Group, Inc. Class B (a) 6,500 111 ----- General Business - 4.1% Express Scripts, Inc. Class A (a) 2,560 182 Viad Corp. 5,500 161 ----- 343 ----- Shelter - 1.8% NVR, Inc. (a) 2,000 147 ----- Technology - 50.0% Analog Devices, Inc. (a) 1,800 181 Apple Computer, Inc. (a) 3,400 207 Applied Materials, Inc. (a) 1,920 166 Ariba, Inc. New (a) 1,360 213 Barra, Inc. (a) 3,000 173 BroadVision, Inc. (a) 4,240 146 Cerner Corp. (a) 4,800 182 Cypress Semiconductor Corp. (a) 3,600 178 Dell Computer Corp. (a) 4,400 191 EMC Corp. (a) 1,920 188 Hewlett-Packard Co. 1,300 157 Integrated Device Technology, Inc. (a) 2,200 193 Intel Corp. 2,420 181 Juniper Networks, Inc. (a) 500 107 Kemet Corp. (a) 5,120 153 PMC - Sierra, Inc. (a) 700 165 RadioShack, Corp. 2,500 148 RealNetworks, Inc. (a) 2,400 117 Sun Microsystems, Inc. (a) 1,400 178 Sybase, Inc. (a) 6,640 181 Symantec Corp. (a) 3,140 153 Annual Report 9 SSgA Aggressive Equity Fund Statement of Net Assets, continued August 31, 2000 Market Number Value of (000) Shares $ --------- ------ VeriSign, Inc. (a) 1,065 212 Viant Corp. New (a) 6,000 83 Xilinx, Inc. (a) 1,900 169 Yahoo!, Inc. (a) 1,280 156 ----- 4,178 ----- Transportation - 2.1% Boeing Co. (The) 3,200 172 ----- Total Common Stocks (cost $7,191) 8,364 ----- Principal Amount (000) $ Short-Term Investments - 3.1% --------- AIM Short-Term Investment Prime Portfolio Class A (b) 254 254 Federated Investors Prime Cash Obligations Fund (b) 1 1 ----- Total Short-Term Investments (cost $255) 255 ----- Total Investments - 103.2% (identified cost $7,446) 8,619 Other Assets and Liabilities, Net - (3.2%) (267) ----- Net Assets - 100.0% 8,352 ===== (a) Nonincome-producing security. (b) At amortized cost, which approximates market. See the accompanying notes which are an integral part of the financial statements. 10 Annual Report SSgA Aggressive Equity Fund Statement of Assets and Liabilities Amounts in thousands (except per share amount) August 31, 2000 Assets Investments at market (identified cost $7,446) ........................... $ 8,619 Receivables: Dividends ............................................................. 2 Fund shares sold ...................................................... 1 From Adviser .......................................................... 24 Prepaid expenses ......................................................... 1 Short-term investments held as collateral for securities loaned, at market ............................................................. 2,195 ------- Total assets ....................................................... 10,842 Liabilities Payables: Investments purchased ...................................... $ 291 Accrued fees to affiliates ................................. 4 Payable upon return of securities loaned, at market ........... 2,195 ------- Total liabilities .................................................. 2,490 ------- Net Assets ............................................................... $ 8,352 ======= Net Assets Consist of: Accumulated net realized gain (loss) ..................................... 6,137 Unrealized appreciation (depreciation) on investments .................... 1,173 Additional paid-in capital ............................................... 1,042 ------- Net Assets ............................................................... $ 8,352 ======= Net Asset Value, offering and redemption price per share: ($8,351,554 divided by 418,147 shares of $.001 par value shares of beneficial interest outstanding) ......................... $ 19.97 =======
See accompanying notes which are an integral part of the financial statements. Annual Report 11 SSgA Aggressive Equity Fund Statement of Operations Amounts in Thousands For the Fiscal Year Ended August 31, 2000 Investment Income Dividends ...................................................... $ 28 Securities Lending Income ...................................... 9 ------- Total investment income ..................................... 37 Expenses Advisory fees ........................................ $ 79 Administrative fees .................................. 14 Custodian fees ....................................... 17 Distribution fees .................................... 5 Transfer agent fees .................................. 21 Professional fees .................................... 20 Registration fees .................................... 30 Shareholder servicing fees ........................... 1 Trustees' fees ....................................... 4 Miscellaneous ........................................ 6 ------- Expenses before reductions ........................... 197 Expense reductions ................................... (81) ------- Expenses, net ............................................... 116 ------- Net investment income (loss) ...................................... (79) ------- Net Realized and Unrealized Gain (Loss) Net realized gain (loss) on investments ........................... 7,135 Net change in unrealized appreciation (depreciation) on investments 821 ------- Net realized and unrealized gain (loss) ........................... 7,956 ------- Net increase (decrease) in net assets from operations ............. $ 7,877 ======= See accompanying notes which are an integral part of the financial statements. 12 Annual Report SSgA Aggressive Equity Fund Statement of Changes in Net Assets Amounts in Thousands For the Fiscal Year Ended August 31,
2000 1999* ------- ------- Increase (Decrease) in Net Assets Operations Net investment income (loss) ................................... $ (79) $ (23) Net realized gain (loss) ....................................... 7,135 1,384 Net change in unrealized appreciation (depreciation) ........... 821 352 ------- ------- Net increase (decrease) in net assets from operations ....... 7,877 1,713 ------- ------- Distributions From net investment income ..................................... (10) -- From net realized gain ......................................... (2,303) -- ------- ------- Net decrease in net assets from distributions ............... (2,313) -- ------- ------- Share Transactions Net increase (decrease) in net assets from share transactions .. (4,397) 5,472 ------- ------- Total net increase (decrease) in net assets ....................... 1,167 7,185 Net Assets Beginning of period ............................................ 7,185 -- ------- ------- End of period (including undistributed net investment income of $10 at August 31, 1999) ................................. $ 8,352 $ 7,185 ======= =======
* For the period December 30, 1998 (commencement of operations) to August 31, 1999. See accompanying notes which are an integral part of the financial statements. Annual Report 13 SSgA Aggressive Equity Fund Financial Highlights The following tables includes selected data for a share outstanding througout the period and other performance information derived from the financial statements. Fiscal Year Ended August 31, ---------------------- 2000 1999* --------- --------- Net Asset Value, Beginning of Period ................. $ 12.73 $ 10.00 --------- --------- Income From Operations Net investment income (loss)(a) ................... (.13) (.04) Net realized and unrealized gain (loss) ........... 11.40 2.77 --------- --------- Total income from operations ................... 11.27 2.73 --------- --------- Distributions From net investment income ........................ (.02) -- From net realized gain ............................ (4.01) -- --------- --------- Total distributions ............................ (4.03) -- --------- --------- Net Asset Value, End of Period ....................... $ 19.97 $ 12.73 ========= ========= Total Return (%)(b) .................................. 112.42 27.30 Ratios/Supplemental Data: Net Assets, end of period (in thousands) .......... 8,352 7,185 Ratios to average net assets (%)(c): Operating expenses, net (d) .................... 1.10 1.10 Operating expenses, gross (d) .................. 1.87 2.07 Net investment income (loss) ................... (.75) (.50) Portfolio turnover rate (%)(c) .................... 336.60 179.56 * For the period December 30, 1998 (commencement of operations) to August 31, 1999. (a) Average month-end shares outstanding were used for this calculation. (b) Periods less than one year are not annualized. (c) The ratios for the period ended August 31, 1999 are annualized. (d) See Note 4 for current period amounts. 14 Annual Report SSgA Aggressive Equity Fund Notes to Financial Statements August 31, 2000 1. Organization The SSgA Funds (the "Investment Company") is a series mutual fund, currently comprised of 24 investment portfolios which are in operation as of August 31, 2000. These financial statements report on one portfolio, the SSgA Aggressive Equity Fund (the "Fund"). The Investment Company is a registered and diversified open-end investment company, as defined in the Investment Company Act of 1940, as amended (the "1940 Act"), that was organized as a Massachusetts business trust on October 3, 1987 and operates under a First Amended and Restated Master Trust Agreement, dated October 13, 1993, as amended (the "Agreement"). The Investment Company's Agreement permits the Board of Trustees to issue an unlimited number of full and fractional shares of beneficial interest at a $.001 par value. 2. Significant Accounting Policies The Fund's financial statements are prepared in accordance with accounting principles generally accepted in the United States which require the use of management estimates. The following is a summary of the significant accounting policies consistently followed by the Fund in the preparation of its financial statements. Security valuation: United States equity securities listed and traded principally on any national securities exchange are valued on the basis of the last sale price or, lacking any sale, at the closing bid price, on the primary exchange on which the security is traded. United States over-the-counter equities are valued on the basis of the closing bid price. 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 the mean of bid prices. In the absence of a last sale or mean bid price, respectively, 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. Money market instruments maturing within 60 days of the valuation date are valued at amortized cost. The Fund may 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. Securities transactions: Securities transactions are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the basis of identified cost. Investment income: Dividend income is recorded on the ex-dividend date and interest income is recorded daily on the accrual basis. Amortization and accretion: All zero-coupon bond discounts and original issue discounts are accreted for both tax and financial reporting purposes. All short- and long-term market premiums/discounts are amortized/accreted for both tax and financial reporting purposes. Annual Report 15 SSgA Aggressive Equity Fund Notes to Financial Statements, continued August 31, 2000 Federal income taxes: Since the Investment Company is a Massachusetts business trust, each fund is a separate corporate taxpayer and determines its net investment income and capital gains (or losses) and the amounts to be distributed to each fund's shareholders without regard to the income and capital gains (or losses) of the other funds. It is the Fund's intention to qualify as a regulated investment company, as defined by the Internal Revenue Code of 1986, as amended. This requires the Fund to distribute all of its taxable income. Therefore, the Fund paid no federal income taxes and no federal income tax provision was required. The Fund's aggregate cost of investments and the composition of unrealized appreciation and depreciation of investment securities for federal income tax purposes as of August 31, 2000 are as follows: Net Unrealized Unrealized Unrealized Appreciation Federal Tax Cost Appreciation (Depreciation) (Depreciation) ---------------- ------------ -------------- -------------- $7,512,407 $1,400,781 $(294,037) $1,106,744 Dividends and distributions to shareholders: Income dividends and capital gain distributions, if any, are recorded on the ex-dividend date. Dividends are generally declared and paid quarterly. Capital gain distributions are generally declared and paid annually. An additional distribution may be paid by the Fund to avoid imposition of federal income tax on any remaining undistributed net investment income and capital gains. The timing and characterization of certain income and capital gain distributions are determined in accordance with federal tax regulations which may differ from generally accepted accounting principles ("GAAP"). As a result, net investment income and net realized gain (or loss) on investment transactions for a reporting year may differ significantly from distributions during such year. The differences between tax regulations and GAAP relate primarily to investments in certain securities sold at a loss. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting its net asset value. Expenses: Most expenses can be directly attributed to the Fund. Expenses of the investment company which cannot be directly attributed are allocated among all funds based principally on their relative net assets. 3. Securities Transactions Investment transactions: For the year ended August 31, 2000, purchases and sales of investment securities, excluding short-term investments, aggregated to $33,569,175 and $40,182,848, respectively. Securities lending: The Investment Company has a securities lending program whereby each Fund can loan securities with a value up to 33 1/3% of its total assets to certain brokers. The Fund receives cash (U.S. currency), U.S. Government or U.S. Government agency obligations as collateral against the loaned securities. To the extent that a loan is secured by cash collateral, such collateral shall be invested by State Street Bank and Trust Company in short-term instruments, money market mutual funds, and such other short-term investments, provided the investments meet certain quality and diversification requirements. Under the securities lending arrangement, the collateral received is recorded on the Fund's statement of assets and liabilities along with the related obligation to 16 Annual Report SSgA Aggressive Equity Fund Notes to Financial Statements, continued August 31, 2000 return the collateral. In those situations where the Company has relinquished control of securities transferred, it derecognizes the securities and records a receivable from the counterparty. Income generated from the investment of cash collateral, less negotiated rebate fees paid to participating brokers and transaction costs, is divided between the Fund and State Street Bank and Trust Company and is recorded as interest income for the Fund. To the extent that a loan is secured by non-cash collateral, brokers pay the Fund negotiated lenders' fees, which are divided between the Fund and State Street Bank and Trust Company and are recorded as interest income for the Fund. All collateral received will be in an amount at least equal to 102% (for loans of U.S. securities) or 105% (for non-U.S. securities) of the market value of the loaned securities at the inception of each loan. Should the borrower of the securities fail financially, there is a risk of delay in recovery of the securities or loss of rights in the collateral. Consequently, loans are made only to borrowers which are deemed to be of good financial standing. As of August 31, 2000, the value of outstanding securities on loan and the value of collateral amounted to $2,129,346 and $2,195,044, respectively. Securities lending income of $8,900 is included in the Statement of Operations for the year ended August 31, 2000. 4. Related Parties Adviser: The Investment Company has an investment advisory agreement with State Street Bank and Trust Company (the "Adviser") under which the Adviser, through State Street Global Advisors, the investment management group of the Adviser, directs the investments of the Fund in accordance with its investment objectives, policies, and limitations. For these services, the Fund pays a fee to the Adviser calculated daily and paid monthly, at an annual rate of .75% of its average daily net assets. The Adviser 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 amount of reimbursement for the year ended August 31, 2000 was $79,028. As of August 31, 2000, the receivable due from the Adviser for reimbursed expenses in excess of the expense cap has been netted against the Advisory fee payable. The Investment Company also has contracts with the Adviser to provide custody, shareholder servicing and transfer agent services to the Fund. These amounts are presented in the accompanying Statement of Operations. In addition, the Fund has entered into arrangements with its Adviser whereby custody credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund's expenses. During the year, the Fund's custodian fees were reduced by $2,065 under these arrangements. Administrator: The Investment Company has an administration agreement with Frank Russell Investment Management Company (the "Administrator"), a wholly-owned subsidiary of The Northwestern Mutual Life Insurance Company, under which the Administrator supervises all non-portfolio investment aspects of the Investment Company's operations and provides adequate office space and all necessary office equipment and services, including telephone service, utilities, stationery supplies, and similar items. The Investment Company pays the Administrator for services supplied by the Administrator pursuant to the Administration Agreement, an annual fee, payable monthly on a pro rata basis. For the period September 1, 1999 to April 30, 2000, the following percentages of the combined average daily net assets of all domestic funds: $0 up to and including $500 million -.06%; over $500 million up to and including $1 billion - .05%; over $1 billion - .03%. Effective May 1, 2000, the annual fee is based on the following percentages of the average daily net assets of all U.S. Equity portfolios: $0 to $2 billion - .0315%; over $2 billion - .029%. The Administrator will charge a flat fee of $30,000 per year per Fund Annual Report 17 SSgA Aggressive Equity Fund Notes to Financial Statements, continued August 31, 2000 with less than $500 million in net assets and $1,500 per year for monthly performance reports and use of Russell Performance Universe software product. In addition, the Fund reimburses the Administrator for out-of-pocket expenses and start-up costs for new funds. Distributor and Shareholder Servicing: The Investment Company has a Distribution Agreement with Russell Fund Distributors (the "Distributor") which is a wholly-owned subsidiary of the Administrator to promote and offer shares of the Investment Company. The Distributor may enter into sub-distribution agreements with other non-related parties. The amounts paid to the Distributor are included in the accompanying Statement of Operations. The Investment Company has a Distribution Plan pursuant to Rule 12b-1 (the "Plan") under the 1940 Act. Under this Plan, the Investment Company is authorized to make payments to the Distributor, or any Shareholder Servicing Agent, as defined in the Plan, for providing distribution and marketing services, for furnishing assistance to investors on an ongoing basis, and for the reimbursement of direct out-of-pocket expenses charged by the Distributor in connection with the distribution and marketing of shares of the Investment Company and the servicing of investor accounts. The Fund has Shareholder Service Agreements with the Adviser, State Street Brokerage Services, Inc. ("SSBSI"), a wholly-owned subsidiary of the Adviser, the Adviser's Retirement Investment Services Division ("RIS"), the Adviser's Metropolitan Division of Commercial Banking ("Commercial Banking") and State Street Solutions ("Solutions")(collectively the "Agents"), as well as several unaffiliated service providers. For these services, the Fund pays .025%, .175%, .175%, .175% and .175%, to the Adviser, SSBSI, RIS, Commercial Banking, and Solutions, respectively, based upon the average daily value of all Fund shares held by or for customers of these Agents. For the year ended August 31, 2000, the Fund was charged shareholder servicing expenses of $279 and $286 by the Adviser and SSBSI. The Fund did not incur any expenses from RIS, Commercial Banking and Solutions during this year. The combined distribution and shareholder servicing payments shall not exceed .25% of the average daily value of net assets of the Fund on an annual basis. The shareholder servicing payments shall not exceed .20% of the average daily value of net assets of the Fund on an annual basis. Payments that exceed the maximum amount of allowable reimbursement may be carried forward for two years following the year in which the expenditure was incurred so long as the plan is in effect. The Fund's responsibility for any such expenses carried forward shall terminate at the end of two years following the year in which the expenditure was incurred. The Trustees or a majority of the Fund's shareholders have the right, however, to terminate the Distribution Plan and all payments thereunder at any time. The Fund will not be obligated to reimburse the Distributor for carryover expenses subsequent to the Distribution Plan's termination or noncontinuance. There were no carryover expenses as of August 31, 2000. Affiliated Brokerage: The Fund placed a portion of its portfolio transactions with SSBSI, an affiliated broker dealer of the fund's Adviser. The commissions paid to SSBSI were $11,279 for the year ended August 31, 2000. 18 Annual Report SSgA Aggressive Equity Fund Notes to Financial Statements, continued August 31, 2000 Board of Trustees: The Investment Company paid each Trustee not affiliated with the Investment Company an annual retainer, plus specified amounts for board and committee meetings attended. These expenses are allocated among all of the funds based upon their relative net assets. Accrued fees payable to affiliates and trustees as of August 31, 2000 were as follows: Administration fees $ 2,848 Custodian fees 40 Distribution fees 168 Shareholder servicing fees 759 Transfer agent fees 46 Trustees' fees 170 --------- $ 4,031 ========= Beneficial Interest: As of August 31, 2000, two shareholders (who are also other series of the Investment Company) were record owners of approximately 39% and 31%, respectively, of the total outstanding shares of the Fund. 5. Fund Share Transactions (amounts in thousands)
Fiscal Years Ended August 31, -------------------------------------------- 2000 1999* -------------------- -------------------- Shares Dollars Shares Dollars -------- -------- -------- -------- Proceeds from shares sold .................. 278 $ 4,816 679 $ 6,814 Proceeds from reinvestment of distributions 187 2,310 -- -- Payments for shares redeemed ............... (611) (11,523) (115) (1,342) -------- -------- -------- -------- Total net increase (decrease) .............. (146) $ (4,397) 564 $ 5,472 ======== ======== ======== ========
* For the period December 30, 1998 (commencement of operations) to August 31, 1999. 6. Interfund Lending Program The Fund and all other funds of the Investment Company received from the Securities and Exchange Commission an exemptive order on December 23, 1999 to establish and operate an Interfund Credit Facility. This allows the Funds to directly lend to and borrow money from the SSgA Money Market Fund for temporary purposes in accordance with certain conditions. The borrowing Funds are charged the average of the current Repo Rate and the Bank Loan Rate. The Fund did not utilize the interfund lending program during this year. Annual Report 19 SSgA Aggressive Equity Fund One International Place, 27th Floor Boston, Massachusetts 02110 (800) 997-7327 -------------------------------------------------------------------------------- Trustees Lynn L. Anderson, Chairman William L. Marshall Steven J. Mastrovich Patrick J. Riley Richard D. Shirk Bruce D. Taber Henry W. Todd Officers Lynn L. Anderson, President, Treasurer and CEO Mark E. Swanson, Treasurer and Principal Accounting Officer J. David Griswold, Vice President and Secretary Deedra S. Walkey, Assistant Secretary Rick J. Chase, Assistant Treasurer Carla L. Anderson, Assistant Secretary Investment Adviser State Street Bank and Trust Company 225 Franklin Street Boston, Massachusetts 02110 Custodian, Transfer Agent and Office of Shareholder Inquiries State Street Bank and Trust Company 1776 Heritage Drive North Quincy, Massachusetts 02171 (800) 647-7327 Distributor Russell Fund Distributors, Inc. One International Place, 27th Floor Boston, Massachusetts 02110 (800) 997-7327 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 160 Federal Street Boston, Massachusetts 02110 20 Annual Report [COVER GRAPHIC] SSgA(R) funds ANNUAL REPORT IAM SHARES Fund August 31, 2000 SSgA(R) Funds IAM SHARES Fund Annual Report August 31, 2000 Table of Contents Page Chairman's Letter......................................................... 4 Portfolio Management Discussion and Analysis.............................. 6 Report of Independent Accountants......................................... 8 Financial Statements...................................................... 9 Financial Highlights...................................................... 17 Notes to Financial Statements............................................. 18 Tax Information........................................................... 23 Fund Management and Service Providers..................................... 24 "SSgA(R)" is a registered trademark of State Street Corporation and is licensed for use by the SSgA Funds. This report is prepared from the books and records of the Fund and it is submitted for the general information of shareholders. This information is for distribution to prospective investors only when preceded or accompanied by a SSgA Funds Prospectus containing more complete information concerning the investment objective and operations of the Fund, charges and expenses. The Prospectus should be read carefully before an investment is made. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. International markets entail different risks than those typically associated with domestic markets, including currency fluctuations, political and economic instability, accounting changes and foreign taxation. Securities may be less liquid and more volatile. Please see the Prospectus for further details. Russell Fund Distributors, Inc., is the distributor of the SSgA Funds. SSgA IAM Shares Fund -------------------------------------------------------------------------------- Letter From the Chairman of State Street Global Advisors -------------------------------------------------------------------------------- Dear Shareholders, It is our pleasure to provide you with the SSgA Funds annual report for the fiscal year ended August 31, 2000. The SSgA Fund Family has grown to include twenty-four portfolios with over $21 billion in assets as of August 31, 2000. The Fund Family provides a wide range of strategies covering the world's major markets. The enclosed information provides an overview of the investment process for the SSgA IAM SHARES Fund. This overview contains the portfolio management discussion, performance updates and financial information for the Fund. In an ongoing effort to develop competitive products and services that provide investment solutions for our clients, we have added the SSgA Intermediate Municipal Bond Fund to the SSgA Fund Family. This Fund's investment objective seeks to provide federally tax-exempt current income by investing primarily in a diversified portfolio of municipal debt securities with a dollar-weighted average maturity between three and ten years. We are also pleased with the success of our SSgA Emerging Markets and SSgA Growth and Income Funds as they were included in Money(R) Magazine's June 2000 issue listing of the 'Top 100 Mutual Funds'. This is the second year in a row that these funds have been selected. Additionally, the SSgA Tax Free Money Market and the SSgA Active International Funds have achieved five-year performance history during the 2000 fiscal year. Currently, all of our SSgA Money Market Funds have at least a five-year performance history. We strive to meet our clients' needs by providing funds with long-term records and competitive performance. We would like to thank you for choosing the SSgA Funds. Our reputation is based on our tradition of designing and delivering exceptional financial services to our clients. We look forward to continue sharing the benefit of our experience with you. Sincerely, /s/ Nicholas A. Lopardo Nicholas A. Lopardo State Street Global Advisors Chairman and Chief Executive Officer /s/ Timothy B. Harbert Timothy B. Harbert State Street Global Advisors President and Chief Operating Officer, SSgA 4 Annual Report SSgA IAM Shares Fund -------------------------------------------------------------------------------- Management of the Funds -------------------------------------------------------------------------------- [PHOTO] Nicholas A. Lopardo Chairman and Chief Executive Officer [PHOTO] Timothy B. Harbert President and Chief Operating Officer A Team Approach to Investment Management Our investment strategies are the product of the combined experience of our professional staff. Portfolio Managers work together to develop and enhance the techniques that drive our investment processes. As a result, the portfolios we manage benefit from the knowledge of the entire team. Mr. Michael J. Feehily, CFA, Principal, is the portfolio manager primarily responsible for investment decisions regarding the SSgA IAM SHARES Fund since its inception in June 1999. Mr. Feehily joined State Street in August 1982 in the Global Operations area before moving to the Performance and Analytics group. He helped to develop and work with a proprietary application, which is used to analyze venture capital, real estate, and other private investments. He holds a BS in Finance, Investments and Economics from Babson College and an MBA in Finance from Bentley College. There are four other portfolio managers working with Mr. Feehily. Annual Report 5 SSgA IAM Shares Fund -------------------------------------------------------------------------------- Portfolio Management Discussion and Analysis -------------------------------------------------------------------------------- Objective: The Fund seeks to maximize total return primarily through investments in equity securities of companies that have entered into collective bargaining agreements with the International Association of Machinists & Aerospace Workers (IAM) or affiliated labor unions. Invests in: At least 65% of the total assets are invested in equity securities of companies that have entered into collective bargaining agreements with the IAM or its affiliated unions. The remainder of the Fund's assets are open to either further investment in those companies with collective bargaining agreements with the IAM or companies outside this universe which are constituents of the S&P 500(R) Index. Strategy: The Fund's investment strategy is driven by an investment process that manages portfolio exposures to fundamental attributes within a multifactor risk model environment. These attributes include industry allocations, size, style, growth expectations, and valuation ratios. -------------------------------------------------------------------------------- GROWTH OF A $10,000 INVESTMENT Dates IAM Shares Fund S&P 500(R)Index** Inception* $10,000 $10,000 1999 $10,140 $10,230 2000 $11,655 $11,906 ================================================================================ Performance Review For the fiscal year ended August 31, 2000, the Fund finished with a return of 14.94%, compared to the S&P 500(R) Index return of 16.33%. The Fund's performance is net of operating expenses, whereas Index results do not include expenses of any kind. The SSgA IAM SHARES Fund seeks to meet or exceed the total return of the S&P 500(R) Index using an optimization approach designed to mitigate some of the inherent sector/industry bets that stem from the "union friendly" universe. Market and Portfolio Highlights The US equity markets finished strongly in the final four calendar months of 1999, primarily as a result of the Technology sector, as the NASDAQ Composite shot up an impressive 48.56% during this time period. Increases in worker productivity with little resulting signs of inflationary pressures made the -------------------------------------------------------------------------------- SSgA IAM Shares Fund -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return ------------ ----------- ----------- 1 Year $ 11,494 14.94% Inception $ 11,655 13.10%+ -------------------------------------------------------------------------------- Standard & Poor's(R) 500 Composite Stock Price Index -------------------------------------------------------------------------------- Period Ended Growth of Total 08/31/00 $10,000 Return ------------ ----------- ----------- 1 Year $ 11,633 16.33% Inception $ 11,906 15.05%+ See related Notes on following page. 6 Annual Report SSgA IAM Shares Fund -------------------------------------------------------------------------------- Portfolio Management Discussion and Analysis -------------------------------------------------------------------------------- outlook attractive for investors. However, the Federal Reserve continued to raise short-term rates in an effort to curb economic momentum, while at the same time attempting to orchestrate a "soft-landing" for the economy. As a result, the ride for the equity markets in 2000 was anything but smooth. After a strong first quarter, technology stocks finally began to fall back to earth as investors realized that the incredibly high valuations for some of these companies could no longer be justified. With the economy continuing to grow and unemployment hovering around a paltry 4%, fears of inflation lingered and sustained periods of rapid earnings growth seemed to be in jeopardy. Investors appear to be waiting on the sidelines to see when the Federal Reserve has completed its tightening and if the tightening to date will negatively affect the earnings of companies in the short term. Most of the Fund's underperformance relative to the benchmark came during first quarter 2000, as technology stocks continued to soar to record heights. Since that time, the "old-economy" stocks have begun to grab some of the momentum back from the "new-economy" issues. This is beneficial for the Fund, as many of the companies that have machinist union affiliations are part of the "old-economy" sectors such as Basic Materials, Capital Goods, Consumer Staples, Transportation, and Utilities. The Fund's Index-relative overweighting in these "union-friendly" sectors, which lost 14.85%, 14.80%, and 10.88% respectively, drove down performance. However, stock selection within these sectors helped to offset much of the negative results. The Fund maintained a benchmark-relative underweighting in Technology, Finance, and Health Care, as these sectors are not generally associated with machinist union affiliations. These three sectors continued to lead the market during this fiscal year, returning 41.78%, 29.18%, and 18.55% respectively. One of the leading contributors to the Fund's performance over the period was PE Corp - Celera Genomics(+/-) which posted an incredible gain of 654.35%. Stock positions in Oracle, Nortel Networks(+/-), Amphenol Corp.(+/-), and Titan Corp.(+/-) all boosted Fund results, with returns of 398.29%, 297.72%, 173.43%, and 141.72%, respectively. Among the worst performing stocks were Anacomp(+/-), losing 94.96%, and Owens Corning(+/-) which dropped 80.49% for the period. Additionally, Rite Aid, Xerox Corporation(+/-), and Armstrong World Industries all posted disappointing losses of 77.76%, 64.41%, and 63.23%, respectively. At August 31, 2000, the SSgA IAM SHARES Fund held 247 securities with a market value of nearly $133.7 million. Of these 247 securities, there were 164 securities of companies that have collective bargaining agreements with the IAM. These investments in "union friendly" companies represented 66% of the Fund's market value. In total, there are currently 340 publicly traded companies that have agreements with the IAM and are eligible for investment by the Fund. ------------------------------------------------------------- Top Ten Equity Holdings (as a percent of Total Investments) August 31, 2000 ------------------------------------------------------------- General Electric Co. 6.2% Citigroup, Inc. 4.7 Cisco Systems, Inc. 3.4 Intel Corp. 3.3 Nortel Networks Corp. 2.8 Microsoft Corp. 2.6 Merck & Co., Inc. 2.4 Exxon Mobil Corp. 2.3 Oracle Systems Corp. 1.9 Schlumberger, Ltd. 1.5 ------------------------------------------------------------- -------------------- Notes: The following notes relate to the Growth of $10,000 graph and table on the preceding page. * The Fund commenced operations on June 2, 1999. Index comparison also began June 2, 1999. ** The Standard & Poor's(R) 500 Composite Stock Index is composed of 500 common stocks which are chosen by Standard and Poor's Corporation 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. + Annualized. +/- Denotes IAM affiliated company. "Standard & Poor's(R)", "S&P(R)", "S&P 500(R)", "Standard & Poor's 500" and "500" are trademarks of Standard & Poor's Corporation and have been licensed for use by The SSgA Fund. The Product is not sponsored, endorsed, sold or promoted by Standard & Poor's, and Standard & Poor's makes no representation regarding the advisability of investing in the Product. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. Annual Report 7 Report of Independent Accountants To the Shareholders and Board of Trustees of the SSgA Funds: In our opinion, the accompanying statement of assets and liabilities and statement of net assets, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of SSgA IAM SHARES Fund (the "Fund") at August 31, 2000, the results of its operations for the fiscal year then ended, and the changes in its net assets and the financial highlights for the fiscal year then ended and for the period June 2, 1999 (commencement of operations) to August 31, 1999, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 2000 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. Boston, Massachusetts October 11, 2000 /s/ PricewaterhouseCoopers LLP 8 Annual Report SSgA IAM Shares Fund Statement of Net Assets August 31, 2000 Market Number Value of (000) Shares $ ------ ----- Common Stocks - 98.7% Basic Industries - 4.9% Air Products & Chemicals, Inc. 3,900 142 Alcoa, Inc. 25,000 831 Bowater, Inc. 5,400 277 Brush Wellman, Inc. 9,000 210 Dexter Corp. 5,100 302 Dow Chemical Co. 10,200 267 Illinois Tool Works, Inc. 8,104 454 International Paper Co. 17,873 570 Kimberly-Clark Corp. 19,200 1,123 Minnesota Mining & Manufacturing Co. 13,600 1,265 Phelps Dodge Corp. 1,100 49 Rohm & Haas Co. 7,736 224 Sigma Aldrich Corp. 13,900 405 Temple-Inland, Inc. 2,800 119 Union Carbide Corp. 4,400 176 Willamette Industries, Inc. 3,900 119 -------- 6,533 -------- Capital Goods - 11.1% Applied Power, Inc. Class A 4,300 21 Caterpillar, Inc. 9,400 346 Crane Co. 1,900 48 Deere & Co. 3,100 102 Dover Corp. 15,600 762 Emerson Electric Co. 6,300 417 Fisher Scientific International, Inc. (a) 7,800 171 General Electric Co. 141,000 8,275 Ingersoll-Rand Co. 4,000 182 Johnson Controls, Inc. 3,000 160 Koninklijke (Royal) Philips Electronics (a) 32,689 1,612 Martin Marietta Materials, Inc. 3,200 128 Parker-Hannifin Corp. 4,000 139 Raytheon Co. Class B 2,700 75 SPX Corp. (a) 3,400 558 Tyco International, Ltd. 32,400 1,847 -------- 14,843 -------- Consumer Basics - 16.6% Abbott Laboratories 2,500 109 Allied Healthcare Products, Inc. (a) 16,900 48 American Home Products Corp. 2,100 114 Amgen, Inc. (a) 4,400 334 Archer-Daniels-Midland Co. 16,905 149 Baxter International, Inc. 16,600 1,382 Black & Decker Corp. 2,900 116 Bristol-Myers Squibb Co. 5,600 297 Campbell Soup Co. 11,900 302 Celera Genomics (a) 3,400 369 Coca-Cola Co. (The) 37,900 1,995 ConAgra, Inc. 17,500 321 Costco Wholesale Corp. (a) 1,400 48 Dial Corp. 8,200 84 Edwards Lifesciences Corp. (a) 10,200 268 Energizer Holdings, Inc. (a) 4,500 89 Fleming Cos., Inc. 2,400 37 Gillette Co. (The) 1,100 33 Interstate Bakeries Corp. 4,700 84 Johnson & Johnson 3,400 313 Koninklijke Ahold 3,300 94 Kroger Co. (a) 21,400 486 Lilly (Eli) & Co. 3,100 226 Medtronic, Inc. 2,000 103 Merck & Co., Inc. 46,400 3,242 Nabisco Group Holdings Corp. 11,100 312 New Brunswick Scientific Co., Inc. (a) 14,630 115 PE Corp. - PE Biosystems Group 9,000 885 PepsiCo, Inc. 35,500 1,513 Pfizer, Inc. 21,725 940 Philip Morris Cos., Inc. 41,900 1,241 Procter & Gamble Co. 26,300 1,626 Quaker Oats Co. (The) 6,000 408 Ralston-Purina Group 11,700 265 Annual Report 9 SSgA IAM Shares Fund Statement of Net Assets, continued August 31, 2000 Market Number Value of (000) Shares $ ------ ----- Safeway, Inc. (a) 12,600 621 Sara Lee Corp. 22,700 423 Schering-Plough Corp. 39,700 1,593 Suiza Foods Corp. (a) 2,600 130 SYSCO Corp. 17,600 745 Unilever 13,100 619 Whitman Corp. 5,700 75 Wild Oats Markets, Inc. (a) 6,900 74 -------- 22,228 -------- Consumer Durables - 3.8% Armstrong Holdings, Inc. 5,800 92 Best Buy Co. (a) 600 37 DaimlerChrysler AG 2,700 141 Danaher Corp. 10,500 590 Eaton Corp. 9,300 617 Ethan Allen Interiors, Inc. 6,000 162 Federal Signal Corp. 3,900 84 Ford Motor Co. (a) 27,621 668 General Motors Corp. 13,180 951 Goodyear Tire & Rubber Co. 1,900 44 Harley-Davidson, Inc. 15,000 747 HON Industries, Inc. 2,400 65 Katy Industries, Inc. 23,800 235 Leggett & Platt, Inc. 9,100 161 Maytag Corp. 6,000 229 PACCAR, Inc. 1,900 81 Visteon Corp. 2,068 32 Whirlpool Corp. 4,700 179 -------- 5,115 -------- Consumer Non-Durables - 3.1% 99 Cents Only Stores (a) 7,100 319 Anheuser-Busch Cos., Inc. 17,900 1,411 Gap, Inc. 2,700 61 Home Depot, Inc. (The) 11,600 558 Kohl's Corp. (a) 800 45 Newell Rubbermaid, Inc. 10,200 265 Rite Aid Corp. 16,000 64 Seagram Co., Ltd. 13,300 800 Target Corp. 2,800 65 Tiffany & Co. 13,200 549 -------- 4,137 -------- Consumer Services - 2.4% Alaska Air Group, Inc. (a) 1,700 44 Continental Airlines, Inc. Class B (a) 3,100 149 Disney (Walt) Co. 48,700 1,896 Marriott International, Inc. Class A 4,800 190 Southwest Airlines Co. 28,750 650 Starwood Hotels & Resorts Worldwide, Inc. 5,400 173 USAirways Group, Inc. (a) 3,900 133 -------- 3,235 -------- Energy - 6.6% Baker Hughes, Inc. 2,800 102 BP Amoco PLC - ADR 9,468 523 Chevron Corp. 7,000 592 Exxon Mobil Corp. 37,584 3,068 Halliburton Co. 10,300 546 Pennzoil-Quaker State Co. 5,800 72 Royal Dutch Petroleum Co. 20,400 1,248 Schlumberger, Ltd. 23,700 2,022 Texaco, Inc. 5,100 263 Transocean Sedco Forex, Inc. 6,764 404 Unocal Corp. 900 30 -------- 8,870 -------- Finance - 10.2% AEGON 24,122 947 AFLAC, Inc. 800 43 Allstate Corp. 2,100 61 American Express Co. 5,100 302 American Financial Group, Inc. 3,900 97 American International Group, Inc. 9,374 835 Bank of America Corp. 8,500 455 10 Annual Report SSgA IAM Shares Fund Statement of Net Assets, continued August 31, 2000 Market Number Value of (000) Shares $ ------ ----- Bank of New York Co., Inc. 2,800 147 Bank One Corp. 5,400 190 Chase Manhattan Corp. 6,750 377 CIGNA Corp. 500 49 Citigroup, Inc. 106,667 6,227 Fannie Mae 2,200 118 Federal Home Loan Mortgage Corp. 1,200 51 Fifth Third Bancorp 1,200 55 First Union Corp. 3,200 93 Firstar Corp. 3,909 93 FleetBoston Financial Corp. 1,355 58 Gilman & Ciocia, Inc. (a) 17,700 70 Golden West Financial Corp. 1,800 86 Household International, Inc. 17,600 845 MBNA Corp. 1,500 53 Mellon Financial Corp. 800 36 Merrill Lynch & Co., Inc. 1,600 232 Morgan (J.P.) & Co., Inc. 1,000 167 Morgan Stanley Dean Witter & Co. 5,600 602 National City Corp. 1,600 34 Northern Trust Corp. 1,000 84 Progressive Corp. 600 45 Providian Financial Corp. 400 46 Schwab (Charles) Corp. 6,000 229 Stilwell Financial, Inc. (a) 14,600 706 SunTrust Banks, Inc. 1,100 54 U.S. Bancorp 1,900 41 Wachovia Corp. 700 40 Washington Mutual, Inc. 2,700 95 -------- 13,663 -------- General Business - 4.2% Butler International, Inc. (a) 5,700 37 Computer Sciences Corp. (a) 10,200 806 Dispatch Management Services Corp. (a) 5,400 8 Ecolab, Inc. 1,700 66 Knight-Ridder, Inc. 3,400 186 Manpower, Inc. 10,000 362 Meredith Corp. 4,400 120 New York Times Co. Class A 12,000 470 SBC Communications, Inc. 9,853 411 Time Warner, Inc. 1,300 111 Tribune Co. 15,907 568 United Stationers, Inc. (a) 5,500 178 Viacom, Inc. Class B (a) 28,535 1,921 Washington Post Co (The), Class B 221 112 Waste Management, Inc. 10,900 206 -------- 5,562 -------- Shelter - 0.8% Georgia-Pacific Group 5,900 158 Masco Corp. 20,400 398 Owens Corning 5,300 27 Sherwin-Williams Co. 3,700 85 Vulcan Materials Co. 1,200 53 Weyerhaeuser Co. 7,600 352 -------- 1,073 -------- Technology - 30.1% Adobe Systems, Inc. 400 52 Agilent Technologies, Inc. (a) 2,212 133 Allen Telecom, Inc. (a) 11,800 235 America Online, Inc. (a) 23,300 1,366 Amphenol Corp. Class A (a) 7,700 493 Anacomp, Inc. (a) 20,900 16 Applied Materials, Inc. (a) 5,600 483 APW, Ltd. (a) 4,300 189 Avery Dennison Corp. 3,600 195 Cisco Systems, Inc. (a) 65,600 4,506 COMPAQ Computer Corp. 3,800 129 Computer Associates International, Inc. 1,800 57 Dell Computer Corp. (a) 20,200 881 EMC Corp. (a) 14,800 1,450 Energy Conversion Devices, Inc. (a) 10,200 284 Annual Report 11 SSgA IAM Shares Fund Statement of Net Assets, continued August 31, 2000 Market Number Value of (000) Shares $ ------ ----- General Dynamics Corp. 9,600 604 General Motors Corp. Class H (a) 1,980 66 Hewlett-Packard Co. 5,800 700 Honeywell International, Inc. 15,662 604 Intel Corp. 59,200 4,433 International Business Machines Corp. 10,700 1,412 JDS Uniphase Corp. (a) 4,500 560 Litton Industries, Inc. (a) 3,500 194 Lockheed Martin Corp. 4,900 139 Lucent Technologies, Inc. 19,595 819 Microsoft Corp. (a) 49,700 3,470 Motorola, Inc. 8,100 292 Nextel Communications, Inc. Class A (a) 4,000 222 Nortech Systems, Inc. (a) 12,800 115 Nortel Networks Corp. 45,600 3,719 Northrop Grumman Corp. 8,200 638 Oracle Systems Corp. (a) 28,600 2,599 PerkinElmer, Inc. 10,500 944 QUALCOMM, Inc. (a) 6,500 389 Quantum Corp. - DLT & Storage Systems (a) 26,700 362 Quantum Corp. - Hard Disk Drive (a) 21,100 206 Rockwell International Corp. 3,600 146 Scott Technologies, Inc. (a) 8,700 163 Sun Microsystems, Inc. (a) 12,800 1,625 Teledyne Technologies, Inc. (a) 10,100 203 Tellabs, Inc. (a) 600 34 Texas Instruments, Inc. 11,200 750 Textron, Inc. 1,500 84 Thomas & Betts Corp. 6,200 116 Titan Corp. (a) 12,300 303 United Technologies Corp. 9,000 562 Veritas Software Corp. (a) 3,900 470 Verizon Communications 38,172 1,665 Xerox Corp. 28,300 455 Yahoo!, Inc. (a) 5,700 693 -------- 40,225 -------- Transportation - 1.7% Airborne Freight Corp. 7,900 118 Boeing Co. (The) 16,900 906 CSX Corp. 2,200 53 Kansas City Southern Industries, Inc. (a) 3,650 34 Navistar International Corp. (a) 3,000 113 Norfolk Southern Corp. 8,300 133 Ryder System, Inc. 4,800 92 Trans World Airlines, Inc. New (a) 31,200 64 Union Pacific Corp. 6,100 242 United Parcel Service, Inc. Class B 8,814 489 -------- 2,244 -------- Utilities - 3.2% AES Corp. (a) 1,600 102 AT&T Corp. 57,626 1,815 AT&T Wireless Group New (a) 21,800 571 BellSouth Corp. 5,800 216 Enron Corp. 2,600 221 Montana Power Co. 9,700 350 Southern Co. 1,200 36 Sprint Corp. (Fon Group) 1,800 60 Sprint Corp. (PCS Group) (a) 7,100 356 WorldCom, Inc. (a) 14,300 522 -------- 4,249 -------- Total Common Stocks (cost $117,037) 131,977 -------- 12 Annual Report SSgA IAM Shares Fund Statement of Net Assets, continued August 31, 2000 Principal Market Amount Value (000) (000) $ $ --------- ----- Short-Term Investments - 1.3% AIM Short Term Investment Prime Portfolio Class A (b) 1,407 1,407 Federated Investors Prime Cash Obligations Fund (b) 82 82 United States Treasury Bills 5.650% due 09/14/00(b)(c)(d) 210 210 -------- Total Short-Term Investments (cost $1,699) 1,699 -------- Total Investments - 100.0% (identified cost $118,736) 133,676 Other Assets and Liabilities, Net - 0.0% 14 -------- Net Assets - 100.0% 133,690 ======== (a) Nonincome-producing security. (b) At amortized cost, which approximates market. (c) Rate noted is yield-to-maturity from date of acquisition. (d) Held as collateral in connection with open futures contracts purchased by the fund. Abbreviations: ADR - American Depositary Receipt Unrealized Number Appreciation of (Depreciation) Futures Contracts Contracts (000) --------- ------------- S&P 500 Index expiration date 09/00 4 $ 34 -------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts Purchased $ 34 ======== See accompanying notes which are an integral part of the financial statements. Annual Report 13 SSgA IAM Shares Fund Statement of Assets and Liabilities Amounts in thousands (except per share amount) August 31, 2000 Assets Investments at market (identified cost $118,736) ........................................... $133,676 Receivables: Dividends ............................................................................... 193 Daily variation margin on futures contracts ............................................. 18 Prepaid expenses ........................................................................... 12 Short-term investments held as collateral for securities loaned, at market ................. 10,126 -------- Total assets ......................................................................... 144,025 Liabilities Payables: Investments purchased ........................................................ $ 8 Fund shares redeemed ......................................................... 140 Accrued fees to affiliates ................................................... 52 Other accrued expenses ....................................................... 9 Payable upon return of securities loaned, at market ............................. 10,126 -------- Total liabilities .................................................................... 10,335 -------- Net Assets ................................................................................. $133,690 ======== Net Assets Consist of: Undistributed net investment income ........................................................ $ 274 Accumulated net realized gain (loss) ....................................................... 161 Unrealized appreciation (depreciation) on: Investments ............................................................................. 14,940 Futures contracts ....................................................................... 34 Shares of beneficial interest .............................................................. 12 Additional paid-in capital ................................................................. 118,269 -------- Net Assets ................................................................................. $133,690 ======== Net Asset Value, offering and redemption price per share: ($133,690,033 divided by 11,576,819 shares of $.001 par value shares of beneficial interest outstanding) ........................................... $ 11.55 ========
See accompanying notes which are an integral part of the financial statements. 14 Annual Report SSgA IAM Shares Fund Statement of Operations Amounts in thousands For the Fiscal Year Ended August 31, 2000 Investment Income Dividends ............................................................ $ 1,195 Interest ............................................................. 40 -------- Total investment income ........................................... 1,235 Expenses Advisory fees ............................................ $ 229 Administrative fees ...................................... 41 Custodian fees ........................................... 42 Distribution fees ........................................ 74 Transfer agent fees ...................................... 28 Professional fees ........................................ 15 Registration fees ........................................ 41 Shareholder servicing fees ............................... 23 Trustees' fees ........................................... 6 Miscellaneous ............................................ 11 -------- Expenses before reductions ............................... 510 Expense reductions ....................................... (3) -------- Total Expenses, net ............................................... 507 -------- Net investment income ................................................... 728 -------- Net Realized and Unrealized Gain (Loss) Net realized gain (loss) on: Investments .............................................. 178 Futures contracts ........................................ 5 183 -------- Net change in unrealized appreciation (depreciation) on: Investments .............................................. 14,953 Futures contracts ........................................ 69 15,022 -------- -------- Net realized and unrealized gain (loss) ................................. 15,205 -------- Net increase (decrease) in net assets from operations ................... $ 15,933 ========
See accompanying notes which are an integral part of the financial statements. Annual Report 15 SSgA IAM Shares Fund Statement of Changes in Net Assets Amounts in thousands
For the Period For the June 2, 1999* Fiscal Year Ended to August 31, August 31, 2000 1999 ----------------- -------------- Increase (Decrease) in Net Assets Operations Net investment income ............................................... $ 728 $ 102 Net realized gain (loss) ............................................ 183 75 Net change in unrealized appreciation (depreciation) ................ 15,022 (48) --------- --------- Net increase (decrease) in net assets from operations ............ 15,933 129 --------- --------- Distributions From net investment income .......................................... (589) -- From net realized gain .............................................. (97) -- --------- --------- Net decrease in net assets from distributions .................... (686) -- --------- --------- Share Transactions Net increase (decrease) in net assets from share transactions ....... 58,127 60,187 --------- --------- Total net increase (decrease) in net assets ............................ 73,374 60,316 Net Assets Beginning of period ................................................. 60,316 -- --------- --------- End of period (including undistributed net investment income of $274 and $135, respectively) ..................................... $ 133,690 $ 60,316 ========= =========
* Commencement of Operations See accompanying notes which are an integral part of the financial statements. 16 Annual Report SSgA IAM Shares Fund Financial Highlights The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements.
Fiscal Years Ended August 31, ---------------------- 2000 1999* -------- -------- Net Asset Value, Beginning of Period ................ $ 10.14 $ 10.00 -------- -------- Income From Operations Net investment income (a) ........................ .09 .02 Net realized and unrealized gain (loss) .......... 1.42 .12 -------- -------- Total income from operations .................. 1.51 .14 -------- -------- Distributions From net investment income ....................... (.08) -- From net realized gain ........................... (.02) -- -------- -------- Total distributions ........................... (.10) -- -------- -------- Net Asset Value, End of Period ...................... $ 11.55 $ 10.14 ======== ======== Total Return (%)(b) ................................. 14.94 1.40 Ratios/Supplemental Data: Net Assets, end of period (in thousands) ......... 133,690 60,316 Ratios to average net assets (%)(c): Operating expenses, net ....................... .55 .65 Operating expenses, gross ..................... .55 .67 Net investment income ......................... .79 .72 Portfolio turnover rate (%)(d) ................... 5.34 --
* For the period June 2, 1999 (commencement of operations) to August 31, 1999. (a) Average month-end shares were used for this calculation. (b) Periods less than one year are not annualized. (c) The ratios for the period ended August 31, 1999 are annualized. (d) The rate for the period ended August 31, 1999 is not meaningful due to the Fund's short period of operation. Annual Report 17 SSgA IAM Shares Fund Notes to Financial Statements August 31, 2000 1. Organization The SSgA Funds (the "Investment Company") is a series mutual fund, currently comprised of 24 investment portfolios which are in operation as of August 31, 2000. These financial statements report on one portfolio, the SSgA IAM SHARES Fund (the "Fund"). The Fund invests primarily in equity securities of companies that have entered into collective bargaining agreements with the International Association of Machinists and Aerospace Workers or affiliated labor unions ("IAM companies"). The Investment Company is a registered and diversified open-end investment company, as defined in the Investment Company Act of 1940, as amended (the "1940 Act"), that was organized as a Massachusetts business trust on October 3, 1987 and operates under a First Amended and Restated Master Trust Agreement, dated October 13, 1993, as amended (the "Agreement"). The Investment Company's Agreement permits the Board of Trustees to issue an unlimited number of full and fractional shares of beneficial interest at a $.001 par value. 2. Significant Accounting Policies The Fund's financial statements are prepared in accordance with accounting principles generally accepted in the United States which require the use of management estimates. The following is a summary of the significant accounting policies consistently followed by the Fund in the preparation of its financial statements. Security valuation: United States equity securities listed and traded principally on any national securities exchange are valued on the basis of the last sale price or, lacking any sale, at the closing bid price, on the primary exchange on which the security is traded. United States over-the-counter equities are valued on the basis of the closing bid price. 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 the mean of bid prices. In the absence of a last sale or mean bid price, respectively, 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. Money market instruments maturing within 60 days of the valuation date are valued at amortized cost. The Fund may 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. Securities transactions: Securities transactions are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the basis of identified cost. Investment income: Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Amortization and accretion: All zero-coupon bond discounts and original issue discounts are accreted for both tax and financial reporting purposes. All short- and long-term market premiums/discounts are amortized/accreted for both tax and financial reporting purposes. 18 Annual Report SSgA IAM Shares Fund Notes to Financial Statements, continued August 31, 2000 Federal income taxes: Since the Investment Company is a Massachusetts business trust, each fund is a separate corporate taxpayer and determines its net investment income and capital gains (or losses) and the amounts to be distributed to each fund's shareholders without regard to the income and capital gains (or losses) of the other funds. It is the Fund's intention to qualify as a regulated investment company, as defined by the Internal Revenue Code of 1986, as amended. This requires the Fund to distribute all of its taxable income. Therefore, the Fund paid no federal income taxes and no federal income tax provision was required. The Fund's aggregate cost of investments and the composition of unrealized appreciation and depreciation of investment securities for federal income tax purposes as of August 31, 2000 are as follows: Net Unrealized Federal Tax Unrealized Unrealized Appreciation Cost Appreciation (Depreciation) (Depreciation) ------------ ------------ -------------- -------------- $118,745,901 $24,728,903 $(9,798,611) $14,930,292 Dividends and distributions to shareholders: Income dividends and capital gain distributions, if any, are recorded on the ex-dividend date. Dividends are generally declared and paid quarterly. Capital gain distributions are generally declared and paid annually. An additional distribution may be paid by the Fund to avoid imposition of federal income tax on any remaining undistributed net investment income and capital gains. The timing and characterization of certain income and capital gain distributions are determined in accordance with federal tax regulations which may differ from generally accepted accounting principles ("GAAP"). As a result, net investment income and net realized gain (or loss) on investment transactions for a reporting year may differ significantly from distributions during such year. The differences between tax regulations and GAAP relate primarily to certain securities sold at a loss. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting its net asset value. Expenses: Most expenses can be directly attributed to the Fund. Expenses of the investment company which cannot be directly attributed are allocated among all funds based principally on their relative net assets. Futures: The Fund is currently utilizing exchange-traded futures contracts. The primary risks associated with the use of futures contracts are an imperfect correlation between the change in market value of the securities held by the Fund and the prices of futures contracts and the possibility of an illiquid market. Changes in initial settlement value are accounted for as unrealized appreciation (depreciation) until the contracts are terminated, at which time realized gains and losses are recognized. 3. Securities Transactions Investment transactions: For the year ended August 31, 2000, purchases and sales of investment securities, excluding short-term investments and futures contracts, aggregated to $62,921,942 and $5,024,800, respectively. Annual Report 19 SSgA IAM Shares Fund Notes to Financial Statements, continued August 31, 2000 Securities lending: The Investment Company has a securities lending program whereby each Fund can loan securities with a value up to 33 1/3% of its total assets to certain brokers. The Fund receives cash (U.S. currency), U.S. Government or U.S. Government agency obligations as collateral against the loaned securities. To the extent that a loan is secured by cash collateral, such collateral shall be invested by State Street Bank and Trust Company in short-term instruments, money market mutual funds, and such other short-term investments, provided the investments meet certain quality and diversification requirements. Under the securities lending arrangement, the collateral received is recorded on the Fund's statement of assets and liabilities along with the related obligation to return the collateral. In those situations where the Company has relinquished control of securities transferred, it derecognizes the securities and records a receivable from the counterparty. Income generated from the investment of cash collateral, less negotiated rebate fees paid to participating brokers and transaction costs, is divided between the Fund and State Street Bank and Trust Company and is recorded as interest income for the Fund. To the extent that a loan is secured by non-cash collateral, brokers pay the Fund negotiated lenders' fees, which are divided between the Fund and State Street Bank and Trust Company and are recorded as interest income for the Fund. All collateral received will be in an amount at least equal to 102% (for loans of U.S. securities) or 105% (for non-U.S. securities) of the market value of the loaned securities at the inception of each loan. Should the borrower of the securities fail financially, there is a risk of delay in recovery of the securities or loss of rights in the collateral. Consequently, loans are made only to borrowers which are deemed to be of good financial standing. As of August 31, 2000, the value of outstanding securities on loan and the value of collateral amounted to $9,754,310 and $10,126,382, respectively. Included in interest income is securities lending income of $6,252 for the year ended August 31, 2000. 4. Related Parties Adviser: The Investment Company has an investment advisory agreement with State Street Bank and Trust Company (the "Adviser") under which the Adviser, through State Street Global Advisors, the investment management group of theAdviser, directs the investments of the Fund in accordance with its investment objectives, policies, and limitations. For these services, the Fund pays a fee to the Adviser calculated daily and paid monthly, at an annual rate of .25% of its average daily net assets. The Adviser voluntarily agreed to reimburse the Fund for all expenses in excess of .65% of average daily net assets on an annual basis. The Investment Company also has contracts with the Adviser to provide custody, shareholder servicing and transfer agent services to the Fund. These amounts are presented in the accompanying Statement of Operations. In addition, the Fund has entered into arrangements with its Adviser whereby custody credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund's expenses. During the year, the Fund's custodian fees were reduced by $2,658 under these arrangements. Administrator: The Investment Company has an administration agreement with Frank Russell Investment Management Company (the "Administrator"), a wholly-owned subsidiary of The Northwestern Mutual Life Insurance Company, under which the Administrator supervises all non-portfolio investment aspects of the Investment Company's operations and provides adequate office space and all necessary office equipment and services, including telephone service, utilities, stationery supplies, and similar items. The Investment Company pays the Administrator for services supplied by the Administrator pursuant to the Administration Agreement, an annual fee, payable monthly on a pro rata basis. For the period September 1, 1999 to April 30, 2000, the following 20 Annual Report SSgA IAM Shares Fund Notes to Financial Statements, continued August 31, 2000 percentages of the average daily net assets of all domestic funds: $0 up to and including $500 million - .06%; over $500 million up to and including $1 billion - .05%; over $1 billion - .03%. Effective May 1, 2000, the annual fee is based on the following percentages of the average daily net assets of all U.S. Equity portfolios: $0 to $2 billion - .0315%; over $2 billion - .029%. The Administrator will charge a flat fee of $30,000 per year per Fund with less than $500 million in net assets and $1,500 per year for monthly performance reports and use of Russell Performance Universe software product. In addition, the Fund reimburses the Administrator for out-of-pocket expenses and start-up costs for new funds. Distributor and Shareholder Servicing: The Investment Company has a Distribution Agreement with Russell Fund Distributors (the "Distributor") which is a wholly-owned subsidiary of the Administrator to promote and offer shares of the Investment Company. The Distributor may enter into sub-distribution agreements with other non-related parties. The amounts paid to the Distributor are included in the accompanying Statement of Operations. The Investment Company has a Distribution Plan pursuant to Rule 12b-1 (the "Plan") under the 1940 Act. Under this Plan, the Investment Company is authorized to make payments to the Distributor, or any Shareholder Servicing Agent, as defined in the Plan, for providing distribution and marketing services, for furnishing assistance to investors on an ongoing basis, and for the reimbursement of direct out-of-pocket expenses charged by the Distributor in connection with the distribution and marketing of shares of the Investment Company and the servicing of investor accounts. The Fund has Shareholder Service Agreements with the Adviser, State Street Brokerage Services, Inc. ("SSBSI"), a wholly-owned subsidiary of the Adviser, the Adviser's Retirement Investment Services Division ("RIS"), the Adviser's Metropolitan Division of Commercial Banking ("Commercial Banking") and State Street Solutions ("Solutions")(collectively the "Agents"), as well as several unaffiliated service providers. For these services, the Fund pays .025%, .175%, .175%, .175% and .175% to the Adviser, SSBSI, RIS, Commercial Banking, and Solutions, respectively, based upon the average daily value of all Fund shares held by or for customers of these Agents. For the year ended August 31, 2000, the Fund was charged shareholder servicing expenses of $22,936, $13 and $44 by the Adviser, SSBSI and Solutions. The Fund did not incur any expenses from RIS and Commercial Banking during this year. The combined distribution and shareholder servicing payments shall not exceed .25% of the average daily value of net assets of the Fund on an annual basis. The shareholder servicing payments shall not exceed .20% of the average daily value of net assets of the Fund on an annual basis. Payments that exceed the maximum amount of allowable reimbursement may be carried forward for two years following the year in which the expenditure was incurred so long as the plan is in effect. The Fund's responsibility for any such expenses carried forward shall terminate at the end of two years following the year in which the expenditure was incurred. The Trustees or a majority of the Fund's shareholders have the right, however, to terminate the Distribution Plan and all payments thereunder at any time. The Fund will not be obligated to reimburse the Distributor for carryover expenses subsequent to the Distribution Plan's termination or noncontinuance. There were no carryover expenses as of August 31, 2000. Annual Report 21 SSgA IAM Shares Fund Notes to Financial Statements, continued August 31, 2000 Affiliated Brokerage: The Fund placed a portion of its portfolio transactions with SSBSI, an affiliated broker dealer of the Fund's Adviser. The commissions paid to SSBSI were $25,900 for the year ended August 31, 2000. Board of Trustees: The Investment Company paid each Trustee not affiliated with the Investment Company an annual retainer, plus specified amounts for board and committee meetings attended. These expenses are allocated among all of the funds based upon their relative net assets. Accrued fees payable to affiliates and trustees as of August 31, 2000 were as follows: Advisory fees $28,131 Administration fees 6,291 Custodian fees 7,634 Distribution fees 12 Shareholder servicing fees 2,082 Transfer agent fees 6,788 Trustees' fees 825 ------- $51,763 ======= Beneficial Interest: As of August 31, 2000, one shareholder was a record owner of approximately 83% of the total outstanding shares of the Fund. 5. Fund Share Transactions (amounts in thousands)
Fiscal Years Ended August 31, ------------------------------------------ 2000 1999* ------------------ ------------------ Shares Dollars Shares Dollars ------ -------- ------ -------- Proceeds from shares sold ........................ 5,732 $ 59,276 5,952 $ 60,232 Proceeds from reinvestment of distributions ...... 65 686 -- -- Payments for shares redeemed ..................... (168) (1,835) (4) (45) ------ -------- ------ -------- Total net increase (decrease) .................... 5,629 $ 58,127 5,948 $ 60,187 ====== ======== ====== ========
* For the period June 2, 1999 (commencement of operations) to August 31, 1999. 6. Interfund Lending Program The Fund and all other funds of the Investment Company received from the Securities and Exchange Commission an exemptive order on December 23, 1999 to establish and operate an Interfund Credit Facility. This allows the Funds to directly lend to and borrow money from the SSgA Money Market Fund for temporary purposes in accordance with certain conditions. The borrowing Funds are charged the average of the current Repo Rate and the Bank Loan Rate. The Fund did not utilize the interfund lending program during this year. 7. Dividend On September 1, 2000, the Board of Trustees declared a dividend of $.0236 from net investment income, payable on September 8, 2000 to shareholders of record on September 5, 2000. 22 Annual Report SSgA IAM Shares Fund Tax Information August 31, 2000 (Unaudited) The Fund paid a distribution of $4,190 from net long-term capital gains during its taxable year ended August 31, 2000. Please consult a tax advisor for questions about federal or state income tax laws. Annual Report 23 SSgA IAM Shares Fund One International Place, 27th Floor Boston, Massachusetts 02110 (800) 997-7327 -------------------------------------------------------------------------------- Trustees Lynn L. Anderson, Chairman William L. Marshall Steven J. Mastrovich Patrick J. Riley Richard D. Shirk Bruce D. Taber Henry W. Todd Officers Lynn L. Anderson, President, Treasurer and CEO Mark E. Swanson, Treasurer and Principal Accounting Officer J. David Griswold, Vice President and Secretary Deedra S. Walkey, Assistant Secretary Rick J. Chase, Assistant Treasurer Carla L. Anderson, Assistant Secretary Investment Adviser State Street Bank and Trust Company 225 Franklin Street Boston, Massachusetts 02110 Custodian, Transfer Agent and Office of Shareholder Inquiries State Street Bank and Trust Company 1776 Heritage Drive North Quincy, Massachusetts 02171 (800) 647-7327 Distributor Russell Fund Distributors, Inc. One International Place, 27th Floor Boston, Massachusetts 02110 (800) 997-7327 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 160 Federal Street Boston, Massachusetts 02110 24 Annual Report