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State Street Bank and Trust Company and State Street Global Advisors, Inc.

Assets in State Street's five bond mutual funds were down sharply in 2007. As of October 2007 assets in the five funds suffered losses of 43% for 2007. The funds were marketed to institutional investors as safe, conservative investments. Investors in the funds included non-profit organizations, private and public sector pension funds and other instructional investors.

Street Limited Duration Bond Fund

The State Street Limited Duration Bond Fund was sold as a high quality, low risk and a well diversified fixed income portfolio. The Limited Duration Bond Fund reportedly had a conservative rate-of-return objective to match or exceed the JP Morgan one-month US Dollar LIBOR Index be a mere 50 basis points. The stated objective of the fund was "to maximize income while preserving capital by investing in a diversified portfolio of highly rated fixed income securities." Investors in the State Street Limited Duration Bond Fund also expected liquidity.

An investigation of the Limited Duration Bond Fund has revealed that State Street misrepresented the invested strategy of the fund. For example, in or about August 2005 State Street reported that only 5.3% of the fund was invested in mortgage backed securities and would on average be comprised of AAA-rated low risk, diversified fixed income securities.

The summer 2005 disclosures represented that the fund credit quality was 76% AAA, 20.8% AA, 1.3% A and only 1.9% BBB. The fund further represented that there was diversification by sector: 75.8% in asset-backed securities, 11.1% in commercial mortgage-backed securities, 5.3% in cash, 2.0% in agency securities and only 5.3% in mortgage backed securities. The fund stated that "asset-backed" securities generally do not include mortgage backed securities.

In truth, as much as 94% of the fund was invested in undisclosed subprime mortgage related derivates and the fund was highly leveraged by using interest rate swaps and ABX index swaps.

During the summer of 2007 the Limited Duration Bond fund performance dramatically diverged from its benchmark. Compounding State Street's misrepresentations, the fund failed to disclose accurate information to investors. As a directly result, the Limited Duration Bond Fund investors suffered catastrophic losses. Recent reports also indicate that State Street engaged in self-dealing and gave preferential treatment to other State Street related entities including other State Street funds that owned shares in the Limited Duration Bond Fund. In so doing, State Street permitted it's affiliates or entitles the opportunity to get out or redeem investment interest in the Limited Duration Bond Fund ahead of other investors.

In January 2007 the Houston Police Officers' Pensions System filed suit against State Street Bank and Trust Company and State Street Global Advisors, Inc.

State Street Intermediate Bond Fund (SSINX) and State Street Government Credit Bond Fund

In October 2007 Prudential Financial, Inc. sued State Street Corp. subsidiaries over $80 million in losses attributed to the failure to disclose that the Intermediate Bond Fund and Government Credit Bond Fund run by State Street was highly leveraged and over concentrated in subprime mortgage investments.

The funds were marketed by State Street bank as having stable predictable returns in line with U.S. government and corporate bonds. Instead, Prudential alleges that State Street's investment strategy changed without proper notification to the investors. The new strategy devoted large portions of the funds' investments into asset-backed securities that were tied to home-equity loans, mortgage backed securities, swaps, derivatives and other exotic investments.

Informational material provided to State Street clients for the Government/Corporate Bond Fund stated that investors would be exposed to a "broad-based, investment-grade fixed income universe." However, as of March 31, 2007 the fund had nearly half of fund assets in mortgage backed securities and other asset backed securities that were riskier than Treasury's and specific corporate issues.

State Street Yield Plus Fund (SSYPX)

Recent reports indicated that for the three months ending in August 2007, the State Street Yield Plus Fund suffered losses of 7.6%.


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