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As filed with the Securities and Exchange Commission on March 5, 1999
Securities Act of 1933 Registration No.
Investment Company Act of 1940 File No.
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. ___ [ ]
Post-Effective Amendment No.
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No.
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STATE STREET RESEARCH INSTITUTIONAL FUNDS
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(Exact Name of Registrant as Specified in Charter)
One Financial Center, Boston, Massachusetts 02111
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (617) 357-1200
Francis J. McNamara, III
Executive Vice President, Secretary & General Counsel
State Street Research & Management Company
One Financial Center
Boston, Massachusetts 02111
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(Name and Address of Agent for Service)
Copy to:
Gregory D. Sheehan, Esq.
Ropes & Gray
One International Place, Boston, Massachusetts 02111
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
Title of Securities Being Registered: Shares of Beneficial Interest of the
State Street Research Institutional Funds.
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The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
STATE STREET RESEARCH
INSTITUTIONAL FUNDS
Core Fixed Income Fund Core Large Cap Growth Fund
A bond fund focusing A stock fund seeking competitive
on U.S. investment grade total returns relative to the
fixed-income securities. Standard & Poor's 500 Composite
Stock Index
Core Plus Fixed Income Fund Large Cap Growth Fund
A bond fund investing in investment A stock fund seeking competitive
grade fixed-income securities and total returns relative to the
using an opportunistic approach to Russell 1000 Growth Index
high yield and foreign securities.
Managed by State Street Research & Management Company
Prospectus
June __, 1999
This prospectus contains information you should know before you invest. Please
read it carefully and keep it with your investment records.
The Securities and Exchange Commission has not approved or disapproved these
securities and does not guarantee the accuracy or adequacy of the information in
this prospectus. Anyone who informs you otherwise is committing a federal crime.
<PAGE>
Contents
THE FUNDS.....................................................................1
OBJECTIVES AND STRATEGIES.................................................1
Fixed Income Funds......................................1
Equity Funds............................................3
PRINCIPAL RISKS...........................................................4
Fixed Income Funds......................................4
Equity Funds............................................5
INVESTOR EXPENSES.........................................................6
INVESTMENT MANAGER.......................................................10
CLASSES OF SHARES............................................................10
Share Classes............................................................10
Eligibility for Classes -- New Investors.................................11
Eligibility and Conversion Between Classes -- Existing Shareholders......11
BUYING, EXCHANGING AND SELLING SHARES........................................12
General Information......................................................12
Opening an Account.......................................................12
Buying Shares............................................................12
Cash Purchase Option...................................13
In-Kind Purchase Option................................13
Exchanging Shares........................................................14
Selling Shares...........................................................14
Methods for Selling Shares.............................14
Payment Options........................................15
In-Kind Redemption of Shares...........................15
Other Information on Selling Shares....................15
DISTRIBUTIONS................................................................16
VALUATION AND OTHER POLICIES.................................................16
TAX CONSIDERATIONS...........................................................17
OTHER SECURITIES AND RISKS...................................................19
-ii-
<PAGE>
THE FUNDS
This prospectus describes four State Street Research Institutional Funds
(the "Funds") that are available to institutional investors and private clients.
The Funds' Objectives and Principal Strategies are described below, followed by
a discussion of the Principal Risks of investing in the Funds.
Additional information about other Fund investment strategies, securities
and risks begins on page 19.
OBJECTIVES AND STRATEGIES
Fixed Income Funds
State Street Research Core Fixed Income Fund
Objective. The State Street Research Core Fixed Income Fund (the "Core
Fixed Fund") seeks competitive total returns primarily from investing in fixed
income securities.
Benchmark. The investment manager measures the performance of the Core
Fixed Fund by comparing its total return to the Lehman Brothers Aggregate Bond
Index.
Principal Strategies. The Core Fixed Fund invests primarily in securities
rated, at the time of purchase, investment grade by at least one nationally
recognized rating agency or considered to be of comparable quality by the
investment manager ("investment grade securities"). Currently, such securities
are those rated within or above the Standard & Poor's BBB- or the Moody's Baa3
rating categories, or within comparable categories of other rating agencies.
The Core Fixed Fund's investment grade securities may include debt
securities issued by the U.S. Treasury or any U.S. government agency, mortgage
and asset-backed securities (including Collateralized Mortgage Obligations
("CMOs")), U.S. dollar-denominated debt securities of foreign issuers, corporate
debt and cash equivalents. Additionally, the Core Fixed Fund also may use
futures, options, swaps and other derivatives for hedging purposes and for
portfolio duration or yield curve management. Additionally, the Core Fixed Fund
may invest in Rule 144A and other unregistered securities.
The investment manager monitors and adjusts the Core Fixed Fund's
investments to maintain a weighted average asset quality of A or higher, and a
duration generally within 1-1/2 years of the Lehman Brothers Aggregate Bond
Index. Securities downgraded below investment grade will be sold within one year
of such downgrade or as the investment manager believes market conditions
reasonably permit.
-1-
<PAGE>
State Street Research Core Plus Fixed Income Fund
Objective. The State Street Research Core Plus Fixed Income Fund (the "Core
Plus Fund") seeks competitive total returns primarily from investing in fixed
income securities.
Benchmark. The investment manager measures the performance of the Core Plus
Fund by comparing its total return to the Lehman Brothers Aggregate Bond Index.
Principal Strategies. The Core Plus Fund may invest in any of the same
types of securities and derivative instruments (including for the same purposes)
as the Core Fixed Fund. In addition, the Core Plus Fund may invest up to 30% of
its total assets (measured at the time of purchase) in total in (i) non-U.S.
dollar-denominated securities not exceeding 20% of the Fund's total assets
(measured at the time of purchase), (ii) lower quality securities not exceeding
20% of the Fund's total assets (measured at the time of purchase), and (iii)
securities of issuers located in developing or emerging market countries not
exceeding 10% of its total assets (measured at the time of purchase).
(Securities purchased by the Fund within the 10% limit in clause (iii) will not
be counted toward the limits in clauses (i) or (ii), but will be counted toward
the preceding 30% limit.)
The Core Plus Fund seeks to outperform the Lehman Brothers Aggregate Bond
Index by a somewhat greater margin than the Core Fixed Fund by assuming the
additional risks (and additional opportunities for loss) inherent in non-U.S.
dollar-denominated, lower quality and emerging market securities.
The Core Plus Fund's lower quality securities may include high yield bonds,
convertible bonds, convertible preferred stocks and warrants and other
securities attached to high yield bonds or other fixed-income securities. Lower
quality securities are securities that, at the time of purchase, are not rated
investment grade by any nationally recognized rating agency and are not
considered to be of investment grade quality by the investment manager. Although
the Core Plus Fund does not generally seek to eliminate all foreign currency
risk, it may at times use foreign currencies, forward currency contracts and
currency-related derivative instruments, including cross-hedging techniques, to
hedge some or all of its foreign currency exposure.
In managing the Fund's portfolio, the investment manager monitors and
adjusts the Fund's investments to maintain a weighted average asset quality of
BBB or higher, and a duration generally within 1-1/2 years of the Lehman
Brothers Aggregate Bond Index.
-2-
<PAGE>
Equity Funds
State Street Research Core Large Cap Growth Fund
Objective. The State Street Research Core Large Cap Growth Fund (the "Core
Large Cap Growth Fund") seeks to provide long-term growth of capital.
Benchmark. The investment manager measures the performance of the Core
Large Cap Growth Fund by comparing its return to the Standard & Poor's 500
Composite Stock Index (the "S&P 500 Index").
Principal Strategies. The Core Large Cap Growth Fund invests primarily in
stocks believed by the investment manager to have long-term growth potential. In
selecting stocks, the investment manager seeks to identify large capitalization
stocks with sustainable above average earnings growth. Generally, the Core Large
Cap Growth Fund invests in no more than 60 different stocks, with the
investments weighted to reflect the investment manager's highest confidence
ideas. The investment manager may also adjust the sector allocations of the
portfolio relative to the S&P 500 Index. The investment manager attempts to
manage risk by maintaining a moderate predicted tracking error relative to the
S&P 500 Index. While the Core Large Cap Growth Fund emphasizes established
companies, it may also invest in other sizes or types of companies. Current
income is not a significant factor in stock selection.
For cash management purposes, the Core Large Cap Growth Fund may also
invest in U.S. government securities, commercial paper rated A-1 or better by
Standard & Poor's or P-1 or better by Moody's, and other cash equivalents.
State Street Research Large Cap Growth Fund
Objective. The State Street Research Large Cap Growth Fund (the "Large Cap
Growth Fund") seeks to provide long-term growth of capital.
Benchmark. The investment manager measures the performance of the Large Cap
Growth Fund by comparing its total return to the Russell 1000 Growth Index.
Principal Strategies. The Large Cap Growth Fund invests primarily in the
same types of securities as the Core Large Cap Growth Fund. This Fund may be
more volatile than the Core Large Cap Growth Fund, however, because a higher
percentage of the Large Cap Growth Fund's assets are expected to be invested in
stocks of companies listed in the Russell 1000 Growth Index, which tracks growth
companies included among the 1,000 largest U.S. companies based on total market
capitalization. The Large Cap Growth Fund's more aggressive growth style is also
reflected in its greater emphasis on growth sectors, currently including
technology and health care, relative to the S&P 500 Index.
-3-
<PAGE>
PRINCIPAL RISKS
The Funds' shares will change in value, and you could lose money by
investing in the Funds. The Funds may not achieve their respective Objectives.
Principal Risks -- Fixed Income Funds
Because the Core Fixed Fund and the Core Plus Fund invest primarily in
bonds and other debt securities, their major risks are those of bond investing,
including the tendency of prices to fall when interest rates rise. There is also
the risk that bond issuers may default on principal or interest payments. In
general, the risks associated with fixed income investing are greater for bonds
with longer maturities.
Lower quality fixed income securities, such as may be held by the Core Plus
Fund, generally are considered to be speculative investments and involve greater
risks and market price fluctuations than higher quality securities. The prices
of most lower quality securities are vulnerable to economic recessions, when it
becomes difficult for issuers to generate sufficient cash flow to pay principal
and interest. Many lower quality securities are also affected by weak equity
markets, when issuers find it hard to improve their financial condition by
replacing debt with equity and when investors, such as the Funds, find it hard
to sell their lower quality securities at fair prices. In addition, the value of
a lower quality security will usually fall substantially if an issuer defaults
or goes bankrupt. Even anticipation of defaults by certain issuers, or the
perception of economic or financial weakness, may cause the market for lower
quality securities to fall.
Both U.S. dollar-denominated and non-U.S. dollar-denominated securities of
non-U.S. issuers involve additional risks to those presented by securities of
U.S. issuers. They are generally more volatile and less liquid than their U.S.
counterparts, in part because of higher political and economic risks, lack of
reliable information and fluctuations in currency exchange rates. For non-U.S.
dollar-denominated securities, such as may be held by the Core Plus Fund,
changes in currency exchange rates have the potential to reduce or eliminate
certain gains achieved in securities markets or to create net losses. These
risks are usually higher for investments in developing and emerging market
countries.
Mortgage-related securities, which represent interests in pools of
mortgages, may offer attractive yields but generally carry additional risks. The
prices and yields of mortgage-related securities typically assume that the
securities will be redeemed at a given time before maturity. When interest rates
fall substantially, these securities usually are redeemed early because the
underlying mortgages are often prepaid. The Funds would then have to reinvest
the money at a lower rate. In addition, the price or yield of mortgage-related
securities may fall if they are redeemed later than expected.
Like mortgage-related securities, other types of asset-backed securities
represent interests in pools of assets, for example retail installment loans and
revolving credit receivables such as credit card receivables. They are subject
to prepayment risks similar to those of mortgage-related securities, and to
delays in payment due to unanticipated legal or administrative costs.
-4-
<PAGE>
The main risk from the Core Fixed and Core Plus Funds' use of derivatives
is that some types of derivatives can amplify a gain or loss, potentially
earning or losing substantially more money than the actual cost of the
derivative. With some derivatives, whether used for hedging or investment, there
is also the risk that the counterparty may fail to honor its contract terms,
causing a loss for a Fund. The Core Fixed and Core Plus Funds' use of
derivatives will be consistent with their portfolio credit quality and duration
management policies described above.
Principal Risks -- Equity Funds
Because the Core Large Cap Growth and Large Cap Growth Funds invest
primarily in stocks, their major risks are those of stock investing, including
sudden, unpredictable drops in value and the potential for periods of lackluster
performance. In addition, growth stocks are generally more volatile than many
other types of equity investments, such as value stocks and general stock
indices, because more of their present market value is derived from future
earnings expectations. At times when it appears these expectations may not be
met, growth stock prices typically fall.
There are particular risks associated with investing in companies of a
given size. Larger, more established companies may be less able to respond
quickly to competitive challenges, such as changes in technology and consumer
tastes. Smaller companies may be particularly sensitive to adverse market and
other developments, since they often have limited product lines or resources
compared to their larger competitors, and may depend on a small or less
experienced management group. Stocks of these companies may be thinly traded and
the companies may be less able to withstand short-term or long-term adverse
economic conditions than larger companies.
Because of these and other risks, the Core Large Cap Growth and Large Cap
Growth Funds may under- perform certain other stock funds (those emphasizing
value stocks, for example) during periods when growth stocks are out of favor.
The success of each Fund's investment strategy relative to its benchmark depends
largely on the investment manager's skill in assessing the potential of the
stocks the Fund buys.
-5-
<PAGE>
INVESTOR EXPENSES
The information in the following expense tables describes the expenses that
will be incurred by investors in the Funds. Investors should keep in mind that
the examples are for comparison purposes only. A Fund's actual performance and
expenses may be higher or lower.
Investor Expenses
Core Fixed Income Fund
<TABLE>
<CAPTION>
Annual Fund Expenses (deducted from the Fund's assets, and Expenses deducted from Fund assets -- as a % of
therefore paid indirectly by all Fund investors.) average net assets
- --------------------------------------------------------------------------------------------------------------------
Class I* Class II* Class III* Class IV*
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fee(1) 0.40 0.40 0.40 0.40
Other Expenses
Shareholder Service Fee 0.30 0.20 0.10 0.05
Other 0.45 0.45 0.45 0.45
Total Other Expenses 0.75 0.65 0.55 0.50
Total Annual Fund Operating Expenses 1.15 1.05 0.95 0.90
Fee Waiver and Expense Reimbursement 0.65 0.65 0.65 0.65
Net Annual Fund Expenses 0.50 0.40 0.30 0.25
</TABLE>
<TABLE>
<CAPTION>
Example Years Held Expenses deducted from Fund assets -- as a dollar
amount on $10,000 invested
- --------------------------------------------------------------------------------------------------------------------
Class I* Class II* Class III* Class IV*
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 $ 51 $ 41 $ 31 $ 26
3 $160 $128 $ 97 $ 80
</TABLE>
The Example converts the "Net Annual Fund Expenses" shown in the expense table
into dollar amounts, and is designed to allow investors to compare the estimated
costs of each Fund with those of other mutual funds. The example illustrates the
costs an investor would incur on an initial investment of $10,000 held for the
number of years indicated, assuming the investor reinvests all distributions and
earns a hypothetical 5% annual return. Investors should keep in mind that the
example is for comparison purposes only. A Fund's actual performance and
expenses may be higher or lower.
(1) The investment manager has contractually agreed to waive Management fees and
bear or reimburse certain other Fund operating expenses such that Total Annual
Fund operating expenses do not exceed 0.20%, excluding shareholder service fees,
brokerage costs, taxes and certain other expenses through June 1, 2000 and
thereafter until the investment manager has given six months' notice of the
termination of such agreement.
* Class descriptions begin on page 10.
-6-
<PAGE>
Investor Expenses
Core Plus Fixed Income Fund
<TABLE>
<CAPTION>
Annual Fund Expenses (deducted from the Fund's assets, and Expenses deducted from Fund assets -- as a % of
therefore paid indirectly by all Fund investors.) average net assets
- --------------------------------------------------------------------------------------------------------------------
Class I* Class II* Class III* Class IV*
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fee(1) 0.40 0.40 0.40 0.40
Other Expenses
Shareholder Service Fee 0.30 0.20 0.10 0.05
Other 0.45 0.45 0.45 0.45
Total Other Expenses 0.75 0.65 0.55 0.50
Total Annual Fund Operating Expenses 1.15 1.05 0.95 0.90
Fee Waiver and Expense Reimbursement 0.65 0.65 0.65 0.65
Net Annual Fund Expenses 0.50 0.40 0.30 0.25
</TABLE>
<TABLE>
<CAPTION>
Example Year Held Expenses deducted from Fund assets -- as a dollar
amount on $10,000 invested
- --------------------------------------------------------------------------------------------------------------------
Class I* Class II* Class III* Class IV*
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 $51 $41 $31 $26
3 $160 $128 $97 $80
</TABLE>
The Example converts the "Net Annual Fund Expenses" shown in the expense table
into dollar amounts, and is designed to allow investors to compare the estimated
costs of each Fund with those of other mutual funds. The example illustrates the
costs an investor would incur on an initial investment of $10,000 held for the
number of years indicated, assuming the investor reinvests all distributions and
earns a hypothetical 5% annual return. Investors should keep in mind that the
example is for comparison purposes only. A Fund's actual performance and
expenses may be higher or lower.
(1) The investment manager has contractually agreed to waive Management fees and
bear or reimburse certain other Fund operating expenses such that Total Annual
Fund operating expenses do not exceed 0.20%, excluding shareholder service fees,
brokerage costs, taxes and certain other expenses through June 1, 2000 and
thereafter until the investment manager has given six months' notice of the
termination of such agreement.
* Class descriptions begin on page 10.
-7-
<PAGE>
Investor Expenses
Core Large Cap Growth Fund
<TABLE>
<CAPTION>
Annual Fund Expenses (deducted from the Fund's assets, and (Expenses deducted from Fund assets -- as a % of
therefore paid indirectly by all Fund investors.) average net assets)
- --------------------------------------------------------------------------------------------------------------------
Class I* Class II* Class III* Class IV*
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fee(1) 0.55 0.55 0.55 0.55
Other Expenses
Shareholder Service Fee 0.30 0.20 0.10 0.05
Other 0.45 0.45 0.45 0.45
Total Other Expenses 0.75 0.65 0.55 0.50
Total Annual Fund Operating Expenses 1.30 1.20 1.10 1.05
Fee Waiver and Expense Reimbursement 0.65 0.65 0.65 0.65
Net Annual Fund Expenses 0.65 0.55 0.45 0.40
</TABLE>
<TABLE>
<CAPTION>
Example Year Held Expenses deducted from Fund assets -- as a dollar
amount on $10,000 invested
- --------------------------------------------------------------------------------------------------------------------
Class I* ClassII* Class III* Class IV*
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 $66 $56 $46 $41
3 $208 $176 $144 $128
</TABLE>
The Example converts the "Net Annual Fund Expenses" shown in the expense table
into dollar amounts, and is designed to allow investors to compare the estimated
costs of each Fund with those of other mutual funds. The example illustrates the
costs an investor would incur on an initial investment of $10,000 held for the
number of years indicated, assuming the investor reinvests all distributions and
earns a hypothetical 5% annual return. Investors should keep in mind that the
example is for comparison purposes only. A Fund's actual performance and
expenses may be higher or lower.
(1) The investment manager has contractually agreed to waive Management fees and
bear or reimburse certain other Fund operating expenses such that Total Annual
Fund operating expenses do not exceed 0.35%, excluding shareholder service fees,
brokerage costs, taxes and certain other expenses through June 1, 2000 and
thereafter until the investment manager has given six months' notice of the
termination of such agreement.
* Class descriptions begin on page 10.
-8-
<PAGE>
Investor Expenses
Large Cap Growth Fund
<TABLE>
<CAPTION>
Annual Fund Expenses (deducted from the Fund's assets, and (Expenses deducted from Fund assets -- as a % of
therefore paid indirectly by all Fund investors.) average net assets)
- --------------------------------------------------------------------------------------------------------------------
Class I* Class II* Class III* Class IV*
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fee(1) 0.55 0.55 0.55 0.55
Other Expenses
Shareholder Service Fee 0.30 0.20 0.10 0.05
Other 0.45 0.45 0.45 0.45
Total Other Expenses 0.75 0.65 0.55 0.50
Total Annual Fund Operating Expenses 1.30 1.20 1.10 1.05
Fee Waiver and Expense Reimbursement 0.65 0.65 0.65 0.65
Net Annual Fund Expenses 0.65 0.55 0.45 0.40
</TABLE>
<TABLE>
<CAPTION>
Example Year Held Expenses deducted from Fund assets -- as a dollar
amount on $10,000 invested
- --------------------------------------------------------------------------------------------------------------------
Class I* Class II* Class III* Class IV*
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 $66 $56 $46 $41
3 $208 $176 $144 $128
</TABLE>
The Example converts the "Net Annual Fund Expenses" shown in the expense table
into dollar amounts, and is designed to allow investors to compare the estimated
costs of each Fund with those of other mutual funds. The example illustrates the
costs an investor would incur on an initial investment of $10,000 held for the
number of years indicated, assuming the investor reinvests all distributions and
earns a hypothetical 5% annual return. Investors should keep in mind that the
example is for comparison purposes only. A Fund's actual performance and
expenses may be higher or lower.
(1) The investment manager has contractually agreed to waive Management fees and
bear or reimburse certain other Fund operating expenses such that Total Annual
Fund operating expenses do not exceed 0.35%, excluding shareholder service fees,
brokerage costs, taxes and certain other expenses through June 1, 2000 and
thereafter until the investment manager has given six months' notice of the
termination of such agreement.
* Class descriptions begin on page 10.
-9-
<PAGE>
INVESTMENT MANAGER
The Funds' investment manager is State Street Research & Management
Company, One Financial Center, Boston, MA 02111. The firm traces its heritage
back to 1924 and the founding of one of America's first mutual funds. Today the
firm has more than $[ ] billion in assets under management (as of April __,
1999).
The investment manager is responsible for the Funds' investment and
business activities, and receives the management fee from each Fund. The
investment manager has contractually agreed to waive Management fees and bear or
reimburse certain other Fund operating expenses such that Total Annual Fund
operating expenses do not exceed 0.20%, excluding shareholder service fees,
brokerage costs, taxes and certain other expenses through June 1, 2000 and
thereafter until the investment manager has given six months' notice of the
termination of such agreement. The investment manager is a subsidiary of
Metropolitan Life Insurance Company.
The investment manager's Core Fixed Income Team has been responsible for
the Core Fixed and Core Plus Fixed Funds' day-to-day portfolio management since
each Fund's inception in June 1999. The investment manager's Large Cap Growth
Team has been responsible for the Core Large Cap and Large Cap Funds' day-to-day
portfolio management since each Fund's inception in June 1999.
CLASSES OF SHARES
Share Classes
Each Fund offers four classes of shares: Class I, Class II, Class III and
Class IV. The sole economic difference among the classes is the level of
shareholder service fee borne by each for shareholder service, reporting and
other support. These differences reflect the lower costs of servicing
shareholder accounts as a percentage of assets for larger accounts. Class I
shares of the Equity Funds may only be purchased by certain institutional
investors, such as retirement plans, foundations, endowments, corporations,
partnerships, trusts, or similar institutional investors ("Institutional
Investors"). Institutional Investors, as well as natural persons with existing
advisory relationships with State Street Research & Management Company ("Private
Clients"), may purchase Class I shares of the Fixed Income Funds and Class II,
Class III and Class IV shares of all Funds.
The Funds have entered into a Servicing Agreement with State Street
Research & Management Company under which the classes pay the following
shareholder service fees, (expressed as an annual percentage of the average
daily net assets of each class of shares): Class I shares -- 0.30%, Class II
shares -- 0.20%, Class III shares -- 0.10%, and Class IV shares -- 0.05%
-10-
<PAGE>
Eligibility for Classes -- New Investors
A new investor's eligibility for a particular class of shares of the Funds
depends primarily on the investor's aggregate amount invested in all of the
Funds (the "Initial Investment"). The Initial Investment must equal the "Minimum
Total Investment" shown in the table below to be eligible for a particular class
of shares of the Funds. As noted above, only Institutional Investors may
purchase Class I shares of the Equity Funds.
<TABLE>
<CAPTION>
All Funds Minimum Total
Investment
- ----------------------------------------
<S> <C>
Class I $ 1 million
Class II $ 5 million
Class III $15 million
Class IV $25 million
- ----------------------------------------
</TABLE>
Eligibility and Conversion Between Classes -- Existing Shareholders
To be eligible to purchase a particular class of shares of any Fund, an
existing shareholder's "Total Investment" must equal the applicable Minimum
Total Investment shown in the table above. The Total Investment for a
shareholder will be determined by the investment manager on the last business
day of each calendar quarter, or on such other dates as the investment manager
may select (each a "Measuring Date"). A shareholder's Total Investment will
equal the aggregate net asset value of the shareholder's shares of all the Funds
as of a particular Measuring Date.
Depending on a shareholder's Total Investment, the shareholder's shares in
any Fund will automatically convert to a different class of shares of that same
Fund, as follows:
[bullet] If the shareholder's Total Investment is less than 95% of the Minimum
Total Investment for the shareholder's existing class of shares, the
shares will convert to the class of shares with the lowest shareholder
service fee for which the shareholder is eligible on the Measuring
Date. 95% of the Minimum Total Investment for the four classes of
shares equals $950,000 (Class I), $4.75 million (Class II), $14.25
million (Class III) and $23.75 million (Class IV). Although not
available to Private Clients when making an initial investment, shares
held by current Private Client shareholders may convert to Class I
shares as described.
[bullet] If the shareholder's Total Investment is equal to or greater than the
Minimum Total Investment for a class of shares with a lower shareholder
service fee than that which is borne by the shareholder's existing
class, the shares will convert to
-11-
<PAGE>
the class of shares with the lowest shareholder service fee for which
the shareholder is eligible on the Measuring Date.
All conversions will occur within 10 business days following the Measuring Date.
BUYING, EXCHANGING AND SELLING SHARES
General Information
If you have questions regarding how to purchase, exchange or sell Fund
shares, contact your State Street Research client service representative. If for
any reason you are unable to reach your State Street Research client service
representative, please call 1-800-521-6548. Whenever communicating in writing,
please address all correspondence to State Street Research Institutional Funds
at One Financial Center, Boston, MA 02111.
Timing of Requests. All requests to buy or sell shares received in good
order by State Street Research before the close of regular trading on the New
York Stock Exchange (normally 4:00 p.m. eastern time) will be executed the same
day, at the day's closing share price. Requests received thereafter will be
executed the following day, at that day's closing share price.
Telephone Requests. When you open an account you automatically receive
telephone privileges, allowing you to place requests for your account by
telephone. For your protection, all telephone calls may be recorded. As long as
State Street Research takes certain measures to authenticate telephone requests
on your account, you may be held responsible for unauthorized requests.
Unauthorized telephone requests are rare, but if you want to protect yourself
completely, you can decline the telephone privilege on your application. A Fund
may suspend or eliminate the telephone privilege at any time.
Confirmations. The Fund will send shareholders written confirmation
(including a statement of shares owned) at the time of each transaction.
Opening an Account
A State Street Research Institutional Funds account (an "Account") may be
opened by calling or writing your State Street Research client service
representative to obtain an application.
Buying Shares
The Core Fixed and Core Plus Fixed Funds require initial purchases of
shares to be in minimum amounts of $1,000,000 for all investors. The Core Large
Cap Growth and Large Cap Growth Funds require initial purchases to be in minimum
amounts of $1,000,000 for Institutional Investors and $5,000,000 for Private
Clients. For more information about your eligibility for different classes of
shares, see the preceding "Classes of Shares" section.
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All orders to purchase shares are subject to acceptance by a Fund.
Purchases will be made in full and fractional shares, calculated to three
decimal places.
Investors should call their State Street Research client service
representative at 1-800-521-6548 before attempting to place an order for Fund
shares. Investors have the following two options for buying shares:
Cash Purchase Option
<TABLE>
<CAPTION>
To Open an Account To Add to an Account
<S> <C> <C>
By Federal Funds Wire Call State Street Call State Street
Research to obtain an Research to obtain a
account number and control number. Instruct
forward your application your bank to
to State Street Research. wire funds to:
Wire funds using the o State Street Bank and
instructions at right. Trust Company, Boston, MA
o ABA: 011000028
o BNF: Fund name and
share class you want to buy
o AC: 99029761
o OBI: your name and your
account number
o Control: the number
given to you by State
Street Research
By Mail Make your check payable Fill out investment
to "State Street Research instructions or indicate
Institutional Funds." the Fund name and account
Forward the check and number on your check.
your application to State Make your check payable
Street Research. to "State Street Research
Institutional Funds."
Forward the check and
instructions to State
Street Research.
</TABLE>
In-Kind Purchase Option
Shares of each Fund may be purchased partly or entirely in exchange for
securities, but only subject to the investment manager's determination that the
securities to be exchanged are acceptable. In all cases, the investment manager
reserves the right to reject any particular investment. Securities accepted by
the investment manager in exchange for Fund shares will be valued as set forth
under "Determination of Net Asset Value" as of the time of the next
determination of net asset value. All dividends, interest, subscription or other
rights which are accrued or reflected in the market value of accepted securities
plus any accrued income at the time of valuation become the property of the
relevant Fund and must be delivered to the Fund
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upon receipt by the investor from the issuer. A gain or loss for federal income
tax purposes may be realized by investors subject to federal income taxation
upon the exchange, depending upon the investor's basis in the securities
tendered.
The investment manager will not approve the acceptance of securities in
exchange for Fund shares unless (1) the investment manager, in its sole
discretion, believes the securities are appropriate investments for the Fund;
(2) the investor represents and agrees that all securities offered to the Fund
are not subject to any restrictions upon their sale by the Fund under the
Securities Act of 1933, or otherwise; and (3) the securities may be acquired
under the relevant Fund's investment restrictions. Investors interested in
making in-kind purchases should telephone their State Street Research client
service representative or call 1-800-521-6548.
Paying for Shares by Wire. Funds may be wired between 8:00 a.m. and 4:00
p.m. eastern time. To make a same day wire investment, please notify State
Street Research by 12:00 noon eastern time of your intention to wire funds, and
make sure your wire arrives prior to the close of trading that day on the New
York Stock Exchange (normally 4:00 p.m. eastern time).
Exchanging Shares
Shareholders of any Institutional Fund may exchange their shares for shares
of any other Institutional Fund without payment of any exchange fees.
Shareholders interested in exchanging shares of one Fund for shares of a
different Fund should contact their State Street Research client service
representative.
Selling Shares
Shares of each Fund may be redeemed on any day when the New York Stock
Exchange is open for regular trading. The redemption price is the net asset
value per share next determined after receipt of the redemption request in good
order. In order to help facilitate the timely payment of redemption proceeds, it
is recommended that investors telephone their State Street Research client
services representative at least two days prior to submitting a request.
Methods for Selling Shares
By Telephone As long as the transaction does not require a
written request, you can sell shares by calling
State Street Research.
By Mail Send a letter of instruction to State Street
Research. Specify the Fund, the account number,
the dollar value or number of shares and your
desired payment option (see below). Be sure to
include all necessary signatures and any
additional documents as may be requested by the
Fund.
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<PAGE>
Payment Options
By Federal Funds Wire Check with State Street Research to make sure that
a wire redemption privilege, including a bank
designation, is in place on your account. Once
this is established, you may place your request to
sell shares with State Street Research. Proceeds
will be wired to your predesignated bank account.
Proceeds sent by federal funds wire must total at
least $5,000.
By Check A check will be mailed to the account's address of
record.
In-Kind Redemption of Shares
With respect to any shareholder, a Fund is only obligated to satisfy
redemption requests in cash to the extent of the lesser of 1% of the Fund's
total assets or $250,000 in any 90 day period. If the investment manager
determines, in its sole discretion, that it would be detrimental to the best
interests of the remaining shareholders of a Fund to make payment wholly or
partly in cash, the Fund may satisfy any redemption request in excess of such
amount in whole or in part by a distribution in kind of readily marketable
securities held by the Fund in lieu of cash. Securities used to redeem Fund
shares in kind will be valued in accordance with the relevant Fund's procedures
for valuation described under "Valuation and Other Policies - Calculating Share
Price." Investors generally will incur brokerage charges on the sale of any such
securities so received in payment of redemptions. In-kind redemptions will be
transferred and delivered as directed by the investor.
Other Information on Selling Shares
Payment on redemption will generally be made as promptly as possible.
However, a Fund may delay sending you redemption proceeds for up to seven days
after the request for a redemption is received by a Fund in good order, and may
under certain circumstances suspend the right of redemption. See "Valuation and
Other Policies -- Additional Policies". A redemption request is in good order if
it includes the correct name in which shares are registered, the investor's
account number and the number of shares or the dollar amount of shares to be
redeemed and if it is signed correctly in accordance with the form of
registration. Persons acting in a fiduciary capacity, or on behalf of a
corporation, partnership or trust, must specify, in full, the capacity in which
they are acting.
If you sell shares before the check for those shares has been collected,
you will not receive the proceeds until your initial payment has cleared. This
may take up to 15 days after your purchase was recorded (in rare cases, longer).
If you open an account with shares purchased by wire, you cannot sell those
shares until your application has been processed.
Circumstances that Require Written Requests. Please submit instructions in
writing when any of the following apply:
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[bullet] the name, authorized signatory, mailing address or client bank account
has changed within the last 30 days
[bullet] you want the proceeds to go to a name or address not on the account
registration
[bullet] you are transferring shares to an account with a different registration
When opening an account with the Funds, shareholders will be required to
designate the account(s) to which funds or securities may be transferred upon
redemption. Designation of additional accounts and any change in the accounts
originally designated must be made in writing, together with such documentation
as may be requested by the Fund. All redemption proceeds and other distributions
will be sent to the account or address of record, unless the Fund is instructed
otherwise in writing, together with such documentation as may be requested by
the Fund.
State Street Research will attempt to notify you promptly if any
information necessary to process your request is missing.
DISTRIBUTIONS
Each Fund distributes its net investment income and net capital gains
(collectively "distributions") to shareholders. The Fixed Income Funds declare
and pay dividends from net investment income quarterly. Net capital gains, if
any, are distributed around the end of a Fixed Income Fund's fiscal year, which
is January 31. The Equity Funds typically distribute both their net investment
income and net capital gains, if any, around the end of their fiscal year, which
is also January 31. To comply with tax regulations, a Fund may also pay an
additional capital gains distribution in December.
A shareholder may have distributions from a Fund reinvested in the Fund or
paid in cash. Distributions will be automatically reinvested in the Fund unless
other instructions are given to State Street Research. Cash distributions will
be mailed out by check or routed directly to the bank account designated by the
investor.
VALUATION AND OTHER POLICIES
Calculating Share Price. The Funds calculate their share price every
business day at the close of regular trading on the New York Stock Exchange
(normally 4:00 p.m. eastern time). The share price is a Fund's total assets
minus its liabilities divided by the number of existing shares (net asset value,
or NAV).
In calculating its NAV, a Fund uses the last reported sale price or
quotation for portfolio securities at the close of regular trading on the New
York Stock Exchange that day. However, in cases where these are unavailable, or
when the investment manager believes that subsequent events have rendered them
unreliable, a Fund may use fair-value estimates instead.
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Because foreign securities markets are sometimes open on different days
from U.S. markets, there may be instances when the value of a Fund's portfolio
changes on days when you cannot buy or sell Fund shares.
Accounts with Low Balances. If the value of a shareholder's account in any
Fund falls below $500,000, State Street Research may, if the shareholder's
account in that Fund is not increased to at least $1,000,000 within 60 days
after notice is mailed to the shareholder, sell the shareholder's shares and
mail the proceeds to the shareholder's address of record.
The Funds' Business Hours. The Funds are open the same days as the New York
Stock Exchange (generally Monday through Friday). State Street Research client
service representatives are available from 9:00 a.m. to 5:00 p.m. eastern time
on these days.
Additional Policies. Please note that the Funds maintain additional
policies and reserve certain rights, including:
[bullet] A Fund may vary its requirements for initial or additional investments,
exchanges, and reinvestments.
[bullet] At any time, a Fund may change any of its order acceptance practices,
and may suspend the sale of its shares.
[bullet] Each Fund may suspend the right of redemption and may postpone payment
for more than seven days when the New York Stock Exchange is closed for
other than weekends or holidays, or during any other period permitted
by the SEC for the protection of investors.
[bullet] Certificates are not available to be issued for any Fund or class.
TAX CONSIDERATIONS
An investor subject to federal income tax whose investment is not in a
tax-deferred or non-taxable account may want to avoid:
[bullet] investing a large amount in a Fund close to the end of the fiscal year
or a calendar year (if the Fund makes a capital gains distribution, the
investor will receive some of the investor's investment back, as a
taxable distribution);
[bullet] selling shares at a loss for tax purposes and investing in a
substantially identical investment (such as the same Fund or a similar
Fund) within 30 days before or after such sale (such a transaction is
usually considered a "wash sale," and an investor will not be allowed
to claim a tax loss on a wash sale).
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The Funds have been advised by counsel that the conversion of a
shareholder's investment from one class of shares to another class of shares in
the same Fund should not result in the recognition of gain or loss in the
converted Fund's shares. The shareholder's tax basis in the new class of shares
immediately after the conversion should equal the shareholder's basis in the
converted shares immediately before conversion, and the holding period of the
new class of shares should include the holding period of the converted shares.
Tax Effects of Distributions and Transactions. Each Fund intends to qualify
as a regulated investment company under the Internal Revenue Code and to meet
all other requirements necessary in order for the Fund not to be subject to
federal income taxes on the ordinary income and net realized capital gain that
it distributes to its shareholders.
In general, distributions of investment income and short-term capital gains
(i.e., gains from assets that the Fund has held for one year or less) will be
taxable to shareholders subject to federal income tax as ordinary income.
Corporate shareholders may be entitled to a dividends received deduction with
respect to certain designated dividends. Capital gain distributions relating to
gains from assets held by the Fund for more than one year will be taxable to
shareholders subject to federal income tax as long-term capital gain.
Distributions will be taxable to a shareholder as described above even if
they are paid from income earned or gains realized by a Fund prior to the
shareholder's investment and thus were included in the price paid by the
shareholder for its shares. In addition, distributions by a Fund will be taxable
as described above regardless of whether the shareholder receives the
distributions in cash or has them reinvested in the Fund. Every year, each Fund
will provide each shareholder with information detailing the amount of ordinary
income and capital gains distributed to the shareholder for the previous year.
A Fund's investments in foreign securities may be subject to foreign
withholding taxes. In that case, the Fund's yield on those securities would be
decreased. Shareholders generally will not be entitled to claim a credit or
deduction with respect to foreign taxes. In addition, the Fund's investment in
foreign securities or foreign currencies may affect the amount or timing of
taxes payable by shareholders.
The exchange or redemption of shares may produce a gain or loss, and is a
taxable event. A loss incurred with respect to shares of a Fund held for six
months or less will be treated as a long-term capital loss to the extent of any
capital gains distributions with respect to such shares.
A shareholder's investment in a Fund could be subject to state, local or
foreign taxes and could have additional tax consequences. Shareholders should
consult their tax advisers regarding the precise tax consequences of investing
in a Fund in light of each shareholder's particular tax situation.
Backup Withholding. Certain shareholders may be subject to backup
withholding at a rate of 31% of distributions and proceeds if incomplete or
incorrect taxpayer information has
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been provided, if the shareholder has underreported dividends or interest income
in the past, or if proper certification that the shareholder is not subject to
withholding is not provided.
OTHER SECURITIES AND RISKS
The Funds' portfolio securities and investment practices offer certain
opportunities and impose various risks. Major investments and risk factors are
outlined in the Fund descriptions starting on page 1. Each Fund may also use
some or all of the securities and practices that, together with their associated
risks, are described below. Because the types of investments a Fund makes may
change over time, the types of risks affecting the Fund may change as well.
ADRs (American Depositary Receipts). The Equity Funds may invest in ADRs,
which are U.S. dollar-denominated securities backed by foreign securities
deposited in the United States. ADRs are created for trading in U.S. markets,
will fluctuate with the value of the underlying security, reflect changes in
exchange rates and otherwise involve risks associated with foreign securities.
Asset-backed Securities. The Fixed Income Funds may invest in asset-backed
securities, which represent interests in pools of debt (including interests in
pools of debt other than mortgage notes), such as credit card accounts. The
principal risks of asset-backed securities are that on the underlying
obligations, payments may be made more slowly, and rates of default may be
higher, than expected. In addition, because some of these securities are new or
complex, unanticipated problems may affect their value or liquidity.
Convertible Securities. The Equity Funds and the Core Plus Fixed Income
Fund may invest in convertible securities, which are fixed-income securities
that may later convert to an underlying equity security. Prior to conversion,
convertible securities have the same general characteristics as other
fixed-income securities, and the price of a convertible security will normally
fluctuate in response to interest rates and other factors bearing on the price
of fixed income securities when the price of the underlying equity security is
less than the conversion price ("out of the money"). When the price of the
underlying equity security is greater than the conversion price ("in the
money"), the value of the convertible security will normally tend to fluctuate
to a greater extent in conjunction with the price of the underlying equity
security.
Derivatives. All Funds may use derivatives, which are financial instruments
whose value derives from another security, an index, an interest rate or a
currency. Derivatives include options contracts, futures contracts, swap
contracts and other instruments. All Funds may use derivatives for hedging
(attempting to offset a potential loss in one position by establishing an
interest in an opposite position). This includes the use of currency-based
derivatives for hedging a Fund's positions in non-U.S. dollar-denominated
securities, including cross-currency hedging between two currencies other than
the U.S. dollar. All Funds may also use derivatives for liquidity and for
investment purposes (investing for potential income or capital gain).
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<PAGE>
While hedging can guard against potential risk, it adds to a Fund's
expenses and can eliminate some opportunities for gains. There is also a risk
that a derivative intended as a hedge may not perform as expected. In addition,
a Fund's use of derivatives may affect the timing and amount of taxes payable by
shareholders.
The main risk with derivatives is that some types can amplify a gain or
loss, potentially earning or losing substantially more money than the actual
cost of the derivative.
With some derivatives, whether used for hedging or investment, there is
also the risk that the counterparty may fail to honor its contract terms,
causing a loss for a Fund.
Foreign and Non-U.S. Dollar-Dominated Securities. All Funds may invest in
foreign securities, and all Funds except the Core Fixed Fund may invest in
non-U.S. dollar-denominated securities. Both U.S. dollar-denominated and
non-U.S. dollar-denominated securities of non- U.S. issuers involve additional
risks to those presented by securities of U.S. issuers. They are generally more
volatile and less liquid than their U.S. counterparts, in part because of higher
political and economic risks, lack of reliable information and fluctuations in
currency exchange rates. For non-U.S. dollar-denominated securities, changes in
currency exchange rates have the potential to reduce or eliminate certain gains
achieved in a Fund's securities or to create net losses. These risks are usually
higher for investments in developing and emerging market countries.
Investment Companies. When permitted by applicable laws and subject to
certain limits and conditions, the Funds may invest in other investment
companies managed by the investment manager, thereby gaining exposure to certain
types of assets on a more diversified basis than might otherwise be the case.
New Securities. The Fixed Income Funds may invest in newly developed types
of securities and related instruments which have characteristics similar to
other fixed income investments, are being traded through the institutional
trading desks of broker-dealers and asset managers, and have attributes and risk
profiles consistent with the Fund's objective and strategies.
Payment-in-Kind (PIK) Securities. The Fixed Income Funds may invest in
payment-in-kind securities, such as bonds paying current interest payments in
additional bonds instead of cash. Because PIKs do not pay current interest in
cash, their values may fluctuate more widely in response to interest rate
changes than do the values of ordinary bonds.
Repurchase Agreements. All Funds may buy securities with the understanding
that the seller will buy them back with interest at a later date. If the seller
is unable to honor its commitment to repurchase the securities, the Fund could
lose money.
Restricted and Illiquid Securities. All Funds may purchase restricted
securities, including Rule 144A securities. All Funds may purchase illiquid
securities. Any securities
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whose resale is restricted or that are thinly traded can be difficult to sell at
a desired time and price. Some of these securities are new and complex, and
trade only among institutions; the markets for these securities are still
developing, and may not function as efficiently as established markets. Owning a
large percentage of restricted and illiquid securities could hamper a Fund's
ability to raise cash to meet redemptions. Also, because there may not be an
established market price for these securities, the Fund may have to estimate
their value, which means that their valuation -- and the valuation of the Fund
- -- may have a subjective element.
Securities Lending. All Funds may seek additional income by lending
portfolio securities to qualified institutions. By reinvesting any cash
collateral it receives in these transactions, a Fund could realize additional
gains or losses. If the borrower fails to return the securities and the
collateral has declined in value, the Fund could lose money.
Standard & Poor's Depository Receipts (SPDRs). The Equity Funds may invest
in SPDRs, which represent ownership interests in unit investment trusts holding
a portfolio of securities closely reflecting the price performance and dividend
yield of the S&P 500 Index. SPDRs are subject to the same risks as other types
of equity investments. The Equity Funds may also invest in other, similar
securities representing portfolios of index-based pooled investments, including
investments in foreign countries or regions.
Structured Securities. The Fixed Income Funds may invest in structured
securities, which are securities issued by an entity holding underlying
instruments producing cash flows. The cash flows of the underlying instruments
may be apportioned among classes of structured securities to create securities
with different investment characteristics. Other types of structured securities
may be linked by a formula to the price of an underlying instrument. These types
of structured securities are generally more volatile than direct investments in
their underlying instruments.
Warrants. The Fixed Income Funds may invest in warrants and other equity
securities attached to high yield bonds and other fixed-income securities.
Warrants are rights to purchase securities at specific prices valid for a
specific period of time. A warrant's price will normally fluctuate in the same
direction as the prices of its underlying securities, but may have substantially
more volatility. Warrant holders receive no dividends and have no voting rights
with respect to the underlying security.
When-issued Securities. All Funds may invest in securities prior to their
date of issue. These securities could fall in value by the time they are
actually issued, which may be any time from a few days to over a year.
Zero (or Step) Coupons. The Fixed Income Funds may invest in zero coupon
securities. A zero coupon security is a debt security that is purchased and
traded at a discount to its face value because it pays no interest for some or
all of its life. Interest, however, is reported as income to a Fund and the Fund
is required to distribute to shareholders an amount equal to the
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amount reported. Those distributions may force the Fund to liquidate portfolio
securities at a disadvantageous time. These securities involve special credit
and duration risks, as their value could decline substantially by the time
interest is actually paid, which may be any time from a few days to a number of
years.
---------------------------------------------
Changes in Policies. Unless otherwise noted, the Funds' policies (including
each Fund's Objective) are non-fundamental and may be changed without a
shareholder vote.
Defensive Investing. During unusual market conditions, each Fund may place
significant assets in cash or high-quality, short-term debt securities. To the
extent that a Fund does this, it may not be pursuing its Objective. A Fund's
investment manager may choose to keep the Fund fully or primarily invested in
non-cash instruments, irrespective of market conditions.
Management Risk. Although a Fund may have the flexibility to use some or
all of the investment strategies, securities and derivative instruments
described in this prospectus and in the SAI, the Fund's investment manager may
choose not to use a particular strategy or type of security for a variety of
reasons. These choices may cause the Fund to miss opportunities, lose money or
not achieve its Objective.
Portfolio Turnover. Portfolio turnover is not a consideration when making
investment decisions for any Fund. Because the Funds' management approaches may
include short-term trading, the Funds' portfolio turnover rates may be
above-average for similar Funds. High turnover can increase a Fund's transaction
costs (and thus lower total returns) and may increase the tax liability of
shareholders subject to U.S. Federal income tax.
Securities Ratings. When securities are rated by one or more independent
rating agencies, a Fund uses these ratings to determine credit quality. In cases
where a security is rated in conflicting categories by different rating
agencies, a Fund may choose to follow the higher rating.
Year 2000. The investment manager does not currently anticipate that
computer problems related to the year 2000 will have a material effect on the
Funds. However, there can be no assurances in this area, including the
possibility that year 2000 computer problems could adversely affect
communications systems, investment markets, issuers of securities held by the
Funds or the economy in general.
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[Back Cover]
For Additional Information
If you have questions about the Funds or would like to request a free copy of
the current annual/semiannual report or SAI, contact State Street Research.
STATE STREET RESEARCH INSTITUTIONAL FUNDS
One Financial Center
Boston, MA 02111
Telephone: 1-800-521-6548
You can also obtain information about the Funds, including the SAI and certain
other Fund documents, on the Internet at www.sec.gov, in person at the SEC's
Public Reference Room in Washington, DC (telephone 1-800-SEC-0330) or by mail by
sending your request, along with a duplicating fee, to the SEC's Public
Reference Section, Washington, DC 20549-6009.
You can find additional information on the Funds' structure and their
performance in the Statement of Additional Information (SAI). The SAI contains
further information about the Funds and their investment limitations and
policies. It also includes the most recent annual report and the independent
accountants' report. A current SAI for these Funds is on file with the
Securities and Exchange Commission and is incorporated by reference into (is
legally part of) this prospectus.
[ICA No.]
<PAGE>
STATE STREET RESEARCH
INSTITUTIONAL FUNDS
STATEMENT OF ADDITIONAL INFORMATION
June ___, 1999
TABLE OF CONTENTS
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TRUST HISTORY AND CLASSIFICATION................................................................................. 2
ADDITIONAL INVESTMENT POLICIES AND RESTRICTIONS.................................................................. 2
ADDITIONAL INFORMATION CONCERNING INVESTMENTS AND RISKS.......................................................... 4
DEBT INSTRUMENTS AND PERMITTED CASH INVESTMENTS .................................................................19
CLASSES OF SHARES................................................................................................26
TRUSTEES AND OFFICERS............................................................................................28
MANAGEMENT OF THE FUND AND INVESTMENT ADVISORY AND OTHER SERVICES................................................31
PURCHASE AND REDEMPTION OF SHARES................................................................................33
SHAREHOLDER ACCOUNTS.............................................................................................33
NET ASSET VALUE..................................................................................................34
PORTFOLIO TRANSACTIONS...........................................................................................35
CERTAIN TAX MATTERS..............................................................................................38
CALCULATION OF PERFORMANCE DATA..................................................................................42
CUSTODIAN........................................................................................................45
DISTRIBUTOR......................................................................................................45
INDEPENDENT ACCOUNTANTS..........................................................................................46
</TABLE>
The following Statement of Additional Information is not a Prospectus. It
should be read only in conjunction with the Prospectus of the State Street
Research Institutional Funds dated June __, 1999 (the "Prospectus"), which may
be obtained without charge from the offices of State Street Research
Institutional Funds (the "Trust"), One Financial Center, Boston, Massachusetts
02111-2690.
<PAGE>
TRUST HISTORY AND CLASSIFICATION
State Street Research Institutional Funds (the "Trust") is a Massachusetts
business trust organized on March 3, 1999. The Trust is an open-end management
investment company with an unlimited number of authorized shares of beneficial
interest. These shares may be divided into different "series," each of which is
a separately managed pool of assets of the Trust that may have a different
investment objective and different investment policies from the objective and
policies of another series. The Trust's shares are currently divided into four
series: the State Street Research Core Fixed Income Fund, the State Street
Research Core Plus Fixed Income Fund, the State Street Research Core Large Cap
Growth Fund and the State Street Research Large Cap Growth Fund (each a "Fund,"
and collectively, the "Funds"). The Trustees may, without shareholder approval,
create additional series of shares representing additional investment
portfolios. Any such series may, without shareholder approval, be divided into
two or more classes of shares having such preferences and special or relative
rights and privileges as the Trustees determine. Each Fund's shares are
currently divided into four classes: Class I, Class II, Class III and Class IV
shares.
ADDITIONAL INVESTMENT POLICIES AND RESTRICTIONS
The Trust has adopted certain investment restrictions with respect to each
Fund, and those investment restrictions are either fundamental or not
fundamental. Fundamental restrictions with respect to each Fund may not be
changed by the Trust except by the affirmative vote of a majority of the
outstanding voting securities of such Fund. Restrictions that are not
fundamental may be changed by a vote of the Trustees of the Trust. With respect
to the investment restrictions described below, all percentage limitations on
investments apply at the time of investment and shall not be considered violated
unless an excess or deficiency occurs or exists immediately after and as a
result of such investment.
The fundamental and nonfundamental policies of the Fund do not apply to any
matters involving the issuance of multiple classes of shares of the Fund or the
creation or use of structures (e.g. fund of funds, master-feeder structure)
allowing the Fund to invest any or all of its assets in collective investment
vehicles or allowing the Fund to serve as such a collective investment vehicle
for other funds, to the extent permitted by law and regulatory authorities.
The Trust's fundamental investment restrictions with respect to each Fund
are set forth below. Under these restrictions, it is the Trust's policy with
respect to each Fund:
(1) not to purchase a security of any one issuer (other than securities
issued or guaranteed as to principal or interest by the U.S.
Government or its agencies or instrumentalities or mixed-ownership
U.S. Government corporations or sponsored enterprises) if such
purchase would, with respect to 75% of the Fund's total assets, cause
more than 5% of the Fund's total assets to be invested in the
securities of such issuer or cause more than 10% of the voting
securities of such issuer to be held by the Fund;
2
<PAGE>
(2) not to issue senior securities as defined in the 1940 Act, except as
permitted by that Act and the rules, regulations or pronouncements
thereunder or as permitted by the Securities and Exchange Commission
(the creation of general liens or security interests under industry
practices for transactions in portfolio assets are not deemed to
involve the issuance of senior securities);
(3) not to underwrite or participate in the marketing of securities of
other issuers, except (a) the Fund may, acting alone or in syndicates
or groups, purchase or otherwise acquire securities of other issuers
for investment, either from the issuers or from persons in a control
relationship with the issuers or from underwriters of such securities;
and (b) to the extent that, in connection with the disposition of the
Fund's securities, the Fund may be a selling shareholder in an
offering or deemed to be an underwriter under certain federal
securities laws;
(4) not to purchase fee simple interests in real estate unless acquired as
a result of ownership of securities or other instruments, although the
Fund may purchase and sell other interests in real estate including
securities which are secured by real estate, or securities of
companies which make real estate loans or own, or invest or deal in,
real estate;
(5) not to invest in physical commodities or physical commodity contracts
or options in excess of 10% of the Fund's total assets, except that
investments in essentially financial items or arrangements such as,
but not limited to, swap arrangements, hybrids, currencies, currency
and other forward contracts, delayed delivery and when-issued
contracts, futures contracts and options on futures contracts on
securities, securities indices, interest rates and currencies shall
not be deemed investments in commodities or commodities contracts;
(6) not to lend money; however, the Fund may lend portfolio securities and
purchase bonds, debentures, notes, bills and any other debt related
instruments or interests (and enter into repurchase agreements with
respect thereto);
(7) not to make any investment which would cause more than 25% of the
value of the Fund's total assets to be invested in securities of
non-U.S. Government-related issuers principally engaged in any one
industry, as described in the Fund's Prospectus or Statement of
Additional Information as amended from time to time; and
(8) not to borrow money, including reverse repurchase agreements in so far
as such agreements may be regarded as borrowings, except for
borrowings not in an amount in excess of 33-1/3% of the value of its
total assets (including the proceeds of any such borrowings).
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The following investment restrictions are not fundamental and may be
changed with respect to each Fund without shareholder approval. Under these
restrictions, it is the Trust's policy with respect to each Fund:
(1) not to purchase any security or enter into a repurchase agreement if
as a result more than 15% of its net assets would be invested in
securities that are illiquid (including repurchase agreements not
entitling the holder to payment of principal and interest within seven
days);
(2) not to engage in transactions in options except in connection with
options on securities, securities indices, currencies and interest
rates, and options on futures on securities, securities indices,
currencies and interest rates;
(3) not to purchase securities on margin or make short sales of securities
or maintain a short position except for short sales "against the box"
(for the purpose of this restriction, escrow or custodian receipts or
letters, margin or safekeeping accounts, or similar arrangements used
in the industry in connection with the trading of futures, options and
forward commitments are not deemed to involve the use of margin); and
(4) not to purchase a security issued by another investment company,
except to the extent permitted under the 1940 Act or any exemptive
order from the Securities and Exchange Commission or except by
purchases in the open market involving only customary brokers'
commissions, or securities acquired as dividends or distributions or
in connection with a merger, consolidation or similar transaction or
other exchange.
ADDITIONAL INFORMATION CONCERNING
INVESTMENTS AND RISKS
Derivatives
- -----------
To the extent described in the Prospectus, all of the Funds may buy and
sell certain types of derivatives, such as options, futures contracts, options
on futures contracts, and swaps under circumstances in which such instruments
are expected by State Street Research & Management Company, the Fund's
investment manager (the "Investment Manager"), to aid in achieving a Funds'
investment objective. A Fund may also purchase instruments with characteristics
of both futures and securities (e.g., debt instruments with interest and
principal payments determined by reference to the value of a commodity or a
currency at a future time) and which, therefore, possess the risks of both
futures and securities investments.
Derivatives, such as options, futures contracts, options on futures
contracts, and swaps enable a Fund to take both "short" positions (positions
which anticipate a decline in the market value of a particular asset or index)
and "long" positions (positions which anticipate an
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increase in the market value of a particular asset or index). A Fund may also
use strategies which involve simultaneous short and long positions in response
to specific market conditions, such as where the Investment Manager anticipates
unusually high or low market volatility.
All Funds may use derivatives for hedging. The term hedging is applied to
defensive strategies designed to protect a Fund from an expected decline in the
market value of an asset or group of assets that the Fund owns (in the case of a
short hedge) or to protect a Fund from an expected rise in the market value of
an asset or group of assets which it intends to acquire in the future (in the
case of a long or "anticipatory" hedge). This includes the use of currency based
derivatives for hedging a Fund's positions in non-U.S. dollar-denominated
securities, including cross-currency hedging between two currencies other than
the U.S. dollar. See "Currency Transactions." All Funds may also use derivatives
for liquidity purposes. All Funds may use derivatives for investment purposes,
including non-hedging strategies designed to produce incremental income (such as
the option writing strategy described below) or strategies which are undertaken
to profit from (i) an expected decline in the market value of an asset or group
of assets which a Fund does not own or (ii) expected increases in the market
value of an asset which it does not plan to acquire. Information about specific
types of instruments is provided below.
Futures Contracts
Futures contracts are publicly traded contracts to buy or sell an
underlying asset or group of assets, such as a currency or an index of
securities, at a future time at a specified price. A contract to buy establishes
a long position while a contract to sell establishes a short position.
The purchase of a futures contract on an equity security or an index of
equity securities normally enables a buyer to participate in the market movement
of the underlying asset or index after paying a transaction charge and posting
margin in an amount equal to a small percentage of the value of the underlying
asset or index. A Fund will initially be required to deposit with the Trust's
custodian or the futures commission merchant effecting the futures transaction
an amount of "initial margin" in cash or securities, as permitted under
applicable regulatory policies.
Initial margin in futures transactions is different from margin in
securities transactions in that the former does not involve the borrowing of
funds by the customer to finance the transaction. Rather, the initial margin is
like a performance bond or good faith deposit on the contract. Subsequent
payments (called "maintenance margin") to and from the broker will be made on a
daily basis as the price of the underlying asset fluctuates. This process is
known as "marking to market." For example, when a Fund has taken a long position
in a futures contract and the value of the underlying asset has risen, that
position will have increased in value and the Fund will receive from the broker
a maintenance margin payment equal to the increase in value of the underlying
asset. Conversely, when a Fund has taken a long position in a futures contract
and the value of the underlying instrument has declined, the position
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<PAGE>
would be less valuable, and the Fund would be required to make a maintenance
margin payment to the broker.
At any time prior to expiration of the futures contract, a Fund may elect
to close the position by taking an opposite position which will terminate the
Fund's position in the futures contract. A final determination of maintenance
margin is then made, additional cash is required to be paid by or released to
the Fund, and the Fund realizes a loss or a gain. While futures contracts with
respect to securities do provide for the delivery and acceptance of such
securities, such delivery and acceptance are seldom made.
In transactions establishing a long position in a futures contract, assets
equal to the face value of the futures contract will be identified by a Fund to
the Trust's custodian for maintenance in a separate account to insure that the
Fund can meet its obligations under the futures contract, and to minimize the
risk that leverage could cause the Fund's assets to be inadequate to cover its
obligations. Similarly, assets having a value equal to the aggregate face value
of the futures contract will be identified with respect to each short position.
A Fund will utilize such assets and methods of cover as appropriate under
applicable exchange and regulatory policies.
Options
A Fund may use options to implement its investment strategy. There are two
basic types of options: "puts" and "calls." Each type of option can establish
either a long or a short position, depending upon whether the Fund is the
purchaser or the writer of the option. A call option on a security, for example,
gives the purchaser of the option the right to buy, and the writer the
obligation to sell, the underlying asset at the exercise price during the option
period. Conversely, a put option on a security gives the purchaser the right to
sell, and the writer the obligation to buy, the underlying asset at the exercise
price during the option period.
The risk of purchasing an option is equal to the premium paid, regardless
of how the price of the underlying asset changes. The opportunity for gain or
loss from a purchased option is dependent upon increases or decreases in the
value of the underlying asset. In general, a purchased put increases in value as
the value of the underlying security falls and a purchased call increases in
value as the value of the underlying security rises.
The principal reason to write options is to generate extra income (the
premium paid by the buyer). Written options have varying degrees of risk. An
uncovered written call option theoretically carries unlimited risk, as the
market price of the underlying asset could rise far above the exercise price
before its expiration. This risk is tempered when the call option is covered,
that is, when the option writer owns the underlying asset. In this case, the
writer runs the risk of the lost opportunity to participate in the appreciation
in value of the asset rather than the risk of an out-of-pocket loss. A written
put option has defined risk, that is, the difference between the agreed-upon
price that a Fund must pay to the buyer upon exercise of the put and the value,
which could be zero, of the asset at the time of exercise.
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<PAGE>
The obligation of the writer of an option continues until the writer
effects a closing purchase transaction or until the option expires. To secure
its obligation to deliver the underlying asset in the case of a call option, or
to pay for the underlying asset in the case of a put option, a covered writer is
required to deposit in escrow the underlying security or other assets in
accordance with the rules of the applicable clearing corporation and exchanges.
Among the options which a Fund may enter are options on securities indices.
A securities index assigns relative values to the securities included in the
index. In general, options on indices of securities are similar to options on
the securities themselves except that delivery requirements are different. For
example, a put option on an index of securities does not give the holder the
right to make actual delivery of a basket of securities but instead gives the
holder the right to receive an amount of cash upon exercise of the option if the
value of the underlying index has fallen below the exercise price. The amount of
cash received will be equal to the difference between the closing price of the
index and the exercise price of the option expressed in dollars times a
specified multiple. As with options on equity securities or futures contracts, a
Fund may offset its position in index options prior to expiration by entering
into a closing transaction on an exchange or it may let the option expire
unexercised. In connection with the use of such options, a Fund may cover its
position by identifying assets having a value equal to the aggregate face value
of the option position taken.
Options on Futures Contracts
An option on a futures contract gives the purchaser the right, in return
for the premium paid, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the period of the option.
Limitations and Risks of Options and Futures Activity
A Fund may not establish a position in a commodity futures contract or
purchase or sell a commodity option contract for other than bona fide hedging
purposes if immediately thereafter the sum of the amount of initial margin
deposits and premiums required to establish such positions for such non-hedging
purposes would exceed 5% of the market value of the Fund's net assets. The Funds
apply a similar policy to options that are not commodities.
As noted above, a Fund may engage in both hedging and nonhedging
strategies. Although effective hedging can generally capture the bulk of a
desired risk adjustment, no hedge is completely effective. A Fund's ability to
hedge effectively through transactions in futures and options depends on the
degree to which price movements in its holdings correlate with price movements
of the futures and options.
Non-hedging strategies typically involve special risks. The profitability
of a Fund's non-hedging strategies will depend on the ability of the Investment
Manager to analyze both the applicable derivatives market and the market for the
underlying asset or group of assets. Derivatives markets are often more volatile
than corresponding securities markets and a
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<PAGE>
relatively small change in the price of the underlying asset or group of assets
can have a magnified effect upon the price of a related derivative instrument.
Derivatives markets also are often less liquid than the market for the
underlying asset or group of assets. Some positions in futures and options may
be closed out only on an exchange which provides a secondary market therefor.
There can be no assurance that a liquid secondary market will exist for any
particular futures contract or option at any specific time. Thus, it may not be
possible to close such an option or futures position prior to maturity. The
inability to close options and futures positions also could have an adverse
impact on a Fund's ability to effectively carry out their derivative strategies
and might, in some cases, require the Fund to deposit cash to meet applicable
margin requirements. A Fund will enter into an option or futures position only
if it appears to be a liquid investment.
Short Sales Against the Box
- ---------------------------
The Core Large Cap Growth and Large Cap Growth Funds (the "Equity Funds")
may effect short sales, but only if such transactions are short sale
transactions known as short sales "against the box." A short sale is a
transaction in which the Fund sells a security it does not own by borrowing it
from a broker, and consequently becomes obligated to replace that security. A
short sale against the box is a short sale where the fund owns the security sold
short or has an immediate and unconditional right to acquire that security
without additional cash consideration upon conversation, exercise or exchange of
options with respect to securities held in its portfolio. The effect of selling
a security short against the box is to insulate that security against any future
gain or loss.
Swap Arrangements
- -----------------
All Funds may enter into various forms of swap arrangements with
counterparties with respect to, among other things, interest rates, currency
rates, indices or specific securities (or baskets of securities identified by,
among other things, issuers or credit ratings), including purchase of caps,
floors and collars as described below. The Funds, however, do not expect to
invest more than 5% of their net assets in such items. In an interest rate swap,
a Fund could agree for a specified period to pay a bank or investment banker the
floating rate of interest on a so-called notional principal amount (i.e., an
assumed figure selected by the parties for this purpose) in exchange for
agreement by the bank or investment banker to pay a Fund a fixed rate of
interest on the notional principal amount. In a currency swap, a Fund would
agree with the other party to exchange cash flows based on the relative
differences in values of a notional amount of two (or more) currencies; in an
index swap, the Fund would agree to exchange cash flows on a notional amount
based on changes in the values of the selected indices. Purchase of a cap
entitles the purchaser to receive payments from the seller on a notional amount
to the extent that the selected index exceeds an agreed upon interest rate or
amount whereas purchase of a floor entitles the purchaser to receive such
payments to the extent the selected index falls below an agreed-upon interest
rate or amount. A collar combines a cap and a floor.
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<PAGE>
A Fund may enter credit protection swap arrangements involving the sale by
the Fund of a put option on a debt security which is exercisable by the buyer
upon certain events, such as a default by the referenced creditor on the
underlying debt or a bankruptcy event of the creditor.
Most swaps entered into by a Fund will be on a net basis; for example, in
an interest rate swap, amounts generated by application of the fixed rate and
the floating rate to the notional principal amount would first offset one
another, with the Fund either receiving or paying the difference between such
amounts. In order to be in a position to meet any obligations resulting from
swaps, a Fund will designate appropriate liquid assets, including cash or other
portfolio securities; for swaps entered into on a net basis, assets will be
segregated having a daily net asset value equal to any excess of the Fund's
accrued obligations over the accrued obligations of the other party, while for
swaps on other than a net basis assets will be segregated having a value equal
to the total amount of the Fund's obligations.
These arrangements will be made primarily for hedging purposes, to preserve
the return on an investment or on a portion of a Fund's portfolio. However, the
Fund may, as noted above, enter into such arrangements for income purposes to
the extent permitted by the Commodities Futures Trading Commission (the "CFTC")
for entities which are not commodity pool operators, such as the Fund. In
entering a swap arrangement, a Fund is dependent upon the creditworthiness and
good faith of the counterparty. The Fund attempts to reduce the risks of
nonperformance by the counterparty by dealing only with established, reputable
institutions. The swap market is still relatively new and emerging; positions in
swap arrangements may become illiquid to the extent that nonstandard
arrangements with one counterparty are not readily transferable to another
counterparty or if a market for the transfer of swap positions does not develop.
The use of interest rate swaps is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions. If the Investment Manager is incorrect in its
forecasts of market values, interest rates and other applicable factors, the
investment performance of a Fund would diminish compared with what it would have
been if these investment techniques were not used. Moreover, even if the
Investment Manager is correct in its forecasts, there is a risk that the swap
position may correlate imperfectly with the price of the asset or liability
being hedged.
Repurchase Agreements
- ---------------------
All Funds may enter into repurchase agreements. Repurchase agreements occur
when the Fund acquires a security and the seller, which may be either (i) a
primary dealer in U.S. Government securities or (ii) an FDIC-insured bank having
gross assets in excess of $500 million, simultaneously commits to repurchase it
at an agreed-upon price on an agreed-upon date within a specified number of days
(usually not more than seven) from the date of purchase. The repurchase price
reflects the purchase price plus an agreed-upon market rate of interest which is
unrelated to the coupon rate or maturity of the acquired security. A Fund will
only enter into repurchase agreements involving U.S. Government securities.
Repurchase agreements could involve certain risks in the event of default or
insolvency of the other party,
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<PAGE>
including possible delays or restrictions upon a Fund's ability to dispose of
the underlying securities.
Reverse Repurchase Agreements
- -----------------------------
All Funds may enter into reverse repurchase agreements. However, the Fund
has no present intention of engaging in reverse repurchase agreements in excess
of 5% of the Fund's total assets. In a reverse repurchase agreement, the Fund
transfers a portfolio instrument to another person, such as a financial
institution, broker or dealer, in return for a percentage of the instrument's
market value in cash, and agrees that on a stipulated date in the future the
Fund will repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed-upon rate. The ability to use reverse
repurchase agreements may enable, but does not ensure the ability of, the Fund
to avoid selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous.
When effecting reverse repurchase agreements, assets of the Fund in a
dollar amount sufficient to make payment of the obligations to be purchased are
segregated on the Fund's records at the trade date and maintained until the
transaction is settled.
When-Issued Securities
- ----------------------
All Funds may purchase "when-issued" securities, which are traded on a
price or yield basis prior to actual issuance. Such purchases will be made only
to achieve a Fund's investment objective and not for leverage. The when-issued
trading period generally lasts from a few days to months, or over a year or
more; during this period dividends or interest on the securities are not
payable. A frequent form of when-issued trading occurs when corporate securities
to be created by a merger of companies are traded prior to the actual
consummation of the merger. Such transactions may involve a risk of loss if the
value of the securities falls below the price committed to prior to actual
issuance. The Trust's custodian will establish a segregated account when a Fund
purchases securities on a when-issued basis consisting of cash or liquid
securities equal to the amount of the when-issued commitments. Securities
transactions involving delayed deliveries or forward commitments are frequently
characterized as when-issued transactions and are similarly treated by a Fund.
Restricted Securities
- ---------------------
Although all Funds may invest in restricted securities, it is each Funds'
policy not to make an investment in restricted securities, including restricted
securities sold in accordance with Rule 144A under the Securities Act of 1933
("Rule 144A Securities") if, as a result, more than 50% of the Fund's total
assets are invested in restricted securities, provided not more than 15% of the
Fund's total assets are invested in illiquid securities.
Securities may be resold pursuant to Rule 144A under certain circumstances
only to qualified institutional buyers as defined in the rule, and the markets
and trading practices for such securities are relatively new and still
developing; depending on the development of such
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markets, Rule 144A Securities may be deemed to be liquid as determined by or in
accordance with methods adopted by the Trustees. Under such methods the
following factors are considered, among others: the frequency of trades and
quotes for the security, the number of dealers and potential purchasers in the
market, market making activity, and the nature of the security and marketplace
trades. Investments in Rule 144A Securities could have the effect of increasing
the level of a Fund's illiquidity to the extent that qualified institutional
buyers become, for a time, uninterested in purchasing such securities. Also, a
Fund may be adversely impacted by the subjective valuation of such securities in
the absence of a market for them. Restricted securities that are not resalable
under Rule 144A may be subject to risks of illiquidity and subjective valuations
to a greater degree than Rule 144A Securities.
Other Investment Companies
- --------------------------
All Funds may invest in securities of other investment companies, such as
closed-end management investment companies, hub and spoke (master/feeder) funds,
fund of funds, or in pooled accounts or other similar investment vehicles. As a
shareholder of an investment company, a Fund may indirectly bear fees and
expenses in addition to the fees the Fund pays its service providers.
Mortgage-Related Securities
- ---------------------------
The Core Fixed Income and Core Plus Fixed Income Funds (the "Fixed Income
Funds") may invest in mortgage-related securities. Mortgage-related securities
represent interests in pools of commercial or residential mortgage loans. Some
mortgage-related securities provide a Fund with a flow-through of interest and
principal payments as such payments are received with respect to the mortgages
in the pool. Mortgage-related securities may be issued by U.S. Government
agencies, instrumentalities or mixed-ownership corporations or sponsored
enterprises, and the securities may or may not be supported by the credit of
such entities. Mortgage-related securities may also be issued by private
entities such as investment banking firms, insurance companies, mortgage bankers
and home builders. An issuer may offer senior or subordinated securities backed
by the same pool of mortgages. The senior securities have priority to the
interest and/or principal payments on the mortgages in the pool; the subordinate
securities have a lower priority with respect to such payments on the mortgages
in the pool.
Mortgage-related securities also include stripped securities which have
been divided into separate interest and principal components. Holders of the
interest components of mortgage related securities will receive payments of the
interest only on the current face amount of the mortgages and holders of the
principal components will receive payments of the principal on the mortgages.
"Interest only" securities are known as IOs; "principal only" securities are
known as POs.
In the case of mortgage-related securities, the possibility of prepayment
of the underlying mortgages which might be motivated, for instance, by declining
interest rates, could lessen the potential for total return in mortgage-backed
securities. When prepayments of
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mortgages occur during periods of declining interest rates, a Fund will have to
reinvest the proceeds in instruments with lower effective interest rates.
In the case of stripped securities, in periods of low interest rates and
rapid mortgage prepayments, the value of IOs for mortgage-related securities can
decrease significantly. There is no assurance that the market for IOs and POs
will operate efficiently or provide liquidity in the future. Stripped securities
are extremely volatile in certain interest rate environments.
Indexed Securities
- ------------------
A Fund may purchase securities the value of which is indexed to interest
rates, foreign currencies and various indices and financial indicators. These
securities are generally short- to intermediate-term debt securities. The
interest rates or values at maturity fluctuate with the index to which they are
connected and may be more volatile than such index.
Asset-Backed Securities
- -----------------------
The Fixed Income Funds may invest in asset-backed securities, which are
securities that represent interests in pools of consumer loans such as credit
card receivables, automobile loans and leases, leases on equipment such as
computers, and other financial instruments. These securities provide a
flow-through of interest and principal payments as payments are received on the
loans or leases and may be supported by letters of credit or similar guarantees
of payment by a financial institution.
Foreign Investments
- -------------------
All Funds may invest in securities of foreign issuers denominated in U.S.
dollars. All Funds except the Core Fixed Income Fund may invest in securities
denominated in foreign currencies issued or guaranteed by governments,
governmental agencies and similar bodies, and supranational organizations,
corporations, financial institutions, trusts, and other entities.
The Funds invest in foreign securities based on the attractiveness of the
issuer, the general economic climate, the interest rate environment, and the
relative strength of the U.S. dollar and relevant currency. The securities of
foreign governmental entities have various kinds of government support and
include obligations issued or guaranteed by foreign governmental entities with
taxing powers. These obligations may or may not be supported by the full faith
and credit of a foreign government. The securities of foreign corporations are
subject to many of the same business, industry and other fundamental variables
that affect the creditworthiness of domestic corporations. All foreign
securities, both governmental and nongovernmental, are also affected by the
inter-relationships of interest rates in the U.S. and abroad and exchange rates
among currencies.
Supranational debt may be denominated in U.S. dollars, a foreign currency
or a multi-national currently unit. Examples of supranational entities include
the World Bank, the
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European Investment Bank, the Asian Development Bank and the Inter-American
Development Bank. The governmental members, or "stockholders", usually make
initial capital contributions to the supranational entity and in many cases are
committed to make additional capital contributions if the supranational entity
is unable to repay its borrowings.
The Core Fixed Income and Core Plus Fixed Income Funds may also invest in
"Yankee" bonds. Yankee bonds are bonds denominated in U.S. dollars and issued by
foreign entities for sale in the United States. Yankee bonds are affected by
interest rates in the U.S. and by the economic, political and other forces which
impact the issuer locally.
The Funds may invest without limitation in securities of non-U.S. issuers
directly, or indirectly in the form of American Depositary Receipts ("ADRs"),
European Depositary Receipts ("EDRs") and Global Depositary Receipts ("GDRs").
ADRs are receipts, typically issued by a U.S. bank or trust company, which
evidence ownership of underlying securities issued by a foreign corporation or
other entity. EDRs are receipts issued in Europe which evidence a similar
ownership arrangement. GDRs are receipts issued in one country which also
evidence a similar ownership arrangement. Generally, ADRs in registered form are
designed for use in U.S. securities markets and EDRs are designed for use in
European securities markets. GDRs are designed for use when the issuer is
raising capital in more than one market simultaneously, such as the issuer's
local market and the U.S., and have been used to overcome local selling
restrictions to foreign investors. In addition, many GDRs are eligible for
book-entry settlement through Cedel, Euroclear and DTC. The underlying
securities are not always denominated in the same currency as the ADRs, EDRs or
GDRs. Although investment in the form of ADRs, EDRs or GDRs facilitates trading
in foreign securities, it does not mitigate all the risks associated with
investing in foreign securities.
ADRs are available through facilities which may be either "sponsored" or
"unsponsored." In a sponsored arrangement, the foreign issuer establishes the
facility, pays some or all of the depository's fees, and usually agrees to
provide shareholder communications. In an unsponsored arrangement, the foreign
issuer is not involved, and the ADR holders pay the fees of the depository.
Sponsored ADRs are generally more advantageous to the ADR holders and the issuer
than are unsponsored ADRs. More and higher fees are generally charged in an
unsponsored program compared to a sponsored facility. Only sponsored ADRs may be
listed on the New York or American Stock Exchanges. Unsponsored ADRs may prove
to be more risky due to (a) the additional costs involved to the Fund; (b) the
relative illiquidity of the issue in U.S. markets; and (c) the possibility of
higher trading costs in the over-the-counter market as opposed to exchange based
tradings. The Fund will take these and other risk considerations into account
before making an investment in an unsponsored ADR.
The risks associated with investments in foreign securities include those
resulting from fluctuations in currency exchange rates, revaluation of
currencies, future political and economic developments, including the risks of
nationalization or expropriation, the possible
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imposition of currency exchange blockages, higher operating expenses, foreign
withholding and other taxes which may reduce investment return, reduced
availability of public information concerning issuers, the difficulties in
obtaining and enforcing a judgment against a foreign issuer and the fact that
foreign issuers are not generally subject to uniform accounting, auditing and
financial reporting standards or to other regulatory practices and requirements
comparable to those applicable to domestic issuers. Moreover, securities of many
foreign issuers may be less liquid and their prices more volatile than those of
securities of comparable domestic issuers.
These risks are usually higher in less-developed countries. Such countries
include countries that have an emerging stock market on which trade a small
number of securities and/or countries with economies that are based on only a
few industries. The Core Plus Fixed Income Fund, for example, may invest in the
securities of issuers in countries with less developed economies.
Currency Transactions
- ---------------------
A Fund may engage in currency exchange transactions in order to protect
against the effect of uncertain future exchange rates on securities denominated
in foreign currencies. A Fund will conduct its currency exchange transactions
either on a spot (i.e., cash) basis at the rate prevailing in the currency
exchange market, or by entering into forward contracts to purchase or sell
currencies. A Fund's dealings in forward currency contracts and other currency
transactions such as futures contracts, options, options on futures contracts
and swaps will be limited to hedging purposes, including transaction hedging and
position hedging, and also cross-hedging (as described in the next paragraph).
Transaction hedging is entering into a currency transaction with respect to
specific assets or liabilities of a Fund, which will generally arise in
connection with the purchase or sale of the Fund's portfolio securities or the
receipt of income from them. Position hedging is entering into a currency
transaction with respect to portfolio securities positions denominated or
generally quoted in that currency. A Fund will not enter into a transaction to
hedge currency exposure to an extent greater, after netting all transactions
intended wholly or partially to offset other transactions, than the aggregate
market value (at the time of entering into the transaction) of the securities
held by the Fund that are denominated or generally quoted in or currently
convertible into the currency, other than with respect to proxy hedging as
described below.
A Fund may cross-hedge currencies by entering into transactions to purchase
or sell one or more currencies that are expected to increase or decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have exposure. In most cases, the effect of cross-hedging is not to eliminate
currency risk, but to change exposure from one currency to another. To reduce
the effect of currency fluctuations on the value of existing or anticipated
holdings of its securities, a Fund may also engage in proxy hedging. Proxy
hedging is often used when the currency to which a Fund's holdings are exposed
is difficult to hedge generally or difficult to hedge against the dollar. Proxy
hedging entails entering into a forward contract to sell a currency, the changes
in the value of which are generally considered to be linked to a currency or
currencies in which some or all of a Fund's securities are or are
14
<PAGE>
expected to be denominated, and to buy dollars. The amount of the contract would
not exceed the market value of the Fund's securities denominated in linked
currencies.
A forward currency contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are not commodities and are entered into in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. In entering a forward currency contract,
a Fund is dependent upon the creditworthiness and good faith of the
counterparty. A Fund attempts to reduce the risks of nonperformance by the
counterparty by dealing only with established, reputable institutions. Although
spot and forward contracts will be used primarily to protect a Fund from adverse
currency movements, they also involve the risk that anticipated currency
movements will not be accurately predicted, which may result in losses to the
Fund. This method of protecting the value of a Fund's portfolio securities
against a decline in the value of a currency does not eliminate fluctuations in
the underlying prices of the securities. It simply establishes a rate of
exchange that can be achieved at some future point in time. Although such
contracts tend to minimize the risk of loss due to a decline in the value of
hedged currency, they tend to limit any potential gain that might result should
the value of such currency increase.
Except for the Core Fixed Income Fund, the Funds may invest in securities
denominated in multi-national currencies.
Securities Lending
- ------------------
All Funds may lend portfolio securities with a value of up to 33-1/3% of
its total assets. A Fund will receive cash or cash equivalents (e.g., U.S.
Government obligations) as collateral in an amount equal to at least 100% of the
current market value of any loaned securities plus accrued interest. Collateral
received by a Fund will generally be held in the form tendered, although cash
may be invested in unaffiliated mutual funds with quality short-term portfolios,
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities or certain unaffiliated mutual funds, repurchase agreements or
other similar investments. The investing of cash collateral received from
loaning portfolio securities involves leverage which magnifies the potential for
gain or loss on monies invested and, therefore, results in an increase in the
volatility of a Fund's outstanding securities. Such loans may be terminated at
any time.
A Fund may receive a lending fee and will retain rights to dividends,
interest or other distributions, on the loaned securities. Voting rights pass
with the lending, although a Fund may call loans to vote proxies if desired.
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. Loans are
made only to borrowers which are deemed by the Investment Manager or its agents
to be of good financial standing.
15
<PAGE>
Short-Term Trading
- ------------------
All Funds may engage in short-term trading of securities and reserve full
freedom with respect to portfolio turnover. In periods where there are rapid
changes in economic conditions and security price levels or when reinvestment
strategy changes significantly, portfolio turnover may be higher than during
times of economic and market price stability or when investment strategy remains
relatively constant. A Fund's portfolio turnover rate may involve greater
transaction costs, relative to other funds in general, and may have tax and
other consequences.
Temporary Defensive Investments
- -------------------------------
A Fund may hold a significant portion of its assets in cash or high-quality
debt securities for temporary defensive purposes. A Fund may, but is not
required to, adopt a temporary defensive position when, in the opinion of the
Investment Manager, such a position is more likely to provide protection against
adverse market conditions than adherence to the Fund's other investment
policies. The types of high-quality instruments in which a Fund may invest for
such purposes include money market securities, such as repurchase agreements,
and securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, certificates of deposit, time deposits and bankers'
acceptances of certain qualified financial institutions and corporate commercial
paper, which at the time of purchase are rated at least within the "A" major
rating category by Standard & Poor's Ratings Service ("S&P") or the "Prime"
major rating category by Moody's Investor's Service, Inc. ("Moody's"), or, if
not rated, issued by companies having an outstanding long-term unsecured debt
issued rated at least within the "A" category by S&P or Moody's.
Industry and Sector Classifications
- -----------------------------------
In determining how much of a Fund's portfolio is invested in a given
industry or sector, the following industry classifications are currently used.
Securities issued or guaranteed as to principal or interest by the U.S.
Government or its agencies or instrumentalities or mixed- ownership Government
corporations or sponsored enterprises (including repurchase agreements involving
U.S. Government securities to the extent excludable under relevant regulatory
interpretations) are excluded. Securities issued by foreign governments are also
excluded. Companies engaged in the business of financing may be classified
according to the industries of their parent or sponsor companies, or industries
that otherwise most affect such financing companies. Issuers of asset-backed
pools will be classified as separate industries based on the nature of the
underlying assets, such as mortgages and credit card receivables.
"Asset-backed--Mortgages" includes private pools of nongovernment backed
mortgages.
<TABLE>
<S> <C> <C>
Autos & Transportation Transportation Tires & Rubber
- ---------------------- Railroad Equipment Truckers
Air Transport Railroads
Auto Parts Recreational Vehicles & Consumer Directory
Automobiles Boats ------------------
Miscellaneous Advertising Agencies
</TABLE>
16
<PAGE>
<TABLE>
<S> <C> <C>
Casino/Gambling, Integrated Oils Gas Pipelines
Hotel/Motel --------------- Miscellaneous Energy
Commercial Services Oil: Integrated Offshore Drilling
Communication, Media & Domestic Oil and Gas Producers
Entertainment Oil: Integrated Oil Well Equipment & Services
Consumer Electronics International
Consumer Products Producer Durables
Consumer Services Materials & Processing Aerospace
Household Furnishings ---------------------- Electrical Equipment &
Leisure Time Agriculture Components
Photography Building & Construction Electronics: Industrial
Printing & Publishing Chemicals Homebuilding
Restaurants Retail Containers & Packaging Industrial Products
Shoes Diversified Machine Tools
Textile Apparel Manufacturing Machinery
Manufacturers Engineering & Miscellaneous Equipment
Toys Contracting Serv. Miscellaneous Producer
Fertilizers Durables
Consumer Staples Forest Products Office Furniture & Business
- ---------------- Gold & Precious Metals Equipment
Beverages Miscellaneous Materials Pollution Control and
Drug & Grocery Store & Processing Environmental Services
Chains Non-Ferrous Metals Production Technology
Foods Office Supplies Equipment
Household Products Paper and Forest Telecommunications
Tobacco Productions Equipment
Real Estate &
Financial Services Construction Technology
- ------------------ Steel Communications Technology
Banks & Savings and Loans Textile Products Computer Software
Financial Data Processing Computer Technology
Services & Systems Other Electronics
Insurance ----- Electronics: Semi-
Miscellaneous Financial Trust Certificates- Conductors/Components
Real Estate Investment Government Related Miscellaneous Technology
Trusts Lending
Rental & Leasing Services: Asset-backed-Mortgages Utilities
Commercial Asset-backed-Credit Miscellaneous Utilities
Securities Brokerage & Card Receivables Utilities: Cable TV & Radio
Services Asset-backed- Utilities: Electrical
Manufacturing & Utilities: Gas distribution
Health Care Housing Utilities: Telecommunications
- ----------- Asset-backed-Home Utilities: Water
Drugs & Biotechnology Equity
Health Care Facilities Asset-backed-
Health Care Services Commercial
Hospital Supply Asset-backed-Other
Service Miscellaneous Other Energy
</TABLE>
17
<PAGE>
Computer-Related Risks
- ----------------------
Many mutual funds and other companies that issue securities, as well as
government entities upon whom those mutual funds and companies depend, may be
adversely affected by so called "Year 2000 issues" involving computer systems
(whether their own systems or systems of their service providers) that do not
properly process dates beginning with January 1, 2000 and information related to
those dates.
The Investment Manager currently is in the process of reviewing its
internal computer systems as they relate to the Funds, as well as the computer
systems of those service providers upon which the Funds rely, in order to obtain
reasonable assurances that the Funds will not experience a material adverse
impact as a result of any Year 2000 issues. The Trust does not currently
anticipate that any Year 2000 issues will have a material adverse impact on the
Funds' portfolio investments, taken as a whole. There can be no assurances in
this area, however, including the possibility that any Year 2000 issues could
negatively affect the investment markets or the economy generally.
DEBT INSTRUMENTS AND
PERMITTED CASH INVESTMENTS
The Fixed Income Funds, and in certain circumstances the Equity Funds, in
certain circumstances, may invest in debt securities to the extent described in
the Prospectus and in other sections of this Statement of Additional
Information. Certain debt securities and money market instruments in which the
Funds may invest are described below.
Managing Volatility-Fixed Income Funds
- ---------------------------------------
In administering the Core Fixed Income and Core Plus Fixed Income Funds'
investments, the Investment Manager generally attempts to maintain volatility
within targeted ranges by managing the duration and weighted average maturity of
each Fund's bond position.
Duration is an indicator of the expected volatility of a bond position in
response to changes in interest rates. In calculating duration, a Fund measures
the average time required to receive all cash flows associated with those debt
securities -- representing payments of principal and interest -- by considering
the timing, frequency and amount of payment expected from each portfolio debt
security. The higher the duration, the greater the gains and losses when
interest rates change. Duration generally is a more accurate measure of
potential volatility with a portfolio composed of high-quality debt securities,
such as U.S. government securities, municipal securities and high-grade U.S.
corporate bonds, than with lower-grade securities.
The Investment Manager may use several methods to manage the duration of a
Fund's bond positions in order to increase or decrease its exposure to changes
in interest rates. First, the Investment Manager may adjust duration by
adjusting the mix of debt securities held by the
18
<PAGE>
Fund. For example, if the Investment Manager intends to shorten duration, it may
sell debt instruments that individually have a long duration and purchase other
debt instruments that individually have a shorter duration. Among the factors
that will affect a debt security's duration are the length of time to maturity,
the timing of interest and principal payments, and whether the terms of the
security give the issuer of the security the right to call the security prior to
maturity. Second, the Investment Manager may adjust bond duration using
derivative transactions, especially with interest rate futures and options
contracts. For example, if the Investment Manager wants to lengthen the duration
of a Fund's bond position, it could purchase interest rate futures contracts
instead of buying longer-term bonds or selling shorter-term bonds. Similarly,
during periods of lower interest rate volatility, the Investment Manager may use
a technique to extend duration in the event rates rise by writing an
out-of-the-money put option and receiving premium income with the expectation
that the option could be exercised. In managing duration, the use of such
derivatives may be faster and more efficient than trading specific portfolio
securities.
U.S. Government and Related Securities
- --------------------------------------
U.S. Government securities are securities which are issued or guaranteed as
to principal or interest by the U.S. Government, a U.S. Government agency or
instrumentality, or certain mixed-ownership U.S. Government corporations or
sponsored enterprises as described herein. The U.S. Government securities in
which the Funds may invest include, among others:
[bullet] direct obligations of the U.S. Treasury, i.e., U.S. Treasury bills,
notes, certificates and bonds;
[bullet] obligations of U.S. Government agencies or instrumentalities such as
the Federal Home Loan Banks, the Federal Farm Credit Banks, the Federal
National Mortgage Association, the Government National Mortgage
Association and the Federal Home Loan Mortgage Corporation; and
[bullet] obligations of mixed-ownership Government corporations such as
Resolution Funding Corporation.
U.S. Government securities which a Fund may buy are backed in a variety of
ways by the U.S. Government, its agencies or instrumentalities. Some of these
obligations, such as Government National Mortgage Association mortgage-backed
securities, are backed by the full faith and credit of the U.S. Treasury. Other
obligations, such as those of the Federal National Mortgage Association, are
backed by the discretionary authority of the U.S. Government to purchase certain
obligations of agencies or instrumentalities, although the U.S. Government has
no legal obligation to do so. Obligations such as those of the Federal Home Loan
Bank, the Federal Farm Credit Bank, the Federal National Mortgage Association
and the Federal Home Loan Mortgage Corporation are backed by the credit of the
agency or instrumentality issuing the obligations. Certain obligations of
Resolution Funding Corporation, a mixed-ownership Government corporation, are
backed with respect to interest payments by the U.S. Treasury, and with respect
to principal payments by U.S. Treasury obligations held in a
19
<PAGE>
segregated account with a Federal Reserve Bank. Except for certain
mortgage-related securities, a Fund will only invest in obligations issued by
mixed-ownership Government corporations where such securities are guaranteed as
to payment of principal or interest by the U.S. Government or a U.S. Government
agency or instrumentality, and any unguaranteed principal or interest is
otherwise supported by U.S. Government obligations held in a segregated account.
U.S. Government securities may be acquired by a Fund in the form of
separately traded principal and interest components of securities issued or
guaranteed by the U.S. Treasury. The principal and interest components of
selected securities are traded independently under the Separate Trading of
Registered Interest and Principal of Securities ("STRIPS") program. Under the
STRIPS program, the principal and interest components are individually numbered
and separately issued by the U.S. Treasury at the request of depository
financial institutions, which then trade the component parts independently.
Obligations of Resolution Funding Corporation are similarly divided into
principal and interest components and maintained as such on the book entry
records of the Federal Reserve Banks.
In addition, a Fund may invest in custodial receipts that evidence
ownership of future interest payments, principal payments or both on certain
U.S. Treasury notes or bonds in connection with programs sponsored by banks and
brokerage firms. Such notes and bonds are held in custody by a bank on behalf of
the owners of the receipts. These custodial receipts are known by various names,
including "Treasury Receipts" ("TRs"), "Treasury Investment Growth Receipts"
("TIGRs") and "Certificates of Accrual on Treasury Securities" ("CATS"), and may
not be deemed U.S. Government securities.
A Fund may also invest from time to time in collective investment vehicles,
the assets of which consist principally of U.S. Government securities or other
assets substantially collateralized or supported by such securities, such as
Government trust certificates.
Bank Money Investments
- ----------------------
Bank money investments include, but are not limited to, certificates of
deposit, bankers' acceptances and time deposits. Certificates of deposit are
generally short-term (i.e., less than one year), interest-bearing negotiable
certificates issued by commercial banks or savings and loan associations against
funds deposited in the issuing institution. A banker's acceptance is a time
draft drawn on a commercial bank by a borrower, usually in connection with an
international commercial transaction (to finance the import, export, transfer or
storage of goods). A banker's acceptance may be obtained from a domestic or
foreign bank, including a U.S. branch or agency of a foreign bank. The borrower
is liable for payment as well as the bank, which unconditionally guarantees to
pay the draft at its face amount on the maturity date. Most acceptances have
maturities of six months or less and are traded in secondary markets prior to
maturity. Time deposits are nonnegotiable deposits for a fixed period of time at
a stated interest rate. A Fund will not invest in any such bank money investment
unless the investment is issued by a U.S. bank that is a member of the Federal
Deposit Insurance Corporation ("FDIC"), including any foreign branch thereof, a
U.S. branch or agency of a
20
<PAGE>
foreign bank, a foreign branch of a foreign bank, or a savings bank or savings
and loan association that is a member of the FDIC and which at the date of
investment has capital, surplus and undivided profits (as of the date of its
most recently published financial statements) in excess of $50 million. The Fund
will not invest in time deposits maturing in more than seven days and will not
invest more than 15% of its total assets in time deposits maturing in two to
seven days.
U.S. branches and agencies of foreign banks are offices of foreign banks
and are not separately incorporated entities. They are chartered and regulated
either federally or under state law. U.S. federal branches or agencies of
foreign banks are chartered and regulated by the Comptroller of the Currency,
while state branches and agencies are chartered and regulated by authorities of
the respective states or the District of Columbia. U.S. branches of foreign
banks may accept deposits and thus are eligible for FDIC insurance; however, not
all such branches elect FDIC insurance. Unlike U.S. branches of foreign banks,
U.S. agencies of foreign banks may not accept deposits and thus are not eligible
for FDIC insurance. Both branches and agencies can maintain credit balances,
which are funds received by the office incidental to or arising out of the
exercise of their banking powers and can exercise other commercial functions,
such as lending activities.
Capital Securities
- ------------------
The Fixed Income Funds may invest in capital securities, which are
securities issued by a trust having as its only assets junior subordinated
debentures of a corporation, typically a bank holding company. This structure
provides tax advantages to a bank holding company while generally providing
investors, such as the Funds, a higher yield than is offered by investing
directly in a bank holding company's subordinated debt.
Short-Term Corporate Debt Instruments
- -------------------------------------
Short-term corporate debt instruments include commercial paper to finance
short-term credit needs (i.e., short-term, unsecured promissory notes) issued
by, among others, (a) corporations and (b) domestic or foreign bank holding
companies or their subsidiaries or affiliates where the debt instrument is
guaranteed by the bank holding company or an affiliated bank or where the bank
holding company or the affiliated bank is unconditionally liable for the debt
instrument. Commercial paper is usually sold on a discounted basis and has a
maturity at the time of issuance not exceeding nine months.
Lower Rated Debt Securities
- ---------------------------
The Core Plus Fund may invest in lower quality debt securities not rated
above the BB major rating category by S&P or above the Ba major rating category
by Moody's, or above similar levels by other rating agencies, or debt securities
that are unrated but considered by the Investment Manager to be of equivalent
investment quality to comparable rated securities. Such securities generally
involve more credit risk than higher rated securities and are considered by S&P
and Moody's to be predominantly speculative with respect to capacity to
21
<PAGE>
pay interest and repay principal in accordance with the terms of the obligation.
Further, such securities may be subject to greater market fluctuations and risk
of loss of income and principal than lower yielding, higher rated debt
securities. Risk of lower quality debt securities include (i) limited liquidity
and secondary market support, (ii) substantial market price volatility resulting
from changes in prevailing interest rates and/or investor perception, (iii)
subordination to the prior claims of banks and other senior lenders, (iv) the
operation of mandatory sinking fund or call/redemption provisions during periods
of declining interest rates when the fund may be required to reinvest premature
redemption proceeds in lower yielding portfolio securities; (v) the possibility
that earnings of the issuer may be insufficient to meet its debt service; and
(vi) the issuer's low creditworthiness and potential for insolvency during
periods of rising interest rates and economic downturn. For further information
concerning the ratings of debt securities, see "--Commercial Paper Ratings"
below.
Zero (or Step) Coupon Securities
- --------------------------------
The Fixed Income Funds may invest in zero and step coupon securities. Zero
(or step) coupon securities are debt securities that may pay no interest for all
or a portion of their life but are purchased at a discount to face value at
maturity. Their return consists of the amortization of the discount between
their purchase price and their maturity value, plus, in the case of a step
coupon, any fixed rate interest income. Zero coupon securities pay no interest
to holders prior to maturity even though interest on these securities is
reported as income to the Fund. The Fund will be required to distribute all or
substantially all of such amounts annually to its shareholders. These
distributions may cause the Fund to liquidate portfolio assets in order to make
such distributions at a time when the Fund may have otherwise chosen not to sell
such securities. The market value of such securities may be more volatile than
that of securities which pay interest at regular intervals.
Certain Securities Ratings
- --------------------------
Commercial Paper Ratings
Commercial paper investments at the time of purchase will be rated within
the "A" major rating category by S&P, within the "Prime" major rating category
by Moody's, within comparable categories of other rating agencies or considered
to be of comparable quality by the Investment Manager, or, if not rated, issued
by companies having an outstanding long-term unsecured debt issue rated at least
within the "A" category by S&P, by Moody's, within comparable categories of
other rating agencies or considered to be of comparable quality by the
Investment Manager. The money market investments in corporate bonds and
debentures (which must have maturities at the date of settlement of one year or
less) must be rated at the time of purchase at least within the "A" category by
S&P, within the "Prime" category by Moody's, within comparable categories of
other rating agencies or considered to be of comparable quality by the
Investment Manager.
Commercial paper rated within the "A" category (highest quality) by S&P is
issued by entities which have liquidity ratios which are adequate to meet cash
requirements. Long-term
22
<PAGE>
senior debt is rated within the "A" category or better, although in some cases
credits within the "BBB" category may be allowed. The issuer has access to at
least two additional channels of borrowing. Basic earnings and cash flow have an
upward trend with allowance made for unusual circumstances. Typically, the
issuer's industry is well established and the issuer has a strong position
within the industry. The reliability and quality of management are unquestioned.
The relative strength or weakness of the above factors determines whether the
issuer's commercial paper is rated A-1, A-2 or A-3. (Those A-1 issues determined
to possess overwhelming safety characteristics are denoted with a plus (+) sign:
A-1+.)
The rating "Prime" is the highest commercial paper rating category assigned
by Moody's. Among the factors considered by Moody's in assigning ratings are the
following: evaluation of the management of the issuer; economic evaluation of
the issuer's industry or industries and an appraisal of speculative-type risks
which may be inherent in certain areas; evaluation of the issuer's products in
relation to competition and customer acceptance; liquidity; amount and quality
of long-term debt; trend of earnings over a period of 10 years; financial
management of obligations which may be present or may arise as a result of
public interest questions and preparations to meet such obligations. These
factors are all considered in determining whether the commercial paper is rated
Prime-1, Prime-2 or Prime-3.
Rating Categories of Debt Securities
Set forth below is a description of S&P corporate bond and debenture rating
categories:
AAA: An obligation rated within the AAA category has the highest rating
assigned by S&P. Capacity to meet the financial commitment on the obligation is
extremely strong.
AA: An obligation rated within the AA category differs from the highest
rated obligation only in small degree. Capacity to meet the financial obligation
is very strong.
A: An obligation rated within the A category is somewhat more susceptible
to the adverse effects of changes in circumstances and economic conditions than
debt in higher rated categories. However, capacity to meet the financial
commitment on the obligation is still strong.
BBB: An obligation rated within the BBB category exhibits adequate
protection parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to meet the
financial commitment on the obligation.
Obligations rated within the BB, B, CCC, CC and C categories are regarded
as having significant speculative characteristics. BB indicates the least degree
of speculation and C the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
BB: An obligation rated within the BB category is less vulnerable to
nonpayment than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse
23
<PAGE>
business, financial or economic conditions which could lead to inadequate
capacity to meet the financial commitment on the obligation. The BB rating
category is also used for debt subordinated to senior debt that is assigned an
actual or implied BBB rating.
B: An obligation rated within the B category is more vulnerable to
nonpayment than obligations rated within the BB category, but currently has the
capacity to meet the financial commitment on the obligation. Adverse business,
financial or economic conditions will likely impair capacity or willingness to
meet the financial commitment on the obligation. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.
CCC: An obligation rated within the CCC category is vulnerable to
nonpayment and is dependent upon favorable business, financial and economic
conditions to meet the financial commitment on the obligation. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to meet the financial commitment on the obligation.
CC: An obligation rated within the CC category is currently highly
vulnerable to nonpayment.
C: The C rating may be used to cover a situation where a bankruptcy
petition has been filed, but payments on this obligation are being continued.
D: An obligation rated within the D category is in payment default. The D
rating category is used when payments on an obligation are not made on the date
due even if the applicable grace period has not expired, unless S&P believes
that such payments will be made during such grace period. The D rating also will
be used upon the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
S&P may attach the "r" symbol to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or volatility of
expected returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risks-such as interest only (IO) and
principal only (PO) mortgage securities; and obligations with unusually risky
terms, such as inverse floaters.
Set forth below is a description of Moody's corporate bond and debenture
rating categories:
Aaa: Bonds which are rated within the Aaa category are judged to be of the
best quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt-edge." Interest payments are protected by a large
or by an exceptionally stable margin,
24
<PAGE>
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated within the Aa category are judged to be of high
quality by all standards. Together with the Aaa group they comprise what are
generally known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may be
other elements present which make the long-term risks appear somewhat larger
than in Aaa securities.
A: Bonds which are rated within the A category possess many favorable
investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Baa: Bonds which are rated within the Baa category are considered as medium
grade obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba: Bonds which are rated within the Ba category are judged to have
speculative elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during other good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B: Bonds which are rated within the B category generally lack
characteristics of the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over any long period
of time may be small.
Caa: Bonds which are rated within the Caa category are of poor standing.
Such issues may be in default or there may be present elements of danger with
respect to principal or interest.
Ca: Bonds which are rated within the Ca category represent obligations
which are speculative in a high degree. Such issues are often in default or have
other marked shortcomings.
C: Bonds which are rated within the C category are the lowest rated class
of bonds, and issues so rated can be regarded as having extremely poor prospects
of ever attaining any real investment standing.
1, 2 or 3: The ratings from Aa through B may be modified by the addition of
a numeral indicating a bond's rank within its rating category.
25
<PAGE>
CLASSES OF SHARES
The Trustees have authorized shares of each Fund to be issued in four
classes: Class I, Class II, Class III and Class IV shares. The Trustees may
authorize additional classes or terminate existing classes, without shareholder
approval, in the future.
Each share of each class of shares represents an identical legal interest
in the same portfolio of investments of a Fund, has the same rights and is
identical in all respects, except that the classes pay different levels of
shareholder service fees. Although the legal rights of holders of each class of
shares are identical, it is likely that the different expenses borne by each
class will result in different net asset values and dividends. Except for those
differences between classes of shares described above, in the Funds' Prospectus
and otherwise in this Statement of Additional Information, each share of a Fund
has equal dividend, redemption and liquidation rights with other shares of the
Fund and, when issued, is fully paid and nonassessable by the Fund.
Shareholder rights granted under the Agreement and Declaration of Trust may
be modified by the Trustees, provided, however, that the Agreement and
Declaration of Trust may not be amended if such amendment (a) repeals the
limitations on personal liability of any shareholder, or repeals the prohibition
of assessment upon the shareholders, without the express consent of each
shareholder involved or (b) materially adversely modifies any shareholder right
without the consent of the holders of a majority of the outstanding shares
entitled to vote. Under the Agreement and Declaration of Trust, the Trustees may
reorganize, merge or liquidate a Fund without prior shareholder approval and
subject to compliance with applicable law. On any matter submitted to the
shareholders of a Fund, the holder of a Fund share is entitled to one vote per
share (with proportionate voting for fractional shares) regardless of the
relative net asset value thereof. Except as provided by law, the Trustees may
otherwise modify the rights of shareholders at any time.
Under the Agreement and Declaration of Trust, no annual or regular meeting
of shareholders is required. Thus, there ordinarily will be no shareholder
meetings unless required by Investment Company Act of 1940, as amended (the
"1940 Act"). Except as otherwise provided under the 1940 Act, the Board of
Trustees will be a self-perpetuating body until fewer than two-thirds of the
Trustees serving as such are Trustees who were elected by shareholders of the
Trust. In the event less than a majority of the Trustees serving as such were
elected by shareholders of the Trust, a meeting of shareholders will be called
to elect Trustees. Under the Agreement and Declaration of Trust, any Trustee may
be removed by vote of two-thirds of the outstanding Trust shares. In connection
with such meetings called by shareholders, shareholders will be assisted in
shareholder communications to the extent required by applicable law.
Under Massachusetts law, the shareholders of the Trust could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Agreement and Declaration of Trust disclaims shareholder liability
for acts or obligations of the Trust and provides for indemnification for all
losses and expenses of any shareholder of a
26
<PAGE>
Fund held personally liable for the obligations of the Trust. Thus, the risk of
a shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund would be unable to meet its
obligations. The Investment Manager believes that, in view of the above, the
risk of personal liability to shareholders is remote.
27
<PAGE>
TRUSTEES AND OFFICERS
The Trustees and principal officers of the Trust, their addresses, and
their principal occupations and positions with certain affiliates of the
Investment Manager are set forth below.
*+Peter C. Bennett, One Financial Center, Boston, MA 02111, serves as Vice
President of the Trust. He is 60. His principal occupation is currently, and
during the past five years has been, Executive Vice President and Director of
State Street Research & Management Company. Mr. Bennett's other principal
business affiliations include Director, State Street Research Investment
Services, Inc.
*+Thomas J. Dillman, One Financial Center, Boston, MA 02111 serves as Vice
President of the Trust. He is 49. His principal occupation is Senior Vice
President of State Street Research & Management Company. During the past five
years he has also served as research director at Bank of New York.
*+Catherine Dudley, One Financial Center, Boston, MA 02111, serves as Vice
President of the Trust. She is 38. Her principal occupation is Senior Vice
President of State Street Research & Management Company. During the past five
years she has also served as an investment manager at Chancellor Capital
Management and Phoenix Investment Counsel.
*+F. Gardner Jackson, Jr., One Financial Center, Boston, MA 02111, serves
as Vice President of the Trust. He is 55. His principal occupation is Senior
Vice President of State Street Research & Management Company. During the past
five years he has also served as Vice President of State Street Research &
Management Company.
*+John H. Kallis, One Financial Center, Boston, MA 02111, serves as Vice
President of the Trust. He is 57. His principal occupation is Senior Vice
President of State Street Research & Management Company. During the past five
years he has also served as portfolio manager for State Street Research &
Management Company.
*+Gerard P. Maus, One Financial Center, Boston, MA 02111, serves as
Treasurer of the Trust. He is 48. His principal occupation is currently, and
during the past five years has been, Executive Vice President, Treasurer, Chief
Financial Officer and Director of State Street Research & Management Company.
Mr. Maus's other principal business affiliations include Executive Vice
President, Treasurer, Chief Financial Officer, Chief Administrative Officer and
Director of State Street Research Investment Services, Inc.
- -----------------
* or + see footnotes on page 30
28
<PAGE>
*+Francis J. McNamara, III, One Financial Center, Boston, MA 02111, serves
as Secretary and General Counsel of the Trust. He is 43. His principal
occupation is Executive Vice President, General Counsel and Secretary of State
Street Research & Management Company. During the past five years he has also
served as Senior Vice President of State Street Research & Management Company,
Senior Vice President of State Street Research Investment Services, Inc. and as
Senior Vice President, General Counsel and Assistant Secretary of The Boston
Company, Inc., Boston Safe Deposit and Trust Company and The Boston Company
Advisors, Inc. Mr. McNamara's other principal business affiliations include
Executive Vice President, Clerk and General Counsel of State Street Research
Investment Services, Inc.
*James C. Pannell, One Financial Center, Boston, MA 02111, serves as Vice
President of the Trust. He is 45. His principal occupation is Senior Vice
President of State Street Research & Management Company. During the past five
years he has also served as Vice President of State Street Research & Management
Company.
*+Kim M. Peters, One Financial Center, Boston, MA 02111, serves as Vice
President of the Trust. He is 45. His principal occupation is Senior Vice
President of State Street Research & Management Company. During the past five
years he also served as Vice President of State Street Research & Management
Company.
*+Thomas A. Shively, One Financial Center, Boston, MA 02111, serves as Vice
President of the Trust. He is 44. His principal occupation is Executive Vice
President and Director of State Street Research & Management Company. During the
past five years he has also served as Senior Vice President of State Street
Research & Management Company. Mr. Shively's other principal business
affiliation is Director of State Street Research Investment Services, Inc.
*Amy McDermott Swanson, One Financial Center, Boston, MA 02111, serves as
Vice President of the Trust. She is 41. Her principal occupation is currently,
and during the past five years has been, Senior Vice President of State Street
Research & Management Company.
*+Ralph F. Verni, One Financial Center, Boston, MA 02111, serves as
Chairman of the Board, President, Chief Executive Officer and Trustee of the
Trust. He is 56. His principal occupation is currently, and during the past five
years has been, Chairman of the Board, President, Chief Executive Officer and
Director of State Street Research & Management Company. Mr. Verni's other
principal business affiliations include Chairman of the Board and Director of
State Street Research Investment Services, Inc.
- -----------------
* or + see footnotes on page 30
29
<PAGE>
*+James M. Weiss, One Financial Center, Boston, MA 02111, serves as Vice
President of the Trust. He is 52. His principal occupation is Executive Vice
President of State Street Research & Management Company. During the past five
years he has also served as Senior Vice President of State Street Research &
Management Company, President and Chief Investment Officer of IDS Advisory
Group, Inc. and as Senior Vice President of Stein, Roe & Farnham.
*+Elizabeth M. Westvold, One Financial Center, Boston, MA 02111, serves as
Vice President of the Trust. She is 38. Her principal occupation is Senior Vice
President of State Street Research & Management Company. During the past five
years, she also has served as Vice President and as an analyst for State Street
Research &Management Company.
*+John T. Wilson, One Financial Center, Boston, MA 02111, serves as Vice
President of the Trust. He is 34. His principal occupation is Vice President of
State Street Research & Management Company. During the past five years he has
also served as an analyst and portfolio manager at Phoenix Home Life Mutual
Insurance Company and, from 1995 to 1996, as a Vice President of Phoenix
Investment Counsel, Inc.
*+Kennard P. Woodworth, Jr., One Financial Center, Boston, MA 02111, serves
as Vice President of the Trust. He is 60. His principal occupation is currently,
and during the past five years has been, Senior Vice President of State Street
Research & Management Company.
- -----------------
* These Trustees and/or officers are or may be deemed to be "interested
persons" of the Trust under the 1940 Act because of their affiliations with
the Fund's investment adviser.
+ Serves as a Trustee/Director and/or officer of one or more of the following
investment companies, each of which has an advisory relationship with the
Investment Manager or its parent, Metropolitan Life Insurance Company:
State Street Research Equity Trust, State Street Research Financial Trust,
State Street Research Income Trust, State Street Research Money Market
Trust, State Street Research Tax-Exempt Trust, State Street Research
Capital Trust, State Street Research Exchange Trust, State Street Research
Growth Trust, State Street Research Master Investment Trust, State Street
Research Securities Trust, State Street Research Portfolios, Inc. and
Metropolitan Series Fund, Inc.
Ownership of 25% or more of a voting security is deemed "control" as
defined in the 1940 Act. So long as 25% of a class of shares is so owned, such
owners will be presumed to be in control of such class of shares for purposes of
voting on certain matters submitted to a vote of shareholders.
As of March 5, 1999, there were no shares of the Trust outstanding.
30
<PAGE>
Trustees Compensation [To be Updated]:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Total
Compensation
Aggregate From Fund and Fund
Name of Compensation Complex Paid
Trustee From Trust(a) to Trustees(b)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Ralph F. Verni $0 $0
</TABLE>
- --------------------
(a) Estimated compensation for the Trust's first fiscal year ended January 31,
2000.
(b) "Total Compensation from Fund and Fund Complex Paid to Trustees" for the 12
months ended December 31, 1998. The Trust does not provide any pension or
retirement benefits for the Trustees.
MANAGEMENT OF THE FUND AND INVESTMENT ADVISORY AND OTHER
SERVICES
Under the provisions of the Trust's Agreement and Declaration of Trust and
the laws of Massachusetts, responsibility for the management and supervision of
the Funds rests with the Trustees.
State Street Research & Management Company, the Investment Manager, a
Delaware corporation, with offices at One Financial Center, Boston,
Massachusetts 02111-2690, acts as investment adviser to the Fund. The Investment
Manager was founded by Paul Cabot, Richard Saltonstall and Richard Paine to
serve as investment adviser to one of the nation's first mutual funds, presently
known as State Street Research Investment Trust, which they had formed in 1924.
Their investment management philosophy emphasized comprehensive fundamental
research and analysis, including meetings with the management of companies under
consideration for investment. The Investment Manager's portfolio management
group has extensive investment industry experience managing equity and debt
securities.
The Investment Manager is charged with the overall responsibility for
managing the investments and business affairs of the Funds, subject to the
authority of the Board of Trustees. The Advisory Agreement provides that the
Investment Manager will furnish each Fund with an investment program, suitable
office space and facilities and such investment advisory, research and
administrative services as may be required from time to time. The Investment
Manager compensates all executive and clerical personnel and Trustees of the
Trust if such persons are employees of the Investment Manager or its affiliates.
The Investment Manager is an indirect wholly-owned subsidiary of Metropolitan
Life Insurance Company ("Metropolitan").
The advisory fee payable monthly by each Fund to the Investment Manager is
computed as a percentage of the average of the value of the net assets of the
Fund as determined at the
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<PAGE>
close of regular trading on the New York Stock Exchange (the "NYSE") on each day
the NYSE is open for trading, at the annual rate of the percentage of the net
assets of the Fund set forth below:
<TABLE>
<S> <C>
Core Fixed Income Fund 0.40%
Core Plus Fixed Income Fund 0.40%
Core Large Cap Growth Fund 0.55%
Large Cap Growth Fund 0.55%
</TABLE>
Pursuant to a Fee Waiver and Expense Limitation Agreement, the Investment
Manager agrees, with respect to the expense limitation applicable to each Fund,
to (i) waive a portion of its fee under the Advisory Agreement, (ii) reimburse
the Fund or (iii) directly pay expenses, such that the expense limitation for a
Fund will not be exceeded. The expense limitations are 0.20% for the Fixed
Income Funds and 0.35% for the Equity Funds, and do not include certain
commissions, taxes, shareholder servicing fees and other fees and other
expenses. The Fee Waiver and Expense Limitation Agreement has an initial term
ending June 1, 2000, and will automatically continue in effect thereafter unless
terminated following six months written notice by either party.
The Advisory Agreement provides that it shall continue in effect with
respect to the Fund for a period of two years after its initial effectiveness
and will continue from year to year thereafter as long as it is approved at
least annually both (i) by a vote of a majority of the outstanding voting
securities of the Fund (as defined in the 1940 Act) or by the Trustees of the
Trust, and (ii) in either event by a vote of a majority of the Trustees who are
not parties to the Advisory Agreement or "interested persons" of any party
thereto, cast in person at a meeting called for the purpose of voting on such
approval. The Advisory Agreement may be terminated on 60 days' written notice by
either party and will terminate automatically in the event of its assignment, as
defined under the 1940 Act and regulations thereunder. Such regulations provide
that a transaction which does not result in a change of actual control or
management of an adviser is not deemed an assignment.
Under the Code of Ethics of the Investment Manager, investment management
personnel are only permitted to engage in personal securities transactions in
accordance with certain conditions relating to such person's position, the
identity of the security, the timing of the transaction, and similar factors.
Such personnel must report their personal securities transactions quarterly and
supply broker confirmations of such transactions to the Investment Manager.
The Trust has entered into a Servicing Agreement with the Investment
Manager pursuant to which the Investment Manager provides shareholder and
administrative services in respect of the Funds. These services include, among
others, informative reporting, client account information maintenance,
responding to shareholder inquiries, and certain transaction related
administration. As compensation for providing such services, the Investment
Manager is paid a monthly fee, computed and accrued daily, at annual rate of
each Class' average daily
32
<PAGE>
net asset value as follows: Class I - 0.30%, Class II - 0.20%, Class III - 0.10%
and Class IV - 0.05%.
PURCHASE AND REDEMPTION OF SHARES
Shares of the Fund may be purchased by contacting your State Street
Research client service representative or, if you are unable to reach your
representative, by calling 1-800-521- 6548. The Fund offers four classes of
shares which may be purchased at the next determined net asset value per share.
General information on how to buy shares of the Fund is set forth in the
Prospectus. The following supplements that information.
Public Offering Price. The public offering price for each class of shares
is based on their net asset value determined as of the close of regular trading
on the NYSE on the day the purchase order is received by the Investment Manager,
provided that the order is received prior to the close of regular trading on the
NYSE on that day; otherwise the net asset value used is that determined as of
the close of the NYSE on the next day it is open for unrestricted trading.
Rule 18f-1 Election. The Funds are committed to paying in cash all requests
for redemptions by any shareholder of record of a Fund, limited in amount with
respect to each shareholder during any 90-day period to the lesser of (i)
$250,000, or (ii) 1% of the net asset value of the Fund at the beginning of such
period. Although a Fund will normally redeem all shares for cash, it may redeem
amounts in excess of the lesser of (i) or (ii) above by payment in kind of
securities held by the particular Fund.
Reorganizations. In the event of mergers or reorganizations with other
public or private collective investment entities, including investment companies
as defined in the 1940 Act, a Fund may issue its shares at net asset value (or
more) to such entities or to their security holders.
Dishonored Checks. If a purchaser's check is not honored for its full
amount, the purchaser could be subject to additional charges to cover collection
costs and any investment loss, and the purchase may be canceled.
SHAREHOLDER ACCOUNTS
General information on shareholder accounts is included in the Fund's
Prospectus. The following supplements that information.
Involuntary Redemption. Each Fund reserves the right to redeem at its
option any shareholder account which falls below $500,000 and remains below
$1,000,000 for a period of 60 days after notice is mailed to the applicable
shareholder. A Fund may increase such minimum account value above such amount in
the future after notice to affected shareholders.
33
<PAGE>
Involuntarily redeemed shares will be priced at the net asset value on the date
fixed for redemption by a Fund, and the proceeds of the redemption will be
mailed to the affected shareholder at the address of record.
The Fund may not suspend the right of redemption or postpone the date of
payment of redemption proceeds for more than seven days, except that it may
elect to suspend the redemption of shares or postpone the date of payment of
redemption proceeds: (1) during any period that the NYSE is closed (other than
customary weekend and holiday closings) or trading on the NYSE is restricted;
(2) during any period in which an emergency exists as a result of which disposal
of portfolio securities is not reasonably practicable or it is not reasonably
practicable to fairly determine the Fund's net asset values; or (3) during such
other periods as the Securities and Exchange Commission (the "SEC") may by order
permit for the protection of investors.
Full and fractional shares of each Fund owned by shareholders are credited
to their accounts by the Transfer Agent, State Street Bank and Trust Company,
225 Franklin Street, Boston, Massachusetts 02110. Certificates will not be
issued. Shareholders will receive periodic statements of transactions in their
accounts.
Alternative Means of Contacting the Funds. It is unlikely, during periods
of extraordinary market conditions, that a shareholder may have difficulty in
reaching the State Street Research client service representative. In that event,
however, the shareholder should contact the Service Center at 1-800-521-6548 or
otherwise at the Funds' main office at One Financial Center, Boston,
Massachusetts 02111-2690.
NET ASSET VALUE
The net asset value of the shares of each Fund is determined once daily as
of the close of regular trading on the NYSE, ordinarily 4 p.m. New York City
time, Monday through Friday, on each day during which the NYSE is open for
unrestricted trading.
The net asset value per share of each Fund is computed by dividing the sum
of the value of the securities held by the Fund plus any cash or other assets
minus all liabilities by the total number of outstanding shares of the Fund at
such time. Any expenses, except for extraordinary or nonrecurring expenses,
borne by the Fund, including the investment management fee payable to the
Investment Manager, are accrued daily.
In determining the values of portfolio assets as provided below, the
Trustees may utilize one or more pricing services in lieu of market quotations
for certain securities which are not readily available on a daily basis. Such
services utilize information with respect to market transactions, quotations
from dealers and various relationships among securities in determining value and
may provide prices determined as of times prior to the close of the NYSE.
34
<PAGE>
In general, securities are valued as follows. Securities which are listed
or traded on the New York or American Stock Exchange are valued at the price of
the last quoted sale on the respective exchange for that day. Securities which
are listed or traded on a national securities exchange or exchanges, but not on
the New York or American Stock Exchange, are valued at the price of the last
quoted sale on the exchange for that day prior to the close of the NYSE.
Securities not listed on any national securities exchange which are traded "over
the counter" and for which quotations are available on the National Association
of Securities Dealers, Inc.'s (the "NASD") NASDAQ System, or other system, are
valued at the closing price supplied through such system for that day at the
close of the NYSE. Other securities are, in general, valued at the mean of the
bid and asked quotations last quoted prior to the close of the NYSE if there are
market quotations readily available, or in the absence of such market
quotations, then at the fair value thereof as determined by or under authority
of the Trustees of the Trust with the use of such pricing services as may be
deemed appropriate or methodologies approved by the Trustees. The Trustees also
reserve the right to adopt other valuations based on fair value pricing in
unusual circumstances when use of other methods as described in part above could
otherwise have a material adverse effect on a Fund as a whole.
The Trustees have authorized the use of the amortized cost method to value
short-term debt instruments issued with a maturity of one year or less and
having a remaining maturity of 60 days or less when the value obtained is fair
value, provided that during any period in which more than 25% a the Fund's total
assets is invested in short-term debt securities the current market value of
such securities will be used in calculating net asset value per share in lieu of
the amortized cost method. Under the amortized cost method of valuation, the
security is initially valued at cost on the date of purchase (or in the case of
short-term debt instruments purchased with more than 60 days remaining to
maturity, the market value on the 61st day prior to maturity), and thereafter a
constant amortization to maturity of any discount or premium is assumed
regardless of the impact of fluctuating interest rates on the market value of
the security.
PORTFOLIO TRANSACTIONS
Brokerage Allocation
- --------------------
The Investment Manager's policy is to seek for its clients, including each
Fund, what in the Investment Manager's judgment will be the best overall
execution of purchase or sale orders and the most favorable net prices in
securities transactions consistent with its judgment as to the business
qualifications of the various broker or dealer firms with whom the Investment
Manager may do business, and the Investment Manager may not necessarily choose
the broker offering the lowest available commission rate. Decisions with respect
to the market where the transaction is to be completed, to the form of
transaction (whether principal or agency), and to the allocation of orders among
brokers or dealers are made in accordance with this policy. In selecting brokers
or dealers to effect portfolio transactions, consideration is given to their
proven integrity and financial responsibility, their demonstrated execution
experience and capabilities both generally and with respect to particular
markets or securities,
35
<PAGE>
the competitiveness of their commission rates in agency transactions (and their
net prices in principal transactions), their willingness to commit capital, and
their clearance and settlement capability. The Investment Manager makes every
effort to keep informed of commission rate structures and prevalent bid/ask
spread characteristics of the markets and securities in which transactions for a
Fund occur. Against this background, the Investment Manager evaluates the
reasonableness of a commission or a net price with respect to a particular
transaction by considering such factors as difficulty of execution or security
positioning by the executing firm. The Investment Manager may or may not solicit
competitive bids based on its judgment of the expected benefit or harm to the
execution process for that transaction.
When it appears that a number of firms could satisfy the required standards
in respect of a particular transaction, consideration may also be given by the
Investment Manager to services other than execution services which certain of
such firms have provided in the past or may provide in the future. Negotiated
commission rates and prices, however, are based upon the Investment Manager's
judgment of the rate which reflects the execution requirements of the
transaction without regard to whether the broker provides services in addition
to execution. Among such other services are the supplying of supplemental
investment research; general economic, political and business information;
analytical and statistical data; relevant market information, quotation
equipment and services; reports and information about specific companies,
industries and securities; purchase and sale recommendations for stocks and
bonds; portfolio strategy services; historical statistical information; market
data services providing information on specific issues and prices; financial
publications; proxy voting data and analysis services; technical analysis of
various aspects of the securities markets, including technical charts; computer
hardware used for brokerage and research purposes; computer software and
databases (including those contained in certain trading systems used for
portfolio analysis and modeling, and also including software providing
investment personnel with efficient access to current and historical data from a
variety of internal and external sources); portfolio evaluation services, and
data relating to the relative performance of accounts.
In the case of each Fund and other registered investment companies advised
by the Investment Manager or its affiliates, the above services may include data
relating to performance, expenses and fees of those investment companies and
other investment companies; this information is used by the Trustees or
Directors of the investment companies to fulfill their responsibility to oversee
the quality of the Investment Manager's advisory contracts between the
investment companies and the Investment Manager. The Investment Manager
considers these investment company services only in connection with the
execution of transactions on behalf of its investment company clients and not
its other clients. Certain of the nonexecution services provided by
broker-dealers may in turn be obtained by the broker-dealers from third parties
who are paid for such services by the broker-dealers.
The Investment Manager regularly reviews and evaluates the services
furnished by broker-dealers. The Investment Manager's investment management
personnel conduct internal surveys and use other methods to evaluate the quality
of the research and other services provided by various broker-dealer firms, and
the results of these efforts are made available to
36
<PAGE>
the equity trading department which uses this information as a consideration to
the extent described above in the selection of brokers to execute portfolio
transactions.
Some services furnished by broker-dealers may be used for research and
investment decision-making purposes, and also for marketing or administrative
purposes. Under these circumstances, the Investment Manager allocates the cost
of the services to determine the proportion which is allocable to research or
investment decision-making and the proportion allocable to other purposes. The
Investment Manager pays directly from its own funds for that portion allocable
to uses other than research or investment decision-making. Some research and
execution services may benefit the Investment Manager's clients as a whole,
while others may benefit a specific segment of clients. Not all such services
will necessarily be used exclusively in connection with the accounts which pay
the commissions to the broker-dealer providing the services.
The Investment Manager has no fixed agreements or understandings with any
broker-dealer as to the amount of brokerage business which the firm may expect
to receive for services supplied to the Investment Manager or otherwise. There
may be, however, understandings with certain firms that in order for such firms
to be able to continuously supply certain services, they need to receive an
allocation of a specified amount of brokerage business. These understandings are
honored to the extent possible in accordance with the policies set forth above.
It is not the Investment Manager's policy to intentionally pay a firm a
brokerage commission higher than that which another firm would charge for
handling the same transaction in recognition of services (other than execution
services) provided. However, the Investment Manager is aware that this is an
area where differences of opinion as to fact and circumstances may exist, and in
such circumstances, if any, the Investment Manager relies on the provisions of
Section 28(e) of the Securities Exchange Act of 1934.
In the case of the purchase of fixed income securities in underwriting
transactions, the Investment Manager follows any instructions received from its
clients as to the allocation of new issue discounts, selling commissions and
designations to brokers or dealers which provide the client with research,
performance evaluation, master trustee and other services. In the absence of
instructions from the client, the Investment Manager may make such allocations
to broker-dealers which have provided the Investment Manager with research and
brokerage services.
In some instances, certain clients of the Investment Manager request that
it place all or part of the orders for their account with certain brokers or
dealers, which in some cases provide services to those clients. The Investment
Manager generally agrees to honor those requests to the extent practicable.
Clients may condition their requests by requiring the Investment Manager only to
effect transactions with the specified broker-dealers if the broker-dealers are
competitive as to price and execution. In other cases, the Investment Manager
may be unable to negotiate commissions or obtain volume discounts or best
execution. In addition, a disparity may exist among the commissions charged to
clients who request the Investment
37
<PAGE>
Manager to use particular brokers or dealers, and also between those clients and
those who do not make such requests. A client who requests the use of a
particular broker-dealer should understand that it may lose the possible
advantage which non-requesting clients derive from aggregation of orders for
several clients as a single transaction for the purchase or sale of a particular
security. Among other reasons why best execution may not be achieved with
directed brokerage is that, in an effort to achieve orderly execution of
transactions, execution of orders that have designated particular brokers may,
at the discretion of the trading desk, be delayed until execution of other
non-designated orders has been completed.
When more than one client of the Investment Manager is seeking to buy or
sell the same security, the sale or purchase is carried out in a manner which is
considered fair and equitable to all accounts. In allocating investments among
various clients (including in what sequence orders for trades are placed), the
Investment Manager will use its best business judgment and will take into
account such factors as the investment objectives of the clients, the amount of
investment funds available to each, the size of the order, the amount already
committed for each client to a specific investment and the relative risks of the
investments, all in order to provide on balance a fair and equitable result to
each client over time. Although sharing in large transactions may sometimes
affect price or volume of shares acquired or sold, overall it is believed there
may be an advantage in execution. The Investment Manager may follow the practice
of grouping orders of various clients for execution to get the benefit of lower
prices or commission rates. In certain cases where the aggregate order may be
executed in a series of transactions at various prices, the transactions are
allocated as to amount and price in a manner considered equitable to each so
that each receives, to the extent practicable, the average price of such
transactions. Exceptions may be made based on such factors as the size of the
account and the size of the trade. For example, the Investment Manager may not
aggregate trades where it believes that it is in the best interests of clients
not to do so, including situations where aggregation might result in a large
number of small transactions with consequent increased custodial and other
transactional costs which may disproportionately impact smaller accounts. Such
disaggregation, depending on the circumstances, may or may not result in such
accounts receiving more or less favorable execution relative to other clients.
CERTAIN TAX MATTERS
Taxation of the Funds--In General
- ---------------------------------
Each Fund intends to qualify and elect to be treated each taxable year as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"), although it cannot give complete assurance
that it will qualify to do so. Each Fund also intends to meet all requirements
necessary to be entitled to the beneficial tax treatment accorded regulated
investment companies and their shareholders. Accordingly, each Fund must, among
other things, (a) derive at least 90% of its gross income in each taxable year
from dividends, interest, payments with respect to securities loans, gains from
the sale or other disposition of stock, securities or foreign currencies, or
other income (including, but not limited to, gains from options, futures or
forward contracts) derived with respect to its
38
<PAGE>
business of investing in such stock, securities or currencies (the "90% test");
(b) diversify its holdings so that, at the close of each quarter of the taxable
year, (i) at least 50% of the market value of its total assets consists of cash,
cash items, U.S. government securities, securities of other regulated investment
companies, and other securities limited generally with respect to any one issuer
to not more than 5% of the total assets of the Fund and not more than 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its total assets is invested in the securities (other than those of the
U.S. government or other regulated investment companies) of any issuer or of two
or more issuers which the Fund controls and which are engaged in the same,
similar or related trades or businesses; and (c) distribute at least 90% of the
sum of its taxable net investment income, its net tax-exempt income, and the
excess, if any, of net short-term capital gains over net long-term capital
losses for each taxable year.
If a Fund should fail to qualify as a regulated investment company accorded
beneficial tax treatment under the Code in any year, all of its taxable income
would be subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions would be taxable to
shareholders as ordinary income to the extent of the Fund's current or
accumulated earnings and profits. Also, the shareholders, if they received a
distribution in excess of current or accumulated earnings and profits, would
receive a return of capital that would reduce the basis of their shares of the
Fund to the extent thereof. Any distribution in excess of a shareholder's basis
in the shareholder's shares would be taxable as gain realized from the sale of
such shares.
Each Fund will be liable for a nondeductible 4% excise tax on amounts not
distributed on a timely basis in accordance with a calendar year distribution
requirement. To avoid the tax, during each calendar year, a Fund must distribute
an amount equal to at least the sum of 98% of its ordinary income (not taking
into account any capital gains or losses) for the calendar year, and 98% of its
capital gain net income for the 12-month period ending on October 31, in
addition to any undistributed portion of the respective balances from the prior
year. Each Fund intends to make sufficient distributions to avoid this 4% excise
tax.
Taxation of Certain Investments
- -------------------------------
Original Issue Discount; Market Discount. For federal income tax purposes,
debt securities purchased by a Fund may be treated as having original issue
discount. Original issue discount represents interest for federal income tax
purposes and can generally be defined as the excess of the stated redemption
price at maturity of a debt obligation over the issue price. Original issue
discount is treated for federal income tax purposes as income earned by the
Fund, whether or not any income is actually received, and therefore is subject
to the distribution requirements of the Code. Generally, the amount of original
issue discount is determined on the basis of a constant yield to maturity which
takes into account the compounding of accrued interest. Under section 1286 of
the Code, an investment in a stripped bond or stripped coupon may result in
original issue discount. Because a Fund must include original issue discount in
income as it accrues, it will be more difficult for the Fund to make the
distributions required for the Fund to maintain its status as a regulated
investment company
39
<PAGE>
accorded beneficial tax treatment under Subchapter M of the Code or to avoid the
4% excise tax described above, and the Fund may be required to sell securities
in its portfolio that it otherwise would have continued to hold.
Debt securities may be purchased by a Fund at a discount that exceeds the
original issue discount, if any, at the time the Fund purchases the securities.
This additional discount represents market discount for income tax purposes. In
the case of any debt security having a maturity date of more than one year from
the date of issue and having market discount, the gain realized on disposition
will be treated as interest to the extent it does not exceed the accrued market
discount on the security (unless the Fund elects to include such accrued market
discount in income in the tax year to which it is attributable). Generally,
market discount is accrued on a daily basis. A Fund may be required to
capitalize, rather than deduct currently, part or all of any direct interest
expense incurred or continued to purchase or carry any debt security having
market discount, unless the Fund makes the election to include market discount
in income currently.
Options and Futures Transactions. Certain of a Fund's investments
(including hedging transactions in options, futures and straddles, or other
similar transactions) may be subject to provisions of the Code that (i) require
inclusion of unrealized gains or losses in the Fund's income for purposes of the
90% test and require inclusion of unrealized gains in the Fund's income for
purposes of the excise tax and the distribution requirements applicable to
regulated investment companies; (ii) defer recognition of realized losses; and
(iii) characterize both realized and unrealized gain or loss as short-term and
long-term gain or loss irrespective of the holding period of the investment.
Such provisions generally apply to, among other investments, options on debt
securities, indices on securities and futures contracts. Each Fund will monitor
its transactions and may make certain tax elections available to it in order to
mitigate the impact of these rules and prevent disqualification of the Fund as a
regulated investment company.
Investments in Foreign Currencies and Foreign Securities. Gains or losses
attributable to foreign currency contracts or fluctuations in exchange rates
that occur between the time a Fund accrues income or expenses denominated in a
foreign currency and the time the Fund actually collects such income or pays
such expenses are treated as ordinary income or loss. The portion of any gain or
loss on the disposition of a debt security denominated in a foreign currency
that is attributable to fluctuations in the value of the foreign currency during
the holding period of the debt security will likewise be treated as ordinary
income or loss. Such ordinary income or loss will increase or decrease the
amount of the Fund's net investment income.
If a Fund invests in the stock of certain "passive foreign investment
companies" ("PFICs"), ordinary income taxes and interest charges may be imposed
on the Fund on "excess distributions" received by the Fund or on gain from the
disposition of such investments by the Fund. In certain circumstances, this tax
treatment can be avoided by making an election to mark such investments to
market annually or to treat the PFIC as a "qualified electing fund." The Funds
do not intend to invest in PFICs. Because of the broad
40
<PAGE>
scope of the PFIC rules, however, there can be no assurance that the Funds can
avoid doing so.
Taxation of Shareholders
- ------------------------
Distributions from a Fund will be taxable to shareholders as ordinary
income to the extent derived from the Fund's investment income and net
short-term capital gain. The Fund's net long-term capital gain that is
distributed and designated as a capital gain dividend will be taxable to
shareholders as long-term capital gain, regardless of the length of time the
Fund's shares have been held by a shareholder. Distributions from a Fund will be
taxable to a shareholder regardless of whether they are received in cash or
reinvested in additional shares.
Distributions by a Fund result in a reduction in the fair market value of
the Fund's shares. Should a distribution reduce the fair market value below a
shareholder's cost basis, such distribution nevertheless may be taxable to the
shareholder as ordinary income or long-term capital gain, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares just prior to a taxable distribution. The price of shares
purchased at that time includes the amount of any forthcoming distribution.
Those investors purchasing shares just prior to a taxable distribution will
receive a return of investment upon distribution which nevertheless will be
taxable to them.
Each of the Funds may be subject to foreign taxes, including foreign income
or withholding taxes. Since it is likely that, with respect to each Fund, less
than 50% of the value of the Fund's total assets will consist of stock or
securities of foreign corporations, shareholders generally will not be entitled
to claim a credit or deduction with respect to such foreign taxes.
If dividends from domestic corporations are earned by a Fund, then a
portion of the dividends paid by the Fund may qualify for the 70% deduction for
dividends received which is available to corporate shareholders of the Fund.
Shareholders will be informed of any portion of the dividends paid by the Fund
which qualifies for this deduction. The dividends-received deduction is reduced
to the extent the dividends received are treated as debt-financed under the
Code, and is eliminated if the stock is held for less than 46 days.
Any dividend declared in October, November or December and made payable to
shareholders of record in any such month is treated as received by the
shareholders on December 31, if the Fund pays the dividend during January of the
following calendar year.
The sale, exchange or redemption of a Fund's shares may give rise to a gain
or loss. In general, any gain realized upon a taxable disposition of shares held
for more than one year will be taxed as long-term capital gain. If a shareholder
sells shares at a loss within six months of purchase, any loss will be treated
as long-term, rather than short-term, capital loss to the extent of any
long-term capital gain distributions received by the shareholder with respect to
the shares. All or a portion of any loss realized upon a taxable disposition of
a Fund's shares will
41
<PAGE>
be disallowed if other shares of the Fund are purchased within 30 days before or
after the disposition. In such a case, the basis of the newly purchased shares
will be adjusted to reflect the disallowed loss.
Special tax rules apply to investments through defined contribution plans
and other tax-qualified plans. Shareholders should consult their tax advisers to
determine the suitability of shares of a Fund as an investment through such
plans and the precise effect of an investment on their particular tax
situations.
The foregoing discussion of United States federal income tax law relates
solely to the application of that law to United States persons, that is, United
States citizens and residents and United States corporations, partnerships,
trusts and estates. Each shareholder who is not a United States person should
consider the United States and foreign tax consequences of ownership of shares
of a Fund, including the possibility that such a shareholder may be subject to
United States withholding at a rate of 30% (or at a lower rate under an
applicable treaty) on distributions.
Shareholders should consult their tax advisers about the application of the
provisions of federal tax law described in this Statement of Additional
Information in light of their particular tax situations and about the possible
applicability of state, local or foreign taxes.
CALCULATION OF PERFORMANCE DATA
From time to time, in advertisements or in communications to shareholders
or prospective investors, each Fund may compare the performance of its Class I,
Class II, Class III or Class IV shares to the performance of other mutual funds
with similar investment objectives, to certificates of deposit and/or to other
financial alternatives. A Fund may also compare its performance to appropriate
indices, such as Standard & Poor's 500 Index, Russell 1000 Growth Index, Lehman
Brothers Aggregate Bond Index, Consumer Price Index and Dow Jones Industrial
Average and/or to appropriate rankings and averages such as those compiled by
Lipper Analytical Services, Inc., Morningstar, Inc., Money Magazine, Business
Week, Forbes Magazine, The Wall Street Journal and Investor's Daily.
The average annual total return ("standard total return") of the Class I,
Class II, Class III and Class IV shares of a Fund will be calculated as set
forth below. Total return is computed separately for each class of shares of a
Fund.
All calculations of performance data in this section will reflect the
voluntary measures, if any, by the Fund's affiliates to reduce fees or expenses
relating to the Fund; see "Accrued Expenses and Recurring Charges" later in this
section.
Total Return
- ------------
42
<PAGE>
Standard total return will be computed separately for each class of shares
by determining the average annual compounded rates of return over the designated
periods that, if applied to the initial amount invested, would produce the
ending redeemable value in accordance with the following formula:
P(1+T)(n) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the designated period
assuming a hypothetical $1,000 payment made at the beginning
of the designated period
The calculation is based on the further assumptions that the highest
applicable initial or contingent deferred sales charge is deducted, and that all
dividends and distributions by the Fund are reinvested at net asset value on the
reinvestment dates during the periods. All accrued expenses and recurring
charges are also taken into account as described later herein.
Yield
- -----
Yield for each of the Fixed Income Fund's Class I, Class II, Class III and
Class IV shares is computed by dividing the net investment income per share
earned during a recent month or other specified 30-day period by the maximum
offering price per share on the last day of the period and annualizing the
result in accordance with the following formula:
YIELD = 2[(a-b + 1)(6) -1]
---
cd
Where a = dividends and interest earned during the period
b = expenses accrued for the period (net of voluntary expense
reductions by the Investment Manager)
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends
d = the maximum offering price per share on the last day of the
period
To calculate interest earned (for the purpose of "a" above) on debt
obligations, a Fund computes the yield to effective maturity of each obligation
held by the Fund based on the market value of the obligation (including actual
accrued interest) at the close of the last business day of the preceding period,
or, with respect to obligations purchased during the
43
<PAGE>
period, the purchase price (plus actual accrued interest). The yield to
effective maturity is then divided by 360 and the quotient is multiplied by the
market value of the obligation (including actual accrued interest) to determine
the interest income on the obligation for each day of the period that the
obligation is in the portfolio. Dividend income is recognized daily based on
published rates.
With respect to the treatment of discount and premium on mortgage or other
receivables-backed obligations which are expected to be subject to monthly
payments of principal and interest ("paydowns"), a Fund accounts for gain or
loss attributable to actual monthly paydowns as a realized capital gain or loss
during the period. The Funds have elected not to amortize discount or premium on
such securities.
Undeclared earned income, computed in accordance with generally accepted
accounting principles, may be subtracted from the maximum offering price.
Undeclared earned income is the net investment income which, at the end of the
base period, has not been declared as a dividend, but is reasonably expected to
be declared as a dividend shortly thereafter.
All accrued expenses are taken into account as described later herein.
Yield information is useful in reviewing a Fund's performance, but because
yields fluctuate, such information cannot necessarily be used to compare an
investment in the Fund's shares with bank deposits, savings accounts and similar
investment alternatives which often are insured and/or provide an agreed or
guaranteed fixed yield for a stated period of time. Shareholders should remember
that yield is a function of the kind and quality of the instruments in a Fund's
portfolio, portfolio maturity and operating expenses and market conditions.
Accrued Expenses and Recurring Charges
- --------------------------------------
Accrued expenses include all recurring charges that are charged to all
shareholder accounts during the length of the performance period. The standard
total return results do not take into account recurring and nonrecurring charges
for optional services which only certain shareholders elect and which involve
nominal fees.
In calculating performance, the accrued expenses are reduced by the amount
of subsidy, if any, of fees or expenses during the subject period, paid by
affiliates. In the absence of such subsidization, the performance of a Fund
would have been lower.
Nonstandardized Total Return
- ----------------------------
Each Fund may provide the above described standard total return results for
Class I, Class II, Class III and Class IV shares for periods which end no
earlier than the most recent calendar quarter end and which begin twelve months
before and at the time of commencement of such Fund's operations. In addition, a
Fund may provide nonstandardized total return results for differing periods,
such as for the most recent six months, and/or without taking
44
<PAGE>
sales charges into account. Such nonstandardized total return is computed as
otherwise described under "Total Return" except the result may or may not be
annualized, and as noted any applicable sales charge, if any, may not be taken
into account and therefore not deducted from the hypothetical initial payment of
$10,000.
Distribution Rates
- ------------------
A Fund may also quote its distribution rate for each class of shares. The
distribution rate is calculated by annualizing the latest per-share distribution
from ordinary income and dividing the result by the offering price per share as
of the end of the period to which the distribution relates. A distribution can
include gross investment income from debt obligations purchased at a premium and
in effect include a portion of the premium paid. A distribution can also include
nonrecurring, gross short-term capital gains without recognition of any
unrealized capital losses. Further, a distribution can include income from the
sale of options by a Fund even though such option income is not considered
investment income under generally accepted accounting principles.
Because a distribution can include such premiums, capital gains and option
income, the amount of the distribution may be susceptible to control by the
Investment Manager through transactions designed to increase the amount of such
items. Also, because the distribution rate is calculated in part by dividing the
latest distribution by the offering price, which is based on net asset value
plus any applicable sales charge, the distribution rate will increase as the net
asset value declines. A distribution rate can be greater than the yield rate
calculated as described above.
CUSTODIAN
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is the Trust's custodian. As custodian State Street Bank
and Trust Company is responsible for, among other things, safeguarding and
controlling each Fund's cash and securities, handling the receipt and delivery
of securities and collecting interest and dividends on each Fund's investments.
State Street Bank and Trust Company is not an affiliate of the Investment
Manager or its affiliates.
DISTRIBUTOR
State Street Research Investment Services, Inc. ("SSR Investment Services")
serves as principal distributor of the Trust's shares under a Distribution
Agreement. Pursuant to the Distribution Agreement, SSR Investment Services
agrees to bear the expenses of printing and distributing the Trust's prospectus
and any other literature used in connection with the continuous offering of the
Trust's shares for sale to the public, and any advertising in connection with
such offering. The Trust or SSR Investment Services may terminate the
Distribution Agreement on 60 days written notice without penalty.
45
<PAGE>
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, One Post Office Square, Boston, Massachusetts
02109, serves as the Trust's independent accountants, providing professional
services including (1) audits of the Fund's annual financial statements, (2)
assistance and consultation in connection with SEC filings and (3) review of the
annual income tax returns filed on behalf of the Funds.
46
<PAGE>
PART C
------
Item 23. Exhibits
--------
(1) Agreement and Declaration of Trust of the Registrant.
(2) Bylaws of the Registrant.
(3) Please refer to Article 5 of the Registrant's Declaration of Trust,
which is hereby incorporated by reference.
(4) Form of Advisory Agreement between the Registrant, on behalf of each
of its Core Fixed Income, Core Plus Fixed Income, Core Large Cap
Growth and Large Cap Growth Funds, and State Street Research &
Management Company.
(5) Form of Distribution Agreement between the Registrant and State Street
Research Investment Services, Inc.
(6) Not applicable.
(7) Form of Custodian Agreement [to be filed by amendment].
(8) (a) Form of Servicing Agreement between the Trust and State Street
Research & Management Company; (b) Form of Transfer Agency Agreement
[to be filed by amendment]; (c) Form of Fee Waiver and Expense
Limitation Agreement.
(9) Opinion of Ropes & Gray regarding the Core Fixed Income, Core Plus
Fixed Income, Core Large Cap Growth and Large Cap Growth Funds [to be
filed by amendment].
(10) None.
(11) None.
(12) Initial Capital Agreements [to be filed by amendment].
(13) Not applicable.
(14) Not applicable
(15) Form of Rule 18f-3 plan dated May___, 1999.
C-1
<PAGE>
(16) Powers of Attorney [to be filed by amendment].
Item 24. Persons Controlled by or Under Common Control with Registrant
-------------------------------------------------------------
None.
Item 25. Indemnification
---------------
Article IV of the Bylaws of the Registrant provides that the Registrant
shall indemnify each of its Trustees and officers against all liabilities and
expenses, including but not limited to amounts paid in satisfaction of
judgments, in compromise or as fines and penalties, and against all expenses,
including but not limited to accountants and counsel fees, reasonably incurred
in connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or administrative or
legislative body, in which such trustee or officer may be or may have been
involved as a party or otherwise or with which such person may be or may have
been threatened, while in office or thereafter, by reason of being or having
been such a trustee or officer, except that indemnification shall not be
provided if it shall have been finally adjudicated in any such action, suit or
proceeding that such trustee or officer (i) did not act in good faith in the
reasonable belief that his or her action was in the best interests of the
Registrant or (ii) is liable to the Registrant or its shareholders by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such person's office.
Item 26. Business and Other Connections of Investment Adviser
----------------------------------------------------
Describe any other business, profession, vocation or employment of a
substantial nature in which each investment adviser of the Registrant, and each
director, officer or partner of any such investment adviser, is or has been, at
any time during the past two fiscal years, engaged for his own account or in the
capacity of director, officer, employee, partner or trustee.
<TABLE>
<CAPTION>
Principal business
Name Connection Organization address of organization
- ----- ---------- ------------ -----------------------
<S> <C> <C> <C>
State Street Research & Investment Adviser Various investment advisory Boston, MA
Management Company clients
Arpiarian, Tanya None
Vice President
Bangs, Linda L. None
Vice President
Barnwell, Amy F. None
Vice President
Beaudry, Matthew F. None
Vice President
C-2
<PAGE>
Bennett, Peter C. Vice President State Street Research Capital Trust Boston, MA
Director and Vice President State Street Research Exchange Trust Boston, MA
Executive Vice Vice President State Street Research Financial Trust Boston, MA
President Vice President State Street Research Growth Trust Boston, MA
Vice President State Street Research Master Investment Trust Boston, MA
Vice President State Street Research Equity Trust Boston, MA
Director State Street Research Investment Services, Inc. Boston, MA
Director and Chairman Boston Private Bank & Trust Co. Boston, MA
of Exec. Comm.
Vice President State Street Research Income Trust Boston, MA
Vice President State Street Research Portfolios, Inc. Boston, MA
Vice President State Street Research Securities Trust Boston, MA
President and Director Christian Camps & Conferences, Inc. Boston, MA
Chairman and Trustee Gordon College Wenham, MA
Bochman, Kathleen None
Vice President
Borzilleri, John Vice President Montgomery Securities San Francisco, CA
Senior Vice President (until 6/97)
(Vice President
until 4/98)
Bray, Michael J. None
Senior Vice President
(Vice President
until 4/98)
Brezinski, Karen None
Vice President
Brown, Susan H. None
Vice President
Buffum, Andrea L. None
Vice President
Burbank, John F. None
Senior Vice President
Cabrera, Jesus A. Vice President State Street Research Capital Trust Boston, MA
Senior Vice President
(Vice President
until 4/98)
C-3
<PAGE>
Principal business
Name Connection Organization address of organization
- ----- ---------- ------------ -----------------------
Calame, Mara D. Vice President and State Street Research Energy, Inc. Boston, MA
Vice President and Assistant Counsel
Assistant Secretary
Canavan, Joseph W. Assistant Treasurer State Street Research Equity Trust Boston, MA
Senior Vice President Assistant Treasurer State Street Research Financial Trust Boston, MA
(Vice President Assistant Treasurer State Street Research Income Trust Boston, MA
until 4/98) Assistant Treasurer State Street Research Money Market Trust Boston, MA
Assistant Treasurer State Street Research Tax-Exempt Trust Boston, MA
Assistant Treasurer State Street Research Capital Trust Boston, MA
Assistant Treasurer State Street Research Exchange Trust Boston, MA
Assistant Treasurer State Street Research Growth Trust Boston, MA
Assistant Treasurer State Street Research Master Investment Trust Boston, MA
Assistant Treasurer State Street Research Securities Trust Boston, MA
Assistant Treasurer State Street Research Portfolios, Inc. Boston, MA
Carstens, Linda C. Vice President State Street Research Investment Boston, MA
Vice President Services, Inc.
Clifford, Jr., Paul J. Vice President State Street Research Tax-Exempt Trust Boston, MA
Vice President
Coleman, Thomas J. None
Vice President
Cullen, Terrence J. Vice President Keystone-Evergreen Boston, MA
Vice President and Counsel
and Counsel, and (until 2/98)
Assistant Secretary
D'Vari, Ronald None
Vice President
Depp, Maureen G. Vice President Wellington Management Company Boston, MA
Vice President (until 9/97)
DeVeuve, Donald None
Vice President
DiFazio, Susan M.W. Senior Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President
Dillman, Thomas J. Vice President State Street Research Securities Trust Boston, MA
Senior Vice President
Drake, Susan W. None
Vice President
Dudley, Catherine Senior Portfolio Manager Chancellor Capital Management Boston, MA
Senior Vice President (until 2/98)
Duggan, Peter J. None
Senior Vice President
Even, Karen K. None
Vice President
Federoff, Alex G. None
Vice President
C-4
<PAGE>
Principal business
Name Connection Organization address of organization
- ----- ---------- ------------ -----------------------
Fee, Richard E. Vice President CIGNA Retirement and Investment Services Hartford, CT
Vice President (until 3/97)
Vice President State Street Research Investment Services, Inc. Boston, MA
Feliciano, Rosalina None
Vice President
Ficco, Bonnie A. None
Vice President
Fochtman, Jr., Leo None
Vice President
C-5
<PAGE>
Principal business
Name Connection Organization address of organization
- ----- ---------- ------------ -----------------------
Fromm, Stuart Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President
Gardner, Michael D. None
Senior Vice President
Geer, Bartlett R. Vice President State Street Research Equity Trust Boston, MA
Senior Vice President Vice President State Street Research Income Trust Boston, MA
Vice President State Street Research Securities Trust Boston, MA
Giroux, June M. None
Vice President
Govoni, Electra None
Vice President
Grace, Evan None
Vice President
Granger, Allison None
Vice President
Haggerty, Bryan D. None
Vice President
Hamilton, Jr., William A. Treasurer and Director Ellis Memorial and Eldredge House Boston, MA
Senior Vice President Treasurer and Director Nautical and Aviation Publishing Company, Inc. Baltimore, MD
Treasurer and Director North Conway Institute Boston, MA
Hanson, Phyllis None
Vice President
Haverty, Jr., Lawrence J. Vice President State Street Research Capital Trust Boston, MA
Senior Vice President
Healy, Laura J. None
Vice President
Heineke, George R. None
Vice President
Hickman, Joanne Managing Director Zurich Investment Management Chicago, IL
Senior Vice President (until 1/98)
Senior Vice President State Street Research Investment Services, Inc. Boston, MA
Huang, Jesse C. None
Vice President
Jackson, Jr., Vice President State Street Research Equity Trust Boston, MA
F. Gardner Trustee Certain trusts of related and
Senior Vice President non-related individuals
Trustee and Chairman of the Vincent Memorial Hospital Boston, MA
Board
Jamieson, Frederick H. Vice President and
Senior Vice President Asst. Treasurer State Street Research Investment Services, Inc. Boston, MA
Vice President and Asst.
Treasurer SSRM Holdings, Inc. Boston, MA
Vice President and MetLife Securities, Inc. New York, NY
Controller (until 1/97)
C-6
<PAGE>
Principal business
Name Connection Organization address of organization
- ----- ---------- ------------ -----------------------
Jodka, Richard Portfolio Manager Frontier Capital Management Boston, MA
Senior Vice President (until 1/98)
Vice President State Street Research Capital Trust Boston, MA
C-7
<PAGE>
Principal business
Name Connection Organization address of organization
- ----- ---------- ------------ -----------------------
Kallis, John H. Vice President State Street Research Financial Trust Boston, MA
Senior Vice President Vice President State Street Research Income Trust Boston, MA
Vice President State Street Research Money Market Trust Boston, MA
Vice President State Street Research Portfolios, Inc. Boston, MA
(until 11/98)
Vice President State Street Research Tax-Exempt Trust Boston, MA
Vice President State Street Research Securities Trust Boston, MA
Trustee 705 Realty Trust Washington, D.C.
Kasper, M. Katherine Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President
Kern, Stephen None
Vice President
Kiessling, Dyann H. Vice President State Street Research Money Market Trust Boston, MA
Vice President
King, Stephen Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President
Kluiber, Rudolph K. Vice President State Street Research Capital Trust Boston, MA
Senior Vice President
(Vice President
until 4/98)
Kuhn, Stephen P. None
Vice President
Langholm, Knut Director State Street Research Luxembourg
Vice President
Leary, Eileen M. None
Vice President
Levanson, David E. None
Vice President
Lomasney, Mary T. Business Analyst Fidelity Investments Boston, MA
Vice President (until 6/97)
Marinella, Mark A. Portfolio Manager STW Fixed Income Management, Ltd. Boston, MA
Senior Vice President (Until 8/98)
Maurer, Jacqueline J. None
Vice President
C-8
<PAGE>
Principal business
Name Connection Organization address of organization
- ----- ---------- ------------ -----------------------
McNamara, III, Francis J. Executive Vice President, State Street Research Investment Services, Inc. Boston, MA
Executive Vice Clerk and General Counsel
President, Secretary Secretary and General Counsel State Street Research Master Investment Trust Boston, MA
and General Counsel Secretary and General Counsel State Street Research Capital Trust Boston, MA
Secretary and General Counsel State Street Research Exchange Trust Boston, MA
Secretary and General Counsel State Street Research Growth Trust Boston, MA
Secretary and General Counsel State Street Research Securities Trust Boston, MA
Secretary and General Counsel State Street Research Equity Trust Boston, MA
Secretary and General Counsel State Street Research Financial Trust Boston, MA
Secretary and General Counsel State Street Research Income Trust Boston, MA
Secretary and General Counsel State Street Research Money Market Trust Boston, MA
Secretary and General Counsel State Street Research Tax-Exempt Trust Boston, MA
Secretary and General Counsel State Street Research Portfolios, Inc. Boston, MA
Secretary and General Counsel SSRM Holdings, Inc. Boston, MA
Maus, Gerard P. Treasurer State Street Research Equity Trust Boston, MA
Director, Executive Treasurer State Street Research Financial Trust Boston, MA
Vice President Treasurer State Street Research Income Trust Boston, MA
Treasurer, Chief Treasurer State Street Research Money Market Trust Boston, MA
Financial Officer and Treasurer State Street Research Tax-Exempt Trust Boston, MA
Chief Administrative Treasurer State Street Research Capital Trust Boston, MA
Officer Treasurer State Street Research Exchange Trust Boston, MA
Treasurer State Street Research Growth Trust Boston, MA
Treasurer State Street Research Master Investment Trust Boston, MA
Treasurer State Street Research Portfolios, Inc. Boston, MA
Treasurer State Street Research Securities Trust Boston, MA
Director, Executive Vice State Street Research Investment Services, Inc. Boston, MA
President, Treasurer and
Chief Financial Officer
Director Metric Holdings, Inc. San Francisco, CA
Director Certain wholly-owned subsidiaries
of Metric Holdings, Inc.
Treasurer and Chief SSRM Holdings, Inc. Boston, MA
Financial Officer
Treasurer (until 1/97) MetLife Securities, Inc. New York, NY
Director State Street Research Luxembourg
Milder, Judith J. None
Senior Vice President
Miller, Joan D. Senior Vice President State Street Research Investment Services, Inc. Boston, MA
Senior Vice President
C-9
<PAGE>
Principal business
Name Connection Organization address of organization
- ----- ---------- ------------ -----------------------
Moore, Jr., Thomas P.
Senior Vice Vice President State Street Research Capital Trust Boston, MA
President (until 11/96)
Vice President State Street Research Exchange Trust Boston, MA
(until 2/97)
Vice President State Street Research Growth Trust Boston, MA
(until 2/97)
Vice President State Street Research Master Investment Trust Boston, MA
(until 2/97)
Vice President State Street Research Equity Trust Boston, MA
Director Hibernia Savings Bank Quincy, MA
Governor on the Board Association for Investment Management Charlottesville, VA
of Governors and Research
Vice President State Street Research Portfolios, Inc. Boston, MA
Morey, Andrew None
Vice President
Mulligan, JoAnne C. None
Senior Vice President
Orr, Stephen C. Member Technology Analysts of Boston Boston, MA
Vice President Member Electro-Science Analysts (of NYC) New York, NY
Paddon, Steven W. None
Vice President
Pannell, James C. None
Senior Vice President
(Vice President
until 4/97)
Peters, Kim M. Vice President State Street Research Securities Trust Boston, MA
Senior Vice President
Pierce, James D. None
Vice President
Poritzky, Dean E. Portfolio Manager Fidelity Management Boston, MA
Vice President (until 4/97)
Pyle, David J. Analyst Oak Value Capital Management Durham, NC
Vice President (until 4/97)
Ragsdale, E.K. Easton Vice President State Street Research Financial Trust Boston, MA
Senior Vice President
Ranson, Clifford Director of NatWest Markets
Vice President Special Situations
Rawlins, Jeffrey A. None
Senior Vice President
Rice III, Daniel Joseph Vice President State Street Research Equity Trust Boston, MA
Senior Vice President
Richards, Scott Vice President State Street Research Securities Trust Boston, MA
Vice President
C-10
<PAGE>
Principal business
Name Connection Organization address of organization
- ----- ---------- ------------ -----------------------
Romich, Douglas A. Assistant Treasurer State Street Research Equity Trust Boston, MA
Senior Vice President Assistant Treasurer State Street Research Financial Trust Boston, MA
(Vice President Assistant Treasurer State Street Research Income Trust Boston, MA
until 4/98) Assistant Treasurer State Street Research Money Market Trust Boston, MA
Assistant Treasurer State Street Research Tax-Exempt Trust Boston, MA
Assistant Treasurer State Street Research Capital Trust Boston, MA
Assistant Treasurer State Street Research Exchange Trust Boston, MA
Assistant Treasurer State Street Research Growth Trust Boston, MA
Assistant Treasurer State Street Research Master Investment Trust Boston, MA
Assistant Treasurer State Street Research Securities Trust Boston, MA
Assistant Treasurer State Street Research Portfolios, Inc. Boston, MA
Ryan, Michael J. Vice President Delaware Management Philadelphia, PA
Senior Vice President (until 1/98)
Sanderson, Derek Senior Vice President Freedom Capital Management Boston, MA
Senior Vice President (until 10/97)
Saperstone, Paul None
Vice President
Schrage, Michael None
Vice President
Schultz, David C. Director and Treasurer Mafraq Hospital Association Mafraq, Jordan
Executive Vice President Member Association of Investment
Management Sales Executives Atlanta, GA
Member, Investment Committee Lexington Christian Academy Lexington, MA
Shaver, Jr. C. Troy President, Chief State Street Research Investment Services, Inc. Boston, MA
Executive Vice Executive Officer and
President Executive Vice President
Shean, William G. None
Vice President
Shively, Thomas A. Vice President State Street Research Income Trust Boston, MA
Director and Vice President State Street Research Financial Trust Boston, MA
Executive Vice Vice President State Street Research Money Market Trust Boston, MA
President Vice President State Street Research Tax-Exempt Trust Boston, MA
Director State Street Research Investment Services, Inc Boston, MA
Vice President State Street Research Securities Trust Boston, MA
Vice President State Street Research Portfolios, Inc. Boston, MA
(until 11/98)
Shoemaker, Richard D. None
Senior Vice President
Stambaugh, Kenneth None
Vice President
(Assistant Vice
President until 9/97)
Strelow, Dan R. None
Senior Vice President
C-11
<PAGE>
Principal business
Name Connection Organization address of organization
- ----- ---------- ------------ -----------------------
Stolberg, Thomas None
Vice President
Swanson, Amy McDermott None
Senior Vice President
Trebino, Anne M. Vice President SSRM Holdings, Inc. Boston, MA
Senior Vice President
Verni, Ralph F. Chairman, President, Chief State Street Research Capital Trust Boston, MA
Chairman, President, Executive Officer and Trustee
Chief Executive Chairman, President, Chief State Street Research Exchange Trust Boston, MA
Officer and Executive Officer and Trustee
Director Chairman, President, Chief State Street Research Growth Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Master Investment Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Securities Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Equity Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Financial Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Income Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Money Market Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Portfolios, Inc. Boston, MA
Executive Officer and Director
Chairman, President, Chief State Street Research Tax-Exempt Trust Boston, MA
Executive Officer and Trustee
Chairman and Director State Street Research Investment Services, Inc. Boston, MA
(President and Chief Executive
Officer until 2/96)
Chairman and Director Metric Holdings, Inc. San Francisco, CA
Director and Officer Certain wholly-owned subsidiaries
of Metric Holdings, Inc.
Chairman of the Board MetLife Securities, Inc. New York, NY
and Director (until 1/97)
President, Chief Executive SSRM Holdings, Inc. Boston, MA
Officer and Director
Director Colgate University Hamilton, NY
Director State Street Research Luxembourg
Chairman and Director SSR Realty Advisors, Inc. San Francisco, CA
C-12
<PAGE>
Principal business
Name Connection Organization address of organization
- ----- ---------- ------------ -----------------------
Wade, Dudley Vice President State Street Research Growth Trust Boston, MA
Freeman Vice President State Street Research Master Investment Trust Boston, MA
Senior Vice
President
Wallace, Julie K. None
Vice President
Walsh, Tucker None
Vice President
Watts, Evan D., Jr. Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President
Weiss, James M. Vice President State Street Research Exchange Trust Boston, MA
Executive Vice President Vice President State Street Research Financial Trust Boston, MA
(Senior Vice President) Vice President State Street Research Growth Trust Boston, MA
until 6/98) Vice President State Street Research Securities Trust Boston, MA
Vice President State Street Research Capital Trust Boston, MA
Vice President State Street Research Equity Trust Boston, MA
Vice President State Street Research Income Trust Boston, MA
Vice President State Street Research Master Investment Trust Boston, MA
Vice President State Street Research Portfolios, Inc. Boston, MA
Welch, Timothy None
Vice President
Westvold, Vice President State Street Research Securities Trust Boston, MA
Elizabeth McCombs
Senior Vice President
Wilkins, Kevin Senior Vice President State Street Research Investment Boston, MA
Senior Vice President (Vice President until 9/98) Services, Inc.
(Vice President Vice President Fidelity Investments Boston, MA
until 9/98) (until 7/97)
Wilson, John T. Vice President State Street Research Equity Trust Boston, MA
Senior Vice President Vice President State Street Research Master Investment Trust Boston, MA
(Vice President
until 4/98)
C-13
<PAGE>
Principal business
Name Connection Organization address of organization
- ----- ---------- ------------ -----------------------
Wing, Darman A. Senior Vice President and State Street Research Investment Services, Inc. Boston, MA
Senior Vice President, Asst. Clerk
Assistant Secretary Assistant Secretary and State Street Research Capital Trust Boston, MA
and Assistant Assistant General Counsel
General Counsel Assistant Secretary and State Street Research Exchange Trust Boston, MA
(Vice President Assistant General Counsel
until 4/98) Assistant Secretary and State Street Research Growth Trust Boston, MA
Assistant General Counsel
Assistant Secretary and State Street Research Master Investment Trust Boston, MA
Assistant General Counsel
Assistant Secretary and State Street Research Securities Trust Boston, MA
Assistant General Counsel
Assistant Secretary and State Street Research Equity Trust Boston, MA
Assistant General Counsel
Assistant Secretary and State Street Research Financial Trust Boston, MA
Assistant General Counsel
Assistant Secretary and State Street Research Income Trust Boston, MA
Assistant General Counsel
Assistant Secretary and State Street Research Money Market Trust Boston, MA
Assistant General Counsel
Assistant Secretary and State Street Research Tax-Exempt Trust Boston, MA
Assistant General Counsel
Assistant Secretary and State Street Research Portfolios, Inc. Boston, MA
Assistant General Counsel
Assistant Secretary and SSRM Holdings, Inc. Boston, MA
Assistant General Counsel
Woodbury, Robert S. None
Vice President
Woodworth, Jr., Kennard Vice President State Street Research Exchange Trust Boston, MA
Senior Vice Vice President State Street Research Growth Trust Boston, MA
President Vice President State Street Research Securities Trust Boston, MA
Wu, Norman N. Partner Atlantic-Acton Realty Framingham, MA
Senior Vice President Director Bond Analysts Society of Boston Boston, MA
Zuger, Peter A. Vice President State Street Research Equity Trust Boston, MA
Senior Vice Portfolio Manager American Century
President (until 9/98) Investment Management
</TABLE>
C-14
<PAGE>
Item 27. Principal Underwriters
(a) State Street Research Investment Services, Inc., Registrant's
principal underwriter, also acts as principal underwriter for State
Street Research Financial Trust, State Street Research Income Trust,
State Street Research Money Market Trust, State Street Research
Tax-Exempt Trust, State Street Research Capital Trust, State Street
Research Master Investment Trust, State Street Research Equity Trust,
State Street Research Securities Trust, State Street Research Growth
Trust, and State Street Research Portfolios, Inc.
(b) Directors and Officers of State Street Research Investment Services,
Inc. are as follows:
<TABLE>
<CAPTION>
(1) (2) (3)
Name And Principal Positions and Positions and
Business Address Offices with Offices with
Underwriter Registrant
<S> <C> <C>
Ralph F. Verni Chairman of the Board Chairman of the Board,
One Financial Center and Director President, Chief Executive
Boston, MA 02111 Officer and Director
Peter C. Bennett Director Vice President
One Financial Center
Boston, MA 02111
Gerard P. Maus Executive Vice President, Treasurer
One Financial Center Treasurer, Chief Financial
Boston, MA 02111 Officer, Chief Administrative
Officer and Director
Thomas A. Shively Director Vice President
One Financial Center
Boston, MA 02111
C. Troy Shaver, Jr. President, Chief None
One Financial Center Executive Officer and
Boston, MA 02111 Executive Vice President
Francis J. McNamara, III Executive Vice President, Secretary and General
One Financial Center General Counsel and Counsel
Boston, MA 02111 Clerk
C-15
<PAGE>
Peter Borghi Senior Vice President None
One Financial Center
Boston, MA 02111
Paul V. Daly Senior Vice President None
One Financial Center
Boston, MA 02111
Susan M.W. DiFazio Senior Vice President None
One Financial Center
Boston, MA 02111
Joanne Hickman Senior Vice President None
One Financial Center
Boston, MA 02111
Russell A. Labrasea Senior Vice President None
One Financial Center
Boston, MA 02111
Joan D. Miller Senior Vice President None
One Financial Center
Boston, MA 02111
Kevin Wilkins Senior Vice President None
One Financial Center
Boston, MA 02111
Darman A. Wing Senior Vice President, None
One Financial Center Assistant General Counsel
Boston, MA 02111 and Assistant Clerk
Amy F. Barnwell Vice President None
One Financial Center
Boston, MA 02111
Matthew F. Beaudry Vice President None
One Financial Center
Boston, MA 02111
Linda C. Carstens Vice President None
One Financial Center
Boston, MA 02111
C-16
<PAGE>
Terrence J. Cullen Vice President, None
One Financial Center Counsel and
Boston, MA 02111 Assistant Clerk
Richard E. Fee Vice President None
One Financial Center
Boston, MA 02111
Stuart Fromm Vice President None
One Financial Center
Boston, MA 02111
Patricia A. Howell Vice President None
One Financial Center
Boston, MA 02111
Frederick H. Jamieson Vice President and None
One Financial Center Assistant Treasurer
Boston, MA 02111
M. Katharine Kasper Vice President None
One Financial Center
Boston, MA 02111
R. Steven King Vice President None
One Financial Center
Boston, MA 02111
Amy L. Simmons Vice President None
One Financial Center
Boston, MA 02111
Evan D. Watts, Jr. Vice President None
One Financial Center
Boston, MA 02111
</TABLE>
(c) Not Applicable.
C-17
<PAGE>
Item 28. Location of Accounts and Records
--------------------------------
Gerard P. Maus, State Street Research & Management Company, One Financial
Center, Boston, Massachusetts 02211.
Item 29. Management Services
-------------------
Not applicable.
Item 30. Undertakings
------------
The Registrant undertakes to furnish to each person to whom a prospectus of
the Registrant is delivered a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
C-18
<PAGE>
*********************
NOTICE
A copy of the Agreement and Declaration of Trust of State Street Research
Institutional Funds (the "Trust") is on file with the Secretary of The
Commonwealth of Massachusetts and notice is hereby given that this Registration
Statement has been executed on behalf of the Trust by an officer of the Trust as
an officer and by its Trustees as trustees and not individually and the
obligations of or arising out of this Registration Statement are not binding
upon any of the Trustees, officers or shareholders individually but are binding
only upon the assets and property of the Trust.
C-19
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 (the "Securities
Act") and the Investment Company Act of 1940 (the "1940 Act"), the Fund has duly
caused this registration statement to be signed on its behalf by the
undersigned, duly authorized, in the City of Boston, and the Commonwealth of
Massachusetts on the 5th day of March, 1999.
STATE STREET RESEARCH
INSTITUTIONAL FUNDS
By: /s/ Ralph F. Verni
---------------------------------
Name: Ralph F. Verni
Title: President
Pursuant to the requirements of the Securities Act, this registration
statement has been signed on the above date by the following persons in the
capacities indicated.
Signature Title
--------- -----
/s/ Ralph F. Verni Sole Trustee, Chairman of the Board,
- ------------------------------- President and Chief Executive Officer
Ralph F. Verni
/s/ Gerard P. Maus Treasurer (Principal Financial and
- ------------------------------- Accounting Officer)
Gerard P. Maus
C-20
<PAGE>
Exhibit Index
-------------
1. Agreement and Declaration of Trust
2. Bylaws
4. Form of Advisory Agreement
5. Form of Distribution Agreement.
8. a) Form of Servicing Agreement
c) Form of Fee Waiver and Expense Limitation Agreement
15. Form of Rule 18f-3 Plan
STATE STREET RESEARCH INSTITUTIONAL FUNDS
AGREEMENT AND DECLARATION OF TRUST
This AGREEMENT AND DECLARATION OF TRUST made at Boston, Massachusetts, this
3rd day of March, 1999, by the Trustees hereunder, and by the holders of shares
of beneficial interest to be issued hereunder as provided herein.
WITNESSETH that
WHEREAS, this Trust has been formed to carry on the business of an
investment company; and
WHEREAS, the Trustees have agreed to manage all property coming into their
hands as trustees of a Massachusetts voluntary association with transferable
shares in accordance with the provisions hereinafter set forth.
NOW, THEREFORE, the Trustees hereby declare that they will hold all cash,
securities and other assets, which they may from time to time acquire in any
manner as Trustees hereunder IN TRUST to manage and dispose of the same upon the
following terms and conditions for the pro rata benefit of the holders from time
to time of Shares in this Trust as hereinafter set forth.
ARTICLE I
Name and Definitions
Name
Section 1. This Trust shall be known as "State Street Research
Institutional Funds", and the Trustees shall conduct the business of the Trust
under that name or any other name as they may from time to time determine.
Definitions
Section 2. Whenever used herein, unless otherwise required by the context
or specifically provided:
(a) The "Trust" refers to the Massachusetts business trust established by
this Agreement
1
<PAGE>
and Declaration of Trust, as amended from time to time;
(b) "Trustees" refers to the Trustees of the Trust named herein or elected
in accordance with Article IV;
(c) "Shares" means the equal proportionate transferable units of interest
into which the beneficial interest in the Trust shall be divided from time
to time or, if more than one series or class of Shares is authorized by the
Trustees, the equal proportionate transferable units into which each series
or class of Shares shall be divided from time to time;
(d) "Shareholder" means a record owner of Shares;
(e) The "1940 Act" refers to the Investment Company Act of 1940 and the
Rules and Regulations thereunder, all as amended from time to time;
(f) The terms "Affiliated Person", "Assignment", "Commission", "Interested
Person", "Principal Underwriter" and "Majority Shareholder Vote" (the 67%
or 50% requirement of the third sentence of Section 2(a)(42) of the 1940
Act, whichever may be applicable) shall have the meanings given them in the
1940 Act;
(g) "Declaration of Trust" shall mean this Agreement and Declaration of
Trust as amended or restated from time to time;
(h) "Bylaws" shall mean the Bylaws of the Trust as amended from time to
time;
(i) The term "series" or "series of Shares" refers to the one or more
separate investment portfolios of the Trust into which the assets and
liabilities of the Trust may be divided and the Shares of the Trust
representing the beneficial interest of Shareholders in such respective
portfolios; and
(j) The term "class" or "class of Shares" refers to the division of Shares
into two or more classes as provided in Article III, Section 1 hereof.
ARTICLE II
Purpose of Trust
The purpose of the Trust is to provide investors a managed investment
primarily in securities, debt instruments and other instruments and rights of a
financial character.
2
<PAGE>
ARTICLE III
Shares
Division of Beneficial Interest
Section 1. The Shares of the Trust shall be issued in one or more series as
the Trustees may, without shareholder approval, authorize. Each series shall be
preferred over all other series in respect of the assets allocated to that
series within the meaning of the 1940 Act and shall represent a separate
investment portfolio of the Trust. The beneficial interest in each series shall
at all times be divided into Shares, without par value, each of which shall,
except as provided in the following sentence, represent an equal proportionate
interest in the series with each other Share of the same series, none having
priority or preference over another. The Trustees may, without shareholder
approval, divide the Shares of any series into two or more classes, Shares of
each such class having such preferences and special or relative rights and
privileges (including conversion rights, if any) as the Trustees may determine
from time to time. The number of Shares authorized shall be unlimited. The
Trustees may from time to time divide or combine the Shares of any series or
class into a greater or lesser number without thereby changing the proportionate
beneficial interest in the series or class.
Ownership of Shares
Section 2. The ownership of Shares shall be recorded on the books of the
Trust or a transfer or similar agent. No certificates certifying the ownership
of Shares shall be issued except as the Trustees may otherwise determine from
time to time. The Trustees may make such rules as they consider appropriate for
the issuance of Share certificates, the transfer of Shares and similar matters.
The record books of the Trust as kept by the Trust or any transfer or similar
agent, as the case may be, shall be conclusive as to who are the Shareholders of
each series and class and as to the number of Shares of each series and class
held from time to time by each Shareholder.
Investment in the Trust
Section 3. The Trustees shall accept investments in the Trust from such
persons and on such terms and for such consideration, which may consist of cash
or tangible or intangible property or a combination thereof, as they or the
Bylaws from time to time authorize.
All consideration received by the Trust for the issue or sale of Shares of
each series, together with all income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation thereof,
and any funds or payments derived from any reinvestment of such proceeds in
whatever form the same may be, shall irrevocably belong to the series of Shares
with respect to which the same were received by the Trust for all
3
<PAGE>
purposes, subject only to the rights of creditors, and shall be so handled upon
the books of account of the Trust and are herein referred to as "assets of" such
series.
No Preemptive Rights
Section 4. Shareholders shall have no preemptive or other right to
subscribe to any additional Shares or other securities issued by the Trust.
Status of Shares and Limitation of Personal Liability
Section 5. Shares shall be deemed to be personal property giving only the
rights provided in this Declaration of Trust or the Bylaws. Every Shareholder by
virtue of having become a Shareholder shall be held to have expressly assented
and agreed to the terms of this Declaration of Trust and the Bylaws and to have
become a party thereto. The death of a Shareholder during the continuance of the
Trust shall not operate to terminate the Trust nor entitle the representative of
any deceased Shareholder to an accounting or to take any action in court or
elsewhere against the Trust or the Trustees, but only to the rights of said
decedent under this Trust. Ownership of Shares shall not entitle the Shareholder
to any title in or to the whole or any part of the Trust property or right to
call for a partition or division of the same or for an accounting, nor shall the
ownership of Shares constitute the Shareholders partners. Neither the Trust nor
the Trustees, nor any officer, employee or agent of the Trust shall have any
power to bind personally any Shareholder, nor except as specifically provided
herein to call upon any Shareholder for the payment of any sum of money or
assessment whatsoever other than such as the Shareholder may at any time
personally agree to pay.
Powers of Trustees to Change Provisions Relating to Shares
Section 6. Notwithstanding any other provisions of this Declaration of
Trust and without limiting the power of the Trustees to amend the Declaration of
Trust as provided elsewhere herein, the Trustees shall have the power to amend
this Declaration of Trust, at any time and from time to time, in such manner as
the Trustees may determine in their sole discretion, without the need for
Shareholder action, so as to add to, delete, replace or otherwise modify any
provisions relating to the Shares contained in this Declaration of Trust for the
purpose of (i) responding to or complying with any regulations, orders, rulings
or interpretations of any governmental agency or any laws, now or hereafter
applicable to the Trust, or (ii) designating and establishing series and classes
in addition to the series and classes established in Section 7 of this Article
III; provided that before adopting any such amendment without Shareholder
approval the Trustees shall determine that it is consistent with the fair and
equitable treatment of all Shareholders. The establishment and designation of
any series or class of Shares in addition to the series and classes established
and designated in Section 7 of this Article III shall be effective upon the
execution by a majority of the then Trustees of an
4
<PAGE>
amendment to this Declaration of Trust, taking the form of a complete
restatement or otherwise, setting forth such establishment and designation and
the relative rights and preferences of such series or class, as the case may be,
or as otherwise provided in such instrument.
Without limiting the generality of the foregoing, the Trustees may take any
of the following actions from time to time (which actions may be taken by
amendment to this Declaration of Trust or otherwise, unless an amendment to this
Declaration of Trust is specifically required by applicable law or by the terms
of this Declaration of Trust):
i. create one or more series or classes of Shares (in addition to any
series or classes already existing or otherwise) with such rights
and preferences and such eligibility requirements for investment
therein as the Trustees shall determine and reclassify any or all
outstanding Shares as shares of particular series or classes in
accordance with such eligibility requirements;
ii. amend any of the provisions set forth in Section 7 of this Article
III;
iii. combine one or more series or classes of Shares into a single series
or class on such terms and conditions as the Trustees shall
determine;
iv. change or eliminate any eligibility requirements for investment in
Shares of any series or class, including without limitation the
power to provide for the issue of Shares of any series or class in
connection with any merger or consolidation of the Trust with
another trust or company or any acquisition by the Trust of part or
all of the assets of another trust or company;
v. change the designation of any series or class of Shares;
vi. change the method of allocating dividends among the various series
and classes of Shares;
vii. allocate any specific assets or liabilities of the Trust or any
specific items of income or expense of the Trust to one or more
series or classes of Shares; and
viii. specifically allocate assets to any or all series or classes of
Shares or create one or more additional series or classes of Shares
which are preferred over all other series or classes of Shares in
respect of assets specifically allocated thereto or any dividends
paid by the Trust with respect to any net income, however
determined, earned from the investment and reinvestment of any
assets so allocated or otherwise and provide for any special voting
or other rights with
5
<PAGE>
respect to such series or classes.
Establishment and Designation of Series
Section 7. Without limiting the authority of the Trustees set forth in
Section 6, inter alia, to establish and designate any further series or classes
or to modify the rights and preferences of any series, each series set forth on
Schedule I hereto (as may be amended from time to time by the Trustees) shall
be, and are hereby, established and designated. In addition, with respect to
each such series, the Class I Shares, Class II Shares, Class III Shares and
Class IV Shares, which each such series may issue from time to time, shall be,
and are hereby, established and designated, which classes shall have the
respective rights and preferences as may be determined from time to time by the
Trustees.
Shares of each series (or class, as the case may be) established in this Section
7 shall have the following relative rights and preferences, and every other
series (or class) established by the Trustees from time to time shall also have
the following rights and preferences unless different rights and preferences are
established by the Trustees for such series (or class):
i Assets belonging to Series. All consideration received by the Trust
for the issue or sale of Shares of a particular series, together
with all assets in which such consideration is invested or
reinvested, all income, earnings, profits, and proceeds thereof from
whatever source derived, including, without limitation, any proceeds
derived from the sale, exchange or liquidation of such assets, and
any funds or payments derived from any reinvestment of such proceeds
in whatever form the same may be, shall irrevocably belong to that
series for all purposes, subject only to the rights of creditors,
and shall be so recorded upon the books of account of the Trust.
Such consideration, assets, income, earnings, profits and proceeds
thereof, from whatever source derived, including, without limitation,
any proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any reinvestment of
such proceeds, in whatever form the same may be, are herein referred
to as "assets belonging to" that series. In the event that there are
any assets, income, earnings, profits and proceeds thereof, funds or
payments which are not readily identifiable as belonging to any
particular series (collectively "General Assets"), the Trustees shall
allocate such General Assets to, between or among any one or more of
the series established and designated from time to time in such
manner and on such basis as they, in their sole discretion, deem fair
and equitable, and any General Asset so allocated to a particular
series shall belong to that series. Each such allocation by the
Trustees shall be conclusive and binding upon the Shareholders of all
series for all purposes.
6
<PAGE>
ii. Liabilities Belonging to Series. The assets belonging to each
particular series shall be charged solely with the liabilities of the
Trust in respect to that series, expenses, costs, charges and
reserves attributable to that series, and any general liabilities of
the Trust which are not readily identifiable as belonging to any
particular series but which are allocated and charged by the Trustees
to and among any one or more of the series established and designated
from time to time in a manner and on such basis as the Trustees in
their sole discretion deem fair and equitable. The liabilities,
expenses, costs, charges, and reserves so charged to a series are
herein referred to as "liabilities belonging to" that series. Each
allocation of liabilities, expenses, costs, charges and reserves by
the Trustees shall be conclusive and binding upon the holders of all
series for all purposes.
iii. Dividends, Distributions, Redemptions, and Repurchases.
Notwithstanding any other provisions of this Declaration, including,
without limitation, Article VI, no dividend or distribution
(including, without limitation, any distribution paid upon
termination of the Trust or of any series or class) with respect to,
nor any redemption or repurchase of, the Shares of any series shall
be effected by the Trust other than from the assets belonging to such
series, nor shall any Shareholder of any particular series otherwise
have any right or claim against the assets belonging to any other
series except to the extent that such Shareholder has such a right or
claim hereunder as a Shareholder of such other series.
iv. Voting. Notwithstanding any of the other provisions of this
Declaration, including, without limitation, Section 1 of Article V,
the Shareholders of any particular series or class shall not be
entitled to vote on any matters as to which such series or class is
not affected except as otherwise required by the 1940 Act or other
applicable law. On any matter submitted to a vote of Shareholders,
all Shares of the Trust then entitled to vote shall be voted by
individual series, unless otherwise required by the 1940 Act or other
applicable law.
v. Equality. All the Shares of each particular class of a series shall
represent an equal proportionate interest in the assets allocable to
that class, and each Share of any particular series shall be equal to
each other Share of that series (subject to the liabilities allocated
to each class of that series).
vi. Fractions. Any fractional Share of a series or class shall carry
proportionately all the rights and obligations of a whole share of
that series or class, including rights with respect to voting,
receipt of dividends and distributions, redemption of Shares and
termination of the Trust.
7
<PAGE>
vii. Exchange Privilege. The Trustees shall have the authority to provide
that the holders of Shares of any series or class shall have the
right to exchange said Shares for Shares of one or more other series
or class of Shares in accordance with such requirements and
procedures as may be established by the Trustees.
viii. Combination of Series or Classes. The Trustees shall have the
authority, without the approval of the Shareholders of any series or
class unless otherwise required by applicable law, to combine the
assets and liabilities belonging to any two or more series (or the
assets allocable to any two or more classes) into assets and
liabilities belonging (or allocable) to a single series (or class).
ix. Elimination of Series or Classes. At any time that there are no
Shares outstanding of any particular series or class previously
established and designated, the Trustees may amend this Declaration
of Trust to abolish that series or class and to rescind the
establishment and designation thereof, such amendment to be effected
in the manner provided in Section 6 of this Article III.
x. Assets and Liabilities Allocable to a Class. The assets and
liabilities belonging to a series shall be proportionately allocated
among all the classes of that series according to the percentage of
net assets allocated to each particular class. For purposes of
determining the assets and liabilities belonging to a series that are
allocable to a class of that series, subject to the provisions of
paragraph (vii) of Section 6 of this Article III, expenses shall be
accrued in accordance with such procedures as the Trustees may adopt
from time to time.
8
<PAGE>
ARTICLE IV
The Trustees
Election
Section 1. A Trustee may be elected either by the Trustees or by the
Shareholders. There shall be not less than three Trustees. The number of
Trustees shall be fixed by the Trustees. Each Trustee elected by the Trustees or
the Shareholders shall serve until he or she retires, resigns, is removed or
dies or until the next meeting of Shareholders called for the purpose of
electing Trustees and until the election and qualification of his or her
successor. At any meeting called for the purpose, a Trustee may be removed by
vote of two-thirds of the outstanding shares. The initial Trustee, who shall
serve until the first meeting of Shareholders at which Trustees are elected and
until his successor is elected and qualified, or until he sooner dies, resigns
or is removed shall be Ralph F. Verni.
Effect of Death, Resignation, etc. of a Trustee
Section 2. The death, declination, resignation, retirement, removal or
incapacity of the Trustees, or any one of them, shall not operate to annul the
Trust or to revoke any existing agency created pursuant to the terms of this
Declaration of Trust.
Powers
Section 3. Subject to the provisions of this Declaration of Trust, the
business of the Trust shall be managed by the Trustees, and they shall have all
powers necessary or convenient to carry out that responsibility. Without
limiting the foregoing, the Trustees may adopt Bylaws not inconsistent with this
Declaration of Trust providing for the conduct of the business of the Trust and
may amend and repeal them to the extent that such Bylaws do not reserve that
right to the Shareholders; they may fill vacancies in or add to their number,
and may elect and remove such officers and appoint and terminate such agents as
they consider appropriate; they may appoint from their own number, and
terminate, any one or more committees consisting of two or more Trustees,
including an executive committee which may, when the Trustees are not in
session, exercise some or all of the power and authority of the Trustees as the
Trustees may determine; they may employ one or more custodians of the assets of
the Trust and may authorize such custodians to employ subcustodians and to
deposit all or any part of such assets in a system or systems for the central
handling of securities, retain a transfer agent or a Shareholder servicing
agent, or both, provide for the distribution of Shares by the Trust, through one
or more principal underwriters or otherwise, set record dates for the
determination of Shareholders with respect to various matters, and in general
delegate such authority as they consider desirable to any officer of the Trust,
to any committee of the Trustees and to any agent or employee of the Trust or to
any such custodian or underwriter.
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Without limiting the foregoing, the Trustees shall have power and
authority:
(a) To invest and reinvest cash, and to hold cash uninvested;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate, lease, write
options with respect to or otherwise deal in property rights relating to
any or all of the assets of the Trust;
(c) To act as a distributor of shares and as underwriter of, or broker or
dealer in, securities and other property;
(d) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and
deliver proxies or powers of attorney to such person or persons as the
Trustees shall deem proper, granting to such person or persons such power
and discretion with relation to securities or property as the Trustees
shall deem proper;
(e) To exercise powers and rights of subscription or otherwise which in any
manner arise out of ownership of securities, including without limitation
the pursuit of legal claims arising out of ownership of securities;
(f) To hold any security or property in a form not indicating any trust,
whether in bearer, unregistered or other negotiable form, or in the name of
the Trustees or of the Trust or in the name of a custodian, subcustodian or
other depositary or a nominee or nominees or otherwise;
(g) Subject to the provisions of Article III, Section 3, to allocate
assets, liabilities, income and expenses of the Trust to a particular
series of Shares or to apportion the same among two or more series,
provided that any liabilities or expenses incurred by or arising in
connection with a particular series of Shares shall be payable solely out
of the assets of that series; and to the extent necessary or appropriate to
give effect to the preferences and special or relative rights and
privileges of any classes of Shares, to allocate assets, liabilities,
income and expenses of a series to a particular class of Shares of that
series or to apportion the same among two or more classes of Shares of that
series;
(h) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or issuer, any security of which
is or was held in the Trust; to consent to any contract, lease, mortgage,
purchase or sale of property by such corporation or issuer, and to pay
calls or subscriptions with respect to any security held in the Trust;
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(i) To join with other security holders in acting through a committee,
depositary, voting trustee or otherwise, and in that connection to deposit
any security with, or transfer any security to, any such committee,
depositary or trustee, and to delegate to them such power and authority
with relation to any security (whether or not so deposited or transferred)
as the Trustees shall deem proper, and to agree to pay, and to pay, such
portion of the expenses and compensation of such committee, depositary or
trustee as the Trustees shall deem proper;
(j) To compromise, arbitrate or otherwise adjust claims in favor of or
against the Trust or any matter in controversy, including but not limited
to claims for taxes;
(k) To enter into joint ventures, general or limited partnerships and any
other combinations or associations;
(l) To borrow funds or other property;
(m) To endorse or guarantee the payment of any notes or other obligations
of any person; to make contracts of guaranty or suretyship, or otherwise
assume liability for payment thereof; and to mortgage and pledge the Trust
property or any part thereof to secure any of or all such obligations;
(n) To purchase and pay for entirely out of Trust property such insurance
as they may deem necessary or appropriate for the conduct of the business,
including without limitation, insurance policies insuring the assets of the
Trust and payment of distributions and principal on its portfolio
investments, and insurance policies insuring the Shareholders, Trustees,
officers, employees, agents, investment advisers or managers, principal
underwriters, or independent contractors of the Trust individually against
all claims and liabilities of every nature arising by reason of holding,
being or having held any such office or position, or by reason of any
action alleged to have been taken or omitted by any such person as
Shareholder, Trustee, officer, employee, agent, investment adviser or
manager, principal underwriter, or independent contractor, including any
action taken or omitted that may be determined to constitute negligence,
whether or not the Trust would have the power to indemnify such person
against such liability; and
(o) To pay pensions as deemed appropriate by the Trustees, and to adopt,
establish and carry out pension, profit-sharing, share bonus, share
purchase, savings, thrift and other retirement, incentive and benefit
plans, trusts and provisions, including the purchasing of life insurance
and annuity contracts as a means of providing such retirement and other
benefits, for any or all of the Trustees, officers, employees and agents of
the Trust;
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(p) In furtherance but not in limitation of (a) above, to enter into
forward commitments, futures contracts and swap contracts and to buy and
sell options on futures contracts or swap contracts and to buy and or to
enter into transactions with respect to any other securities or derivative
instruments; and
(q) To engage in any other lawful act or activity in which corporations
organized under the Massachusetts Business Corporations Act may engage.
The Trustees shall not in any way be bound or limited by any present or
future law or custom in regard to investments by trustees. Except as otherwise
provided herein or from time to time in the Bylaws, any action to be taken by
the Trustees may be taken (A) by a majority of the Trustees present at a meeting
of Trustees (a quorum being present), within or without Massachusetts, including
any meeting held by means of a conference telephone or other communications
equipment by means of which all persons participating in the meeting can hear
each other at the same time (participation by such means shall for all purposes
constitute presence in person at a meeting), or (B) by written consents of a
majority of the Trustees then in office (which written consents shall be filed
with the records of the meetings of the Trustees and shall be treated for all
purposes as a vote taken at a meeting of Trustees).
Payment of Expenses by Trust and by Shareholders
Section 4. The Trustees are authorized to pay or to cause to be paid out of
the principal or income of the Trust, or partly out of principal and partly out
of income, as the Trustees deem fair, all expenses, fees, charges, taxes and
liabilities incurred or arising in connection with the Trust, or in connection
with the management thereof, including, but not limited to, the Trustees'
compensation and such expenses and charges for the services of the Trust's
officers, employees, investment adviser or manager, principal underwriter,
auditor, counsel, custodian, transfer agent, shareholder servicing agent, and
such other agents or independent contractors and such other expenses and charges
as the Trustees may deem necessary or proper to incur, provided, however, that
all expenses, fees, charges, taxes and liabilities incurred or arising in
connection with a particular series of Shares shall be payable solely out of the
assets of that series and may, as the Trustees from time to time determine, be
allocated to a particular class of a series or apportioned among two or more
classes of a series.
The Trustees shall have the power, as frequently as they may determine, to
cause each Shareholder, or each Shareholder of any particular series or class,
to pay directly, in advance or arrears, for charges of the Trust's custodian or
transfer, shareholder servicing or similar agent, an amount fixed from time to
time by the Trustees, by setting off such charges due from such Shareholder from
declared but unpaid dividends owed such Shareholder and/or by reducing the
number of Shares in the account of such Shareholder by that number of full
and/or fractional Shares which represents the outstanding amount of such charges
due from such Shareholder.
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Ownership of Assets of the Trust
Section 5. Title to all of the assets of each series of Shares and of the
Trust shall at all times be considered as vested in the Trustees.
Advisory, Management and Distribution
Section 6. Subject to any shareholder approval as may be required by the
1940 Act, the Trustees may, at any time and from time to time, contract for
exclusive or nonexclusive advisory and/or management services with any
corporation, trust, association or other organization (the "Manager"), every
such contract to comply with such requirements and restrictions as may be set
forth in the Bylaws; and any such contract may provide for one or more
sub-advisers who shall perform all or part of the obligations of the Manager
under such contract and may contain such other terms interpretive of or in
addition to said requirements and restrictions as the Trustees may determine,
including, without limitation, authority to determine from time to time what
investments shall be purchased, held, sold or exchanged and what portion, if
any, of the assets of the Trust shall be held uninvested and to make changes in
the Trust's investments. The Trustees may also, at any time and from time to
time, contract with the Manager or any other corporation, trust, association or
other organization, appointing it exclusive or nonexclusive distributor or
principal underwriter for the Shares, every such contract to comply with such
requirements and restrictions as may be set forth in the Bylaws; and any such
contract may contain such other terms interpretive of or in addition to said
requirements and restrictions as the Trustees may determine.
The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust is a
shareholder, director, officer, partner, trustee, employee, manager,
adviser, principal underwriter or distributor or agent of or for any
corporation, trust, association, or other organization, or of or for any
parent or affiliate of any organization, with which an advisory or
management contract, or principal underwriter's or distributor's contract,
or transfer, Shareholder servicing or other agency contract may have been
or may hereafter be made, or that any such organization, or any parent or
affiliate thereof, is a Shareholder or has an interest in the Trust, or
that
(ii) any corporation, trust, association or other organization with which
an advisory or management contract or principal underwriter's or
distributor's contract, or transfer, Shareholder servicing or other agency
contract may have been or may hereafter be made also has an advisory or
management contract, or transfer, Shareholder servicing or other agency
contract with one or more other corporations, trusts, associations, or
other organizations, or has other business or interests
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shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing
the same or create any liability or accountability to the Trust or its
Shareholders.
ARTICLE V
Shareholders' Voting Powers and Meetings
Voting Powers
Section 1. Subject to the voting powers of one or more classes of shares as
set forth in this Declaration of Trust or in the Bylaws, the Shareholders shall
have power to vote only (i) for the election of Trustees as provided in Article
IV, Section 1, provided, however, that no meeting of Shareholders is required to
be called for the purpose of electing Trustees unless and until such time as
less than a majority of the Trustees have been elected by the Shareholders, (ii)
for the removal of Trustees as provided in Article IV, Section 1, to the extent
required by the 1940 Act, (iii) with respect to any Manager as provided in
Article IV, Section 6, to the extent required by the 1940 Act, (iv) with respect
to any termination of this Trust to the extent and as provided in Article IX,
Section 4, (v) with respect to any amendment of this Declaration of Trust to the
extent and as provided in Article IX, Section 9, (vi) to the same extent as the
stockholders of a Massachusetts business corporation as to whether or not a
court action, proceeding or claim should or should not be brought or maintained
derivatively or as a class action on behalf of the Trust or the Shareholders,
and (vii) with respect to such additional matters relating to the Trust as may
be required by applicable law, this Declaration of Trust, the Bylaws or any
registration of the Trust with the Securities and Exchange Commission (or any
successor agency) or any state, or as the Trustees may consider necessary or
desirable. Each whole Share shall be entitled to one vote as to any matter on
which it is entitled to vote and each fractional Share shall be entitled to a
proportionate fractional vote. Notwithstanding any other provision of this
Declaration of Trust, on any matter submitted to a vote of Shareholders, all
Shares of the Trust then entitled to vote shall be voted in the aggregate as a
single class without regard to series or classes of shares, except (1) when
required by the 1940 Act or when the Trustees shall have determined that the
matter affects one or more series or classes of Shares materially differently,
Shares shall be voted by individual series or class; and (2) when the Trustees
have determined that the matter affects only the interests of one or more series
or classes, then only Shareholders of such series or classes shall be entitled
to vote thereon. There shall be no cumulative voting in the election of
Trustees. Shares may be voted in person or by proxy. A proxy with respect to
Shares held in the name of two or more persons shall be valid if executed by any
one of them unless at or prior to exercise of the proxy the Trust receives
notice to the contrary from any one of them in any form as may be permitted by
the Bylaws. A proxy purporting to be executed by or on behalf of a Shareholder
shall be deemed valid unless challenged at or prior to its exercise and the
burden of proving invalidity shall rest on the challenger. Until Shares of any
series or class are issued, the Trustees may
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exercise all rights of Shareholders and may take any action required by law,
this Declaration of Trust or the Bylaws to be taken by Shareholders as to such
series or class.
Meetings
Section 2. Meetings of the Shareholders may be called by the Trustees for
the purpose of electing Trustees as provided in Article IV, Section 1 of this
Declaration of Trust and for such other purposes as may be prescribed by law, by
this Declaration of Trust or by the By-Laws. Meetings of the Shareholders may
also be called by the Trustees from time to time for the purpose of taking
action upon any other matter deemed by the Trustees to be necessary or
desirable. A meeting of Shareholders may be held at any place designated by the
Trustees. Written notice of any meeting of Shareholders shall be given or caused
to be given by the Trustees by mailing such notice at least seven days before
such meeting, postage prepaid, stating the time and place of the meeting, to
each Shareholder entitled to vote at such meeting at the Shareholder's address
as it appears on the records of the Trust. Whenever notice of a meeting is
required to be given to a Shareholder under this Declaration of Trust or the
By-Laws, a written waiver thereof, executed before or after the meeting by such
Shareholder or his or her attorney thereunto authorized and filed with the
records of the meeting, shall be deemed equivalent to such notice.
Quorum and Required Vote
Section 3. Thirty percent of Shares entitled to vote on a particular matter
shall be a quorum for the transaction of business on that matter at a
Shareholders' meeting, except that where any provision of law or of this
Declaration of Trust permits or requires that holders of any series or class
shall vote as an individual series or class, then thirty percent of the
aggregate number of Shares of that series or class entitled to vote shall be
necessary to constitute a quorum for the transaction of business by that series
or class. Any lesser number shall be sufficient for adjournments. Any adjourned
session or sessions may be held, within a reasonable time after the date set for
the original meeting, without the necessity of further notice. Except when a
larger vote is required by any provision of this Declaration of Trust or the
Bylaws, or by the 1940 Act, a majority of the Shares voted shall decide any
questions and a plurality shall elect a Trustee, provided that where any
provision of law or of this Declaration of Trust permits or requires that the
holders of any series or class shall vote as an individual series or class, then
a majority of the Shares of that series or class voted on the matter (or a
plurality with respect to the election of a Trustee) shall decide that matter
insofar as that series or class is concerned.
Action by Written Consent
Section 4. Any action taken by Shareholders may be taken without a meeting
if a majority of Shareholders entitled to vote on the matter (or such larger
proportion thereof as shall be required by any express provision of this
Declaration of Trust or the Bylaws) consent
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to the action in writing and such written consents are filed with the records of
the meetings of Shareholders. Such consent shall be treated for all purposes as
a vote taken at a meeting of Shareholders.
Additional Provisions
Section 5. The Bylaws may include further provisions not inconsistent with
this Declaration of Trust, regarding Shareholders' voting powers, the conduct of
meetings and related matters.
ARTICLE VI
Distributions, Redemptions and Repurchases
Distributions
Section 1. The Trustees may each year, or more frequently if they so
determine, distribute to the Shareholders of each series out of the assets of
such series such amounts as the Trustees may determine. Any such distribution to
the Shareholders of a particular series shall be made to said Shareholders pro
rata in proportion to the number of Shares of such series held by each of them,
except to the extent otherwise required or permitted by the preferences and
special or relative rights and privileges of any classes of Shares of that
series, and any distribution to the Shareholders of a particular class of Shares
shall be made to such Shareholders pro rata in proportion to the number of
Shares of such class held by each of them. Such distributions shall be made in
cash or Shares or a combination thereof as determined by the Trustees. Any such
distribution paid in Shares will be paid at the net asset value thereof as
determined in accordance with the Bylaws.
Redemptions and Repurchases
Section 2. The Trust shall purchase such Shares as are offered by any
Shareholder for redemption, upon the presentation of any certificate for the
Shares to be purchased, a proper instrument of transfer and a request directed
to the Trust or a person designated by the Trust that the Trust purchase such
Shares, or in accordance with such other procedures for redemption as the
Trustees may from time to time authorize; and the Trust will pay therefor the
net asset value thereof, as next determined in accordance with the Bylaws.
Payment for said Shares shall be made by the Trust to the Shareholder within
seven days after the date on which the request is made. The obligation set forth
in this Section 2 is subject to the provision that in the event that any time
the New York Stock Exchange is closed for other than customary weekends or
holidays, or, if permitted by rules of the Securities and Exchange Commission,
during periods when trading on the Exchange is restricted or during any
emergency which makes it impractical for the Trust to dispose of its investments
or to determine fairly the value of its net assets, or during any other period
permitted by order of the
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Securities and Exchange Commission for the protection of investors, such
obligation may be suspended or postponed by the Trustees. The Trust may also
purchase or repurchase Shares at a price not exceeding the net asset value of
such Shares in effect when the purchase or repurchase or any contract to
purchase or repurchase is made.
Redemptions at the Option of the Trust
Section 3. The Trust shall have the right at its option and at any time to
redeem Shares of any Shareholder at the net asset value thereof as determined in
accordance with the Bylaws: (i) if at such time such Shareholder owns fewer
Shares than, or Shares having an aggregate net asset value of less than, an
amount determined from time to time by the Trustees as set forth in the
Prospectus from time to time; or (ii) to the extent that such Shareholder owns
Shares of a particular series or class of Shares equal to or in excess of a
percentage of the outstanding Shares of that series or class determined from
time to time by the Trustees; or (iii) to the extent that such Shareholder owns
Shares of the Trust representing a percentage equal to or in excess of such
percentage of the aggregate number of outstanding Shares of the Trust or the
aggregate net asset value of the Trust determined from time to time by the
Trustees.
ARTICLE VII
Compensation and Limitation of Liability of Trustees
Compensation
Section 1. The Trustees as such shall be entitled to reasonable
compensation from the Trust; they may fix the amount of their compensation.
Nothing herein shall in any way prevent the employment of any Trustee for
advisory, management, legal, accounting, investment banking, underwriting,
brokerage or other services and payment for the same by the Trust.
Limitation of Liability
Section 2. The Trustees shall not be responsible or liable in any event for
any neglect or wrongdoing of any officer, agent, employee, manager or principal
underwriter of the Trust, nor shall any Trustee be responsible for the act or
omission of any other Trustee, but nothing herein contained shall protect any
Trustee against any liability to which he or she would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his or her office.
Every note, bond, contract, instrument, certificate or undertaking and
every other act or thing whatsoever executed or done by or on behalf of the
Trust or the Trustees or any of them in connection with the Trust shall be
conclusively deemed to have been executed or done only in or with respect to
their or his or her capacity as Trustees or Trustee, and such Trustees or
Trustee shall not be personally liable thereon.
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ARTICLE VIII
Indemnification
Trustees, Officers, etc.
Section 1. The Bylaws may include provisions whereby the Trust may provide
indemnity to its Trustees and officers, including persons who serve at the
Trust's request as directors, officers or trustees of another organization in
which the Trust has any interest as a shareholder, creditor or otherwise (each
such Trustee, officer or person hereinafter referred to as a "Covered Person"),
against all liabilities and expenses, including but not limited to amounts paid
in satisfaction of judgments, in compromise or as fines and penalties, and
counsel fees reasonably incurred by any Covered Person in connection with the
defense or disposition of any action, suit or other proceeding, whether civil or
criminal, before any court or administrative or legislative body, in which such
Covered Person may be or may have been involved as a party or otherwise or with
which such Covered Person may be or may have been threatened, while in office or
thereafter, by reason of being or having been such a Covered Person. Any
indemnity provided to Covered Persons by the Bylaws may, if the Bylaws so
provide, be in addition to any other indemnity to which such persons may be
entitled by law, contract or otherwise.
ARTICLE IX
Miscellaneous
Trustees, Shareholders, etc. Not Personally Liable; Notice
Section 1. All persons extending credit to, contracting with or having any
claim against the Trust or a particular series of Shares shall look only to the
assets of the Trust or the assets of that particular series of Shares for
payment under such credit, contract or claim, and neither the Shareholders nor
the Trustees, nor any of the Trust's officers, employees or agents, whether
past, present or future, shall be personally liable therefor. Nothing in this
Declaration of Trust shall protect any Trustee against any liability to which
such Trustee would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of Trustee.
Every note, bond, contract, instrument, certificate or undertaking made or
issued by the Trustees or by any officer or officers shall give notice that this
Declaration of Trust is on file with the Secretary of The Commonwealth of
Massachusetts and shall recite that the same was executed or made by or on
behalf of the Trust or by them as Trustee or Trustees or as officer or officers
and not individually and that the obligations of such instrument are not binding
upon any of them or the Shareholders individually but are binding only upon the
assets and property of the Trust, and may contain such further recital as he or
she or they may deem appropriate, but the omission thereof shall not operate to
bind any Trustee or Trustees or officer or officers or Shareholder or
Shareholders individually.
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Shareholders
Section 2. In case any Shareholder or former Shareholder shall be held to
be personally liable solely by reason of his or her being or having been a
Shareholder of the Trust or of a particular series or class and not because of
his or her acts or omissions or for some other reason, the Shareholder or former
Shareholder (or his or her heirs, executors, administrators or other legal
representatives or in the case of a corporation or other entity, its corporate
or other general successor) shall be entitled out of the assets of the series
(or attributable to the class) of which he or she is a Shareholder or former
Shareholder to be held harmless from and indemnified against all loss and
expense arising from such liability.
Trustee's Good Faith Action, Expert Advice, No Bond or Surety
Section 3. The exercise by the Trustees of their powers and discretions
hereunder shall be binding upon everyone interested. A Trustee shall be liable
for his or her own willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the office of Trustee, and
for nothing else, and shall not be liable for errors of judgment or mistakes of
fact or law. The Trustees may take advice of counsel or other experts with
respect to the meaning and operation of this Declaration of Trust, and shall be
under no liability for any act or omission in accordance with such advice or for
failing to follow such advice. The Trustees shall not be required to give any
bond as such, nor any surety if a bond is required.
Liability of Third Persons Dealing with Trustees
Section 4. No person dealing with the Trustees shall be bound to make any
inquiry concerning the validity of any transaction made or to be made by the
Trustees or to see to the application of any payments made or property
transferred to the Trust or upon its order.
Duration and Termination of Trust
Section 5. Unless terminated as provided herein, the Trust shall continue
without limitation of time. The Trust may be terminated at any time by vote of
Shareholders holding at least 66-2/3% of the Shares entitled to vote or by the
Trustees by written notice to the Shareholders. Any series or class of Shares
may be terminated at any time by vote of Shareholders holding at least 66-2/3%
of the Shares of such series or class entitled to vote or by the Trustees by
written notice to the Shareholders of such series or class, as the case may be.
Upon termination of the Trust or of any one or more series or classes of
Shares, after paying or otherwise providing for all charges, taxes, expenses and
liabilities, whether due or accrued or anticipated of the Trust or of the
particular series or class as may be determined by
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the Trustees, the Trust shall in accordance with such procedures as the Trustees
consider appropriate reduce the remaining assets to distributable form in cash
or shares or other securities, or any combination thereof, and distribute the
proceeds to the Shareholders of the series involved, ratably according to the
number of Shares of such series held by the several Shareholders of such series
on the date of termination, except to the extent otherwise required or permitted
by the preferences and special or relative rights and privileges of any classes
of any series of Shares of the Trust, provided that any distribution to the
Shareholders of a particular class of any series of Shares shall be made to such
Shareholders pro rata in proportion to the number of Shares of such class held
by each of them.
Derivative and Class Actions
Section 6. No Shareholder shall bring or maintain any action, proceeding or
claim derivatively or as a class action on behalf of the Trust or the
Shareholders unless approved by the Trustees and, to the same extent required as
to stockholders of a Massachusetts business corporation, by the Shareholders. A
Trustee who is not an "interested person" of the Trust, as defined in the 1940
Act, shall not be disqualified from acting on such matter by reason of such
Trustee's service as a director or trustee of one or more other registered
investment companies having the same Manager or distributor.
Filing of Copies, References, Headings
Section 7. The original or a copy of this instrument and of each amendment
hereto shall be kept at the office of the Trust where it may be inspected by any
Shareholder. A copy of this instrument and of each amendment hereto shall be
filed by the Trust with the Secretary of State of The Commonwealth of
Massachusetts and with the Boston City Clerk, as well as any other governmental
office where such filing may from time to time be required. Anyone dealing with
the Trust may rely on a certificate by an officer of the Trust as to whether or
not any such amendments have been made and as to any matters in connection with
the Trust hereunder, and, with the same effect as if it were the original, may
rely on a copy certified by an officer of the Trust to be a copy of this
instrument or of any such amendments. In this instrument and in any such
amendment, references to this instrument, and all expressions like "herein",
"hereof" and "hereunder" shall be deemed to refer to this instrument as amended
or affected by any such amendments. Headings are placed herein for convenience
of reference only and shall not be taken as a part hereof or control or affect
the meaning, construction or effect of this instrument. This instrument may be
executed in any number of counterparts each of which shall be deemed an
original.
Reorganizations
Section 8. The Trust, or any one or more series or "sub-trusts" of the
Trust, may, either as the successor, survivor, or non-survivor, (1) consolidate
or merge with one or more other trusts, series, sub-trusts, partnerships,
limited liability companies, associations or
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corporations organized under the laws of the Commonwealth of Massachusetts or
any other state of the United States, to form a consolidated or merged trust,
series, sub-trust, partnership, limited liability company, association or
corporation under the laws of which any one of the constituent entities is
organized, with the Trust to be the survivor or non-survivor of such
consolidation or merger or (2) transfer a substantial portion of its assets to
one or more other trusts, series, sub-trusts, partnerships, limited liability
companies, associations or corporations organized under the laws of the
Commonwealth of Massachusetts or any other state of the United States, or have
one or more such trusts, series, sub-trusts, partnerships, limited liability
companies, associations or corporations transfer a substantial portion of its
assets to it, any such consolidation, merger or transfer to be upon such terms
and conditions as are specified in an agreement and plan of reorganization
authorized and approved by the Trustees and entered into by the Trust, or one or
more series, as the case may be, in connection therewith. Subject to applicable
law, any such consolidation, merger or transfer may be authorized by vote of a
majority of the Trustees then in office without the approval of shareholders of
the Trust or relevant series.
Applicable Law
Section 9. This Declaration of Trust is made in The Commonwealth of
Massachusetts, and it is created under and is to be governed by and construed
and administered according to the laws of said Commonwealth. The Trust shall be
of the type commonly called a Massachusetts business trust, and without limiting
the provisions hereof, the Trust may exercise all powers which are ordinarily
exercised by such a trust.
Amendments
Section 10. All rights granted to the Shareholders under this Declaration
of Trust are granted subject to the reservation of the right to amend this
Declaration of Trust as herein provided, except that no amendment shall repeal
the limitations on personal liability of any Shareholder or Trustee or repeal
the prohibition of assessment upon the Shareholders without the express consent
of each Shareholder or Trustee involved. Subject to the foregoing, the
provisions of this Declaration of Trust (whether or not related to the rights of
Shareholders) may be amended at any time, so long as such amendment does not
have a material adverse effect on the rights of any Shareholder with respect to
which such amendment is or purports to be applicable and so long as such
amendment is not in contravention of applicable law, including the 1940 Act, by
an instrument in writing signed by a majority of the then Trustees (or by an
officer of the Trust pursuant to the vote of a majority of such Trustees). Any
amendment to this Declaration of Trust that does have a material adverse effect
on the rights of Shareholders may be adopted at any time by an instrument in
writing signed by a majority of the then Trustees (or by an officer of the Trust
pursuant to a vote of a majority of such Trustees) when authorized to do so by a
vote of Shareholders holding a majority of Shares entitled to vote. Subject to
the foregoing, any such amendment shall be effective as provided in the
instrument containing the terms of such amendment or, if there is no provision
therein
21
<PAGE>
with respect to effectiveness, upon the execution of such instrument and of a
certificate (which may be a part of such instrument) executed by a Trustee or
officer of the Trust to the effect that such amendment has been duly adopted.
22
<PAGE>
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal in
the City of Boston, Massachusetts for himself and his assigns, as of the day and
year first above written.
/s/ Ralph F. Verni
--------------------------
(SEAL) Ralph F. Verni, Trustee
Trust Address: Business Address:
c/o State Street Research & c/o State Street Research &
Management Company Management Company
One Financial Center One Financial Center
Boston, MA 02111 Boston, MA 02111
THE COMMONWEALTH OF MASSACHUSETTS
March 3, 1999
Then personally appeared the above-named Trustee of State Street Research
Institutional Funds and acknowledged the foregoing instrument to be his free act
and deed, before me,
/s/ Amy L. Simmons
---------------------------
Notary Public
My commission expires:
23
<PAGE>
SCHEDULE I
----------
State Street Research Core Fixed Income Fund
State Street Research Core Plus Fixed Income Fund
State Street Research Core Large Cap Growth Fund
State Street Research Large Cap Growth Fund
24
BY-LAWS
OF
STATE STREET RESEARCH INSTITUTIONAL FUNDS
ARTICLE 1
Agreement and Declaration
of Trust and Principal Office
1.1 Agreement and Declaration of Trust. These By-Laws shall be subject to the
Agreement and Declaration of Trust, as from time to time in effect (the
"Declaration of Trust"), of State Street Research Institutional Funds (the
"Trust"), the Massachusetts business trust established by the Declaration of
Trust.
1.2 Principal Office of the Trust. The principal office of the Trust shall be
located in Boston, Massachusetts.
ARTICLE 2
Meetings of Trustees
2.1 Regular Meetings. Regular meetings of the Trustees may be held without call
or notice at such places and at such times as the Trustees may from time to time
determine, provided that notice of the first regular meeting following any such
determination shall be given to absent Trustees.
2.2 Special Meetings. Special meetings of the Trustees may be held, at any time
and at any place designated in the call of the meeting, when called by the
Chairman of the Board, if any, the President or the Treasurer or by two or more
Trustees, sufficient notice thereof being given to each Trustee by the Secretary
or an Assistant Secretary or by the officer or the Trustees calling the meeting.
2.3 Notice. It shall be sufficient notice to a Trustee of a special meeting to
send notice by mail or courier at least forty-eight hours or by telegram,
facsimile or electronic mail at least twenty-four hours before the meeting
addressed to the Trustee at his or her usual or last known business or residence
address or to give notice to him or her in person or by telephone at least
twenty-four hours before the meeting. Notice of a meeting need not be given to
any Trustee if a written waiver of notice, executed by him or her before or
after the meeting, is filed with the records of the meeting, or to any Trustee
who attends the meeting without protesting prior thereto or at its commencement
the lack of notice to him or her. Except as required by law, neither notice of a
meeting nor a waiver of a notice need specify the purposes of the meeting.
<PAGE>
2.4 Quorum. At any meeting of the Trustees a majority of the Trustees then in
office shall constitute a quorum. Any meeting may be adjourned from time to time
by a majority of the votes cast upon the question, whether or not a quorum is
present, and the meeting may be held as adjourned without further notice to any
Trustee who was present at the time of such adjournment; notice of the time and
place of any adjourned session of such meeting shall, however, be given in the
manner provided in Section 2.3 of these By-Laws to each Trustee who was not
present at the time of such adjournment.
2.5 Action by Vote. When a quorum is present at any meeting, a majority of
Trustees present may take any action, except when a larger vote is expressly
required by law, by the Declaration of Trust or by these By-Laws.
2.6 Action by Writing. Except as required by law, any action required or
permitted to be taken at any meeting of the Trustees may be taken without a
meeting if a majority of the Trustees (or such larger proportion thereof as
shall be required by any express provision of the Declaration of Trust or these
By-Laws) consent to the action in writing and such written consents are filed
with the records of the meetings of the Trustees. Such consent shall be treated
for all purposes as a vote taken at a meeting of Trustees.
2.7 Presence through Communications Equipment. Except as required by law, the
Trustees may participate in a meeting of Trustees by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other at the same time, and
participation by such means shall constitute presence in person at a meeting.
ARTICLE 3
Officers
3.1 Enumeration; Qualification. The officers of the Trust shall be a President,
a Treasurer, a Secretary and such other officers, if any, as the Trustees from
time to time may in their discretion elect. The Trust may also have such agents
as the Trustees from time to time may in their discretion appoint. If a Chairman
of the Board is elected, he or she shall be a Trustee and may but need not be a
Shareholder; and any other officer may be but none need be a Trustee or
Shareholder. Any two or more offices may be held by the same person.
3.2 Election and Tenure. The President, the Treasurer, the Secretary and such
other officers as the Trustees may in their discretion from time to time elect
shall each be elected by the Trustees to serve until his or her successor is
elected or qualified, or until he or she sooner dies, resigns, is removed or
becomes disqualified. Each officer shall hold office and each agent shall retain
authority at the pleasure of the Trustees.
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<PAGE>
3.3 Powers. Subject to the other provisions of these By-Laws, each officer shall
have, in addition to the duties and powers herein and in the Declaration of
Trust set forth, such duties and powers as are commonly incident to the office
occupied by him or her as if the Trust were organized as a Massachusetts
business corporation and such other duties and powers as the Trustees may from
time to time designate.
3.4 President and Vice Presidents. The President shall have the duties and
powers specified in these By-Laws and shall have such other duties and powers as
may be determined by the Trustees. Any Vice Presidents shall have such duties
and powers as shall be designated from time to time by the Trustees.
3.5 Chief Executive Officer. The Chief Executive Officer of the Trust shall be
the Chairman of the Board, the President or such other officer as is designated
by the Trustees and shall, subject to the control of the Trustees, have general
charge and supervision of the business of the Trust and, except as the Trustees
shall otherwise determine, preside at all meetings of the Shareholders and of
the Trustees. If no such designation is made, the President shall be the Chief
Executive Officer.
3.6 Chairman of the Board. If a Chairman of the Board of Trustees is elected, he
shall have the duties and powers specified in these By-Laws and shall have such
other duties and powers as may be determined by the Trustees.
3.7 Treasurer. The Treasurer shall be the chief financial and accounting officer
of the Trust, and shall, subject to the provisions of the Declaration of Trust
and to any arrangement made by the Trustees with a custodian, investment adviser
or manager, administrator or transfer, shareholder servicing or similar agent,
be in charge of the valuable papers, books of account and accounting records of
the Trust, and shall have such other duties and powers as may be designated from
time to time by the Trustees or by the President.
3.8 Secretary. The Secretary shall record all proceedings of the Shareholders
and the Trustees in books to be kept therefor, which books or a copy thereof
shall be kept at the principal office of the Trust. In the absence of the
Secretary from any meeting of the Shareholders or Trustees, an Assistant
Secretary, or if there be none or if he or she is absent, a temporary secretary
chosen at such meeting shall record the proceedings thereof in the aforesaid
books.
3.9 Resignations and Removals. Any officer may resign at any time by written
instrument signed by him or her and delivered to the President or the Secretary
or to a meeting of the Trustees. Such resignation shall be effective upon
receipt unless specified to be effective at some other time. The Trustees may
remove any officer with or without cause. Except to the extent expressly
provided in a written agreement with the Trust, no officer resigning and no
officer removed shall have any right to any compensation for any period
following his or her resignation or removal, or any right to damages on account
of such removal.
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<PAGE>
ARTICLE 4
Indemnification
4.1 Trustees, Officers, etc. The Trust shall indemnify each of its Trustees and
officers (including persons who serve at the Trust's request as directors,
officers or trustees of another organization in which the Trust has any interest
as a shareholder, creditor or otherwise) (each such Trustee, officer or person
hereinafter referred to as a "Covered Person") against all liabilities and
expenses, including but not limited to amounts paid in satisfaction of
judgments, in compromise or as fines and penalties, and counsel fees reasonably
incurred by any Covered Person in connection with the defense or disposition of
any action, suit or other proceeding, whether civil or criminal, before any
court or administrative or legislative body, in which such Covered Person may be
or may have been involved as a party or otherwise or with which such Covered
Person may be or may have been threatened, while in office or thereafter, by
reason of any alleged act or omission as a Trustee or officer or by reason of
his or her being or having been such a Trustee or officer, except with respect
to any matter as to which such Covered Person shall have been finally
adjudicated in any such action, suit or other proceeding not to have acted in
good faith in the reasonable belief that such Covered Person's action was in the
best interest of the Trust and except that no Covered Person shall be
indemnified against any liability to the Trust or its Shareholders to which such
Covered Person would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of such Covered Person's office. Expenses, including counsel fees so
incurred by any such Covered Person, may be paid from time to time by the Trust
in advance of the final disposition of any such action, suit or proceeding on
the condition that the amounts so paid shall be repaid to the Trust if it is
ultimately determined that indemnification of such expenses is not authorized
under this Article.
4.2 Compromise Payment. As to any matter disposed of by a compromise payment by
any such Covered Person referred to in Section 4.1 above, pursuant to a consent
decree or otherwise, no such indemnification either for said payment or for any
other expenses shall be provided unless such compromise shall be approved as in
the best interests of the Trust, after notice that it involved such
indemnification, (a) by a disinterested majority of the Trustees then in office;
or (b) by a majority of the disinterested Trustees then in office; or (c) by any
disinterested person or persons to whom the question may be referred by the
Trustees, or (d) by vote of Shareholders holding a majority of the Shares
entitled to vote thereon, exclusive of any Shares beneficially owned by any
interested Covered Person; provided, however, that such indemnification would
not protect such person against any liability to the Trust or its Shareholders
to which such person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of office. Approval by the Trustees pursuant to clause
(a) or (b) or by any disinterested person or persons pursuant to clause (c) of
this Section shall not prevent the recovery from any Covered Person of any
amount paid as indemnification to such Covered Person in accordance with any of
such clauses if such Covered Person is subsequently
-4-
<PAGE>
adjudicated by a court of competent jurisdiction not to have acted in good faith
in the reasonable belief that such Covered Person's action was in the best
interests of the Trust or to have been liable to the Trust or its Shareholders
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such Covered Person's office.
4.3 Indemnification Not Exclusive. The right of indemnification hereby provided
shall not be exclusive of or affect any other rights to which any such Covered
Person may be entitled. As used in this Article 4, the term "Covered Person"
shall include such person's heirs, executors and administrators; an "interested
Covered Person" is one against whom the action, suit or other proceeding in
question or another action, suit or other proceeding on the same or similar
grounds is then or has been pending; and a "disinterested Trustee" or
"disinterested person" is a Trustee or a person against whom none of such
actions, suits or other proceedings or another action, suit or other proceeding
on the same or similar grounds is then or has been pending. Nothing contained in
this Article shall affect any rights to indemnification to which personnel of
the Trust, other than Trustees and officers, and other persons may be entitled
by contract or otherwise under law, nor the power of the Trust to purchase and
maintain liability insurance on behalf of any such person.
ARTICLE 5
Reports
5.1 General. The Trustees and officers shall render reports at the time and in
the manner required by the Declaration of Trust or any applicable law. Officers
shall render such additional reports as they may deem desirable or as may from
time to time be required by the Trustees.
ARTICLE 6
Fiscal Year
6.1 General. Except as from time to time otherwise provided by the Trustees, the
fiscal year of the Trust shall end on January 31 in each year. The Trustees may
also designate different fiscal year ends for one or more series of the Trust.
ARTICLE 7
Seal
7.1 General. The seal of the Trust shall consist of a flat-faced die with the
word "Massachusetts," together with the name of the Trust and the year of its
organization cut or engraved thereon, but, unless otherwise required by the
Trustees, the seal shall not be
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<PAGE>
necessary to be placed on, and its absence shall not impair the validity of, any
document, instrument or other paper executed and delivered by or on behalf of
the Trust.
ARTICLE 8
Execution of Papers
8.1 General. Except as the Trustees may generally or in particular cases
authorize the execution thereof in some other manner, all checks, notes, drafts
and other obligations and all registration statements and amendments thereto and
all applications and amendments thereto to the Securities and Exchange
Commission shall be signed by the Chairman, if any, the President, any Vice
President, the Treasurer, the Secretary or any of such other officers or agents
as shall be designated for that purpose by a vote of the Trustees.
ARTICLE 9
Issuance of Share Certificates
9.1 Share Certificates. In lieu of issuing certificates for Shares, the Trustees
or the transfer agent may either issue receipts therefor or may keep accounts
upon the books of the Trust for the record holders of such Shares, who shall in
either case be deemed, for all purposes hereunder, to be the holders of
certificates for such Shares as if they had accepted such certificates and shall
be held to have expressly assented and agreed to the terms of this Article 9.
The Trustees may at any time authorize the issuance of Share certificates. In
that event, each Shareholder shall be entitled to a certificate stating the
number of Shares owned by him or her, in such form as shall be prescribed from
time to time by the Trustees. Such certificates shall be signed by the President
or any Vice-President and by the Treasurer or any Assistant Treasurer. Such
signatures may be facsimile if the certificate is signed by a transfer agent, or
by a registrar, other than a Trustee, officer or employee of the Trust. In case
any officer who has signed or whose facsimile signature has been placed on such
certificate shall cease to be such officer before such certificate is issued, it
may be issued by the Trust with the same effect as if he or she were such
officer at the time of its issue.
9.2 Loss of Certificates. In case of the alleged loss or destruction or the
mutilation of a Share certificate, a duplicate certificate may be issued in
place thereof, upon such terms as the Trustees shall prescribe.
9.3 Issuance of New Certificates to Pledgee. A pledgee of Shares transferred as
collateral security shall be entitled to a new certificate if the instrument of
transfer substantially describes the debt or duty that is intended to be secured
thereby. Such new certificate shall express on
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<PAGE>
its face that it is held as collateral security, and the name of the pledgor
shall be stated thereon, who alone shall be liable as a Shareholder and entitled
to vote thereon.
9.4 Discontinuance of Issuance of Certificates. The Trustees may at any time
discontinue the issuance of Share certificates and may, by written notice to
each Shareholder, require the surrender of Share certificates to the Trust for
cancellation. Such surrender and cancellation shall not effect the ownership of
Shares in the Trust.
ARTICLE 10
Provisions Relating to the
Conduct of the Trust's Business
10.1 Determination of Net Asset Value. The net asset value per Share of each
series or class of Shares of the Trust shall be determined at the times and in
the manner specified from time to time by the Trustees.
ARTICLE 11
Shareholders' Voting Powers and Meetings
11.1 Record Dates. For the purpose of determining the Shareholders who are
entitled to vote or act at any meeting or any adjournment thereof, or who are
entitled to receive payment of any dividend or of any other distribution, the
Trustees may from time to time fix a reasonable date and time before the date of
any meeting of Shareholders or the date for the payment of any dividend or of
any other distribution, as the record date for determining the Shareholders
having the right to notice of and to vote at such meeting and any adjournment
thereof or the right to receive such dividend or distribution, and in such case
only Shareholders of record on such record date shall have such right
notwithstanding any transfer of Shares on the books of the Trust after the
record date; or without fixing such record date the Trustees may for any of such
purposes close the register or transfer books for all or any part of such
period.
ARTICLE 12
Amendments to the By-Laws
12.1 General. These By-Laws may be amended or repealed, in whole or in part, by
a majority of the Trustees then in office at any meeting of the Trustees, or by
written consent in lieu thereof.
-7-
<PAGE>
ARTICLE 13
13.1 Proxies. To the extent permitted by law, Shareholders entitled to vote may
vote either in person or by proxy. The delivery of a proxy on behalf of a
Shareholder consistent with telephonic or electronically transmitted
instructions obtained pursuant to procedures of the Trust reasonably designed to
verify that such instructions have been authorized by such Shareholder, shall
constitute execution and delivery of the proxy by or on behalf of the
Shareholder. Except to the extent permitted by law, no proxy dated more than six
months before the meeting named therein shall be valid, and unless otherwise
expressly limited by its terms, a proxy shall entitle the holder or holders of
the proxy to vote at any adjournment of such meeting but shall not be valid
after the final adjournment of such meeting. A proxy with respect to Shares held
in the name of two or more persons shall be valid if authorized by or on behalf
of any one of them unless at or prior to the exercise of the proxy, the Trust
receives (including receipt by electronic transmission as provided in the second
sentence of this Section 13.1) a written notice to the contrary from any one of
them. A proxy purporting to be authorized by or on behalf of a Shareholder, if
accepted by the Trust in its discretion, shall be deemed valid unless challenged
at or prior to its exercise, and the burden of proving invalidity shall rest on
the challenger.
-8-
ADVISORY AGREEMENT
------------------
ADVISORY AGREEMENT, made as of April ___, 1999, by and between STATE STREET
RESEARCH & MANAGEMENT COMPANY, a corporation organized under the laws of
Delaware having its principal place of business in Boston, Massachusetts (the
"Manager"), and STATE STREET RESEARCH INSTITUTIONAL FUNDS, a Massachusetts
business trust having its principal place of business in Boston, Massachusetts
(the "Trust").
WHEREAS, the Trust is engaged in business as an open-end management
investment company and is registered as such under the Investment Company Act of
1940, as amended (the "1940 Act"); and
WHEREAS, the Manager is engaged principally in the business of rendering
investment management services and is registered as an investment adviser under
the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Trust is authorized to issue shares of beneficial interest in
separate series with each such series representing interests in a separate
portfolio of securities and other assets; and
WHEREAS, the Trust established four series known as State Street Research
Core Fixed Income Fund, State Street Research Core Plus Fixed Income Fund, State
Street Research Core Large Cap Growth Fund and State Street Research Large Cap
Growth Fund ("Initial Funds"), together with all other series established by the
Trust after the date of this Agreement with respect to which the Manager renders
management and investment advisory services pursuant to the terms of this
Agreement, being herein collectively referred to as the "Funds" and individually
as a "Fund."
<PAGE>
NOW, THEREFORE, WITNESSETH: That it is hereby agreed between the parties
hereto as follows:
1. APPOINTMENT OF MANAGER.
(a) Initial Funds. The Trust hereby appoints the Manager to act as
manager and investment adviser to the Initial Funds for the period and on
the terms herein set forth. The Manager accepts such appointment and agrees
to render the services herein set forth, for the compensation herein
provided.
(b) Additional Funds. In the event that the Trust establishes one or
more series of shares other than the Initial Funds with respect to which it
desires to retain the Manager to render management and investment advisory
services hereunder, it shall so notify the Manager in writing, indicating
the advisory fee to be payable with respect to the additional series of
shares. If the Manager is willing to render such services, it shall so
notify the Trust in writing, whereupon such series of shares shall become a
Fund hereunder. In such event a writing signed by both the Trust and the
Manager shall be annexed hereto as a part hereof indicating that such
additional series of shares has become a Fund hereunder and reflecting the
agreed-upon fee schedule for such Fund to the extent the provisions of
Section 4 shall not apply with respect thereto.
2. DUTIES OF MANAGER.
The Manager, at its own expense, shall furnish the following services
and facilities to the Trust:
2
<PAGE>
(a) Investment Program. The Manager shall (i) furnish continuously an
investment program for each Fund, (ii) determine (subject to the overall
supervision and review of the Board of Trustees of the Trust) what
investments shall be purchased, held, sold or exchanged by each Fund and
what portion, if any, of the assets of each Fund shall be held uninvested,
and (iii) make changes on behalf of the Trust in the investments of each
Fund. The Manager shall also manage, supervise and conduct the other
affairs and business of the Trust and each Fund thereof and matters
incidental thereto, subject always to the control of the Board of Trustees
of the Trust and to the provisions of the Agreement and Declaration of
Trust and By-Laws of the Trust, as amended, the prospectuses of the Trust
as from time to time amended and in effect and the 1940 Act. Subject to the
foregoing, the Manager shall have the authority to engage one or more
sub-advisers in connection with the management of the Funds, which
sub-advisers may be affiliates of the Manager.
(b) Regulatory Reports. The Manager shall furnish to the Trust
necessary assistance in:
(i) the preparation of all reports now or hereafter required by
federal or other laws (not including any reports prepared pursuant to
the terms of the Servicing Agreement between the Trust and the Manager
(the "Servicing Agreement")); and
(ii) the preparation of prospectuses, registration statements and
amendments thereto that may be required by federal or other laws or by
the rules or regulations of any duly authorized commission or
administrative body.
3
<PAGE>
(c) Office Space and Facilities. The Manager shall furnish the Trust
office space in the offices of the Manager, or in such other place or
places as may be agreed upon from time to time, and all necessary office
facilities, business equipment, supplies, utilities, and telephone service
for managing the affairs and investments of the Trust.
(d) Services of Personnel. The Manager shall provide all necessary
executive and administrative personnel for managing the affairs of the
Trust, including personnel to perform clerical, bookkeeping, accounting and
other office functions. These services are exclusive of the bookkeeping and
accounting services of any dividend disbursing agent, transfer agent,
registrar or custodian, are also exclusive of the services provided under
the Servicing Agreement. The Manager shall compensate all personnel,
officers and Trustees of the Trust if such persons are also employees of
the Manager or its affiliates.
(e) Fidelity Bond. The Manager shall arrange for providing and
maintaining a bond issued by a reputable insurance company authorized to do
business in the place where the bond is issued against larceny and
embezzlement covering each officer and employee of the Trust and/or the
Manager who may singly or jointly with others have access to funds or
securities of the Trust, with direct or indirect authority to draw upon
such funds or to direct generally the disposition of such funds. The bond
shall be in such reasonable amount as a majority of the Trustees who are
not "interested persons" of the Trust, as defined in the 1940 Act, shall
determine, with due consideration given to the aggregate assets of the
Trust to which any such officer or employee may have access. The premium
for the bond shall be payable by the Trust in accordance with paragraph
3(o).
4
<PAGE>
(f) Portfolio Transactions. The Manager shall place all orders for the
purchase and sale of portfolio securities for the account of each Fund with
brokers or dealers selected by the Manager, although the Trust will pay the
actual brokerage commissions on portfolio transactions in accordance with
paragraph 3(d).
3. ALLOCATION OF EXPENSE.
Except for the services and facilities to be provided by the Manager
as set forth in paragraph 2 above, the Trust assumes and shall pay all
expenses for all other Trust operations and activities and shall reimburse
the Manager for any such expenses incurred by the Manager (it being
understood that the Trust shall allocate such expenses between or among its
Funds to the extent contemplated by its Agreement and Declaration of
Trust). The expenses to be borne by the Trust shall include, without
limitation:
(a) all expenses of organizing the Trust or forming any Fund thereof;
(b) the charges and expenses of any registrar, share transfer or
dividend disbursing agent, shareholder servicing agent, custodian,
administrator, fund accounting agent, or depository appointed by the Trust
for the safekeeping of its cash, portfolio securities and other property,
including the costs of servicing shareholder investment accounts and
bookkeeping, accounting and pricing services;
(c) the charges and expenses of auditors;
(d) brokerage commissions and other costs incurred in connection with
transactions in the portfolio securities of the Trust, including any
portion of such
5
<PAGE>
commissions attributable to brokerage and research services as defined in
Section 28(e) of the Securities Exchange Act of 1934;
(e) taxes, including issuance and transfer taxes and registration,
filing or other fees payable by the Trust to federal, state or other
governmental agencies;
(f) expenses, including the cost of printing certificates, relating to
the issuance of shares of the Trust;
(g) expenses involved in registering and maintaining registrations of
the Trust and of its shares with the Securities and Exchange Commission and
various states and other jurisdictions, including reimbursement of actual
expenses incurred by the Manager in performing such functions for the
Trust, which may include compensation of persons who are employees of the
Manager, in proportion to the relative time spent on such matters;
(h) expenses related to the redemption of shares of the Trust,
including expenses attributable to any program of periodic redemption;
(i) expenses of shareholders' and Trustees' meetings, including
meetings of committees, and of preparing, printing and mailing proxy
statements, quarterly reports, semiannual reports, annual reports and other
communications to existing shareholders;
(j) expenses of preparing and setting in type prospectuses, and
expenses of printing and mailing the same to existing shareholders (but not
expenses of printing and mailing of prospectuses and literature used for
promotional purposes);
6
<PAGE>
(k) compensation and expenses of Trustees who are not "interested
persons" within the meaning of the 1940 Act;
(l) expense of maintaining shareholder accounts and furnishing, or
causing to be furnished, to each shareholder a statement of his account,
including the expense of mailing;
(m) charges and expenses of legal counsel in connection with matters
relating to the Trust, including, without limitation, legal services
rendered in connection with the Trust's legal and financial structure and
relations with its shareholders, issuance of shares of the Trust, and
registration and qualification of securities under federal, state and other
laws;
(n) the cost and expense of maintaining the books and records of the
Trust, including general ledger accounting;
(o) insurance premiums on fidelity, errors and omissions and other
coverages including the expense of obtaining and maintaining a fidelity
bond as required by Section 17(g) of the 1940 Act;
(p) interest payable on Trust borrowings; and
(q) such other nonrecurring expenses of the Trust as may arise,
including expenses of actions, suits, or proceedings to which the Trust is
a party and expenses resulting from the legal obligation which the Trust
may have to provide indemnity with respect thereto.
7
<PAGE>
4. ADVISORY FEE.
For the services and facilities to be provided by the Manager as set
forth in paragraph 2 hereof, the Trust agrees that each Fund shall pay to
the Manager a monthly fee as soon as practical after the last day of each
calendar month according to the fee schedule attached hereto as Exhibit A.
In the case of commencement or termination of this Agreement with
respect to any Fund during any calendar month, the fee with respect to such
Fund for that month shall be reduced proportionately based upon the number
of calendar days during which this Agreement is in effect with respect to
such Fund, and the fee shall be computed based upon the average daily net
asset value of such Fund during such period.
In the event that this Agreement (i) is terminated with respect to any
one or more Funds as of a date other than the last day of the fiscal year
of the Trust or (ii) commences with respect to one or more Funds as of a
date other than the first day of the fiscal year of the Trust, then the
expenses of such Fund or Funds shall be annualized and the Manager shall
pay to, or receive from, the applicable Fund or Funds a pro rata portion of
the amount that the Manager would have been required to pay or would have
been entitled to receive, if any, had this Agreement been in effect with
respect to such Fund or Funds for the full fiscal year.
5. RELATIONS WITH TRUST.
Subject to and in accordance with the Agreement and Declaration of
Trust and By-laws of the Trust and the Certificate of Incorporation and
By-laws of the Manager, it is understood that Trustees, officers, agents
and shareholders of the Trust are or may be
8
<PAGE>
interested in the Manager (or any successor thereof) as directors, officers
or otherwise, that directors, officers, agents and shareholders of the
Manager (or any successor thereof) are or may be interested in the Trust as
Trustees, officers, agents, shareholders or otherwise, that the Manager (or
any such successor thereof) is or may be interested in the Trust as a
shareholder or otherwise and that the effect of any such adverse interests
shall be governed by said Agreement and Declaration of Trust, Certificate
of Incorporation and By-laws.
6. LIABILITY OF MANAGER.
The Manager shall not be liable to the Trust for any error of judgment
or mistake of law or for any loss suffered by the Trust in connection with
the matters to which this Agreement relates; provided, however, that no
provision of this Agreement shall be deemed to protect the Manager against
any liability to the Trust or its shareholders to which it might otherwise
be subject by reason of any willful misfeasance, bad faith or gross
negligence in the performance of its duties or the reckless disregard of
its obligations and duties under this Agreement, nor shall any provision
hereof be deemed to protect any Trustee or officer of the Trust against any
such liability to which he might otherwise be subject by reason of any
willful misfeasance, bad faith or gross negligence in the performance of
his duties or the reckless disregard of his obligations and duties. If any
provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall
not be affected thereby.
9
<PAGE>
7. DURATION AND TERMINATION OF THIS AGREEMENT.
(a) Duration. This Agreement shall become effective with respect to
each of the Initial Funds on the later of (i) the date on which a
Registration Statement with respect to shares of the Initial Fund under the
Securities Act of 1933, as amended, is first declared effective by the
Securities and Exchange Commission or (ii) the date on which the Initial
Fund commences operations, and, with respect to any additional Fund, on the
date of receipt by the Trust of notice from the Manager in accordance with
paragraph 1(b) hereof that the Manager is willing to serve as Manager with
respect to such Fund. Unless terminated as herein provided, this Agreement
shall remain in full force and effect with respect to the Initial Funds
until the date which is two years after the effective date of this
Agreement, and with respect to each additional Fund, for two years from the
date on which this Agreement becomes effective for such Fund. Subsequent to
such initial periods of effectiveness this Agreement shall continue in full
force and effect, subject to Section 7(c), for successive one-year periods
with respect to each Fund so long as such continuance with respect to such
Fund is approved at least annually (a) by either the Trustees of the Trust
or by vote of a majority of the outstanding voting securities (as defined
in the 1940 Act) of such Fund, and (b) in either event, by the vote of a
majority of the Trustees of the Trust who are not parties to this Agreement
or "interested persons" (as defined in the 1940 Act) of any such party,
cast in person at a meeting called for the purpose of voting on such
approval.
(b) Amendment. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing
signed by the party
10
<PAGE>
against which enforcement of the change, waiver, discharge or termination
is sought, and no amendment of this Agreement shall be effective with
respect to any Fund until approved by vote of the holders of a majority of
that Fund's outstanding voting securities (as defined in the 1940 Act) if
such a vote is required under the 1940 Act for such amendment.
(c) Termination. This Agreement may be terminated with respect to any
Fund at any time, without payment of any penalty, by vote of the Trustees
(including a vote of a majority of the Trustees of such Fund who are not
"interested persons" within the meaning of the 1940 Act) or by vote of a
majority of the outstanding voting securities (as defined in the 1940 Act)
of that Fund, or by the Manager, in each case on 60 days' prior written
notice to the other party.
(d) Automatic Termination. This Agreement shall automatically and
immediately terminate in the event of its assignment (as defined in the
1940 Act).
(e) Approval, Amendment or Termination by Individual Fund. Any
approval, amendment or termination of this Agreement shall be effective to
continue, amend or terminate this Agreement with respect to such Fund
notwithstanding (i) that such action has not been approved by the holders
of a majority of the outstanding voting securities of any other Fund
affected thereby, and (ii) that such action has not been approved by the
vote of a majority of the outstanding voting securities of the Trust,
unless such action shall be required by any applicable law or otherwise.
11
<PAGE>
8. SERVICES NOT EXCLUSIVE.
The services of the Manager to the Trust hereunder are not to be
deemed exclusive, and the Manager shall be free to render similar services
to others so long as its services hereunder are not impaired thereby.
9. NAME OF TRUST.
It is understood that the phrases "State Street" and "State Street
Research" and any logos associated with that name are the valuable property
of State Street Research & Management Company, and that the Trust has the
right to include such phrases as a part of its name and the names of its
Funds only so long as State Street Research & Management shall continue to
serve as the Manager this Agreement. Upon termination of this Agreement the
Trust shall forthwith cease to use such phrases and logos.
10. PRIOR AGREEMENTS SUPERSEDED.
This Agreement supersedes any prior agreement relating to the subject
matter hereof between the parties hereto.
11. NOTICES.
Notices under this Agreement shall be in writing and shall be
addressed, and delivered or mailed postage prepaid, to the other party at
such address as such other party may designate from time to time for the
receipt of such notices. Until further notice to the other party, the
address of each party to this Agreement for this purpose shall be One
Financial Center, Boston, Massachusetts 02111.
12
<PAGE>
12. GOVERNING LAW; COUNTERPARTS.
This Agreement shall be construed in accordance with the laws of the
Commonwealth of Massachusetts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
13. LIMITATION OF LIABILITY.
The term "State Street Research Institutional Funds" means and refers
to the Trustees from time to time serving under the Agreement and
Declaration of Trust of the Trust dated March 3, 1999 as the same may have
been or may be amended. It is expressly agreed that the obligations of the
Trust hereunder shall not be binding upon any of the Trustees,
shareholders, nominees, officers, agents or employees of the Trust as
individuals or personally, but shall bind only the trust property of the
Trust, as provided in the Agreement and Declaration of Trust of the Trust.
The execution and delivery of this Agreement have been authorized by the
Trustees of the Trust and signed by a duly authorized officer of the Trust,
acting as such, and neither such authorization nor such execution and
delivery shall be deemed to have been made individually or to impose any
personal liability, but shall bind only the trust property of the Trust as
provided in its Agreement and Declaration of Trust. The Agreement and
Declaration of Trust of the Trust provides, and it is expressly agreed,
that each Fund of the Trust shall be solely and exclusively responsible for
the payment of its debts, liabilities and obligations, and that no other
Fund shall be responsible for the same.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first set forth above.
STATE STREET RESEARCH & STATE STREET RESEARCH
MANAGEMENT COMPANY INSTITUTIONAL FUNDS
- ---------------------------------- ------------------------------------
Ralph F. Verni Francis J. McNamara, III
President Secretary
14
<PAGE>
Exhibit A
---------
The fee for investment management services will be paid monthly by each of the
Funds and computed on the basis of the average daily net asset value of such
Fund for such calendar month at the following annual rates:
State Street Research Core Large Cap Growth Fund 0.55% of all assets
State Street Research Large Cap Growth Fund 0.55% of all assets
State Street Research Core Fixed Income Fund 0.40% of all assets
State Street Research Core Plus Fixed Income Fund 0.40% of all assets
A-1
DISTRIBUTION AGREEMENT
DISTRIBUTION AGREEMENT effective as of _______________, 1999, by and
between State Street Research Investment Services, Inc., a corporation organized
under the laws of the Commonwealth of Massachusetts having its place of business
in Boston, Massachusetts (the "Distributor"), and State Street Research
Institutional Funds, a Massachusetts business trust having its principal place
of business in Boston, Massachusetts (the "Trust"), which Trust proposes to
offer shares of beneficial interest in different series representing interests
in separate portfolios of assets (each series being referred to herein as a
"Fund" and such series being referred to herein collectively as the "Funds").
WITNESSETH:
In consideration of the agreements herein contained and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the parties, it is agreed:
1. Appointment of Distributor.
(a) Appointment. The Trust hereby appoints the Distributor as its agent to
sell and distribute shares of each of the State Street Research Core Fixed
Income Fund, the State Street Research Core Plus Fixed Income Fund, the State
Street Research Core Large Cap Growth Fund and the State Street Research Large
Cap Growth Fund (the "Initial Funds") and the Distributor hereby accepts such
appointment and agrees during the term of this Agreement to provide the services
and to assume the obligations herein set forth. In the event that the Trust
establishes one or more series of shares other than the Initial Funds with
respect to which it desires to retain the Distributor to serve as distributor
and principal underwriter hereunder, it shall so notify the Distributor in
writing. If the Distributor is willing to render such services, it shall so
notify the Trust in
<PAGE>
writing, whereupon such series of shares shall become a Fund hereunder. In such
event a writing signed by both the Trust and the Distributor shall be annexed
hereto as a part hereof indicating that such additional series of shares has
become a Fund hereunder.
(b) Sales of Shares. Shares of each Fund shall be sold at the offering
price thereof as from time to time determined in the manner herein provided. The
Trust agrees that it will not, without the Distributor's consent, sell or agree
to sell any shares of a Fund otherwise than through the Distributor, except that
the Trust may (a) sell shares for not less than the net asset value thereof as
an investment to such persons or classes of persons as may be indicated in the
prospectus of the Trust as amended and in effect from time to time; (b) issue or
sell shares for not less than the net asset value thereof directly to holders of
shares of any Fund upon such terms and for such consideration, if any, as it may
determine, whether in connection with the distribution of subscription or
purchase rights, the payment or reinvestment of distributions or dividends, the
exercise of any applicable reinvestment privilege, or otherwise; (c) issue or
sell shares for not less than the net asset value thereof of any Fund to the
shareholders of any other Fund or investment company in connection with the
exercise of exchange privileges offered by the Trust; and (d) issue shares for
not less than the net asset value thereof in connection with a merger,
consolidation or acquisition of assets on such basis as may be authorized or
permitted under the Investment Company Act of 1940, as amended (the "1940 Act").
2. Basis of Sale of Shares; Selected Dealers. The Distributor does not
agree to sell any specific number of shares. Shares will be sold by the
Distributor as agent for the Funds and the Trust only against orders therefor.
The Distributor will not purchase shares except as agent for the Trust.
Notwithstanding anything herein to the contrary, the Trust may terminate,
suspend or withdraw the offering of shares whenever, in its sole
2
<PAGE>
discretion, it deems such action desirable. In connection with its performance
of services hereunder, the Distributor may engage other persons to act as
selected dealers.
3. Compensation.
(a) Offering Price/Sales Charge. The offering price for shares of any Fund
of the Trust shall be the "net asset value per share" for that Fund determined
in accordance with the Agreement and Declaration of Trust of the Trust, as may
be amended from time to time (the "Declaration of Trust"), plus a sales charge,
if any, payable to the Distributor as set forth in the Trust's prospectus as
from time to time amended and in effect. The Distributor may reallow such
portions of such sales charges as dealer concessions to dealers through whom
sales are made as the Distributor may determine consistent with the terms of the
Trust's prospectus as from time to time amended and in effect; provided,
however, that the sales charge to each purchaser of shares shall not exceed that
set forth for such category of purchaser in the Trust's prospectus as from time
to time amended and in effect. The Distributor may also pay from its own funds a
commission, if any, with respect to sales to the extent consistent with and as
contemplated by the Trust's prospectus as from time to time amended and in
effect. The net asset value per share for each Fund shall be determined at such
time and on such days as are established by the Board of Trustees of the Trust
from time to time.
(b) 12b-1 Expenses. In the event that the Trust adopts a distribution plan
pursuant to Rule 12b-1 under the 1940 Act (the "12b-1 Plan"), the Distributor
agrees to fulfill any obligations it may have under the 12b-1 Plan.
4. Manner of Offering. The Distributor will comply with the securities laws
of any jurisdiction in which it sells, directly or indirectly, any shares of the
Trust. The Distributor also agrees to furnish to the Trust sufficient copies of
any sales literature it
3
<PAGE>
intends to use in connection with any sales of shares in adequate time for the
Trust to review such sales literature. The Distributor agrees that it will be
responsible for filing and clearing all such sales literature with the proper
authorities before or after use as required by applicable law.
The Distributor and the Trust each shall have the right to accept or reject
orders for the purchase of shares of the Trust. Any consideration which the
Distributor may receive in connection with a rejected purchase order will be
returned promptly to the prospective purchaser. The Distributor agrees promptly
to issue confirmations of all accepted purchase orders and to transmit a copy of
such confirmations to the Trust, or, if so directed, to any duly appointed
transfer or shareholder servicing agent of the Trust. If the originating dealer,
if any, shall fail to make timely settlement of its purchase order in accordance
with the rules of the National Association of Securities Dealers, Inc. or other
applicable requirements, the Distributor shall have the right to cancel such
purchase order and to hold the originating dealer responsible. The Distributor
agrees promptly to reimburse the Trust for any amount by which the Trust's
losses attributable to any such cancellations or to accepted purchase orders
exceed gains realized by the Trust for either of such reasons in respect of
other purchase orders. The Trust shall register or cause to be registered all
shares sold by the Distributor pursuant to the provisions hereof in such name or
names and amounts as the Distributor may request from time to time.
The Distributor agrees that if any person tenders to the Trust for
redemption of any shares purchased from the Trust within seven days of the
redemption request, the Distributor will promptly pay to the Trust the full
sales commission paid, if any, with respect to the shares so tendered for
redemption (in the case of sales by selected dealers,
4
<PAGE>
if any, such payment shall be made promptly after the Distributor's receipt of
the same from the selected dealer responsible for the sale).
The Distributor hereby agrees to act as agent for the Trust in connection
with any share repurchase arrangements from time to time offered by the Trust in
accordance with the terms of the Trust's prospectus as from time to time
amended.
5. Securities Law. The Trust has delivered to the Distributor a copy of its
current prospectus. The Trust agrees that it will use its best efforts to
continue the effectiveness of its registration statement under the Securities
Act of 1933, as amended (the "Securities Act"), and the 1940 Act. The Trust
further agrees to prepare and file any amendments to such registration statement
and any supplemental data as may be necessary in order to comply with the
Securities Act and the 1940 Act. The Trust is presently registered under the
1940 Act as an investment company, and it will use its best efforts to maintain
such registration and to comply with the requirements of said Act.
At the Distributor's request, the Trust will take such steps as may be
necessary and feasible to make available shares of the Funds for sale in states,
territories or dependencies of the United States of America, in the District of
Columbia and in foreign countries, in accordance with the laws thereof;
provided, however, that the Trust shall not be required to make available shares
in any state, territory, dependency, district or country where it shall deem
disadvantageous to the Trust.
The Distributor agrees that it will (i) not use, distribute or disseminate
or authorize the use, distribution or dissemination by others in connection with
the sale of shares of the Funds, any statement, other than those contained in
the Trust's current prospectus, except such supplemental literature or
advertising as shall be approved by the Trust, (ii) conform to the requirements
of all state and federal laws and the Rules of Fair
5
<PAGE>
Practice of the National Association of Securities Dealers, Inc. relating to the
sale of shares of the Trust (including, without limitation, the maintenance of
effective broker-dealer registrations as required), and (iii) observe and be
bound by all the provisions of the Declaration of Trust (and of any fundamental
policies adopted by the Trust pursuant to the 1940 Act, notice of which shall
have been given to the Distributor) which at the time in any way require, limit,
restrict or prohibit or otherwise regulate any action on the part of the
Distributor.
The Distributor further agrees that: (a) the Distributor shall furnish to
the Trust any information with respect to the Distributor within the purview of
any reports or registrations required to be filed with any governmental
authority; and (b) the Distributor will not make any representations
inconsistent with the registration statement of the Trust filed under the
Securities Act, as from time to time amended and in effect.
6. Allocation of Expenses.
(a) The Funds, either directly or through their investment adviser or
investment advisers, will be responsible for, and shall pay their allocable
portions of the expenses of:
(i) providing all necessary services, including fees and
disbursements of counsel, related to the preparation, setting in
type, printing and filing of any registration statement and/or
prospectus required under the Securities Act or the 1940 Act or
under state securities laws covering their shares, and all
amendments and supplements thereto, the mailing of any such
prospectus to existing shareholders, and preparing, setting in
type, printing and mailing of periodic reports to existing
shareholders;
6
<PAGE>
(ii) the cost of all registration and filing fees relating to the
Funds' shares, including the fees or expenses of qualifying the
Trust as a broker or dealer under laws of any state, if any;
(iii) the cost of preparing temporary and permanent share certificates
for shares, if any; and
(iv) any and all federal and state issue and/or transfer taxes
payable upon the issue by or (in the case of treasury shares)
transfer from a Fund of the shares distributed hereunder.
(b) The Distributor agrees that, after the Trust's prospectus and periodic
reports have been set in type or otherwise finalized, it will bear the expense
of printing (or otherwise producing) and distributing any copies thereof which
are to be used in connection with the offering of shares to prospective
investors. The Distributor further agrees that it will bear the expenses of
preparing, printing (or otherwise producing) and distributing any other
literature used by the Distributor or furnished by it for use in connection with
the offering of the shares for sale to the public, and any expenses of
advertising in connection with such offering. The Distributor will also pay fees
and expenses related to its registrations as a broker dealer and fees for
services rendered by the Trust's transfer agent on behalf of the Distributor.
(c) The Funds will be responsible for, and shall pay the expenses of,
maintaining shareholder accounts and furnishing or causing to be furnished to
each shareholder a statement of his account.
7. Distributor Is Independent Contractor. The Distributor shall be an
independent contractor. The Distributor is responsible for its own conduct, for
the employment, control and conduct of its agents and employees and for injury
to such
7
<PAGE>
agents or employees or to others through its agents or employees. The
Distributor assumes full responsibility for its agents and employees under
applicable laws and agrees to pay all employer taxes relating thereto.
8. Term and Termination; Amendment.
(a) Term and Termination. This Agreement shall become effective as of the
effective date noted above with respect to each Initial Fund; and, with respect
to any additional Fund, (i) on the date of receipt by the Trust of notice from
the Distributor in accordance with Section 1(a) hereof that the Distributor is
willing to serve as Distributor with respect to such Fund, or (ii) such other
date with respect to an additional Fund as the Trust and the Distributor
mutually agree. Unless terminated as herein provided, this Agreement shall
remain in full force and effect with respect to each Initial Fund until the date
which is two years after the effective date of this Agreement with respect to
such Initial Fund, and, with respect to each additional Fund, for two years from
the date on which such Fund becomes a Fund hereunder. Subsequent to such initial
periods of effectiveness this Agreement shall continue in full force and effect,
subject to the last sentence of this Section 8(a), for successive one-year
periods with respect to each Fund so long as such continuance with respect to
such Fund is approved at least annually (a) by either the Trustees of the Trust
or by vote of a majority of the outstanding voting securities (as defined in the
1940 Act) of such Fund, and (b) in either event, by the vote of a majority of
the Trustees of the Trust who are not parties to this Agreement or "interested
persons" (as defined in the 1940 Act) of any such party of the Trust and who
have no direct or indirect interest in the operation of any 12b-1 Plan or this
Agreement, cast in person at a meeting called for the purpose of voting on such
approval. This Agreement may be terminated with respect to the Trust or any Fund
at any time, without
8
<PAGE>
payment of any penalty, by a vote of (a) a majority of the Trustees who are not
"interested persons" of the Trust (as defined in the 1940 Act) and who have no
direct or indirect financial interest in the operation of any 12b-1 Plan or this
Agreement or (b) a majority of the outstanding voting securities of the Trust or
that Fund, or by the Distributor, as the case may be, in each case on sixty
days' prior written notice of the other party.
(b) Amendment. Any amendment to this Agreement shall become effective with
respect to a Fund upon approval in writing of the Distributor and the Trust
(subject in the latter case to approval by a majority of the Trustees and a
majority of the Trustees who are not "interested persons" of the Trust (as
defined in the 1940 Act) and who have no direct or indirect financial interest
in the operation of any 12b-1 Plan); provided, however, that amendments relating
to any 12b-1 Plan shall not require the consent of the Distributor.
(c) Approval, Amendment or Termination for Individual Fund. Any approval,
amendment or termination of this Agreement with respect to any Fund shall be
effective to continue, amend or terminate this Agreement with respect to such
Fund notwithstanding (i) that such action has not been approved with respect to
any other Fund affected thereby, and (ii) that such action has not been approved
by the shareholders of such Fund, unless such action shall be required by any
applicable law or otherwise.
9. Assignment. The Distributor may not make any assignment, as defined
under the 1940 Act, of this Agreement and this Agreement shall automatically
terminate in the event of an attempted assignment by the Distributor; provided,
however, that the Distributor may employ or enter into agreements with such
other person, persons, corporation or corporations, as it shall determine in
order to assist it in carrying out this
9
<PAGE>
Agreement, including, without limitation, selected dealers as contemplated by
Section 2.
10. Indemnification by Distributor. The Distributor agrees to indemnify and
hold harmless the Trust and each person who has been, is, or may hereafter be an
officer, Trustee, employee or agent of the Trust against any loss, damage or
expense reasonably incurred by any of them in connection with any claim or in
connection with any action, suit or proceeding to which any of them may be a
party, which arises out of or is alleged to arise out of or is based upon any
violation of any of its representations or covenants herein contained or any
untrue statement or alleged untrue statement of a material fact, or the omission
or alleged omission to state a material fact necessary to make the statements
made not misleading, on the part of the Distributor or any agent or employee of
the Distributor or any other person for whose acts the Distributor is
responsible or is alleged to be responsible (such as any selected dealer or
person through whom sales are made pursuant to an agreement with the
Distributor), whether made orally or in writing, unless such statement or
omission was made in or in reliance upon written information furnished by the
Trust. The term "expenses" for purposes of this and the next paragraph includes
reasonable attorneys' fees and amounts paid in satisfaction of judgments or in
settlements which are made with the Distributor's consent. The foregoing rights
of indemnification shall be in addition to any other rights to which any of the
foregoing indemnified parties may be entitled as a matter of law.
11. Indemnification by Trust. The Trust agrees to indemnify and hold
harmless the Distributor and each person who has been, is, or may hereafter be
an officer, director, employee or agent of the Distributor against any loss,
damage or expense reasonably incurred by any of them in connection with any
claim or in connection with any action, suit or proceeding to which any of them
may be party, which arises out of or
10
<PAGE>
is alleged to arise out of or is based upon a violation of any of its covenants
herein contained or any untrue or alleged untrue statement of material fact, or
the omission or alleged omission to state a material fact necessary to make the
statements made not misleading, in a registration statement or prospectus of the
Trust, or any amendment or supplement thereto, unless such statement or omission
was made in reliance upon written information furnished by the Distributor. The
foregoing rights of indemnification shall be in addition to any other rights to
which any of the foregoing indemnified parties may be entitled as a matter of
law. Nothing contained herein shall relieve the Distributor of any liability to
the Trust or its shareholders to which the Distributor would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties or reckless disregard of its obligations and duties
hereunder.
12. Non-Exclusive Agreement. The services of the Distributor to the Trust
hereunder shall not be deemed to be exclusive, and the Distributor shall be free
to (a) render similar services to, and act as underwriter or distributor in
connection with the distribution of shares of, other investment companies, and
(b) engage in any other businesses and activities from time to time.
13. Governing Law; Counterparts. This Agreement shall be construed in
accordance with the laws of the Commonwealth of Massachusetts. This Agreement
may be executed in any number of counterparts, each of which shall be deemed to
be an original, but such counterparts shall, together, constitute only one
instrument.
14. Prior Agreements Superseded; Construction. This Agreement supersedes
any prior agreement relating to the subject matter hereof between the parties
hereto. Where the context of this Agreement so permits, each of the masculine,
feminine and neuter genders shall be deemed to denote the other two genders, the
singular to denote the
11
<PAGE>
plural and the plural to denote the singular. Without limiting the generality of
the foregoing, all references to the Trust's prospectus shall include all
prospectuses of the Trust or any of its Funds.
15. Notices. Notices under this Agreement shall be in writing and shall be
addressed, and delivered or mailed postage prepaid, to the other party at such
address as such other party may designate from time to time for the receipt of
such notices. Until further notice to the other party, the address of each party
to this Agreement for this purpose shall be One Financial Center, Boston,
Massachusetts 02111.
16. Limitation of Liability. The term "State Street Research Institutional
Funds" means and refers to the Trustees from time to time serving under
Declaration of Trust. It is expressly agreed that the obligations of the Trust
hereunder shall not be binding upon any of the Trustees, shareholders, nominees,
officers, agents or employees of the Trust as individuals or personally, but
shall bind only the trust property of the Trust, as provided in the Declaration
of Trust. The execution and delivery of this Agreement have been authorized by
the Trustees of the Trust and signed by an officer of the Trust, acting as such,
and neither such authorization nor such execution and delivery shall be deemed
to have been made individually or to impose any personal liability, but shall
bind only the trust property of the Trust as provided in the Declaration of
Trust. The Declaration of Trust further provides, and it is expressly agreed,
that each Fund of the Trust shall be solely and exclusively responsible for the
payment of its debts, liabilities and obligations and that no other Fund shall
be responsible or liable for the same.
12
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed for the Distributor
and the Trust by their duly authorized officers, as of the date first set forth
above.
STATE STREET RESEARCH INVESTMENT
SERVICES, INC.
--------------------------------------------
Gerard P. Maus
STATE STREET RESEARCH
INSTITUTIONAL FUNDS
--------------------------------------------
Ralph F. Verni
13
SERVICING AGREEMENT
-------------------
SERVICING AGREEMENT executed as of April __, 1999 between State Street
Research Institutional Funds, a Massachusetts business trust (the "Trust"), on
behalf of each of its Class I, Class II, Class III, and Class IV (each a "Class"
and collectively the "Classes") shares (the "Shares") of each Fund listed on
Exhibit I hereto (collectively, the "Funds"), and State Street Research &
Management Company, a Delaware corporation (the "Shareholder Servicer").
W I T N E S S E T H:
That in consideration of the mutual covenants herein contained, it is
agreed as follows:
1. SERVICES TO BE RENDERED BY SERVICING AGENT TO THE TRUST.
(a) The Shareholder Servicer will, at its expense, provide shareholders'
administrative services to shareholders of each Class of Shares of each Fund set
forth on Exhibit 1 hereto, as distinguished from the transfer agent and dividend
disbursing agent services otherwise provided by the Trust's transfer agent,
currently _________ ("Transfer Agent"). Shareholders' administrative services
shall include, without limitation, professional and informative reporting,
client account information, personal and electronic access to Fund information,
access to analysis and explanations of Fund reports, and assistance in the
correction and maintenance of client-related information; responding to
telephone, written or other inquiries or instructions from shareholders
concerning account balances, available shareholder services, account statements,
transaction confirmations, procedures for purchasing and redeeming shares and
similar matters and services; accepting and monitoring receipts of wire order
trades (including trades, if any, processed via the National Securities Clearing
Corporation Fund/Serv system); receiving telephone transaction instructions and
inputting such instructions into the Transfer Agent's computer system; and
performing such other functions as the Trust and the Shareholder Servicer shall
determine ("Shareholders' Administrative Services").
(b) The Shareholder Servicer shall not be obligated under this Agreement to
pay any expenses of or for the Trust or of or for any Fund not expressly assumed
by the Shareholder Servicer pursuant to this Section 1.
2. OTHER AGREEMENTS, ETC.
It is understood that any of the shareholders, trustees, officers and
employees of the Trust may be a partner, shareholder, director, officer or
employee of, or be otherwise interested in, the Shareholder Servicer, and in any
person controlled by or under common control with the Shareholder Servicer, and
that the Shareholder Servicer and any person controlled by or under common
control with the Shareholder Servicer may have an interest in the Trust. It is
also understood that the Shareholder Servicer and persons controlled by or under
common control with the Shareholder Servicer may have advisory,
<PAGE>
servicing, distribution or other contracts with other organizations and persons,
and may have other interests and businesses.
3. COMPENSATION TO BE PAID BY THE TRUST TO THE SERVICING AGENT.
Each Class of Shares of each Fund will pay to the Shareholder Servicer as
compensation for the Shareholder Servicer's services and for the expenses borne
by the Shareholder Servicer with respect to such Class of Shares of such Fund
pursuant to Section 1, a fee, computed and accrued daily, and paid monthly or at
such other intervals as the Trustees shall determine, at the annual rate of such
Class' average daily net asset value set forth on the Fee Rate Schedule attached
as Exhibit II hereto. Such fee shall be payable for each month (or such other
interval determined by the Trustees) as soon as practical after the last day of
each month (or such other interval determined by the Trustees).
If the Shareholder Servicer shall serve for less than the whole of a month
(or other interval), the foregoing compensation shall be prorated.
4. ASSIGNMENT TERMINATES THIS AGREEMENT; AMENDMENTS OF THIS CONTRACT.
This Agreement shall automatically terminate, without the payment of any
penalty, in the event of its assignment; provided, however, in the event of
consolidation or merger in which the Shareholder Servicer is not the surviving
corporation or which results in the acquisition of substantially all the
Shareholder Servicer's outstanding stock by a single person or entity or by a
group of persons and/or entities acting in concert, or in the event of the sale
or transfer of substantially all the Shareholder Servicer's assets, the
Shareholder Servicer may assign any such agreement to such surviving entity,
acquiring entity, assignee or purchaser, as the case may be. This Agreement
shall not be amended except by written agreement between the two parties hereto.
5. EFFECTIVE PERIOD.
This Agreement shall become effective with respect to each Fund on the date
on which the Fund commences operations (the "Effective Date"). The initial term
of this Agreement with respect to each Fund shall be the period commencing on
its Effective Date and ending on the first anniversary of the Effective Date.
Thereafter, the Agreement shall be renewed automatically for successive one-year
terms for each Fund unless written notice not to renew is given by the
non-renewing party to the other party at least 60 days prior to the expiration
of the then-current term.
6. TERMINATION OF THIS AGREEMENT.
This Agreement may be terminated by either party at any time on not less
than 60 days prior written notice to the other party.
2
<PAGE>
7. CERTAIN DEFINITIONS.
For the purposes of this Agreement, the terms "control", "interested
person" and "assignment" shall have their respective meanings defined in the
Investment Company Act of 1940 and the rules and regulations thereunder,
subject, however, to such exemptions as may be granted by the Securities and
Exchange Commission under said Act.
8. NONLIABILITY OF SERVICING AGENT.
In the absence of willful misfeasance, bad faith or gross negligence on the
part of the Shareholder Servicer, or reckless disregard of its obligations and
duties hereunder, the Shareholder Servicer shall not be subject to any liability
to the Trust, or to any shareholder of the Trust, for any act or omission in the
course of, or connected with, rendering services hereunder.
9. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS.
A copy of the Agreement and Declaration of Trust of the Trust is on file
with the Secretary of The Commonwealth of Massachusetts, and notice is hereby
given that this instrument is executed on behalf of the Trustees of the Trust as
Trustees and not individually and that the obligations of this instrument are
not binding upon any of the Trustees or shareholders individually but are
binding only upon the assets and property of the Fund.
10. SUB-ADMINISTRATION AGREEMENTS.
The Shareholder Servicer may enter sub-administration agreements with other
parties, including State Street Research Investment Services, Inc. and other
affiliates, for the provision of sub-administration services for certain
shareholder accounts, provided that the fee payable by the Trust for such
sub-administration services shall not cause the total costs incurred by the
Trust for such sub-administration servicers, the services provided under this
Agreement and the services provided under the Transfer Agency and Service
Agreement between the Trust and the Transfer Agent (the "Transfer Agency
Agreement") to exceed the costs that would otherwise be incurred under this
Agreement and the Transfer Agency Agreement if such services were provided
directly by the Transfer Agent and the Shareholder Servicer for such accounts.
The Shareholder Servicer may also enter into sub-administration agreements where
the requisite sub-administration services are not otherwise available from the
Shareholder Servicer or the Transfer Agent.
3
<PAGE>
IN WITNESS WHEREOF, STATE STREET RESEARCH INSTITUTIONAL FUNDS and STATE
STREET RESEARCH & MANAGEMENT COMPANY have each caused this instrument to be
signed in duplicate on its behalf by its duly authorized representative, all as
of the day and year first above written.
STATE STREET RESEARCH
INSTITUTIONAL FUNDS
By_____________________________
Title:
STATE STREET RESEARCH &
MANAGEMENT COMPANY
By_____________________________
Title:
4
<PAGE>
EXHIBIT I
---------
State Street Research Core Fixed Income Fund
State Street Research Core Plus Fixed Income Fund
State Street Research Core Large Cap Growth Fund
State Street Research Large Cap Growth Fund
5
<PAGE>
EXHIBIT II
----------
Fee Rate Schedule
<TABLE>
<CAPTION>
Fund Service Fee
- -------------------------------------------------------------------------------------------------------------
Class I Class II Class III Class IV
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
State Street Research Core Fixed Income Fund 0.30% 0.20% 0.10% 0.05%
- -------------------------------------------------------------------------------------------------------------
State Street Research Core Plus Fixed Income Fund 0.30% 0.20% 0.10% 0.05%
- -------------------------------------------------------------------------------------------------------------
State Street Research Core Large Cap Growth Fund 0.30% 0.20% 0.10% 0.05%
- -------------------------------------------------------------------------------------------------------------
State Street Research Large Cap Growth Fund 0.30% 0.20% 0.10% 0.05%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
6
FEE WAIVER AND EXPENSE LIMITATION AGREEMENT
-------------------------------------------
AGREEMENT made April ___, 1999, between STATE STREET RESEARCH & MANAGEMENT
COMPANY, a Delaware corporation (the "Advisor"), and STATE STREET RESEARCH
INSTITUTIONAL FUNDS, a Massachusetts business trust (the "Trust").
1. Recitals. The Trust has been organized to serve as an investment vehicle
primarily for certain large institutional and private client accounts, and both
the Trust and the Advisor believe that they and the Trust's shareholders would
benefit if each series of the Trust constituting a separate investment portfolio
set forth below (each a "Fund" and, collectively, the "Funds") were to achieve
and maintain an amount of assets sufficiently large to result in economies of
scale for the Fund and sufficient future revenues for the Advisor. Therefore,
the Advisor is agreeing to take certain actions more specifically described
below to reduce or eliminate certain costs otherwise borne by shareholders of
the Funds and to enhance the returns generated for shareholders of the Funds.
2. General Agreement. The Advisor will, until this Agreement is terminated
under Section 4, take one or more of the three actions described in Section 3 to
the extent that the Fund's total annual operating expenses (not including
Shareholder Service Fees, brokerage commissions, hedging transaction fees and
other investment related costs, extraordinary, non-recurring and certain other
unusual expenses such as taxes, litigation expense and other extraordinary legal
expense, securities lending fees and expenses and transfer taxes) exceed the
percentage of that Fund's average daily net assets (the "Expense Limitation")
set forth in the table below:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Fund Expense Limitation
- -------------------------------------------------------------------------------------------------------------
<S> <C>
State Street Research Core Fixed Income Fund 0.20%
- -------------------------------------------------------------------------------------------------------------
State Street Research Core Plus Fixed Income Fund 0.20%
- -------------------------------------------------------------------------------------------------------------
State Street Research Core Large Cap Growth Fund 0.35%
- -------------------------------------------------------------------------------------------------------------
State Street Research Large Cap Growth Fund 0.35%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
3. Advisor Actions. The Advisor will use its best efforts to cause each
Fund to maintain the expense level described in Section 2 by taking one or more
of the following actions: (i) waiving a portion of its fee under the Advisory
Agreement between the Advisor and the Trust relating to the Fund; (ii)
reimbursing the Fund for expenses exceeding the Expense Limitation; or (iii)
paying directly expenses that may exceed the Expense Limitation.
4. Term. This Agreement shall have an initial term ending on June 1, 2000,
and shall automatically be continued thereafter until either the Trust or the
Advisor terminates this Agreement by giving six months prior written notice to
the other party.
5. Miscellaneous. The Advisor understands and acknowledges that the Trust
intends to rely on this Agreement, including in connection with the preparation
and printing of the Trust's prospectuses and its daily calculation of each
Fund's net asset value.
<PAGE>
This Agreement constitutes the entire agreement between the Advisor and the
Trust concerning the subject matter hereof and supersedes all prior oral and
written agreements and understandings between the parties concerning such
subject matter.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first above written.
STATE STREET RESEARCH &
MANAGEMENT COMPANY
By:____________________________
Title:
STATE STREET RESEARCH
INSTITUTIONAL FUNDS
By:____________________________
Title:
2
STATE STREET RESEARCH INSTITUTIONAL FUNDS
Plan pursuant to Rule 18f-3 under the
Investment Company Act of 1940
-------------------------------------
May ____, 1999
This Plan (the "Plan") is adopted by State Street Research Institutional
Funds (the "Trust") pursuant to Rule 18f-3 under the Investment Company Act of
1940 (the "Act") and sets forth the general characteristics of, and the general
conditions under which the Trust may offer, multiple classes of shares of its
now existing and hereafter created portfolios ("Funds"). This Plan may be
revised or amended from time to time as provided below.
Class Designations
Each Fund of the Trust may from time to time issue one or more of the
following classes of shares: Class I Shares, Class II Shares, Class III Shares
and Class IV Shares. Each of the classes of shares of any Fund will represent
interests in the same portfolio of investments and, except as described herein,
shall have the same rights and obligations as each other class. Each class shall
be subject to such investment minimums and other conditions of eligibility as
are set forth in the Trust's prospectus or statement of additional information
as from time to time in effect (the "Prospectus").
Class Eligibility
A shareholder's class eligibility is generally dependent on the aggregate
size of the shareholder's total investment in all Funds of the Trust ("Total
Investment"), as described from time to time in the Prospectus.
A shareholder's Total Investment will be determined by State Street
Research & Management Company, the Trust's investment adviser and shareholder
servicer ("State Street Research") as of the last business day of each calendar
quarter and on such other dates as may be determined by State Street Research
(each a "Measuring Date"). A shareholder's Total Investment as of any Measuring
Date will equal the aggregate net asset value of the shareholder's assets
invested in all Funds of the Trust as of such Measuring Date.
In addition, each Fund may establish a separate minimum investment
requirement, based on assets in that Fund only, as described from time to time
in the Prospectus. Each Fund may also impose special eligibility requirements
relating to the type of investor (e.g., natural person, partnership,
corporation, ERISA plan, etc.), including eligibility restrictions and/or
imposing special minimum investment requirements, as described from time to time
in the Prospectus.
-1-
<PAGE>
Class Characteristics
The sole difference among the various classes of shares is the level of
shareholder service fee ("Shareholder Service Fee") borne by the class for
client and shareholder service, reporting and other support provided to such
class by State Street Research, acting in its capacity as the Trust's
shareholder servicer.
The multiple class structure is designed to reflect that, as the size of a
particular shareholder's Total Investment increases, the cost to service that
shareholder is expected to decrease as a percentage of the shareholder's Total
Investment. Thus, the Shareholder Service Fee is lower for classes for which
eligibility criteria generally require greater assets invested in the Trust.
Income and Expense Allocations
Shareholder Service Fees payable by the Trust to the shareholder servicer
of the Trust's shares (the "Shareholder Servicer") shall be allocated on a
class-by-class basis and are therefore "Class Expenses" under this Plan. Upon
any future approval by the Trust's Board of Trustees, including a majority of
the independent Trustees, the following expenses may be deemed to be "Class
Expenses" and upon such approval may (if such expense is properly assessable at
the class level) in the future be allocated on a class-by-class basis: (a)
transfer agency costs attributable to each class, (b) printing and postage
expenses related to preparing and distributing materials such as shareholder
reports, prospectuses and proxy statements to current shareholders of a specific
class, (c) SEC registration fees incurred with respect to a specific class, (d)
blue sky and foreign registration fees and expenses incurred with respect to a
specific class, (e) the expenses of administrative personnel and services
required to support shareholders of a specific class (including, but not limited
to, maintaining telephone lines and personnel to answer shareholder inquiries
about their accounts or about the Trust), (f) litigation and other legal
expenses relating to a specific class of shares, (g) Trustees' fees or expenses
incurred as a result of issues relating to a specific class of shares, (h)
accounting and consulting expenses relating to a specific class of shares, and
(i) any additional expenses, not including advisory or custodial fees or other
expenses related to the management of the Trust's assets, if these expenses are
actually incurred in a different amount with respect to a class, or if services
are provided with respect to a class that are of a different kind or to a
different degree than with respect to one or more other classes.
Each Fund's income, expenses, gain and loss accounts will be allocated to
each class of shares of the relevant Fund. On a daily basis, net investment
income and realized and unrealized gains and losses will be allocated to each
class based upon the relative percentage of net assets or "dividend assets", as
appropriate, at the beginning of the day in each class, after such assets are
adjusted for the prior business day's capital share transactions. Dividend
assets are defined as the aggregate net asset value of those shares eligible to
receive a dividend in the current day as set forth in the Fund's prospectus. The
balances of each Fund's income, expenses, gain and loss accounts will be
accumulated by class of shares.
-2-
<PAGE>
On a daily basis, the allocation of expenses to each class of shares will
depend upon the nature of each expenditure. Expenditures fall into two
categories:
1. Class Expenses (defined above); and
2. Fund Expenses (all expenses not now or hereafter designated as Class
Expenses).
Notwithstanding the foregoing, each Fund may allocate all expenses other
than Class Expenses and income and realized and unrealized capital gains and
losses to each class on the basis of any methodology permitted by Rule 18f-3(c)
under the Act, provided, however, that until such time as this Plan is amended
with respect to the Fund's allocation methodology, the Fund will allocate all
expenses other than Class Expenses on the basis of relative net assets or
dividend assets.
Waivers and Reimbursements
State Street Research may choose to waive or reimburse Shareholder Service
Fees, Fund Expenses or any other Class Expenses, on a voluntary or temporary
basis.
Conversion and Exchange Features
The value of each shareholder's Total Investment in the Trust will be
determined by State Street Research on each Measuring Date. Based on that
determination, each shareholder's shares of each Fund will be automatically
converted to the class of shares of such Fund which is then being offered with
the lowest Shareholder Service Fee for which the shareholder is eligible based
on the amount of the shareholder's Total Investment on the Measuring Date. The
conversion will occur within 10 business days following the Measuring Date, with
the precise date of the conversion to be determined by State Street Research in
its sole discretion. Notwithstanding the foregoing, (i) there will be no
automatic conversion from a class of shares with a lower Shareholder Service Fee
to a class of shares with a higher Shareholder Service Fee unless appropriate
disclosure regarding the higher Shareholder Service Fee has been given to the
affected shareholder(s) in the Prospectus or otherwise, and (ii) from time to
time, the Trustees may determine that there will be no conversion from a class
of shares with a lower Shareholder Service Fee to a class of shares with a
higher Shareholder Service Fee unless the shareholder's Total Investment is at
least a specified dollar amount less than the minimum Total Investment for the
shareholder's then existing class of shares on such Measuring Date, as described
in the Prospectus from time to time.
Shares of one class will always convert into shares of another class on the
basis of the relative net asset value of the two classes, without the imposition
of any sales load, fee or other charge. The conversion of a shareholder's
investment from one class of shares to another is not a taxable event, and will
not result in the realization of gain or loss that may exist in Fund shares held
by the shareholder. The shareholder's tax basis in the new class of shares will
equal its tax basis in the old class before conversion. The conversion of shares
from one class to
-3-
<PAGE>
another class of shares may be suspended if, in the opinion of counsel obtained
by the Trust, the conversion from one class of shares to another may constitute
a taxable event under then current federal income tax law.
Notwithstanding anything to the contrary in this Plan, pursuant to Article
VI, Section 3 of the Trust's Agreement and Declaration of Trust, the Trust has
the right to redeem unilaterally any shareholder of any Fund if at such time
such shareholder owns shares of any Fund or class thereof "having an aggregate
net asset value less than an amount determined from time to time by the
Trustees."
NAV and Dividends/Distributions
Net Asset Value ("NAV") by class will be determined by dividing the ending
total net assets by class by the number of shares outstanding in each class. The
calculation of dividends and distributions will be dependent upon the dividend
and distribution policy of that Fund:
1. Periodic Dividend Funds
Dividends from net investment income for periodic dividend Funds will be
determined as follows: Dividends will be determined pursuant to authority of the
Fund's Trustees, before the deduction of Class Expenses, for all classes of
shares combined. From this amount, an amount equal to the per share amount of
Class Expenses accrued during the period to which the dividend relates is
subtracted. The result is the rate per share payable to each class.
Distributions from net realized capital gains will be determined by
dividing the total amount of gains to be distributed as declared pursuant to
authority of the Trustees by the total number of shares outstanding on the
ex-dividend date.
2. Daily Dividend Funds
Dividends from net investment income for daily dividend Funds will be
determined as follows: A daily dividend per share for each class will be
determined pursuant to authority of the Trustees. From this amount, an amount
equal to the per share amount of the difference in Class Expenses for the day is
added or subtracted as appropriate. The result is the dividend per share payable
to each class.
Distributions from net realized capital gains will be determined by
dividing the total amount of gains to be distributed as declared pursuant to
authority of the Trustees by the total number of shares outstanding on the
ex-dividend date.
-4-
<PAGE>
3. Money Market Funds
Daily dividends for money market Funds will be calculated as follows: The
amount of realized gain or loss for each class of shares will be added or
subtracted, as appropriate, to the daily amount of net investment income for
each class of shares, after the recording of all Fund and Class Expenses. The
result is the daily dividend for each class of shares.
Voting Rights
Each share of the Trust entitles the shareholder of record to one vote.
Each class of shares of the Trust will vote separately as a class on matters for
which class voting is required under applicable law.
Responsibilities of the Trustees
On an ongoing basis, the Trustees will monitor the Trust for the existence
of any material conflicts among the interests of the classes of shares. The
Trustees, including a majority of the independent Trustees, shall take such
action as is reasonably necessary to eliminate any such conflict that may
develop.
Reports to the Trustees
State Street Research will be responsible for reporting any potential or
existing conflicts among the classes of shares to the Trustees.
Amendments
The Plan may be amended from time to time in accordance with the provisions
and requirements of Rule 18f-3 under the Act.
Adopted this ____ day of ___________, 1999
By:________________________
Name:
Title:
-5-
