As filed with the Securities and Exchange Commission on December 3, 1997
1933 Act Registration No. 2-86271
1940 Act File No. 811-3838
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM N-1a
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. ____ [ ]
Post-Effective Amendment No. 15 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 21 [X]
----------------------
STATE STREET RESEARCH CAPITAL TRUST
----------------------
(Exact Name of Registrant as Specified in Charter)
One Financial Center, Boston, Massachusetts 02111
(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 Reserach & Management Company
One Financial Center
Boston, Massachusetts 02111
Thomas J. Kelly, Esq.
Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C.
One Financial Center
Boston, Massachusetts 02111
(Name and Address of Agent for Service)
It is proposed that this filing will become effective under Rule 485:
[ ] Immediately upon filing pursuant to paragraph (b),
[ ] On __________________ pursuant to paragraph (b),
[ ] 60 days after filing pursuant to paragraph (a)(1),
[X] On February 1, 1998 pursuant to paragraph (a)(1),
[ ] 75 days after filing pursuant to paragraph (a)(2),
[ ] On ________________ pursuant to paragraph (a)(2).
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
================================================================================
<PAGE>
<TABLE>
<CAPTION>
CROSS REFERENCE SHEET
Pursuant to Rule 481(a)
-----------------------
Part A
------
CAPTION OR LOCATION
CAPTION OR LOCATION IN PROSPECTUS FOR CAPTION OR LOCATION
IN PROSPECTUS FOR STATE STREET IN PROSPECTUS FOR
STATE STREET RESEARCH RESEARCH EMERGING STATE STREET RESEARCH
FORM N-1A ITEM NO. CAPITAL FUND GROWTH FUND AURORA FUND
- ------------------ --------------------- ------------------- ----------------------
<S> <C> <C> <C>
1. Cover Page Same Same Same
2. Synopsis Investor Expenses Investor Expenses Investor Expenses
3. Condensed Financial Financial Highlights; Financial Highlights; Financial Highlights;
Information Performance and Performance and Performance and
Volatility Volatility Volatility
4. General Description Goal and Strategy; Goal and Strategy; Goal and Strategy;
of Registrant Other Securities Other Securities Other Securities
and Risks; and Risks; and Risks;
Your Account; Your Account; Your Account;
Fund Details Fund Details Fund Details
5. Management of the Fund Details Fund Details Fund Details
Fund
5A. Management's [To be included in [To be included in [To be included in
Discussion of Fund Financial Statements] Financial Statements] Financial Statements]
Performance
6. Capital Stock and Your Account; Your Account; Your Account;
Other Securities Fund Details Fund Details Fund Details
7. Purchase of Your Account Your Account Your Account
Securities Being
Offered
8. Redemption or Your Account Your Account Your Account
Repurchase
9. Legal Proceedings Not Applicable Not Applicable Not Applicable
2
<PAGE>
<CAPTION>
Part B
------
CAPTION OR LOCATION
CAPTION OR LOCATION IN STATEMENT OF CAPTION OR LOCATION
IN STATEMENT OF ADDITIONAL INFORMATION FOR IN STATEMENT OF
ADDITIONAL INFORMATION STATE STREET ADDITIONAL INFORMATION FOR
FOR STATE STREET RESEARCH EMERGING STATE STREET RESEARCH
FORM N-1A ITEM NO. RESEARCH CAPITAL FUND GROWTH FUND AURORA FUND
- ------------------ --------------------- ------------------- ----------------------
10. Cover Page Same Same Same
11. Table of Contents Same Same Same
12. General Information Not Applicable Not Applicable Not Applicable
and History
13. Investment Investment Objective; Investment Objective; Investment Objective;
Objectives Additional Investment Additional Investment Investment Policies and
and Policies Policies and Restrictions; Policies and Restrictions; Restrictions; Additional
Additional Information Additional Information Information Concerning
Concerning Certain Concerning Certain Certain Investment
Investment Techniques; Investment Techniques; Techniques; Debt
Debt Instruments and Debt Instruments and Instruments and Permitted
Permitted Cash Investments; Permitted Cash Investments; Cash Investments;
Portfolio Transactions Rating Categories of Debt Portfolio Transactions
Securities; Portfolio Transactions
14. Management of the Trustees and Officers Trustees and Officers Trustees and Officers
Registrant
15. Control Persons and Trustees and Officers Trustees and Officers Trustees and Officers
Principal Holders of
Securities
16. Investment Investment Advisory Services; Investment Advisory Services; Investment Advisory Services;
Advisory and Custodian; Independent Custodian; Independent Custodian; Independent
Other Services Accountants; Distribution of Accountants; Distribution of Accountants; Distribution of
Shares of the Fund Shares of the Fund Shares of the Fund
17. Brokerage Allocation Portfolio Transactions Portfolio Transactions Portfolio Transactions
18. Capital Stock and The Trust, the Fund The Trust, the Fund The Trust, the Fund
Other Securities and its Shares and its Shares and its Shares
19. Purchase, Redemption Purchase and Redemption Purchase and Redemption Purchase and Redemption
and Pricing of of Shares; Shareholder of Shares; Shareholder of Shares; Shareholder
Securities Being Accounts; Net Asset Value Accounts; Net Asset Value Accounts; Net Asset Value
Offered
20. Tax Status Certain Tax Matters Certain Tax Matters Certain Tax Matters
21. Underwriters Distribution of Shares of the Distribution of Shares of the Distribution of Shares of the
Fund Fund Fund
22. Calculation of Calculation of Performance Calculation of Performance Calculation of Performance
Performance Data Data Data Data
23. Financial Statements Financial Statements Financial Statements Financial Statements
</TABLE>
3
<PAGE>
STATE STREET RESEARCH
Capital Fund
An aggressive growth fund investing in a broad range of stocks.
Prospectus
February 1, 1998
This prospectus has information you should know before you invest. Please read
it carefully and keep it with your investment records.
Although these securities have been registered with the Securities and Exchange
Commission, the commission has not judged them for investment merit and does not
guarantee the accuracy or adequacy of the information in this prospectus. Anyone
who informs you otherwise is committing a federal crime.
[Graphic of Boston's Custom House]
<PAGE>
Who May Want to Invest
State Street Research Capital Fund is designed for investors who seek one or
more of the following:
(bullet) an aggressive stock fund for a long-term goal
(bullet) a fund to complement a portfolio of more conservative investments
(bullet) a fund with the flexibility to emphasize different sizes of
companies during different markets
The fund is not appropriate for investors who:
(bullet) want to avoid high volatility or possible losses
(bullet) are making short-term investments
(bullet) are investing emergency reserve money
(bullet) are seeking regular income
The fund's shares will rise and fall in value. There is a risk that you could
lose money by investing in the fund.
The fund cannot be certain that it will achieve its goal.
Fund shares are not bank deposits and are not guaranteed, endorsed or insured
by any financial institution, government entity or the FDIC.
<PAGE>
Contents 1
2 Capital Fund
The fund's goal and strategy, main risks, expenses and
performance, plus financial highlights
12 Your Account
Managing your State Street Research investments
12 Opening an Account
12 Choosing a Share Class
14 Sales Charges
16 Policies for Buying Shares
18 Policies for Selling Shares
20 Account Policies
21 Distributions and Taxes
23 Investor Services
24 Fund Details
The fund's business structure and dealer compensation, plus
additional policies
26 Other Securities and Risks
Information on additional portfolio securities and practices,
and the risks associated with them
Back Cover For Additional Information
<PAGE>
2 Capital Fund
[Chesspiece Graphic] Goal and Strategy
Fundamental Goal The fund seeks to provide maximum capital appreciation by
investing primarily in common and preferred stocks and convertible debt
securities of emerging growth companies and companies considered to be
undervalued special situations, as determined by the fund's investment manager.
Strategy Under normal market conditions, the fund invests at least 65% of total
assets in stocks and other securities as described above.
In selecting stocks, the fund combines elements of growth investing and value
investing, focusing its attention on companies of any size that appear to fall
into one or both of the following categories:
(bullet) less mature companies with the potential for rapid growth
(bullet) companies whose unusual circumstances have not been fully recognized
by the market
The fund uses research to identify potential investments, examining such
features as a firm's financial condition, business prospects, competitive
position and business strategy. The fund looks for companies that have good
current or prospective earnings, attractive valuations and strong management
teams. At different times, the fund may emphasize a particular size or type of
company.
<PAGE>
3
The fund reserves the right to invest up to 35% of total assets in other
securities. These may include other types of stocks, such as those of more
mature companies or so-called blue-chip companies. They may also include U.S.
government securities, as well as bonds rated investment-grade at the time of
purchase and their unrated equivalents.
The fund may adjust the composition of its portfolio as market conditions and
economic outlooks change. For more information about the fund's investments and
practices, see page 26.
[sidebar text]
[Magnifying Glass Graphic] Emerging Growth and Special Situation Companies
Over the long term, emerging growth stocks have generally offered greater risks
and greater rewards than the stock market as a whole.
During good economic periods, these companies have the potential to grow more
quickly than others because they are typically in growing industries and may
have innovative products or services and strong, entrepreneurial leaders. In
poor or uncertain economic periods, however, emerging growth stocks may tumble
as investors abandon them in search of companies with the resources and the
broad business lines to weather hard times.
Special situations are companies whose current status is strongly influenced by
events outside the normal course of business, such as a potential corporate
restructuring or a strategic business alliance. Stocks of these companies often
trade at what appears to be less than their true worth. The fund emphasizes
special situation stocks on the theory that they may be positioned to rise in
value in the near future as investors come to recognize that the company's
situation is improving.
[end of sidebar text]
<PAGE>
4 Capital Fund continued
[Traffic Sign Graphic] Portfolio Risks
Because the fund invests primarily in stocks, its major risks are those of stock
investing, including sudden, unpredictable drops in value and the potential for
periods of lackluster performance.
Emerging growth stocks can be particularly sensitive to market movements,
because they may be thinly traded and their market prices tend to reflect future
expectations. With special situation stocks, the main risk is that they may not
achieve their expected value. During times of high volatility, the fund may have
difficulty finding buyers for portfolio securities.
Because of these and other risks, the fund may underperform certain other stock
funds (such as index funds or those emphasizing dividend stocks) during periods
when emerging growth or special situation stocks are out of favor. The success
of the fund's investment strategy depends largely on the investment manager's
skill in assessing the potential of the stocks it buys.
The fund's management approach, which may include short-term trading, could
cause the fund's portfolio turnover rate to be above-average for a stock fund.
High turnover will increase the fund's brokerage costs and may increase your tax
liability.
Information on other securities and risks appears on page 26.
A "snapshot" of the fund's investments may be found in the current annual or
semiannual report (see back cover).
[Thinker Graphic] Investment Management
The fund's investment manager is State Street Research & Management Company. 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 [DATE]), including more than $__ billion in mutual funds.
Peter C. Bennett has been responsible for the fund's day-to-day portfolio
management since August 1997. An executive vice president and director, he is
the chief investment officer for equities and is a member of the management
committee. He joined the firm in 1968 and has worked as an investment
professional since 1963.
<PAGE>
Investor Expenses 5
Shareholder fees are paid directly by investors.
<TABLE>
<CAPTION>
Class descriptions begin on page 12
------------------------------------------------------
Shareholder Fees (% of offering price)(1) Class A Class B Class C(2) Class S(2)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum front-end sales charge 4.50 0.00 0.00 0.00
Maximum deferred sales charge 0.00(3) 5.00 1.00 0.00
Annual fund expenses are deducted from fund assets.
Annual Fund Expenses (% of average net assets) Class A Class B Class C Class S
- ----------------------------------------------------------------------------------------------------------
Management fee 0.75 0.75 0.75 0.75
Marketing (12b-1) fees(4) 0.25 1.00 1.00 0.00
Other expenses 0.23 0.23 0.23 0.23
---- ---- ---- ----
Total annual fund expenses 1.23 1.98 1.98 0.98
==== ==== ==== ====
Example Here is what you would pay if you invested $1,000 over the years
indicated. The example is for comparison only and does not represent the fund's
actual expenses, either past or future(5).
Year Class A Class B(6) Class C(6) Class S
- ----------------------------------------------------------------------------------------------------------
1 $57 $70/$20 $30/$20 $10
3 $82 $92/$62 $62/$62 $31
5 $110 $127/$107 $107/$107 $54
10 $187 $211/$211 $231/$231 $120
</TABLE>
(1) Not charged on reinvestments or exchanges.
(2) Before November 1, 1997, Class C shares were designated Class D and Class S
shares were designated Class C.
(3) Except for investments of $1 million or more; see page 14.
(4) For share classes that have 12b-1 fees, long-term shareholders may pay more
than the equivalent of the regulatory maximum sales charge.
(5) Example assumes dividend reinvestment, hypothetical 5% annual return,
maximum applicable sales charges and conversion of Class B shares to
Class A after eight years.
(6) The first number assumes you sold all your shares at the end of the period,
the second assumes you stayed in the fund.
<PAGE>
6 Financial Highlights
The information in these tables has been audited by Coopers & Lybrand L.L.P.,
the fund's independent accountants. The top section of each table shows
information for a single share of the fund. Total return figures assume
reinvestment of all distributions.
<TABLE>
<CAPTION>
Years ended September 30
------------------------------------------------------------------
Class A 1993(1) 1994 1995(2) 1996(2) 1997(2)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 8.03 10.43 9.92 13.53 13.76
------ ------ ------ ------ ------
Net investment loss ($) (0.03) (0.04) (0.04) (0.05) (0.08)
Net realized and unrealized
gain on investments ($) 2.43 0.28 3.69 1.30 1.06
------ ------ ------ ------ ------
Total from investment operations ($) 2.40 0.24 3.65 1.25 0.98
------ ------ ------ ------ ------
Distributions from capital gains ($) -- (0.75) (0.04) (1.02) --
------ ------ ------ ------ ------
Total distributions ($) -- (0.75) (0.04) (1.02) --
------ ------ ------ ------ ------
Net asset value, end of year ($) 10.43 9.92 13.53 13.76 14.74
====== ====== ====== ====== ======
Total return (%)(3) 24.61(4) 2.51 36.95 10.12 7.12
Ratios/supplemental data:
Net assets at end of year ($ thousands) 7,251 19,891 55,250 114,247 470,977
Expense ratio (%) 2.43(5) 1.41 1.33 1.26 1.21
Ratio of net investment loss
to average net assets (%) (1.43)(5) (0.55) (0.34) (0.39) (0.60)
Portfolio turnover rate (%) 129.57 167.08 214.59 215.07 230.66
Average commission rate ($)(6) n/a n/a n/a 0.0278 0.0337
</TABLE>
<PAGE>
7
<TABLE>
<CAPTION>
Years ended September 30
------------------------------------------------------------------
Class B 1993(1) 1994 1995(2) 1996(2) 1997(2)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 8.68 10.40 9.82 13.29 13.40
------ ------ ------ ------ ------
Net investment loss ($) (0.04) (0.08) (0.12) (0.14) (0.17)
Net realized and unrealized
gain on investments ($) 1.76 0.25 3.63 1.27 1.01
------ ------ ------ ------ ------
Total from investment operations ($) 1.72 0.17 3.51 1.13 0.84
------ ------ ------ ------ ------
Distributions from capital gains ($) -- (0.75) (0.04) (1.02) --
------ ------ ------ ------ ------
Total distributions ($) -- (0.75) (0.04) (1.02) --
------ ------ ------ ------ ------
Net asset value, end of year ($) 10.40 9.82 13.29 13.40 14.24
====== ====== ====== ====== ======
Total return (%)(3) 19.82(4) 1.79 35.90 9.33 6.27
Ratios/supplemental data:
Net assets at end of year ($ thousands) 16,044 73,354 203,446 386,899 562,392
Expense ratio (%) 3.16(5) 2.16 2.08 2.01 1.98
Ratio of net investment loss
to average net assets (%) (2.15)(5) (1.28) (1.10) (1.13) (1.32)
Portfolio turnover rate (%) 129.57 167.08 214.59 215.07 230.66
Average commission rate ($)(6) n/a n/a n/a 0.0278 0.0337
</TABLE>
(1) Commencement of share class designations (February 17, 1993 for Class A,
March 15, 1993 for Class B) to September 30, 1993.
(2) Per-share figures have been calculated using the average shares method.
(3) Does not reflect any front-end or contingent deferred sales charges.
(4) Not annualized.
(5) Annualized.
(6) Average commission rate per share paid for security trades beginning with
the fiscal year ended September 30, 1996.
<PAGE>
8 Financial Highlights continued
<TABLE>
<CAPTION>
Years ended September 30
------------------------------------------------------------------
Class C 1993(1) 1994 1995(2) 1996(2) 1997(2)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 8.68 10.39 9.83 13.31 13.42
------ ------ ------ ------ ------
Net investment loss ($) (0.04) (0.09) (0.12) (0.14) (0.17)
Net realized and unrealized
gain on investments ($) 1.75 0.28 3.64 1.27 1.01
------ ------ ------ ------ ------
Total from investment operations ($) 1.71 0.19 3.52 1.13 0.84
------ ------ ------ ------ ------
Distributions from capital gains ($) -- (0.75) (0.04) (1.02) --
------ ------ ------ ------ ------
Total distributions ($) -- (0.75) (0.04) (1.02) --
------ ------ ------ ------ ------
Net asset value, end of year ($) 10.39 9.83 13.31 13.42 14.26
====== ====== ====== ====== ======
Total return (%)(3) 19.70(4) 2.00 36.07 9.23 6.26
Ratios/supplemental data:
Net assets at end of year ($ thousands) 5,011 37,783 95,797 190,319 120,051
Expense ratio (%) 3.16(5) 2.16 2.08 2.01 1.98
Ratio of net investment loss
to average net assets (%) (2.16)(5) (1.28) (1.09) (1.13) (1.30)
Portfolio turnover rate (%) 129.57 167.08 214.59 215.07 230.66
Average commission rate ($)(6) n/a n/a n/a 0.0278 0.0337
</TABLE>
<PAGE>
9
<TABLE>
<CAPTION>
Years ended September 30
-------------------------------------------------------------------------------------------
Class S 1988 1989 1990 1991 1992 1993 1994 1995(2) 1996(2) 1997(2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 8.99 5.00 6.72 5.03 7.74 7.96 10.46 9.99 13.66 13.94
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net investment loss ($) (0.01) (0.01) (0.03) (0.08) (0.06) (0.06) (0.03) (0.01) (0.01) (0.05)
Net realized and unrealized
gain (loss) on investments ($) (1.80) 1.73 (1.31) 2.79 0.63 3.90 0.31 3.72 1.31 1.07
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment operations ($) (1.81) 1.72 (1.34) 2.71 0.57 3.84 0.28 3.71 1.30 1.02
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Distributions from capital gains ($) (2.18) -- (0.35) -- (0.35) (1.34) (0.75) (0.04) (1.02) --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions ($) (2.18) -- (0.35) -- (0.35) (1.34) (0.75) (0.04) (1.02) --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of year ($) 5.00 6.72 5.03 7.74 7.96 10.46 9.99 13.66 13.94 14.96
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total return (%)(3) (13.96) 33.93 (20.81) 53.88 7.34 55.46 2.91 37.30 10.41 7.32
Ratios/supplemental data:
Net assets at end of year ($ thousands) 7,422 9,479 7,440 10,939 11,654 18,342 23,967 47,553 34,835 189,778
Expense ratio (%) 1.98 1.98 1.93 1.88 1.54 2.11 1.16 1.08 1.01 0.96
Ratio of net investment loss
to average net assets (%) (0.17) (0.14) (0.54) (1.14) (0.86) (1.30) (0.32) (0.07) (0.08) (0.37)
Portfolio turnover rate (%) 272.09 242.88 259.27 219.62 124.94 129.57 167.08 214.59 215.07 230.66
Average commission rate ($)(6) n/a n/a n/a n/a n/a n/a n/a n/a 0.0278 0.0337
</TABLE>
(1) March 15, 1993 (commencement of share class designation) to September 30,
1993.
(2) Per-share figures have been calculated using the average shares method.
(3) Does not reflect any front-end or contingent deferred sales charges.
(4) Not annualized.
(5) Annualized.
(6) Average commission rate per share paid for security trades beginning with
the fiscal year ended September 30, 1996.
<PAGE>
10 Performance and Volatility
For all share classes, performance before 1993 (the year the share classes were
introduced) compares to Class S performance. For 1993 and later, performance
includes the effects of each class's fees and expenses, which in some cases may
be higher, thus reducing returns.
As of September 30, 1997
----------------------------
Average Annual Total Return 1 Year 5 Years 10 Years
- --------------------------------------------------------------------------
Class A (%) 2.30 19.64 13.96
Class B (%) 1.27 19.80 14.13
Class C (%) 5.26 20.02 14.14
Class S (%) 7.32 21.08 14.65
S&P 500 Index (%) 40.43 20.75 14.73
Lipper Capital Appreciation Funds Index (%) 25.12 18.19 12.31
[TABULAR REPRESENTATION OF BAR CHART]
Class A Year-by-Year Total Return Years ended September 30
- -----------------------------------------------------------------
1988 (13.96)
1989 33.93
1990 (20.81)
1991 53.88
1992 7.34
1993 55.02
1994 2.51
1995 36.95
1996 10.12
1997 7.12
<PAGE>
11
[sidebar text]
[Magnifying Glass Graphic] Understanding Performance and Volatility
The information on the opposite page is designed to show two aspects of the
fund's track record:
(bullet) Average annual total return is a measure of the fund's performance over
time. It is determined by taking the fund's performance over a given
period and expressing it as an average annual rate. Average annual
total return includes the effects of fund expenses and maximum sales
charges for each class, and assumes that you sold your shares at the
end of the period.
(bullet) The graph of year-by-year returns shows how volatile the fund has been:
how much the difference has been, historically, between its best years
and worst years. In general, funds with higher average annual total
returns will also have higher volatility. The graph includes the
effects of fund expenses, but not sales charges.
Also included are two independent measures of performance. The S&P 500
(officially, the "Standard & Poor's 500 Composite Stock Price Index") is an
unmanaged index of 500 domestic stocks. The Lipper Capital Appreciation Funds
Index shows the performance of a category of mutual funds with similar goals.
The Lipper index shows you how well the fund has done compared to competing
funds.
While the fund does not seek to match the returns or the volatility of the S&P
500 index, this index is a good indicator of general stock market performance
and can be used as a rough guide when gauging the return of this and other
investments. When making comparisons, keep in mind that neither the S&P 500 nor
the Lipper index includes the effects of sales charges. Also, even if your stock
portfolio were identical to the S&P 500, your returns would always be lower,
because the S&P 500 doesn't include brokerage and administrative expenses.
[end of sidebar text]
<PAGE>
12 Your Account
[Key Graphic] Opening an Account
If you are opening an account through a financial professional, he or she can
assist you with all phases of your investment.
If you are investing through a large retirement plan or other special program,
follow the instructions in your program materials.
To open an account without the help of a financial professional, please use the
instructions on these pages.
[Checklist Graphic] Choosing a Share Class
The fund offers four share classes, each with its own sales charge and expense
structure.
If you are investing a substantial amount and plan to hold your shares for a
long period, Class A shares may make the most sense for you. If you are
investing a lesser amount, you
[sidebar text, bottom of page]
Class A -- Front Load
(bullet) Initial sales charge of 4.5% or less; schedule on page 14
(bullet) Lower sales charges for larger investments; see sidebar on facing page
and sales charge schedule
(bullet) Lower annual expenses than Class B or C shares due to lower marketing
(12b-1) fee of 0.25%
Class B -- Back Load
(bullet) No initial sales charge
(bullet) Deferred sales charge of 5% or less on shares you sell within five
years; schedule on page 14
(bullet) Annual marketing (12b-1) fee
(bullet) Automatic conversion to Class A shares after eight years, reducing
future annual expenses
Class C(1) -- Level Load
(bullet) No initial sales charge
(bullet) Deferred sales charge of 1%, paid if you sell shares within one year of
purchase
(bullet) Lower deferred sales charge than Class B shares
(bullet) Annual marketing (12b-1) fee
(bullet) No conversion to Class A shares after eight years, so annual expenses
do not decrease
(1) Before November 1, 1997, these were designated Class D
[end of sidebar text]
<PAGE>
13
may want to consider Class B shares (if investing for at least five years) or
Class C shares (if investing for less than five years). If you are investing
through a special program, such as a large employer-sponsored retirement plan or
certain programs available through brokers, you may be eligible to purchase
Class S shares.
Because all future investments in your account will be made in the share class
you designate when opening the account, you should make your decision carefully.
Your financial professional can help you choose the share class that makes the
most sense for you.
[sidebar text, bottom of page]
Class S(2) -- No Load
(bullet) No sales charges of any kind
(bullet) No marketing (12b-1) fees; annual expenses are lower than other share
classes
(bullet) Available through certain retirement accounts, advisory accounts of the
investment manager and special programs, including broker programs with
record-keeping and other services; these programs usually involve
special conditions and separate fees (contact your financial
professional for information)
(2) Before November 1, 1997, these were designated Class C
[end of sidebar text, bottom of page]
[sidebar text]
[Magnifying Glass Graphic] Class A Sales Charge Reductions and Waivers
(bullet) Substantial investments receive lower sales charge rates; see
information on the following page.
(bullet) The "right of accumulation" allows you to include your existing State
Street Research investments (except Money Market Fund Class E shares)
as part of your current investment for sales charge purposes.
(bullet) A "letter of intent" allows you to count all investments in this or
other State Street Research funds over the next 13 months as if you
were making them all at once, for purposes of calculating sales
charges.
To take advantage of right of accumulation or letter of intent waivers,
consult your financial professional or State Street Research.
[end of sidebar text]
<PAGE>
14 Your Account continued
Sales Charges
Class A -- Front Load
when you invest this % is which equals
this amount deducted this % of
for sales your net
charges investment
- --------------------------------------------------------------
Up to $99,999 4.50 4.71
$100,000 - $249,999 3.50 3.63
$250,000 - $499,999 2.50 2.56
$500,000 - $999,999 2.00 2.04
$1 million or more see next column
With Class A shares, you pay a sales charge only when you buy shares.
If you are investing $1 million or more (either as a lump sum or through any of
the methods described on the previous page), you can purchase Class A shares
without any sales charge. However, you may be charged a "contingent deferred
sales charge" (CDSC) if you sell any shares you have held for less than one
year. Policies regarding the calculation of the CDSC are the same as for Class
B.
Class A shares are also offered with low or no sales charges through various
wrap-fee programs and other sponsored arrangements (contact your financial
professional for information).
Class B -- Back Load
this % of net asset value
when you sell shares at the time of purchase (or
in this year after you of sale, if lower) is deduct-
bought them ed from your proceeds
- -------------------------------------------------------------------
First year 5.00
Second year 4.00
Third year 3.00
Fourth year 3.00
Fifth year 2.00
Sixth year or later None
With Class B shares, you pay no sales charge when you invest, but you are
charged a "contingent deferred sales charge" (CDSC) when you sell shares you
have held for five years or less, as described in the table above. Any shares
acquired through reinvestment are not subject to the CDSC. There is no CDSC on
exchanges into other State Street Research funds, and the
<PAGE>
15
date of your initial investment will continue to be used as the basis for CDSC
calculations when you exchange. To ensure that you pay the lowest CDSC possible,
the fund will always use the shares with the lowest CDSC to fill your sell
requests.
The CDSC is waived on shares sold for mandatory retirement distributions or
because of disability or death. Consult your financial professional or the State
Street Research Service Center.
Class B shares automatically convert to Class A shares after eight years,
lowering your annual expenses from that time on.
Class C (Formerly Class D) -- Level Load
this % of net asset value
when you sell shares at the time of purchase (or
in this year after you of sale, if lower) is deduct-
bought them ed from your proceeds
- -------------------------------------------------------------------
First year 1.00
Second year or later None
With Class C shares, you pay no sales charge when you invest, but you are
charged a "contingent deferred sales charge" (CDSC) when you sell shares you
have held for one year or less, as described in the table above. Policies
regarding the calculation of the CDSC are the same as for Class B.
Class C shares currently have the same annual expenses as Class B shares, but
never convert to Class A shares (with their lower annual expenses).
Class S (Formerly Class C) -- No Load
Class S shares have no sales charges or CDSC.
<PAGE>
16 Your Account continued
[Cash Register Graphic] Policies for Buying Shares
Once you have chosen a share class, the next step is to determine the amount you
want to invest.
Minimum Initial Investments:
(bullet) $1,000 for accounts that use the Investamatic program
(bullet) $2,000 for Individual Retirement Accounts
(bullet) $2,500 for all other accounts
Minimum Additional Investments:
(bullet) $50 for any account
Complete the enclosed application. You can avoid future inconvenience by signing
up now for any services you might later use.
Timing of Requests All requests received by State Street Research before 4:00
p.m. eastern time will be executed the same day, at that day's closing share
price. Orders received after 4:00 p.m. will be executed the following day, at
that day's closing share price.
Wire Transactions 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 of your intention to wire funds, and make sure your wire arrives by
4:00 p.m. Your bank may charge a fee for wiring money.
<PAGE>
Buying Shares 17
<TABLE>
<CAPTION>
To Open an Account To Add to an Account
<S> <C> <C>
[Graphic of Briefcase] Through a Contact your financial professional. Contact your financial professional.
Financial Professional
By Mail [Graphic of Mailbox] Make your check payable to "State Fill out the investment stub from an account
Street Research Funds." Forward the statement, or indicate the fund name and
check and your application to State account number on your check. Make your check
Street Research. payable to "State Street Research Funds."
Forward the check and stub to State Street
Research.
[Graphic of Federal Building] By Forward your application to State Call State Street Research to obtain a control
Federal Funds Wire Street Research, then call to obtain number. Instruct your bank to wire funds to:
an account number. Wire funds using (bullet) State Street Bank and Trust Company,
the instructions at right. Boston, MA
(bullet) ABA: 011000028
(bullet) BNF: fund name and share class you want
to buy
(bullet) AC: 99029761
(bullet) OBI: your name and your account number
(bullet) Control: the number given to you by
State Street Research
By Electronic Funds Transfer Verify that your bank is a member of the Call State Street Research to verify that the
(ACH) [Graphic of Electrical Plug] ACH (Automated Clearing House) system. necessary bank information is on file for your
Forward your application to State Street account. If it is, you may request a transfer
Research. Please be sure to include the with the same phone call. If not, please ask
appropriate bank information. Call State State Street Research to provide you with an EZ
Street Research to request a purchase. Trader application.
[Graphic of Calendar] By Forward your application, with all Call State Street Research to verify that
Investamatic appropriate sections completed, to State Investamatic is in place on your account, or to
Street Research, along with a check for request a form to add it. Investments are
your initial investment payable to "State automatic once Investamatic is in place.
Street Research Funds."
By Exchange [Graphic of Exchange] Call State Street Research or visit our Call State Street Research or visit our website.
website.
</TABLE>
State Street Research Service Center PO Box 8408, Boston, MA 02266-8408
Call toll-free: 1-800-562-0032 (business days 8:00 a.m. - 6:00 p.m., eastern
time)
Internet www.ssrfunds.com
<PAGE>
18 Your Account continued
[Graphic of Receipt] Policies for Selling Shares
Circumstances that Require Written Requests Please submit instructions in
writing when any of the following apply:
(bullet) you are selling more than $50,000 worth of shares
(bullet) the name or address on the 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
or share class
(bullet) you are selling shares held in a corporate or fiduciary account; for
these accounts, additional documents are required:
corporate accounts: certified copy of a corporate resolution
fiduciary accounts: copy of power of attorney or other governing
document
To protect your account against fraud, all signatures on these documents must be
guaranteed. You may obtain a signature guarantee at most banks and securities
dealers. A notary public cannot provide a signature guarantee.
Incomplete Sell Requests State Street Research will attempt to notify you
promptly if any information necessary to process your request is missing.
Timing of Requests All requests received in good order by State Street Research
before 4:00 p.m. eastern time will be executed the same day, at that day's
closing share price. Requests received after 4:00 p.m. will be executed the
following day, at that day's closing share price.
Wire Transactions Proceeds sent by federal funds wire must total at least
$5,000. A fee of $7.50 will be deducted from all proceeds sent by wire, and your
bank may charge an additional fee to receive wired funds.
Selling Recently Purchased Shares If you sell shares before the check or
electronic funds transfer (ACH) 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.
<PAGE>
Selling Shares 19
<TABLE>
<CAPTION>
To Sell Some or All of Your Shares
<S> <C>
[Graphic of Briefcase] Through a Contact your financial professional.
Financial Professional
By Mail [Graphic of Mailbox] Send a letter of instruction, an endorsed stock power or share certificates (if
you hold certificate shares) to State Street Research. Specify the fund, the
account number and the dollar value or number of shares. Be sure to include all
necessary signatures and any additional documents, as well as signature guarantees
if required (see facing page).
[Graphic of Federal Building] By Check with State Street Research to make sure that wire redemption privileges are
Federal Funds Wire in place on your account. Once these privileges are established, you may place your
request to sell shares with State Street Research. Proceeds will be wired to your
pre-designated bank account. (See "Wire Transactions" on facing page.)
By Electronic Funds Transfer Check with State Street Research to make sure that the EZ Trader feature and a bank
(ACH) [Graphic of Electrical Plug] designation is in place on your account. Once one of these is established, you may
place your request to sell shares with State Street Research. Proceeds will be wired
to your pre-designated bank account.
[Graphic of Telephone] By Telephone As long as your request does not require a written request (see facing page),
you can sell shares by calling State Street Research. A check will be mailed to
you on the following business day.
By Exchange [Graphic of Exchange] Read the prospectus for the fund into which you are exchanging. Call State Street
Research or visit our website.
[Graphic of Calendar] By Systematic See plan information on page 23.
Withdrawal Plan
</TABLE>
State Street Research Service Center PO Box 8408, Boston, MA 02266-8408
Call toll-free: 1-800-562-0032 (business days 8:00 a.m. - 6:00 p.m., eastern
time)
Internet www.ssrfunds.com
<PAGE>
20 Your Account continued
[Graphic of Pages] Account Policies
The Fund's Business Hours
The fund is open the same days as the New York Stock Exchange (generally Monday
through Friday). Fund representatives are available from 8:00 a.m. to 6:00 p.m.
eastern time on these days.
Calculating Share Price The fund calculates its net asset value per share (NAV)
every business day at the close of regular trading on the New York Stock
Exchange (usually at 4:00 p.m. eastern time). Each class's share price is
calculated by dividing its net assets by the number of its shares outstanding.
Telephone Requests When you open an account you automatically receive telephone
privileges, allowing you to place requests on your account by telephone. Your
broker can also use these privileges to request exchanges on your account. For
your protection, all telephone calls are 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. The fund may suspend or eliminate the telephone privilege at any
time.
Exchange Privileges There is no fee to exchange shares among State Street
Research funds. Your new fund shares will be the equivalent class as your
current shares. Any contingent deferred sales charges will continue to be
calculated from the date of your initial investment.
Frequent exchanges can interfere with fund management and drive up costs for all
shareholders. Because of this, the fund currently limits each account, or group
of accounts under common ownership or control, to six exchanges per calendar
year. The fund may change or eliminate the exchange privilege at any time, may
limit or cancel any shareholder's
<PAGE>
21
exchange privilege and may refuse to accept any exchange request, particularly
those associated with "market timing" strategies.
For Merrill Lynch customers, exchange privileges extend to Summit Cash Reserves
Fund, which is related to the fund for purposes of investment and investor
services.
Accounts with Low Balances If the value of your account falls below $1,500,
State Street Research may mail you a notice asking you to bring the account back
up to $1,500 or close it out. If you do not take action within 60 days, State
Street Research may either sell your shares and mail the proceeds to you at the
address of record or may deduct an annual maintenance fee (currently $18).
Reinstating Recently Sold Shares For 120 days after you sell shares, you have
the right to "reinstate" your investment by putting some or all of the proceeds
into any currently available State Street Research fund at net asset value. Any
CDSC you paid on the amount you are reinstating will be credited to your
account. You may only use this privilege once in any twelve-month period with
respect to your shares of a given fund.
[Graphic of Uncle Sam] Distributions and Taxes
Income and Capital Gains Distributions The fund typically distributes any net
income and net capital gains to shareholders around the end of the fund's fiscal
year, which is September 30. To comply with tax regulations, the fund may also
pay an additional gains distribution in December.
You may have your distributions reinvested in the fund, invested in a different
State Street Research fund, deposited in a bank account or mailed out by check.
If you do not give State Street Research other instructions, your distributions
will automatically be reinvested in the fund.
<PAGE>
22 Your Account continued
[sidebar text]
[Magnifying Glass Graphic] Tax Considerations
Unless your investment is in a tax-deferred account, you may want to avoid:
(bullet) investing a large amount in the fund close to the end of its fiscal
year (if the fund makes a capital gains distribution, you will receive
some of your investment back as a taxable distribution)
(bullet) selling shares at a loss for tax purposes and investing in a
substantially identical investment within 30 days before or after that
sale (such a transaction is usually considered a "wash sale," and you
will not be allowed to claim a tax loss)
[end of sidebar text]
Tax Effects of Distributions and Transactions In general, any dividends and
short-term capital gain distributions you receive from the fund are taxable as
ordinary income. Distributions of other net capital gains are generally taxable
as capital gains. This is true no matter how long you have owned your shares and
whether you reinvest your distributions or take them in cash.
Every year, the fund will send you information detailing the amount of ordinary
income and capital gains distributed to you for the previous year.
The sale of shares in your account may produce a gain or loss, and is a taxable
event. For tax purposes, an exchange is the same as a sale.
Your investment in the fund could have additional tax consequences. Please
consult your tax professional for assistance.
Backup Withholding By law, the fund must withhold 31% of your distributions and
proceeds if you have not provided complete, correct taxpayer information.
<PAGE>
23
[Interlocked Hands Graphic] Investor Services
Investamatic Program Use Investamatic to set up regular automatic investments in
the fund from your bank account. You determine the frequency and amount of your
investments, and you can skip an investment with three days notice. Not
available with Class S shares.
Systematic Withdrawal Program This plan is designed for retirees and other
investors who want regular withdrawals from a fund account. The plan is free and
allows you to withdraw up to 8% of your fund assets a year without incurring any
contingent deferred sales charges. Certain terms and minimums apply.
Dividend Allocation Plan This plan automatically invests your distributions from
the fund into another fund of your choice, without any fees or sales charges.
Automatic Bank Connection This plan lets you route any distributions or
Systematic Withdrawal Program payments directly to your bank account.
State Street Research also offers a full range of prototype retirement plans for
individuals, sole proprietors, partnerships, corporations and employees. Call
1-800-562-0032 for information on retirement plans or any of the services
described above.
<PAGE>
24 Fund Details
[Graphic of Column] Business Structure
First registered with the SEC in 1984, the fund is a diversified series of State
Street Research Capital Trust, an open-end management investment company that is
organized as a Massachusetts business trust. A board of trustees representing
shareholder interests oversees the fund's operations, including the hiring of
the investment manager and other service providers.
The fund does not hold regular shareholder meetings, but may call meetings when
matters arise that require shareholder approval. These may include amendments to
the investment management agreement, the election of trustees or proposed
changes in the fund's fundamental goal, which cannot be changed without
shareholder approval.
The investment manager is responsible for the fund's investment and business
activities, and receives the management fee (0.75% of fund assets, annually) as
compensation. The investment manager and the distributor are subsidiaries of
Metropolitan Life Insurance Company.
Brokers for Portfolio Trades
When placing trades for the fund's portfolio, State Street Research chooses
brokers that provide the best execution (a term defined by service as well as
price), but may also consider a broker's sales of fund shares.
Investment Manager
State Street Research & Management Company
One Financial Center, Boston, MA 02111
Distributor
State Street Research Investment Services, Inc.
One Financial Center, Boston, MA 02111
Shareholder Services
State Street Research Service Center
P.O. Box 8408, Boston, MA 02266
Custodian
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
<PAGE>
25
[Graphic of a Check] Dealer Compensation
Dealers who sell shares of the fund and perform services for fund
investors receive sales commissions and annual fees. These are paid by the
fund's distributor, using money from sales charges, marketing (12b-1) fees and
its other resources.
Maximum Dealer Compensation Class A Class B Class C Class S
- ------------------------------------------------------------------------------
Initial commission (%) -- 4.00 1.00 0.00
Investments up to $100,000 (%) 4.00 -- -- --
$100,000 - $249,999 (%) 3.00 -- -- --
$250,000 - $499,999 (%) 2.00 -- -- --
$500,000 - $999,999 (%) 1.75 -- -- --
First $1-3 million (%) 1.00(1) -- -- --
Next $2 million (%) 0.50(1) -- -- --
Next $1 and above (%) 0.25(1) -- -- --
Annual fee (%) 0.25 0.25 0.90 0.00
Additional Policies Please note that the fund maintains additional policies and
reserves certain rights, including:
(bullet) The fund may vary its initial or additional investments in the case of
exchanges, reinvestments, periodic investment plans, retirement and
employee benefit plans, sponsored arrangements and other similar
programs.
(bullet) All orders to purchase shares are subject to acceptance by the fund.
(bullet) At any time, the fund may change or discontinue its sales charge
waivers and any of its order acceptance practices, and may suspend the
sale of its shares.
(bullet) To permit investors to obtain the current price, dealers are
responsible for transmitting all orders to shareholder services
promptly.
(bullet) Dealers may impose a transaction fee on the purchase or sale of shares
by shareholders.
(bullet) The distributor may pay its affiliate MetLife Securities, Inc.
additional compensation of up to 0.25% of certain sales.
(1) If your broker declines this commission, the one-year CDSC on your
investment is waived
<PAGE>
26 Other Securities and Risks
[Graphic of Securities Certificates] Other Securities and Risks
Each of the fund's portfolio securities and investment practices offers certain
opportunities and carries various risks. Major investments and risk factors are
outlined in the fund description starting on page 2. Below are brief
descriptions of other securities and practices, along with their associated
risks. A table of limitations follows.
Restricted and Illiquid Securities Any securities that are thinly traded or
whose resale is restricted 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 the 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, to a much smaller extent, the valuation of the fund) may
have a subjective element.
Foreign Investments Foreign securities are generally more volatile than their
domestic counterparts, in part because of higher political and economic risks,
<PAGE>
27
lack of reliable information, and fluctuations in currency exchange rates. These
risks are usually higher in less developed countries. The fund may use foreign
currencies and related instruments to hedge its foreign investments.
Derivatives Derivatives, a category that includes options and futures, are
financial instruments whose value derives from another security or an index. The
fund may use derivatives for hedging (attempting to offset a potential loss in
one position by establishing an interest in an opposite position). The fund may
also use derivatives for speculation (investing for potential income or capital
gain).
While hedging can guard against potential risks, it adds to the 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.
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 all derivatives, whether used for hedging or speculation, there is also the
risk that the counterparty may fail to honor its contract terms, causing a loss
for the fund.
Securities Lending The fund may seek additional income by lending portfolio
securities to qualified institutions. By reinvesting collateral it receives in
these transactions, the fund could magnify any gain or loss it realizes on the
underlying investment. If the borrower fails to return the securities and the
collateral is insufficient to cover the loss, the fund could lose money.
When-issued Securities The fund 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 anytime from a few days to over a year.
Repurchase Agreements The fund may buy securities with the understanding that
the seller will buy them back with interest at a later date. If the
<PAGE>
28 Other Securities and Risks continued
seller is unable to honor its commitment to repurchase the securities, the fund
could lose money.
Bonds The value of any bonds held by the fund is likely to decline when interest
rates rise; this risk is greater for bonds with longer maturities. A less
significant risk is that a bond issuer could default on principal or interest
payments, causing a loss for the fund.
Defensive Investing During unusual market conditions, the fund may place up to
100% of total assets in cash or quality short-term debt securities.
Investment Limitations
<TABLE>
<CAPTION>
Limitation at the time of investment
-------------------------------------
Practice % of total assets % of net assets
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Investing in securities of any given issuer (other than the
U.S. government and its agencies)(1) 5(2) --
Investing in any given industry(1) 25 --
Lending securities 33 1/3 --
Lending money(1) Prohibited --
Repurchase agreements 30 --
Security
- ------------------------------------------------------------------------------------------------
Commodity futures contracts and options contracts
(for non-hedging purposes) -- 5(3)
Other options contracts (for non-hedging purposes) -- 5(3)
Illiquid securities(4) -- 15
Restricted securities(5) 10 --
Foreign securities 35(6) --
</TABLE>
(1) Fundamental policy; may not be changed without shareholder approval.
(2) The fund is also prohibited from investing in more than 10% of any class
of an issuer's securities.
(3) Initial margin deposits plus premiums may not exceed 5% of the market value
of the fund's net assets in non-hedging transactions; no limits apply when
used in hedging strategies.
(4) Includes repurchase agreements extending over more than seven days.
(5) Does not include Rule 144A securities.
(6) Applies to all direct and indirect interests in securities of non-U.S.
issuers.
<PAGE>
Notes 29
<PAGE>
For Additional Information
You can obtain a free copy of the current annual/semiannual report or SAI
by contacting:
[State Street Research Logo]
Service Center
P.O. Box 8408, Boston, MA 02266
Telephone: 1-800-562-0032
Internet: www.ssrfunds.com
Or you can visit the SEC website at:
www.sec.gov
You can find additional information on the fund's structure and its performance
in the following documents:
Annual/Semiannual Reports While the prospectus describes the fund's potential
investments, these reports detail the fund's actual investments as of the report
date. Reports include a discussion by fund management of recent economic and
market trends and fund performance. The annual report also includes the report
of the fund's independent accountants.
Statement of Additional Information (SAI) A supplement to the prospectus, the
SAI contains further information about the fund and its investment limitations
and policies. It also includes the most recent annual report and the independent
accountants' report. A current SAI for this fund is on file with the Securities
and Exchange Commission and is incorporated by reference (is legally part of
this prospectus).
Control Number: xxxx-xxxxxx(xxxx)SSR-LD
prospectus
EIN-xxxx-xxxxx
<PAGE>
STATE STREET RESEARCH
Emerging Growth Fund
An aggressive growth fund focusing on small emerging growth companies.
Prospectus
February 1, 1998
This prospectus has information you should know before you invest. Please read
it carefully and keep it with your investment records.
Although these securities have been registered with the Securities and Exchange
Commission, the commission has not judged them for investment merit and does not
guarantee the accuracy or adequacy of the information in this prospectus. Anyone
who informs you otherwise is committing a federal crime.
[Graphic of Boston's Custom House]
<PAGE>
Who May Want to Invest
State Street Research Emerging Growth Fund is designed for investors who seek
one or more of the following:
(bullet) an aggressive stock fund for a long-term goal
(bullet) a fund to complement a portfolio of more conservative investments
(bullet) a small company fund that emphasizes growth stocks over value stocks
The fund is not appropriate for investors who:
(bullet) want to avoid high volatility or possible losses
(bullet) are making short-term investments
(bullet) are investing emergency reserve money
(bullet) are seeking regular income
The fund's shares will rise and fall in value. There is a risk that you could
lose money by investing in the fund.
The fund cannot be certain that it will achieve its goal.
Fund shares are not bank deposits and are not guaranteed, endorsed or insured by
any financial institution, government entity or the FDIC.
<PAGE>
Contents 1
2 Emerging Growth Fund
The fund's goal and strategy, main risks, expenses and
performance, plus financial highlights
12 Your Account
Managing your State Street Research investments
12 Opening an Account
12 Choosing a Share Class
14 Sales Charges
16 Policies for Buying Shares
18 Policies for Selling Shares
20 Account Policies
21 Distributions and Taxes
23 Investor Services
24 Fund Details
The fund's business structure and dealer compensation, plus
additional policies
26 Other Securities and Risks
Information on additional portfolio securities and practices,
and the risks associated with them
Back Cover For Additional Information
<PAGE>
2 Emerging Growth Fund
[Chesspiece Graphic] Goal and Strategy
Fundamental Goal The fund seeks to provide growth of capital.
Strategy Under normal market conditions, the fund invests at least 65% of total
assets in emerging growth companies, with emphasis on small size companies.
The fund defines emerging growth companies as those that are less mature and
appear to have the potential for rapid growth. While the fund may invest in
emerging growth companies of any size, the fund generally expects to invest in
companies which are small at the time it first invests in them -- that is, not
larger than the stocks of the largest companies in the Russell 2000 Growth
Index. The fund's stock investments may include common and preferred stocks,
convertible securities and warrants.
In selecting stocks, the fund favors entrepreneurial companies that appear to be
reasonably valued. The fund uses research to identify attractive companies,
examining such features as a firm's financial condition, business prospects,
competitive position and business strategy. The fund looks for companies that
have good current or prospective earnings and strong management teams.
<PAGE>
3
The fund reserves the right to invest up to 35% of total assets in other
securities. These may include other types of stocks, such as value or dividend
stocks. They may also include bonds rated investment-grade at the time of
purchase and their unrated equivalents, as well as U.S. government securities.
The fund may adjust the composition of its portfolio as market conditions and
economic outlooks change. For more information about the fund's investments and
practices, see page 26.
[sidebar text]
[Magnifying Glass Graphic] Small Emerging Growth Companies
Over the long term, small emerging growth stocks have generally offered greater
risks and greater rewards than the stock market as a whole.
During good economic periods, these companies have the potential to grow more
quickly than others because they can be more nimble and focused and are
typically in growing industries. Small emerging growth companies often generate
enthusiasm among investors for their innovative products or services and strong,
entrepreneurial leaders. Because they are aiming for maximum growth, most of
these companies reinvest their earnings rather than pay dividends.
Poor or uncertain economic periods may cause the performance of small emerging
growth companies to reverse direction. These companies usually lack the
resources and the broad business lines to weather hard times, and their stock
prices may tumble as investors abandon them in search of less volatile
investments. Small emerging growth companies can also be more vulnerable to
business setbacks than larger companies.
[end of sidebar text]
<PAGE>
4 Emerging Growth Fund continued
[Traffic Sign Graphic] Portfolio Risks
Because the fund invests primarily in stocks, its major risks are those of stock
investing, including sudden, unpredictable drops in value and the potential for
periods of lackluster performance.
Emerging growth stocks of any size often have an above-average sensitivity to
market movements because their market prices tend to reflect future
expectations. Small company stocks can be particularly sensitive, because they
may be thinly traded and can be subject to rapid changes in investor sentiment.
During times of high volatility, the fund may have difficulty finding buyers for
portfolio securities.
Because of these and other risks, the fund may underperform certain other stock
funds (those emphasizing value stocks or large company stocks, for example)
during periods when small company stocks or emerging growth stocks in general
are out of favor. The success of the fund's investment strategy depends largely
on the investment manager's skill in assessing the potential of the stocks it
buys.
The fund's management approach, which may include short-term trading, could
cause the fund's portfolio turnover rate to be above-average for a stock fund.
High turnover will increase the fund's brokerage costs and may increase your tax
liability.
Information on other securities and risks appears on page 26.
A "snapshot" of the fund's investments may be found in the current annual or
semiannual report (see back cover).
[Thinker Graphic] Investment Management
The fund's investment manager is State Street Research & Management Company. 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 [DATE]), including more than $___ billion in mutual funds.
Jesus A. Cabrera has been responsible for the fund's day-to-day portfolio
management since August 1997, and also managed the fund in 1996 from August
through November. A vice president, he joined the firm in 1996 and has worked as
an investment professional since 1985.
<PAGE>
Investor Expenses 5
Shareholder fees are paid directly by investors.
<TABLE>
<CAPTION>
Class descriptions begin on page 12
-----------------------------------------------------------
Shareholder Fees (% of offering price)(1) Class A Class B Class C(2) Class S(2)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum front-end sales charge 4.50 0.00 0.00 0.00
Maximum deferred sales charge 0.00(3) 5.00 1.00 0.00
Annual fund expenses are deducted from fund assets.
Annual Fund Expenses (% of average net assets) Class A Class B Class C Class S
- ---------------------------------------------------------------------------------------------------------------------------
Management fee 0.75 0.75 0.75 0.75
Marketing (12b-1) fees(4) 0.25 1.00 1.00 0.00
Other expenses, after voluntary reduction(5) 0.35 0.35 0.35 0.35
---- ---- ---- ----
Total annual fund expenses, after voluntary reduction(5) 1.35 2.10 2.10 1.10
==== ==== ==== ====
Example Here is what you would pay if you invested $1,000 over the years
indicated. The example is for comparison only and does not represent the fund's
actual expenses, either past or future(6).
Year Class A Class B(7) Class C(7) Class S
- ---------------------------------------------------------------------------------------------------------------------------
1 $58 $71/$21 $31/$21 $11
3 $86 $96/$66 $66/$66 $35
5 $116 $133/$113 $113/$113 $61
10 $200 $224/$224 $243/$243 $134
</TABLE>
(1) Not charged on reinvestments or exchanges.
(2) Before November 1, 1997, Class C shares were designated Class D and Class S
shares were designated Class C.
(3) Except for investments of $1 million or more; see page 14.
(4) For share classes that have 12b-1 fees, long-term shareholders may pay more
than the equivalent of the regulatory maximum sales charge.
(5) Without reduction, other expenses would have been 0.65%, 0.65%, 0.65% and
0.66%, and total expenses would have been 1.65%, 2.40%, 2.40% and 1.41% for
Class A, B, C and S, respectively. If the subsidy is reduced or eliminated,
which could happen at any time, performance would be reduced accordingly.
(6) Example assumes dividend reinvestment, hypothetical 5% annual return,
maximum applicable sales charges and conversion of Class B shares to Class A
after eight years.
(7) The first number assumes you sold all your shares at the end of the period,
the second assumes you stayed in the fund.
<PAGE>
6 Financial Highlights
The information in these tables has been audited by Coopers & Lybrand L.L.P.,
the fund's independent accountants. The top section of each table shows
information for a single share of the fund. Total return figures assume
reinvestment of all distributions.
<TABLE>
<CAPTION>
Years ended September 30
------------------------------------------------------
Class A 1994(1) 1995(2) 1996(2) 1997(2)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year ($) 9.45 8.56 9.69 11.33
------ ------ ------ ------
Net investment loss ($)* (0.02) (0.08) (0.09) (0.08)
Net realized and unrealized
gain (loss) on investments ($) (0.87) 1.21 1.73 5.13
------ ------ ------ ------
Total from investment operations ($) (0.89) 1.13 1.64 5.05
------ ------ ------ ------
Distributions from capital gains ($) -- -- -- (0.85)
------ ------ ------ ------
Total distributions ($) -- -- -- (0.85)
------ ------ ------ ------
Net asset value, end of year ($) 8.56 9.69 11.33 15.53
====== ====== ====== ======
Total return (%)(3) (9.42)(4) 13.20 16.92 48.00
Ratios/supplemental data:
Net assets at end of year ($ thousands) 21,986 21,480 19,791 34,446
Expense ratio (%)* 1.35(5) 1.35 1.35 1.35
Ratio of net investment loss
to average net assets (%)* (0.58)(5) (0.93) (0.96) (0.64)
Portfolio turnover rate (%) 83.61 178.60 155.85 273.33
Average commission rate ($)(6) n/a n/a 0.0159 0.0201
*Reflects voluntary assumption of fees
or expenses per share in each year ($) 0.02 0.06 0.04 0.04
</TABLE>
<PAGE>
7
<TABLE>
<CAPTION>
Years ended September 30
------------------------------------------------------
Class B 1994(1) 1995(2) 1996(2) 1997(2)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year ($) 9.45 8.52 9.58 11.11
------ ------ ------ ------
Net investment loss ($)* (0.06) (0.14) (0.17) (0.16)
Net realized and unrealized
gain (loss) on investments ($) (0.87) 1.20 1.70 4.99
------ ------ ------ ------
Total from investment operations ($) (0.93) 1.06 1.53 4.83
------ ------ ------ ------
Distributions from capital gains ($) -- -- -- (0.85)
------ ------ ------ ------
Total distributions ($) -- -- -- (0.85)
------ ------ ------ ------
Net asset value, end of year ($) 8.52 9.58 11.11 15.09
====== ====== ====== ======
Total return (%)(3) (9.84)(4) 12.44 15.97 46.91
Ratios/supplemental data:
Net assets at end of year ($ thousands) 29,287 26,489 23,656 40,512
Expense ratio (%)* 2.10(5) 2.10 2.10 2.10
Ratio of net investment loss
to average net assets (%)* (1.32)(5) (1.67) (1.71) (1.40)
Portfolio turnover rate (%) 83.61 178.60 155.85 273.33
Average commission rate ($)(6) n/a n/a 0.0159 0.0201
*Reflects voluntary assumption of fees
or expenses per share in each year ($) 0.02 0.06 0.04 0.03
</TABLE>
(1) February 1, 1994 (commencement of share class designations) to September
30, 1994.
(2) Per-share figures have been calculated using the average shares method.
(3) Does not reflect any front-end or contingent deferred sales charges.
Total return would be lower if the distributor and its affiliates had not
voluntarily assumed a portion of the fund's expenses.
(4) Not annualized.
(5) Annualized.
(6) Average commission rate per share paid for security trades beginning with
the fiscal year ended September 30, 1996.
<PAGE>
8 Financial Highlights continued
<TABLE>
<CAPTION>
Years ended September 30
------------------------------------------------------
Class C 1994(1) 1995(2) 1996(2) 1997(2)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year ($) 9.45 8.52 9.58 11.10
------ ------ ------ ------
Net investment loss ($)* (0.06) (0.14) (0.16) (0.16)
Net realized and unrealized
gain (loss) on investments ($) (0.87) 1.20 1.68 5.01
------ ------ ------ ------
Total from investment operations ($) (0.93) 1.06 1.52 4.85
------ ------ ------ ------
Distributions from capital gains ($) -- -- -- (0.85)
------ ------ ------ ------
Total distributions ($) -- -- -- (0.85)
------ ------ ------ ------
Net asset value, end of year ($) 8.52 9.58 11.10 15.10
====== ====== ====== ======
Total return (%)(3) (9.84)(4) 12.44 15.87 47.15
Ratios/supplemental data:
Net assets at end of year ($ thousands) 10,032 7,391 4,503 7,460
Expense ratio (%)* 2.10(5) 2.10 2.10 2.10
Ratio of net investment loss
to average net assets (%)* (1.32)(5) (1.67) (1.71) (1.41)
Portfolio turnover rate (%) 83.61 178.60 155.85 273.33
Average commission rate ($)(6) n/a n/a 0.0159 0.0201
*Reflects voluntary assumption of fees
or expenses per share in each year ($) 0.02 0.06 0.04 0.03
</TABLE>
<PAGE>
9
<TABLE>
<CAPTION>
Years ended September 30
------------------------------------------------------
Class S 1994(1) 1995(2) 1996(2) 1997(2)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year ($) 9.55 8.60 9.77 11.44
------ ------ ------ ------
Net investment loss ($)* (0.06) (0.06) (0.07) (0.04)
Net realized and unrealized
gain (loss) on investments ($) (0.89) 1.23 1.74 5.18
------ ------ ------ ------
Total from investment operations ($) (0.95) 1.17 1.67 5.14
------ ------ ------ ------
Distributions from capital gains ($) -- -- -- (0.85)
------ ------ ------ ------
Total distributions ($) -- -- -- (0.85)
------ ------ ------ ------
Net asset value, end of year ($) 8.60 9.77 11.44 15.73
====== ====== ====== ======
Total return (%)(3) (9.95)(4) 13.60 17.09 48.34
Ratios/supplemental data:
Net assets at end of year ($ thousands) 7,033 12,380 13,311 7,008
Expense ratio (%)* 1.10(5) 1.10 1.10 1.10
Ratio of net investment loss
to average net assets (%)* (0.68)(5) (0.71) (0.71) (0.39)
Portfolio turnover rate (%) 83.61 178.60 155.85 273.33
Average commission rate ($)(6) n/a n/a 0.0159 0.0201
*Reflects voluntary assumption of fees
or expenses per share in each year ($) 0.04 0.06 0.04 0.03
</TABLE>
(1) Commencement of share class designations (February 1, 1994 for Class C)
and commencement of operations (October 4, 1993 for Class S) to September
30, 1994.
(2) Per-share figures have been calculated using the average shares method.
(3) Does not reflect any front-end or contingent deferred sales charges. Total
return would be lower if the distributor and its affiliates had not
voluntarily assumed a portion of the fund's expenses.
(4) Not annualized.
(5) Annualized.
(6) Average commission rate per share paid for security trades beginning with
the fiscal year ended September 30, 1996.
<PAGE>
10 Performance and Volatility
For all share classes, performance before 1994 (the year the share classes were
introduced) compares to Class S performance. For 1994 and later, performance
includes the effects of each class's fees and expenses, which in some cases may
be higher, thus reducing returns.
As of September 30, 1997
-------------------------------------------
Average Annual Total Return 1 Year 3 Years Since Inception (10/4/93)
- --------------------------------------------------------------------------------
Class A (%) 41.34 23.22 13.82
Class B (%) 41.91 23.54 13.85
Class C (%) 46.15 24.23 14.38
Class S (%) 48.34 25.43 15.48
Russell 2000 Growth Index (%) 23.26 21.17 15.74
S&P 500 Index (%) 40.43 29.89 22.77
Lipper Small Company Funds Index (%) 21.04 22.47 17.10
[TABULAR REPRESENTATION OF BAR CHART]
Class A Year-by-Year Total Return Years ended September 30
- -----------------------------------------------------------------
1994* (10.37)
1995 13.20
1996 16.92
1997 48.00
* Since inception (10/4/93)
<PAGE>
11
[sidebar text]
[Magnifying Glass Graphic] Understanding Performance and Volatility
The information on the opposite page is designed to show two aspects of the
fund's track record:
(bullet) Average annual total return is a measure of the fund's performance
over time. It is determined by taking the fund's performance over a
given period and expressing it as an average annual rate. Average
annual total return includes the effects of fund expenses and maximum
sales charges for each class, and assumes that you sold your shares at
the end of the period.
(bullet) The graph of year-by-year returns shows how volatile the fund has been:
how much the difference has been, historically, between its best years
and worst years. In general, funds with higher average annual total
returns will also have higher volatility. The graph includes the
effects of fund expenses, but not sales charges.
Also included are three independent measures of performance. Two are unmanaged
stock indices: the S&P 500 (officially, the "Standard & Poor's 500 Composite
Stock Price Index"), which includes 500 domestic stocks, and the Russell 2000
Growth Index, which contains only those stocks within the complete Russell 2000
Index (a small company index) that show above average growth. The Lipper Small
Company Funds Index shows the performance of a category of mutual funds with
similar goals. This index, which is also unmanaged, shows you how well the fund
has done compared to competing funds.
While the fund does not seek to match the returns or the volatility of any
index, these indices can be used as rough guides when gauging the return of this
and other investments. When making comparisons, keep in mind that none of the
indices includes the effects of sales charges. Also, even if your stock
portfolio were identical to the S&P 500 or the Russell 2000 Growth, your returns
would always be lower, because these indices don't include brokerage and
administrative expenses.
[end of sidebar text]
<PAGE>
12 Your Account
[Key Graphic] Opening an Account
If you are opening an account through a financial professional, he or she can
assist you with all phases of your investment.
If you are investing through a large retirement plan or other special program,
follow the instructions in your program materials.
To open an account without the help of a financial professional, please use the
instructions on these pages.
[Checklist Graphic] Choosing a Share Class
The fund offers four share classes, each with its own sales charge and expense
structure.
If you are investing a substantial amount and plan to hold your shares for a
long period, Class A shares may make the most sense for you. If you are
investing a lesser amount, you
[sidebar text, bottom of page]
Class A -- Front Load
(bullet) Initial sales charge of 4.5% or less; schedule on page 14
(bullet) Lower sales charges for larger investments; see sidebar on facing page
and sales charge schedule
(bullet) Lower annual expenses than Class B or C shares due to lower marketing
(12b-1) fee of 0.25%
Class B -- Back Load
(bullet) No initial sales charge
(bullet) Deferred sales charge of 5% or less on shares you sell within five
years; schedule on page 14
(bullet) Annual marketing (12b-1) fee
(bullet) Automatic conversion to Class A shares after eight years, reducing
future annual expenses
Class C(1) -- Level Load
(bullet) No initial sales charge
(bullet) Deferred sales charge of 1%, paid if you sell shares within one year of
purchase
(bullet) Lower deferred sales charge than Class B shares
(bullet) Annual marketing (12b-1) fee
(bullet) No conversion to Class A shares after eight years, so annual expenses
do not decrease
(1) Before November 1, 1997, these were designated Class D
[end of sidebar text]
<PAGE>
13
may want to consider Class B shares (if investing for at least five years) or
Class C shares (if investing for less than five years). If you are investing
through a special program, such as a large employer-sponsored retirement plan or
certain programs available through brokers, you may be eligible to purchase
Class S shares.
Because all future investments in your account will be made in the share class
you designate when opening the account, you should make your decision carefully.
Your financial professional can help you choose the share class that makes the
most sense for you.
[sidebar text, bottom of page]
Class S(2) -- No Load
(bullet) No sales charges of any kind
(bullet) No marketing (12b-1) fees; annual expenses are lower than other share
classes
(bullet) Available through certain retirement accounts, advisory accounts of the
investment manager and special programs, including broker programs
with record keeping and other services; these programs usually involve
special conditions and separate fees (contact your financial
professional for information)
(2) Before November 1, 1997, these were designated Class C
[end of sidebar text, bottom of page]
[sidebar text]
[Magnifying Glass Graphic] Class A Sales Charge Reductions and Waivers
(bullet) Substantial investments receive lower sales charge rates; see
information on the following page.
(bullet) The "right of accumulation" allows you to include your existing State
Street Research investments (except Money Market Fund Class E shares)
as part of your current investment for sales charge purposes.
(bullet) A "letter of intent" allows you to count all investments in this or
other State Street Research funds over the next 13 months as if you
were making them all at once, for purposes of calculating sales
charges.
To take advantage of right of accumulation or letter of intent waivers, consult
your financial professional or State Street Research.
[end of sidebar text]
<PAGE>
14 Your Account continued
Sales Charges
Class A -- Front Load
when you invest this % is which equals
this amount deducted this % of
for sales your net
charges investment
- ------------------------------------------------------
Up to $99,999 4.50 4.71
$100,000 - $249,999 3.50 3.63
$250,000 - $499,999 2.50 2.56
$500,000 - $999,999 2.00 2.04
$1 million or more see next column
With Class A shares, you pay a sales charge only when you buy shares.
If you are investing $1 million or more (either as a lump sum or through any of
the methods described on the previous page), you can purchase Class A shares
without any sales charge. However, you may be charged a "contingent deferred
sales charge" (CDSC) if you sell any shares you have held for less than one
year. Policies regarding the calculation of the CDSC are the same as for Class
B.
Class A shares are also offered with low or no sales charges through various
wrap-fee programs and other sponsored arrangements (contact your financial
professional for information).
Class B -- Back Load
this % of net asset value
when you sell shares at the time of purchase (or
in this year after you of sale, if lower) is deduct-
bought them ed from your proceeds
- ---------------------------------------------------------------
First year 5.00
Second year 4.00
Third year 3.00
Fourth year 3.00
Fifth year 2.00
Sixth year or later None
With Class B shares, you pay no sales charge when you invest, but you are
charged a "contingent deferred sales charge" (CDSC) when you sell shares you
have held for five years or less, as described in the table above. Any shares
acquired through reinvestment are not subject to the CDSC. There is no CDSC on
exchanges into other State Street Research funds, and the
<PAGE>
15
date of your initial investment will continue to be used as the basis for CDSC
calculations when you exchange. To ensure that you pay the lowest CDSC possible,
the fund will always use the shares with the lowest CDSC to fill your sell
requests.
The CDSC is waived on shares sold for mandatory retirement distributions or
because of disability or death. Consult your financial professional or the State
Street Research Service Center.
Class B shares automatically convert to Class A shares after eight years,
lowering your annual expenses from that time on.
Class C (Formerly Class D) -- Level Load
this % of net asset value
when you sell shares at the time of purchase (or
in this year after you of sale, if lower) is deduct-
bought them ed from your proceeds
- ---------------------------------------------------------------
First year 1.00
Second year or later None
With Class C shares, you pay no sales charge when you invest, but you are
charged a "contingent deferred sales charge" (CDSC) when you sell shares you
have held for one year or less, as described in the table above. Policies
regarding the calculation of the CDSC are the same as for Class B.
Class C shares currently have the same annual expenses as Class B shares, but
never convert to Class A shares (with their lower annual expenses).
Class S (Formerly Class C) -- No Load
Class S shares have no sales charges or CDSC.
<PAGE>
16 Your Account continued
[Cash Register Graphic] Policies for Buying Shares
Once you have chosen a share class, the next step is to determine the amount you
want to invest.
Minimum Initial Investments:
(bullet) $1,000 for accounts that use the Investamatic program
(bullet) $2,000 for Individual Retirement Accounts
(bullet) $2,500 for all other accounts
Minimum Additional Investments:
(bullet) $50 for any account
Complete the enclosed application. You can avoid future inconvenience by signing
up now for any services you might later use.
Timing of Requests All requests received by State Street Research before 4:00
p.m. eastern time will be executed the same day, at that day's closing share
price. Orders received after 4:00 p.m. will be executed the following day, at
that day's closing share price.
Wire Transactions 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 of your intention to wire funds, and make sure your wire arrives by
4:00 p.m. Your bank may charge a fee for wiring money.
<PAGE>
Buying Shares 17
<TABLE>
<CAPTION>
To Open an Account To Add to an Account
<S> <C> <C>
[Graphic of Briefcase] Through a Contact your financial professional. Contact your financial professional.
Financial Professional
By Mail [Graphic of Mailbox] Make your check payable to "State Fill out the investment stub from an account
Street Research Funds." Forward the statement, or indicate the fund name and
check and your application to State account number on your check. Make your check
Street Research. payable to "State Street Research Funds."
Forward the check and stub to State Street
Research.
[Graphic of Federal Building] By Forward your application to State Call State Street Research to obtain a control
Federal Funds Wire Street Research, then call to obtain number. Instruct your bank to wire funds to:
an account number. Wire funds using (bullet) State Street Bank and Trust Company,
the instructions at right. Boston, MA
(bullet) ABA: 011000028
(bullet) BNF: fund name and share class you want
to buy
(bullet) AC: 99029761
(bullet) OBI: your name and your account number
(bullet) Control: the number given to you by
State Street Research
By Electronic Funds Transfer Verify that your bank is a member of the Call State Street Research to verify that the
(ACH) [Graphic of Electrical Plug] ACH (Automated Clearing House) system. necessary bank information is on file for your
Forward your application to State Street account. If it is, you may request a transfer
Research. Please be sure to include the with the same phone call. If not, please ask
appropriate bank information. Call State State Street Research to provide you with an EZ
Street Research to request a purchase. Trader application.
[Graphic of Calendar] By Forward your application, with all Call State Street Research to verify that
Investamatic appropriate sections completed, to State Investamatic is in place on your account, or to
Street Research, along with a check for request a form to add it. Investments are
your initial investment payable to "State automatic once Investamatic is in place.
Street Research Funds."
By Exchange [Graphic of Exchange] Call State Street Research or visit our Call State Street Research or visit our website.
website.
</TABLE>
State Street Research Service Center PO Box 8408, Boston, MA 02266-8408
Call toll-free: 1-800-562-0032 (business days 8:00 a.m. - 6:00 p.m., eastern
time)
Internet www.ssrfunds.com
<PAGE>
18 Your Account continued
[Graphic of Receipt] Policies for Selling Shares
Circumstances that Require Written Requests Please submit instructions in
writing when any of the following apply:
(bullet) you are selling more than $50,000 worth of shares
(bullet) the name or address on the 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
or share class
(bullet) you are selling shares held in a corporate or fiduciary account; for
these accounts, additional documents are required:
corporate accounts: certified copy of a corporate resolution
fiduciary accounts: copy of power of attorney or other governing
document
To protect your account against fraud, all signatures on these documents must be
guaranteed. You may obtain a signature guarantee at most banks and securities
dealers. A notary public cannot provide a signature guarantee.
Incomplete Sell Requests State Street Research will attempt to notify you
promptly if any information necessary to process your request is missing.
Timing of Requests All requests received in good order by State Street Research
before 4:00 p.m. eastern time will be executed the same day, at that day's
closing share price. Requests received after 4:00 p.m. will be executed the
following day, at that day's closing share price.
Wire Transactions Proceeds sent by federal funds wire must total at least
$5,000. A fee of $7.50 will be deducted from all proceeds sent by wire, and your
bank may charge an additional fee to receive wired funds.
Selling Recently Purchased Shares If you sell shares before the check or
electronic funds transfer (ACH) 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.
<PAGE>
Selling Shares 19
<TABLE>
<CAPTION>
To Sell Some or All of Your Shares
<S> <C>
[Graphic of Briefcase] Through a Contact your financial professional.
Financial Professional
By Mail [Graphic of Mailbox] Send a letter of instruction, an endorsed stock power or share certificates (if
you hold certificate shares) to State Street Research. Specify the fund, the
account number and the dollar value or number of shares. Be sure to include all
necessary signatures and any additional documents, as well as signature guarantees
if required (see facing page).
[Graphic of Federal Building] By Check with State Street Research to make sure that wire redemption privileges are
Federal Funds Wire in place on your account. Once these privileges are established, you may place your
request to sell shares with State Street Research. Proceeds will be wired to your
pre-designated bank account. (See "Wire Transactions" on facing page.)
By Electronic Funds Transfer Check with State Street Research to make sure that the EZ Trader feature and a bank
(ACH) [Graphic of Electrical Plug] designation is in place on your account. Once one of these is established, you may
place your request to sell shares with State Street Research. Proceeds will be wired
to your pre-designated bank account.
[Graphic of Telephone] By Telephone As long as your request does not require a written request (see facing page),
you can sell shares by calling State Street Research. A check will be mailed to
you on the following business day.
By Exchange [Graphic of Exchange] Read the prospectus for the fund into which you are exchanging. Call State Street
Research or visit our website.
[Graphic of Calendar] By Systematic See plan information on page 23.
Withdrawal Plan
</TABLE>
State Street Research Service Center PO Box 8408, Boston, MA 02266-8408
Call toll-free: 1-800-562-0032 (business days 8:00 a.m. - 6:00 p.m., eastern
time)
Internet www.ssrfunds.com
<PAGE>
20 Your Account continued
[Graphic of Pages] Policies
The Fund's Business Hours The fund is open the same days as the New York Stock
Exchange (generally Monday through Friday). Fund representatives are available
from 8:00 a.m. to 6:00 p.m. eastern time on these days.
Calculating Share Price The fund calculates its net asset value per share (NAV)
every business day at the close of regular trading on the New York Stock
Exchange (usually at 4:00 p.m. eastern time). Each class's share price is
calculated by dividing its net assets by the number of its shares outstanding.
Telephone Requests When you open an account you automatically receive telephone
privileges, allowing you to place requests on your account by telephone. Your
broker can also use these privileges to request exchanges on your account. For
your protection, all telephone calls are 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. The fund may suspend or eliminate the telephone privilege at any
time.
Exchange Privileges There is no fee to exchange shares among State Street
Research funds. Your new fund shares will be the equivalent class as your
current shares. Any contingent deferred sales charges will continue to be
calculated from the date of your initial investment.
Frequent exchanges can interfere with fund management and drive up costs for all
shareholders. Because of this, the fund currently limits each account, or group
of accounts under common ownership or control, to six exchanges per calendar
year. The fund may change or eliminate the exchange privilege at any time, may
<PAGE>
21
limit or cancel any shareholder's exchange privilege and may refuse to accept
any exchange request, particularly those associated with "market timing"
strategies.
For Merrill Lynch customers, exchange privileges extend to Summit Cash Reserves
Fund, which is related to the fund for purposes of investment and investor
services.
Accounts with Low Balances If the value of your account falls below $1,500,
State Street Research may mail you a notice asking you to bring the account back
up to $1,500 or close it out. If you do not take action within 60 days, State
Street Research may either sell your shares and mail the proceeds to you at the
address of record or may deduct an annual maintenance fee (currently $18).
Reinstating Recently Sold Shares For 120 days after you sell shares, you have
the right to "reinstate" your investment by putting some or all of the proceeds
into any currently available State Street Research fund at net asset value. Any
CDSC you paid on the amount you are reinstating will be credited to your
account. You may only use this privilege once in any twelve-month period with
respect to your shares of a given fund.
[Graphic of Uncle Sam] Distributions and Taxes
Income and Capital Gains Distributions The fund typically distributes any net
income and net capital gains to shareholders around the end of the fund's fiscal
year, which is September 30. To comply with tax regulations, the fund may also
pay an additional gains distribution in December.
You may have your distributions reinvested in the fund, invested in a different
State Street Research fund, deposited in a bank account, or mailed out by check.
If you do not give State Street Research other instructions, your distributions
will automatically be reinvested in the fund.
<PAGE>
22 Your Account continued
[sidebar text]
[Magnifying Glass Graphic] Tax Considerations
Unless your investment is in a tax-deferred account, you may want to avoid:
(bullet) investing a large amount in the fund close to the end of its fiscal
year (if the fund makes a capital gains distribution, you will receive
some of your investment back as a taxable distribution)
(bullet) selling shares at a loss for tax purposes and investing in a
substantially identical investment within 30 days before or after that
sale (such a transaction is usually considered a "wash sale," and you
will not be allowed to claim a tax loss)
[end of sidebar text]
Tax Effects of Distributions and Transactions In general, any dividends and
short-term capital gain distributions you receive from the fund are taxable as
ordinary income. Distributions of other net capital gains are generally taxable
as capital gains. This is true no matter how long you have owned your shares and
whether you reinvest your distributions or take them in cash.
Every year, the fund will send you information detailing the amount of ordinary
income and capital gains distributed to you for the previous year.
The sale of shares in your account may produce a gain or loss, and is a taxable
event. For tax purposes, an exchange is the same as a sale.
Your investment in the fund could have additional tax consequences. Please
consult your tax professional for assistance.
Backup Withholding By law, the fund must withhold 31% of your distributions and
proceeds if you have not provided complete, correct taxpayer information.
<PAGE>
23
[Interlocked Hands Graphic] Investor Services
Investamatic Program Use Investamatic to set up regular automatic investments in
the fund from your bank account. You determine the frequency and amount of your
investments, and you can skip an investment with three days notice. Not
available with Class S shares.
Systematic Withdrawal Program This plan is designed for retirees and other
investors who want regular withdrawals from a fund account. The plan is free and
allows you to withdraw up to 8% of your fund assets a year without incurring any
contingent deferred sales charges. Certain terms and minimums apply.
Dividend Allocation Plan This plan automatically invests your distributions from
the fund into another fund of your choice, without any fees or sales charges.
Automatic Bank Connection This plan lets you route any distributions or
Systematic Withdrawal Program payments directly to your bank account.
State Street Research also offers a full range of prototype retirement plans for
individuals, sole proprietors, partnerships, corporations and employees. Call
1-800-562-0032 for information on retirement plans or any of the services
described above.
<PAGE>
24 Fund Details
[Graphic of Column] Business Structure
Formed in 1993, the fund is a diversified series of State Street Research
Capital Trust, an open-end management investment company that is organized as a
Massachusetts business trust. A board of trustees representing shareholder
interests oversees the fund's operations, including the hiring of the investment
manager and other service providers.
The fund does not hold regular shareholder meetings, but may call meetings when
matters arise that require shareholder approval. These may include amendments to
the investment management agreement, the election of trustees or proposed
changes in the fund's fundamental goal, which cannot be changed without
shareholder approval.
The investment manager is responsible for the fund's investment and business
activities, and receives the management fee (0.75% of fund assets, annually) as
compensation. The investment manager and the distributor are subsidiaries of
Metropolitan Life Insurance Company.
Brokers for Portfolio Trades
When placing trades for the fund's portfolio, State Street Research chooses
brokers that provide the best execution (a term defined by service as well as
price), but may also consider a broker's sales of fund shares.
Investment Manager
State Street Research & Management Company
One Financial Center, Boston, MA 02111
Distributor
State Street Research Investment Services, Inc.
One Financial Center, Boston, MA 02111
Shareholder Services
State Street Research Service Center
P.O. Box 8408, Boston, MA 02266
Custodian
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
<PAGE>
25
[Graphic of Check] Dealer Compensation
Dealers who sell shares of the fund and perform services for fund investors
receive sales commissions and annual fees. These are paid by the fund's
distributor, using money from sales charges, marketing (12b-1) fees and its
other resources.
Maximum Dealer Compensation Class A Class B Class C Class S
- -----------------------------------------------------------------------------
Initial commission (%) -- 4.00 1.00 0.00
Investments up to $100,000 (%) 4.00 -- -- --
$100,000 - $249,999 (%) 3.00 -- -- --
$250,000 - $499,999 (%) 2.00 -- -- --
$500,000 - $999,999 (%) 1.75 -- -- --
First $1-3 million (%) 1.00(1) -- -- --
Next $2 million (%) 0.50(1) -- -- --
Next $1 and above (%) 0.25(1) -- -- --
Annual fee (%) 0.25 0.25 0.90 0.00
Additional Policies Please note that the fund maintains additional policies and
reserves certain rights, including:
(bullet) The fund may vary its initial or additional investments in the case of
exchanges, reinvestments, periodic investment plans, retirement and
employee benefit plans, sponsored arrangements and other similar
programs.
(bullet) All orders to purchase shares are subject to acceptance by the fund.
(bullet) At any time, the fund may change or discontinue its sales charge
waivers and any of its order acceptance practices, and may suspend the
sale of its shares.
(bullet) To permit investors to obtain the current price, dealers are
responsible for transmitting all orders to shareholder services
promptly.
(bullet) Dealers may impose a transaction fee on the purchase or sale of shares
by shareholders.
(bullet) The distributor may pay its affiliate MetLife Securities, Inc.
additional compensation of up to 0.25% of certain sales.
(1) If your broker declines this commission, the one-year CDSC on your
investment is waived
<PAGE>
26 Other Securities and Risks
[Graphic of Securities Certificates] Other Securities and Risks
Each of the fund's portfolio securities and investment practices offers certain
opportunities and carries various risks. Major investments and risk factors are
outlined in the fund description starting on page 2. Below are brief
descriptions of other securities and practices, along with their associated
risks. A table of limitations follows.
Restricted and Illiquid Securities Any securities that are thinly traded or
whose resale is restricted 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 the 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, to a much smaller extent, the valuation of the fund) may
have a subjective element.
Foreign Investments Foreign securities are generally more volatile than their
domestic counterparts, in part because of higher political and economic risks,
<PAGE>
27
lack of reliable information, and fluctuations in currency exchange rates. These
risks are usually higher in less developed countries. The fund may use foreign
currencies and related instruments to hedge its foreign investments.
Derivatives Derivatives, a category that includes options and futures, are
financial instruments whose value derives from another security or an index. The
fund may use derivatives for hedging (attempting to offset a potential loss in
one position by establishing an interest in an opposite position). The fund may
also use derivatives for speculation (investing for potential income or capital
gain).
While hedging can guard against potential risks, it adds to the 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.
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 all derivatives, whether used for hedging or speculation, there is also the
risk that the counterparty may fail to honor its contract terms, causing a loss
for the fund.
Securities Lending The fund may seek additional income by lending portfolio
securities to qualified institutions. By reinvesting collateral it receives in
these transactions, the fund could magnify any gain or loss it realizes on the
underlying investment. If the borrower fails to return the securities and the
collateral is insufficient to cover the loss, the fund could lose money.
When-issued Securities The fund 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 anytime from a few days to over a year.
Repurchase Agreements The fund may buy securities with the understanding that
the seller will buy them back with interest at a later date. If the
<PAGE>
28 Other Securities and Risks continued
seller is unable to honor its commitment to repurchase the securities, the fund
could lose money.
Bonds The value of any bonds held by the fund is likely to decline when interest
rates rise; this risk is greater for bonds with longer maturities. A less
significant risk is that a bond issuer could default on principal or interest
payments, causing a loss for the fund.
Defensive Investing During unusual market conditions, the fund may place up to
100% of total assets in cash or quality short-term debt securities.
Investment Limitations
<TABLE>
<CAPTION>
Limitations at the time of investment
-------------------------------------
Practice % of total assets % of net assets
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Investing in securities of any given issuer (other than the
U.S. government and its agencies)(1) 5(2) --
Investing in any given industry(1) 25 --
Lending securities 33 1/3 --
Lending money(1) Prohibited --
Repurchase agreements 30 --
Security
- ----------------------------------------------------------------------------------------------------
Commodity futures contracts and options contracts
(for non-hedging purposes) -- 5(3)
Other options contracts (for non-hedging purposes) -- 5(3)
Illiquid securities(4) -- 15
Restricted securities(5) 10 --
Foreign securities 35(6) --
</TABLE>
(1) Fundamental policy; may not be changed without shareholder approval.
(2) Applies only to 75% of fund's total assets. The fund is also prohibited
from investing in more than 10% of an issuer's voting securities.
(3) Initial margin deposits plus premiums may not exceed 5% of the market value
of the fund's net assets in non-hedging transactions; no limits apply when
used in hedging strategies.
(4) Includes repurchase agreements extending over more than seven days.
(5) Does not include Rule 144A securities.
(6) Applies to all direct and indirect interests in securities of non-U.S.
issuers.
<PAGE>
Notes 29
<PAGE>
For Additional Information
You can obtain a free copy of the current annual/semiannual report or SAI
by contacting:
[State Street Research Logo]
Service Center
P.O. Box 8408, Boston, MA 02266
Telephone: 1-800-562-0032
Internet: www.ssrfunds.com
Or you can visit the SEC website at:
www.sec.gov
You can find additional information on the fund's structure and its performance
in the following documents:
Annual/Semiannual Reports While the prospectus describes the fund's potential
investments, these reports detail the fund's actual investments as of the report
date. Reports include a discussion by fund management of recent economic and
market trends and fund performance. The annual report also includes the report
of the fund's independent accountants.
Statement of Additional Information (SAI) A supplement to the prospectus,
the SAI contains further information about the fund and its investment
limitations and policies. It also includes the most recent annual report and the
independent accountants' report. A current SAI for this fund is on file with the
Securities and Exchange Commission and is incorporated by reference (is legally
part of this prospectus).
Control Number: xxxx-xxxxxx(xxxx)SSR-LD
prospectus
EIN-xxxx-xxxxx
<PAGE>
Supplement No. 1 dated February 1, 1998
to
Prospectus dated February 1, 1998
for
STATE STREET RESEARCH AURORA FUND
a series of State Street Research Capital Trust
Availability of Shares
Currently, shares of the Fund are available only to existing shareholders
of the Fund through reinvestment of dividends and distributions, additional
investments or exchanges into their existing accounts.
The Fund reserves the right to accept new investments or suspend the sale
of shares from time to time. The offering of shares will be determined on the
basis of the Fund's ability to effectively manage the addition of new
investments in accordance with the Fund's investment strategy. Management of the
Fund can be affected by the limited availability of small capitalization value
stocks and changes in related market conditions, among other factors.
<PAGE>
STATE STREET RESEARCH
Aurora Fund
An aggressive growth fund with a value approach to small company investing.
Prospectus
February 1, 1998
This prospectus has information you should know before you invest. Please read
it carefully and keep it with your investment records.
Although these securities have been registered with the Securities and Exchange
Commission, the commission has not judged them for investment merit and does not
guarantee the accuracy or adequacy of the information in this prospectus. Anyone
who informs you otherwise is committing a federal crime.
(Graphic of Boston's Custom House)
<PAGE>
Who May Want to Invest
State Street Research Aurora Fund is designed for investors who seek one or more
of the following:
(bullet) an aggressive stock fund for a long-term goal
(bullet) a fund to complement a portfolio of more conservative investments
(bullet) a small company fund that emphasizes value stocks over growth stocks
The fund is not appropriate for investors who:
(bullet) want to avoid high volatility or possible losses
(bullet) are making short-term investments
(bullet) are investing emergency reserve money
(bullet) are seeking regular income
The fund's shares will rise and fall in value.
There is a risk that you could lose money by investing in the fund.
The fund cannot be certain that it will achieve its goal.
Fund shares are not bank deposits and are not guaranteed, endorsed or insured by
any financial institution, government entity or the FDIC.
<PAGE>
Contents 1
2 Aurora Fund
The fund's goal and strategy, main risks, expenses and
performance, plus financial highlights
12 Your Account
Managing your State Street Research investments
12 Opening an Account
12 Choosing a Share Class
14 Sales Charges
16 Policies for Buying Shares
18 Policies for Selling Shares
20 Account Policies
21 Distributions and Taxes
23 Investor Services
24 Fund Details
The fund's business structure and dealer compensation, plus
additional policies
26 Other Securities and Risks
Information on additional portfolio securities and practices,
and the risks associated with them
Back Cover For Additional Information
<PAGE>
2 Aurora Fund
[Chesspiece Graphic] Goal and Strategy
Fundamental Goal The fund seeks to provide high total return, consisting
principally of capital appreciation.
Strategy Under normal market conditions, the fund invests at least 65% of total
assets in small company value stocks.
The fund generally expects that most of these stocks, when it first buys them,
will not be larger than the stocks of the largest companies in the Russell 2000
Value Index. The fund may continue to hold or buy stock in a company that has
outgrown this range if the company appears to remain an attractive investment.
The fund's stock investments may include common and preferred stocks,
convertible securities and warrants.
In choosing among small company stocks, the fund takes a value approach,
searching for those companies that appear to be trading below their true worth.
The fund uses research to identify potential investments, examining such
features as a firm's financial condition, business prospects, competitive
position and business strategy. The fund looks for companies that appear likely
to come back into favor with investors, for reasons that may range from good
prospective earnings or strong management teams to new products or services.
<PAGE>
3
The fund reserves the right to invest up to 35% of total assets in other
securities. These may include other types of stocks, such as larger company
stocks or growth stocks. The fund may also invest up to 5% of total assets in
junk bonds that, at the time of purchase, are as low in credit quality as the
Standard & Poor's or Moody's C rating category, or their unrated equivalents.
Any other bond investments must be investment grade at the time of purchase, or
U.S. government securities.
The fund may adjust the composition of its portfolio as market conditions and
economic outlooks change. For more information about the fund's investments and
practices, see page 26.
[sidebar text]
[Magnifying Glass Graphic] Small Size Companies and Value Investing
Over the long term, small companies have offered generally greater risks and
rewards than the stock market as a whole, making their performance volatile.
This is one reason why a value stock strategy, which has historically been
associated with lower volatility, can be a logical approach to small company
investing.
During good economic times, small companies often generate enthusiasm among
investors because they can be more nimble and focused than larger companies.
Poor or uncertain economic periods may cause small company stocks to reverse
direction. These companies usually lack the resources and the broad business
lines to weather hard times, and their stock prices may tumble as investors
abandon them in search of less volatile investments. Small companies can also be
more vulnerable to business setbacks than larger companies.
Some small company stocks can have comparatively high stock prices, based on
investor expectations of rapid company growth. But others can be out of favor
with investors or may be overlooked by most analysts, and may as a result have
comparatively low stock prices. By focusing on stocks that in theory are already
underpriced, a value investor can seek to limit some of the volatility
associated with small company investing.
[end of sidebar text]
<PAGE>
4 Aurora Fund continued
[Traffic Sign Graphic] Portfolio Risks
Because the fund invests primarily in stocks, its major risks are those of stock
investing, including sudden, unpredictable drops in value and the potential for
periods of lackluster performance.
Small company stocks -- even those that may already be low in price -- can be
particularly sensitive to market movements, because they may be thinly traded
and their market prices tend to reflect future expectations. With value
investing, the main risk is that a stock may not achieve its expected value.
During times of high volatility, the fund may have difficulty finding buyers for
portfolio securities.
Because of these and other risks, the fund may underperform certain other stock
funds (those emphasizing growth stocks or large company stocks, for example)
during periods when small company stocks are out of favor. The success of the
fund's investment strategy depends largely on the investment manager's skill in
assessing the potential of the stocks it buys.
Information on other securities and risks appears on page 26.
A "snapshot" of the fund's investments may be found in the current annual or
semiannual report (see back cover).
[Thinker Graphic] Investment Management
The fund's investment manager is State Street Research & Management Company. 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 [DATE]), including more than $___ billion in mutual funds.
Rudy Kluiber has been responsible for the fund's day-to-day portfolio management
since its inception in February 1995. A vice president, he joined the firm in
1989 and has worked as an investment professional since 1988.
<PAGE>
Investor Expenses 5
Shareholder fees are paid directly by investors.
Annual fund expenses are deducted from fund assets.
Example Here is what you would pay if you invested $1,000 over the years
indicated. The example is for comparison only and does not represent the fund's
actual expenses, either past or future(5).
<TABLE>
<CAPTION>
Class descriptions begin on page 12
--------------------------------------------------------
Shareholder Fees (% of offering price)(1) Class A Class B Class C(2) Class S(2)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum front-end sales charge 4.50 0.00 0.00 0.00
Maximum deferred sales charge 0.00(3) 5.00 1.00 0.00
Annual Fund Expenses (% of average net assets) Class A Class B Class C Class S
- --------------------------------------------------------------------------------------------------------------
Management fee 0.85 0.85 0.85 0.85
Marketing (12b-1) fees(4) 0.25 1.00 1.00 0.00
Other expenses 0.31 0.31 0.31 0.31
---- ---- ---- ----
Total annual fund expenses 1.41 2.16 2.16 1.16
==== ==== ==== ====
Year Class A Class B(6) Class C(6) Class S
- --------------------------------------------------------------------------------------------------------------
1 $59 $72/$22 $32/$22 $12
3 $88 $98/$68 $68/$68 $37
5 $119 $136/$116 $116/$116 $64
10 $206 $230/$230 $249/$249 $141
</TABLE>
(1) Not charged on reinvestments or exchanges.
(2) Before November 1, 1997, Class C shares were designated Class D and Class
S shares were designated Class C.
(3) Except for investments of $1 million or more; see page 14.
(4) For share classes that have 12b-1 fees, long-term shareholders may pay more
than the equivalent of the regulatory maximum sales charge.
(5) Example assumes dividend reinvestment, hypothetical 5% annual return,
maximum applicable sales charges and conversion of Class B shares to Class
A after eight years.
(6) The first number assumes you sold all your shares at the end of the period,
the second assumes you stayed in the fund.
<PAGE>
6 Financial Highlights
The information in these tables has been audited by Coopers & Lybrand L.L.P.,
the fund's independent accountants. The top section of each table shows
information for a single share of the fund. Total return figures assume
reinvestment of all distributions.
<TABLE>
<CAPTION>
Years ended September 30
----------------------------------------
Class A 1995(1) 1996(2) 1997(2)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of year ($) 9.55 11.13 15.14
----- ------ ------
Net investment income (loss) ($)* 0.07 (0.06) 0.03
Net realized and unrealized
gain on investments ($) 1.51 4.66 9.02
----- ------ ------
Total from investment operations ($) 1.58 4.60 9.05
----- ------ ------
Dividend from net investment income ($) -- (0.09) --
Distributions from capital gains ($) -- (0.50) (3.48)
----- ------ ------
Total distributions ($) -- (0.59) (3.48)
----- ------ ------
Net asset value, end of year ($) 11.13 15.14 20.71
===== ====== ======
Total return (%)(3) 16.54(4) 43.63 72.70
Ratios/supplemental data:
Net assets at end of year ($ thousands) 5,782 1,110 157,853
Expense ratio (%)* 1.45(5) 1.45 1.34
Ratio of net investment income
(loss) to average net assets (%)* 1.05(5) (0.56) 0.17
Portfolio turnover rate (%) 47.34 124.79 25.03
Average commission rate ($)(6) n/a 0.0174 0.0154
*Reflects voluntary assumption of fees
or expenses per share in each year ($) 0.15 0.32 0.02
</TABLE>
<PAGE>
7
<TABLE>
<CAPTION>
Years ended September 30
----------------------------------------
Class B 1995(1) 1996(2) 1997(2)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of year ($) 9.55 11.08 15.02
----- ------ -------
Net investment income (loss) ($)* 0.02 (0.17) (0.09)
Net realized and unrealized
gain on investments ($) 1.51 4.65 8.88
----- ------ -------
Total from investment operations ($) 1.53 4.48 8.79
----- ------ -------
Dividend from net investment income ($) -- (0.04) --
Distributions from capital gains ($) -- (0.50) (3.48)
----- ------ -------
Total distributions ($) -- (0.54) (3.48)
----- ------ -------
Net asset value, end of year ($) 11.08 15.02 20.33
===== ====== =======
Total return (%)(3) 16.02(4) 42.52 71.34
Ratios/supplemental data:
Net assets at end of year ($ thousands) 116 165 235,938
Expense ratio (%)* 2.20(5) 2.20 2.08
Ratio of net investment income
(loss) to average net assets (%)* 0.32(5) (1.38) (0.55)
Portfolio turnover rate (%) 47.34 124.79 25.03
Average commission rate ($)(6) n/a 0.0174 0.0154
*Reflects voluntary assumption of fees
or expenses per share in each year ($) 0.15 0.32 0.01
</TABLE>
(1) February 13, 1995 (commencement of operations) to September 30, 1995.
(2) Per-share figures have been calculated using the average shares method.
(3) Does not reflect any front-end or contingent deferred sales charges. Total
return would be lower if the distributor and its affiliates had not
voluntarily assumed a portion of the fund's expenses.
(4) Not annualized.
(5) Annualized.
(6) Average commission rate per share paid for security trades beginning with
the fiscal year ended September 30, 1996.
<PAGE>
8 Financial Highlights continued
<TABLE>
<CAPTION>
Years ended September 30
----------------------------------------
Class C 1995(1) 1996(2) 1997(2)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of year ($) 9.55 11.08 15.02
----- ----- ------
Net investment income (loss) ($)* 0.02 (0.17) (0.09)
Net realized and unrealized
gain on investments ($) 1.51 4.65 8.87
----- ----- ------
Total from investment operations ($) 1.53 4.48 8.78
----- ----- ------
Dividend from net investment income ($) -- (0.04) --
Distributions from capital gains ($) -- (0.50) (3.48)
----- ----- ------
Total distributions ($) -- (0.54) (3.48)
----- ----- ------
Net asset value, end of year ($) 11.08 15.02 20.32
===== ===== ======
Total return (%)(3) 16.02(4) 42.52 71.26
Ratios/supplemental data:
Net assets at end of year ($ thousands) 116 165 67,121
Expense ratio (%)* 2.20(5) 2.20 2.09
Ratio of net investment income
(loss) to average net assets (%)* 0.32(5) (1.38) (0.58)
Portfolio turnover rate (%) 47.34 124.79 25.03
Average commission rate ($)(6) n/a 0.0174 0.0154
*Reflects voluntary assumption of fees
or expenses per share in each year ($) 0.15 0.32 0.01
</TABLE>
<PAGE>
9
<TABLE>
<CAPTION>
Years ended September 30
----------------------------------------
Class S 1995(1) 1996(2) 1997(2)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of year ($) 9.55 11.15 15.18
----- ----- ------
Net investment income (loss) ($)* 0.09 (0.06) (0.00)
Net realized and unrealized
gain on investments ($) 1.51 4.70 9.13
----- ----- ------
Total from investment operations ($) 1.60 4.64 9.13
----- ----- ------
Dividend from net investment income ($) -- (0.11) --
Distributions from capital gains ($) -- (0.50) (3.48)
----- ----- ------
Total distributions ($) -- (0.61) (3.48)
----- ----- ------
Net asset value, end of year ($) 11.15 15.18 20.83
===== ===== ======
Total return (%)(3) 16.75(4) 43.95 73.10
Ratios/supplemental data:
Net assets at end of year ($ thousands) 117 7,752 14,542
Expense ratio (%)* 1.20(5) 1.20 1.16
Ratio of net investment income
(loss) to average net assets (%)* 1.32(5) (0.43) (0.02)
Portfolio turnover rate (%) 47.34 124.79 25.03
Average commission rate ($)(6) n/a 0.0174 0.0154
*Reflects voluntary assumption of fees
or expenses per share in each year 0.15 0.32 0.12
</TABLE>
(1) February 13, 1995 (commencement of operations) to September 30, 1995.
(2) Per-share figures have been calculated using the average shares method.
(3) Does not reflect any front-end or contingent deferred sales charges. Total
return would be lower if the distributor and its affiliates had not
voluntarily assumed a portion of the fund's expenses.
(4) Not annualized.
(5) Annualized.
(6) Average commission rate per share paid for security trades beginning with
the fiscal year ended September 30, 1996.
<PAGE>
10 Performance and Volatility
As of September 30, 1997
---------------------------------------
Average Annual Total Return 1 Year Since Inception (2/13/95)
- ------------------------------------------------------------------------------
Class A (%) 64.92 47.06
Class B (%) 66.34 47.92
Class C (%) 70.26 48.29
Class S (%) 73.10 50.02
Russell 2000 Value Index (%) 42.54 28.95
S&P 500 Index (%) 40.43 32.53
Lipper Small Company Funds Index (%) 21.04 25.74
[TABULAR REPRESENTATION OF BAR CHART]
Class A Year-by-Year Total Return Years ended September 30
- -----------------------------------------------------------------
1995* 16.54
1996 43.63
1997 72.70
* Since inception (2/13/95)
<PAGE>
11
[sidebar text]
[Magnifying Glass Graphic] Understanding Performance and Volatility
The information on the opposite page is designed to show two aspects of the
fund's track record:
(bullet) Average annual total return is a measure of the fund's performance
over time. It is determined by taking the fund's performance over a
given period and expressing it as an average annual rate. Average
annual total return includes the effects of fund expenses and maximum
sales charges for each class, and assumes that you sold your shares at
the end of the period.
(bullet) The graph of year-by-year returns shows how volatile the fund has been:
how much the difference has been, historically, between its best years
and worst years. In general, funds with higher average annual total
returns will also have higher volatility. The graph includes the
effects of fund expenses, but not sales charges.
Also included are three independent measures of performance. Two are unmanaged
stock indices: the S&P 500 (officially, the "Standard & Poor's 500 Composite
Stock Price Index"), which includes 500 domestic stocks, and the Russell 2000
Value Index, which contains only those stocks within the complete Russell 2000
Index (a small company index) that show below average growth. The Lipper
Small Company Funds Index shows the performance of a category of mutual funds
with similar goals. This index, which is also unmanaged, shows you how well the
fund has done compared to competing funds.
While the fund does not seek to match the returns or the volatility of any
index, these indices can be used as rough guides when gauging the return of this
and other investments. When making comparisons, keep in mind that none of the
indices includes the effects of sales charges. Also, even if your stock
portfolio were identical to the S&P 500 or the Russell 2000 Value, your returns
would always be lower, because these indices don't include brokerage and
administrative expenses.
[end of sidebar text]
<PAGE>
12 Your Account
[Key Graphic] Opening an Account
If you are opening an account through a financial professional, he or she can
assist you with all phases of your investment.
If you are investing through a large retirement plan or other special program,
follow the instructions in your program materials.
To open an account without the help of a financial professional, please use the
instructions on these pages.
[Checklist Graphic] Choosing a Share Class
The fund offers four share classes, each with its own sales charge and expense
structure.
If you are investing a substantial amount and plan to hold your shares for a
long period, Class A shares may make the most sense for you. If you are
investing a lesser amount, you
[sidebar text, bottom of page]
Class A -- Front Load
(bullet) Initial sales charge of 4.5% or less; schedule on page 14
(bullet) Lower sales charges for larger investments; see sidebar on facing page
and sales charge schedule
(bullet) Lower annual expenses than Class B or C shares due to lower marketing
(12b-1) fee of 0.25%
Class B -- Back Load
(bullet) No initial sales charge
(bullet) Deferred sales charge of 5% or less on shares you sell within five
years; schedule on page 14
(bullet) Annual marketing (12b-1) fee
(bullet) Automatic conversion to Class A shares after eight years, reducing
future annual expenses
Class C(1) -- Level Load
(bullet) No initial sales charge
(bullet) Deferred sales charge of 1%, paid if you sell shares within one year of
purchase
(bullet) Lower deferred sales charge than Class B shares
(bullet) Annual marketing (12b-1) fee
(bullet) No conversion to Class A shares after eight years, so annual expenses
do not decrease
(1) Before November 1, 1997, these were designated Class D
[end of sidebar text]
<PAGE>
13
may want to consider Class B shares (if investing for at least five years) or
Class C shares (if investing for less than five years). If you are investing
through a special program, such as a large employer-sponsored retirement plan or
certain programs available through brokers, you may be eligible to purchase
Class S shares.
Because all future investments in your account will be made in the share class
you designate when opening the account, you should make your decision carefully.
Your financial professional can help you choose the share class that makes the
most sense for you.
[sidebar text, bottom of page]
Class S(2) -- No Load
(bullet) No sales charges of any kind
(bullet) No marketing (12b-1) fees; annual expenses are lower than other share
classes
(bullet) Available through certain retirement accounts, advisory accounts of the
investment manager and special programs, including broker programs with
record-keeping and other services; these programs usually involve
special conditions and separate fees. (contact your financial
professional for information)
(2) Before November 1, 1997, these were designated Class C
[end of sidebar text, bottom of page]
[sidebar text]
[Magnifying Glass Graphic] Class A Sales Charge Reductions and Waivers
(bullet) Substantial investments receive lower sales charge rates; see
information on the following page.
(bullet) The "right of accumulation" allows you to include your existing State
Street Research investments (except Money Market Fund Class E shares)
as part of your current investment for sales charge purposes.
(bullet) A "letter of intent" allows you to count all investments in this or
other State Street Research funds over the next 13 months as if you
were making them all at once, for purposes of calculating sales
charges.
To take advantage of right of accumulation or letter of intent waivers, consult
your financial professional or State Street Research.
[end of sidebar text]
<PAGE>
14 Your Account continued
Sales Charges
Class A -- Front Load
when you invest this % is which equals
this amount deducted this % of
for sales your net
charges investment
- ---------------------------------------------------
Up to $99,999 4.50 4.71
$100,000 - $249,999 3.50 3.63
$250,000 - $499,999 2.50 2.56
$500,000 - $999,999 2.00 2.04
$1 million or more see next column
With Class A shares, you pay a sales charge only when you buy shares.
If you are investing $1 million or more (either as a lump sum or through any of
the methods described on the previous page), you can purchase Class A shares
without any sales charge. However, you may be charged a "contingent deferred
sales charge" (CDSC) if you sell any shares you have held for less than one
year. Policies regarding the calculation of the CDSC are the same as for Class
B.
Class A shares are also offered with low or no sales charges through various
wrap-fee programs and other sponsored arrangements (contact your financial
professional for information).
Class B -- Back Load
this % of net asset value
when you sell shares at the time of purchase (or
in this year after you of sale, if lower) is deduct-
bought them ed from your proceeds
- ------------------------------------------------------------
First year 5.00
Second year 4.00
Third year 3.00
Fourth year 3.00
Fifth year 2.00
Sixth year or later None
With Class B shares, you pay no sales charge when you invest, but you are
charged a "contingent deferred sales charge" (CDSC) when you sell shares you
have held for five years or less, as described in the table above. Any shares
acquired through reinvestment are not subject to the CDSC. There is no CDSC on
exchanges into other State Street Research funds, and the
<PAGE>
15
date of your initial investment will continue to be used as the basis for CDSC
calculations when you exchange. To ensure that you pay the lowest CDSC possible,
the fund will always use the shares with the lowest CDSC to fill your sell
requests.
The CDSC is waived on shares sold for mandatory retirement distributions or
because of disability or death. Consult your financial professional or the State
Street Research Service Center. Class B shares automatically convert to Class A
shares after eight years, lowering your annual expenses from that time on.
Class C (Formerly Class D) -- Level Load
this % of net asset value
when you sell shares at the time of purchase (or
in this year after you of sale, if lower) is deduct-
bought them ed from your proceeds
- -----------------------------------------------------------
First year 1.00
Second year or later None
With Class C shares, you pay no sales charge when you invest, but you are
charged a "contingent deferred sales charge" (CDSC) when you sell shares you
have held for one year or less, as described in the table above. Policies
regarding the calculation of the CDSC are the same as for Class B.
Class C shares currently have the same annual expenses as Class B shares, but
never convert to Class A shares (with their lower annual expenses).
Class S (Formerly Class C) -- No Load
Class S shares have no sales charges or CDSC.
<PAGE>
16 Your Account continued
[Cash Register Graphic] Policies for Buying Shares
Once you have chosen a share class, the next step is to determine the amount you
want to invest.
Minimum Initial Investments:
(bullet) $10,000 for accounts that use the Investamatic program
(bullet) $2,000 for Individual Retirement Accounts
(bullet) $100,000 for all other accounts
Minimum Additional Investments:
(bullet) $1,000 minimum for Individual Retirement Accounts
(bullet) $50 for all other accounts
Complete the enclosed application. You can avoid future inconvenience by signing
up now for any services you might later use.
Timing of Requests All requests received by State Street Research before 4:00
p.m. eastern time will be executed the same day, at that day's closing share
price. Orders received after 4:00 p.m. will be executed the following day, at
that day's closing share price.
Wire Transactions 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 of your intention to wire funds, and make sure your wire arrives by
4:00 p.m. Your bank may charge a fee for wiring money.
<PAGE>
Buying Shares 17
<TABLE>
<CAPTION>
To Open an Account To Add to an Account
<S> <C> <C>
[Graphic of Briefcase] Through a Contact your financial professional. Contact your financial professional.
Financial Professional
By Mail [Graphic of Mailbox] Make your check payable to "State Fill out the investment stub from an account
Street Research Fund." Forward the statement, or indicate the fund name and
check and your application to State account number on your check. Make your check
Street Research. payable to "State Street Research Funds."
Forward the check and stub to State Street
Research.
[Graphic of Federal Building] By Forward your application to State Call State Street Research to obtain a control
Federal Funds Wire Street Research, then call to obtain number. Instruct your bank to wire funds to:
an account number. Wire funds using (bullet) State Street Bank and Trust Company,
the instructions at right. Boston, MA
(bullet) ABA: 011000028
(bullet) BNF: fund name and share class you want
to buy
(bullet) AC: 99029761
(bullet) OBI: your name and your account number
(bullet) Control: the number given to you by
State Street Research
By Electronic Funds Transfer Verify that your bank is a member of the Call State Street Research to verify that the
(ACH) [Graphic of Electrical Plug] ACH (Automated Clearing House) system. necessary bank information is on file for your
Forward your application to State Street account. If it is, you may request a transfer
Research. Please be sure to include the with the same phone call. If not, please ask
appropriate bank information. Call State State Street Research to provide you with an EZ
Street Research to request a purchase. Trader application.
[Graphic of Calendar] By Forward your application, with all Call State Street Research to verify that
Investamatic appropriate sections completed, to State Investamatic is in place on your account, or to
Street Research, along with a check for request a form to add it. Investments are
your initial investment payable to "State automatic once Investamatic is in place.
Street Research Funds."
By Exchange [Graphic of Exchange] Call State Street Research or visit our Call State Street Research or visit our website.
website.
</TABLE>
State Street Research Service Center PO Box 8408, Boston, MA 02266-8408
Call toll-free: 1-800-562-0032 (business days 8:00 a.m. - 6:00 p.m., eastern
time)
Internet www.ssrfunds.com
<PAGE>
18 Your Account continued
[Graphic of Receipt] Policies for Selling Shares
Circumstances that Require Written Requests Please submit instructions in
writing when any of the following apply:
(bullet) you are selling more than $50,000 worth of shares
(bullet) the name or address on the 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
or share class
(bullet) you are selling shares held in a corporate or fiduciary account;
for these accounts, additional documents are required:
corporate accounts: certified copy of a corporate resolution
fiduciary accounts: copy of power of attorney or other governing
document
To protect your account against fraud, all signatures on these documents must be
guaranteed. You may obtain a signature guarantee at most banks and securities
dealers. A notary public cannot provide a signature guarantee.
Incomplete Sell Requests State Street Research will attempt to notify you
promptly if any information necessary to process your request is missing.
Timing of Requests All requests received in good order by State Street Research
before 4:00 p.m. eastern time will be executed the same day, at that day's
closing share price. Requests received after 4:00 p.m. will be executed the
following day, at that day's closing share price.
Wire Transactions Proceeds sent by federal funds wire must total at least
$5,000. A fee of $7.50 will be deducted from all proceeds sent by wire, and your
bank may charge an additional fee to receive wired funds.
Selling Recently Purchased Shares If you sell shares before the check or
electronic funds transfer (ACH) 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.
<PAGE>
Selling Shares 19
<TABLE>
<CAPTION>
To Sell Some or All of Your Shares
<S> <C>
[Graphic of Briefcase] Through a Contact your financial professional.
Financial Professional
By Mail [Graphic of Mailbox] Send a letter of instruction, an endorsed stock power or share certificates (if
you hold certificate shares) to State Street Research. Specify the fund, the
account number and the dollar value or number of shares. Be sure to include all
necessary signatures and any additional documents, as well as signature guarantees
if required (see facing page).
[Graphic of Federal Building] By Check with State Street Research to make sure that wire redemption privileges are
Federal Funds Wire in place on your account. Once these privileges are established, you may place your
request to sell shares with State Street Research. Proceeds will be wired to your
pre-designated bank account. (See "Wire Transactions" on facing page.)
By Electronic Funds Transfer Check with State Street Research to make sure that the EZ Trader feature and a bank
(ACH) [Graphic of Electrical Plug] designation is in place on your account. Once one of these is established, you may
place your request to sell shares with State Street Research. Proceeds will be wired
to your pre-designated bank account.
[Graphic of Telephone] By Telephone As long as your request does not require a written request (see facing page),
you can sell shares by calling State Street Research. A check will be mailed to
you on the following business day.
By Exchange [Graphic of Exchange] Read the prospectus for the fund into which you are exchanging. Call State Street
Research or visit our website.
[Graphic of Calendar] By Systematic See plan information on page 23.
Withdrawal Plan
</TABLE>
State Street Research Service Center PO Box 8408, Boston, MA 02266-8408
Call toll-free: 1-800-562-0032 (business days 8:00 a.m. - 6:00 p.m., eastern
time)
Internet www.ssrfunds.com
<PAGE>
20 Your Account continued
[Graphic of Pages] Account Policies
The Fund's Business Hours The fund is open the same days as the New York Stock
Exchange (generally Monday through Friday). Fund representatives are available
from 8:00 a.m. to 6:00 p.m. eastern time on these days.
Calculating Share Price The fund calculates its net asset value per share (NAV)
every business day at the close of regular trading on the New York Stock
Exchange (usually at 4:00 p.m. eastern time). Each class's share price is
calculated by dividing its net assets by the number of its shares outstanding.
Telephone Requests When you open an account you automatically receive telephone
privileges, allowing you to place requests on your account by telephone. Your
broker can also use these privileges to request exchanges on your account. For
your protection, all telephone calls are 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. The fund may suspend or eliminate the telephone privilege at any
time.
Exchange Privileges There is no fee to exchange shares among State Street
Research funds. Your new fund shares will be the equivalent class as your
current shares. Any contingent deferred sales charges will continue to be
calculated from the date of your initial investment.
Frequent exchanges can interfere with fund management and drive up costs for all
shareholders. Because of this, the fund currently limits each account, or group
of accounts under common ownership or control, to six exchanges per calendar
year. The fund may change or eliminate the exchange privilege at any time, may
limit or cancel any shareholder's exchange privilege and may refuse to
<PAGE>
21
accept any exchange request, particularly those associated with "market timing"
strategies.
For Merrill Lynch customers, exchange privileges extend to Summit Cash Reserves
Fund, which is related to the fund for purposes of investment and investor
services.
Accounts with Low Balances If the value of your account falls below $1,500,
State Street Research may mail you a notice asking you to bring the account back
up to $1,500 or close it out. If you do not take action within 60 days, State
Street Research may either sell your shares and mail the proceeds to you at the
address of record or may deduct an annual maintenance fee (currently $18).
Reinstating Recently Sold Shares For 120 days after you sell shares, you have
the right to "reinstate" your investment by putting some or all of the proceeds
into any currently available State Street Research fund at net asset value. Any
CDSC you paid on the amount you are reinstating will be credited to your
account. You may only use this privilege once in any twelve-month period with
respect to your shares of a given fund.
[Graphic of Uncle Sam] Distributions and Taxes
Income and Capital Gains Distributions The fund typically distributes any net
income and net capital gains to shareholders around the end of the fund's fiscal
year, which is September 30. To comply with tax regulations, the fund may also
pay an additional gains distribution in December.
You may have your distributions reinvested in the fund, invested in a different
State Street Research fund, deposited in a bank account or mailed out by check.
If you do not give State Street Research other instructions, your distributions
will automatically be reinvested in the fund.
<PAGE>
22 Your Account continued
[sidebar text]
[Magnifying Glass Graphic] Tax Considerations
Unless your investment is in a tax-deferred account, you may want to avoid:
(bullet) investing a large amount in the fund close to the end of its fiscal
year (if the fund makes a capital gains distribution, you will receive
some of your investment back as a taxable distribution)
(bullet) selling shares at a loss for tax purposes and investing in a
substantially identical investment within 30 days before or after that
sale (such a transaction is usually considered a "wash sale," and you
will not be allowed to claim a tax loss)
[end of sidebar text]
Tax Effects of Distributions and Transactions In general, any dividends and
short-term capital gain distributions you receive from the fund are taxable as
ordinary income. Distributions of other net capital gains are generally taxable
as capital gains. This is true no matter how long you have owned your shares and
whether you reinvest your distributions or take them in cash.
Every year, the fund will send you information detailing the amount of ordinary
income and capital gains distributed to you for the previous year.
The sale of shares in your account may produce a gain or loss, and is a taxable
event. For tax purposes, an exchange is the same as a sale.
Your investment in the fund could have additional tax consequences. Please
consult your tax professional for assistance.
Backup Withholding By law, the fund must withhold 31% of your distributions and
proceeds if you have not provided complete, correct taxpayer information.
<PAGE>
23
[Interlocked Hands Graphic] Investor Services
Investamatic Program Use Investamatic to set up regular automatic investments in
the fund from your bank account. You determine the frequency and amount of your
investments, and you can skip an investment with three days notice. Not
available with Class S shares.
Systematic Withdrawal Program This plan is designed for retirees and other
investors who want regular withdrawals from a fund account. The plan is free and
allows you to withdraw up to 8% of your fund assets a year without incurring any
contingent deferred sales charges. Certain terms and minimums apply.
Dividend Allocation Plan This plan automatically invests your distributions from
the fund into another fund of your choice, without any fees or sales charges.
Automatic Bank Connection This plan lets you route any distributions or
Systematic Withdrawal Program payments directly to your bank account.
State Street Research also offers a full range of prototype retirement plans for
individuals, sole proprietors, partnerships, corporations and employees. Call
1-800-562-0032 for information on retirement plans or any of the services
described above.
<PAGE>
24 Fund Details
[Graphic of Column] Business Structure
Formed in 1995, the fund is a diversified series of State Street Research
Capital Trust, an open-end management investment company that is organized as a
Massachusetts business trust. A board of trustees representing shareholder
interests oversees the fund's operations, including the hiring of the investment
manager and other service providers.
The fund does not hold regular shareholder meetings, but may call meetings when
matters arise that require shareholder approval. These may include amendments to
the investment management agreement, the election of trustees or proposed
changes in the fund's fundamental goal, which cannot be changed without
shareholder approval.
The investment manager is responsible for the fund's investment and business
activities, and receives the management fee (0.85% of fund assets, annually) as
compensation. The investment manager and the distributor are subsidiaries of
Metropolitan Life Insurance Company.
Brokers for Portfolio Trades When placing trades for the fund's portfolio, State
Street Research chooses brokers that provide the best execution (a term defined
by service as well as price), but may also consider a broker's sales of fund
shares.
Investment Manager
State Street Research & Management Company
One Financial Center, Boston, MA 02111
Distributor
State Street Research Investment Services, Inc.
One Financial Center, Boston, MA 02111
Shareholder Services
State Street Research Service Center
P.O. Box 8408, Boston, MA 02266
Custodian
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
<PAGE>
25
[Graphic of a Check] Dealer Compensation
Dealers who sell shares of the fund and perform services for fund investors
receive sales commissions and annual fees. These are paid by the fund's
distributor, using money from sales charges, marketing (12b-1) fees and its
other resources.
Maximum Dealer Compensation Class A Class B Class C Class S
- -------------------------------------------------------------------------------
Initial commission (%) -- 4.00 1.00 0.00
Investments up to $100,000 (%) 4.00 -- -- --
$100,000 - $249,999 (%) 3.00 -- -- --
$250,000 - $499,999 (%) 2.00 -- -- --
$500,000 - $999,999 (%) 1.75 -- -- --
First $1-3 million (%) 1.00(1) -- -- --
Next $2 million (%) 0.50(1) -- -- --
Next $1 and above (%) 0.25(1) -- -- --
Annual fee (%) 0.25 0.25 0.90 0.00
Additional Policies Please note that the fund maintains additional policies and
reserves certain rights, including:
(bullet) The fund may vary its initial or additional investments in the case of
exchanges, reinvestments, periodic investment plans, retirement and
employee benefit plans, sponsored arrangements and other similar
programs.
(bullet) All orders to purchase shares are subject to acceptance by the fund.
(bullet) At any time, the fund may change or discontinue its sales charge
waivers and any of its order acceptance practices, and may suspend the
sale of its shares.
(bullet) To permit investors to obtain the current price, dealers are
responsible for transmitting all orders to shareholder services
promptly.
(bullet) Dealers may impose a transaction fee on the purchase or sale of shares
by shareholders.
(bullet) The distributor may pay its affiliate MetLife Securities, Inc.
additional compensation of up to 0.25% of certain sales.
(1) If your broker declines this commission, the one-year CDSC on your
investment is waived
<PAGE>
26 Other Securities and Risks
[Graphic of Securities Certificates] Other Securities and Risks
Each of the fund's portfolio securities and investment practices offers certain
opportunities and carries various risks. Major investments and risk factors are
outlined in the fund description starting on page 2. Below are brief
descriptions of other securities and practices, along with their associated
risks. A table of limitations follows.
Restricted and Illiquid Securities Any securities that are thinly traded or
whose resale is restricted 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 the 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, to a much smaller extent, the valuation of the fund) may
have a subjective element.
Foreign Investments Foreign securities are generally more volatile than their
domestic counterparts, in part because of higher political and economic risks,
lack of reliable information, and fluctuations in currency exchange rates. These
risks are usually higher in less developed countries. The fund may use foreign
currencies and related instruments to hedge its foreign investments.
<PAGE>
27
Derivatives Derivatives, a category that includes options and futures, are
financial instruments whose value derives from another security or an index. The
fund may use derivatives for hedging (attempting to offset a potential loss in
one position by establishing an interest in an opposite position). The fund may
also use derivatives for speculation (investing for potential income or capital
gain).
While hedging can guard against potential risks, it adds to the 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.
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 all derivatives, whether used for hedging or speculation, there is also the
risk that the counterparty may fail to honor its contract terms, causing a loss
for the fund.
Securities Lending The fund may seek additional income by lending portfolio
securities to qualified institutions. By reinvesting collateral it receives in
these transactions, the fund could magnify any gain or loss it realizes on the
underlying investment. If the borrower fails to return the securities and the
collateral is insufficient to cover the loss, the fund could lose money.
When-issued Securities The fund 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 anytime from a few days to over a year.
Short-term Trading While the fund ordinarily does not trade securities for
short-term profits, it will sell any security at the time it believes best,
which may result in short-term trading. Short-term trading can increase the
fund's brokerage costs and its shareholders' tax liabilities.
Repurchase Agreements The fund 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.
<PAGE>
28 Other Securities and Risks continued
Bonds The value of any bonds held by the fund is likely to decline when interest
rates rise; this risk is greater for bonds with longer maturities. A less
significant risk is that a bond issuer could default on principal or interest
payments, causing a loss for the fund. However, junk bonds (those in rating
categories below BBB/Baa) have a higher risk of default than investment grade
bonds, and their market prices can be more volatile.
Defensive Investing During unusual market conditions, the fund may place up to
100% of total assets in cash or quality short-term debt securities.
Investment Limitations
<TABLE>
<CAPTION>
Limitation at the time of investment
---------------------------------------
Practice % of total assets % of net assets
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Investing in securities of any given issuer (other
than the U.S. government and its agencies)(1) 5(2) --
Investing in any given industry(1) 25 --
Lending securities 33 1/3 --
Lending money(1) Prohibited --
Repurchase agreements 30 --
Security
- --------------------------------------------------------------------------------------------
Commodity futures contracts and options contracts
(for non-hedging purposes) -- 5(3)
Other options contracts (for non-hedging purposes) -- 5(3)
Illiquid securities(4) -- 15
Restricted securities(5) 10 --
Foreign securities 35(6) --
</TABLE>
(1) Fundamental policy; may not be changed without shareholder approval.
(2) Applies only to 75% of fund's total assets. The fund is also prohibited
from investing in more than 10% of an issuer's voting securities.
(3) Initial margin deposits plus premiums may not exceed 5% of the market value
of the fund's net assets in non-hedging transactions; no limits apply when
used in hedging strategies.
(4) Includes repurchase agreements extending over more than seven days.
(5) Does not include Rule 144A securities.
(6) Applies to all direct and indirect interests in securities of non-U.S.
issuers.
<PAGE>
Notes 29
<PAGE>
For Additional Information
You can obtain a free copy of the current annual/semiannual report or SAI by
contacting:
[State Street Research Logo]
STATE STREET RESEARCH
Service Center
P.O. Box 8408, Boston, MA 02266
Telephone: 1-800-562-0032
Internet: www.ssrfunds.com
Or you can visit the SEC website at:
www.sec.gov
You can find additional information on the fund's structure and its performance
in the following documents:
Annual/Semiannual Reports While the prospectus describes the fund's potential
investments, these reports detail the fund's actual investments as of the report
date. Reports include a discussion by fund management of recent economic and
market trends and fund performance. The annual report also includes the report
of the fund's independent accountants.
Statement of Additional Information (SAI) A supplement to the prospectus, the
SAI contains further information about the fund and its investment limitations
and policies. It also includes the most recent annual report and the independent
accountants' report. A current SAI for this fund is on file with the Securities
and Exchange Commission and is incorporated by reference (is legally part of
this prospectus).
Control Number: xxxx-xxxxxx(xxxx)SSR-LD
prospectus
EIN-xxxx-xxxxx
<PAGE>
STATE STREET RESEARCH CAPITAL FUND
a Series of
STATE STREET RESEARCH CAPITAL TRUST
STATEMENT OF ADDITIONAL INFORMATION
February 1, 1998
TABLE OF CONTENTS
Page
INVESTMENT OBJECTIVE.................................................2
ADDITIONAL INVESTMENT POLICIES AND RESTRICTIONS......................2
ADDITIONAL INFORMATION CONCERNING
CERTAIN INVESTMENT TECHNIQUES...............................5
DEBT INSTRUMENTS AND PERMITTED CASH INVESTMENTS.....................15
THE TRUST, THE FUND AND ITS SHARES..................................18
TRUSTEES AND OFFICERS...............................................20
INVESTMENT ADVISORY SERVICES........................................24
PURCHASE AND REDEMPTION OF SHARES...................................26
SHAREHOLDER ACCOUNTS................................................31
NET ASSET VALUE.....................................................35
PORTFOLIO TRANSACTIONS..............................................36
CERTAIN TAX MATTERS.................................................39
DISTRIBUTION OF SHARES OF THE FUND..................................42
CALCULATION OF PERFORMANCE DATA.....................................46
CUSTODIAN...........................................................52
INDEPENDENT ACCOUNTANTS.............................................52
FINANCIAL STATEMENTS................................................52
The following Statement of Additional Information is not a Prospectus. It
should be read in conjunction with the Prospectus of State Street Research
Capital Fund (the "Fund") dated February 1, 1998, which may be obtained without
charge from the offices of State Street Research Capital Trust (the "Trust") or
State Street Research Investment Services, Inc. (the "Distributor"), One
Financial Center, Boston, Massachusetts 02111-2690.
[CONTROL NUMBER: 1285C-970131(0298)SSR-LDCF-879D-0197]
<PAGE>
INVESTMENT OBJECTIVE
As set forth under "Capital Fund--Goal and Strategy--Fundamental Goal" in
the Prospectus of State Street Research Capital Fund (the "Fund"), the Fund's
investment goal, which is to seek maximum capital appreciation by investing
primarily in common stocks (and preferred stocks and debt securities convertible
into or carrying the right to acquire common stocks) of emerging growth
companies and of companies considered to be undervalued special situations, as
determined by State Street Research & Management Company, the Fund's investment
manager (the "Investment Manager"), is fundamental and may not be changed by the
Fund except by the affirmative vote of a majority of the outstanding voting
securities of the Fund, as defined in the Investment Company Act of 1940, as
amended (the "1940 Act"). (Under the 1940 Act, a "vote of the majority of the
outstanding voting securities" means the vote, at the annual or a special
meeting of security holders duly called, (i) of 67% or more of the voting
securities present at the meeting if the holders of more than 50% of the
outstanding voting securities are present or represented by proxy or (ii) of
more than 50% of the outstanding voting securities, whichever is less.)
ADDITIONAL INVESTMENT POLICIES AND RESTRICTIONS
As set forth under "Capital Fund--Portfolio Risks" and "Other Securities
and Risks" in the Fund's Prospectus, the Fund has adopted certain investment
restrictions, and those restrictions are either fundamental or not fundamental.
Fundamental restrictions may not be changed by the Fund except by the
affirmative vote of a majority of the outstanding voting securities of the Fund.
Restrictions that are not fundamental may be changed by a vote of a majority of
the Trustees of the Trust.
The Fund's fundamental investment restrictions are set forth below. Under
these restrictions, it is the Fund's policy:
(1) not to purchase the securities of any issuer if such purchase at the
time thereof would cause more than five percent (5%) of the total
assets of the Fund to be invested in the securities of any one
issuer; but this restriction shall not apply to obligations of the
government of the United States of America or to obligations of any
corporation organized under a general Act of Congress if such
corporation is an instrumentality of the United States;
(2) not to purchase the securities of any issuer if such purchase at the
time thereof would cause more than ten percent (10%) of any class of
securities of such issuer (as disclosed by the last available
financial statement of such issuer) to be held by the Fund;
2
<PAGE>
(3) not to lend money; however, the Fund may lend portfolio securities
and purchase bonds, debentures, notes and similar obligations (and
enter into repurchase agreements with respect thereto);
(4) not to underwrite or participate in the marketing of securities of
other issuers, although 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 [as a matter of interpretation, which is not part of the
fundamental policy, this restriction does not apply to the extent
that, in connection with the disposition of the Fund's securities,
the Fund may be deemed to be an underwriter under certain federal
securities laws];
(5) not to make any investment in real property or real estate mortgage
loans;
(6) 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, 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;
(7) not to purchase for, or retain in, its portfolio any security of an
issuer if, to the knowledge of the Fund, those of its officers and
directors and officers and directors of its investment adviser who
individually own beneficially more than 1/2 of 1% of the securities
of such issuer, when combined, own beneficially more than 5% of the
securities of such issuer taken at market;
(8) not to issue senior securities;
(9) not to invest in oil, gas or other mineral exploration or
development programs (provided that the Fund may invest in
securities issued by or which are based, directly or indirectly, on
the credit of companies which invest in or sponsor such programs);
(10) 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
issuers principally engaged in any one industry (for purposes of
this restriction, (a) utilities will be divided according to their
services so that, for example, gas, gas transmission, electric and
telephone companies will each be deemed in a separate industry, (b)
oil and oil related companies will be divided by type so that, for
example, oil production companies, oil service companies and
refining and marketing companies will each be deemed in a separate
industry and (c) securities issued or
3
<PAGE>
guaranteed by the U.S. Government or its agencies or
instrumentalities shall be excluded); and
(11) not to borrow money (through reverse repurchase agreements or
otherwise) except for extraordinary and emergency purposes, such as
permitting redemption requests to be honored, and then not in an
amount in excess of 10% of the value of its net assets, provided
that additional investments will be suspended during any period when
borrowings exceed 5% of the Fund's net assets, and provided further
that reverse repurchase agreements shall not exceed 5% of the Fund's
net assets. The Board of Trustees may authorize the borrowing of
money only on an unsecured basis for the general purposes of the
Fund and may authorize the issue therefor of notes or debentures of
the Fund, but no money shall be borrowed by the Fund except pursuant
to the authority of the Board of Trustees, and no borrowings by the
Fund shall be authorized to an aggregate amount greater than ten
percent, as noted, of the net assets of the Fund.
The following investment restrictions are not fundamental. Under these
restrictions, it is the Fund's policy:
(1) not to hypothecate, mortgage or pledge any of its assets except as
may be necessary in connection with permitted borrowings and then
not in excess of 15% of the Fund's total assets, taken at cost (for
the purpose of this restriction financial futures, options on
financial futures and forward currency exchange contracts are not
deemed to involve a pledge of assets);
(2) not to invest in companies for the purpose of exercising control
over their management, although the Trust may from time to time
present its views on various matters to the management of issuers in
which it holds investments;
(3) 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);
(4) not to purchase securities on margin or make short sales of
securities 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 purchase of
securities on margin;
(5) not to engage in transactions in options except that investments in
essentially financial items or arrangements such as, but not limited
to, options on
4
<PAGE>
securities, securities indices, interest rates and currencies, and
options on futures on securities, securities indices, interest
rates and currencies shall not be deemed investments in options; and
(6) not to purchase a security issued by another investment company,
except to the extent permitted under the 1940 Act 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
CERTAIN INVESTMENT TECHNIQUES
The Fund 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 the Investment Manager to aid in
achieving the Fund's investment objective. The 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 the 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 increase in the market value
of a particular asset or index). The 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.
The Investment Manager may enter into derivative positions for the Fund for
either hedging or non-hedging purposes. The term hedging is applied to defensive
strategies designed to protect the 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 the 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). Non-hedging strategies include strategies
designed to produce incremental income (such as the option writing strategy
described below) or "speculative" strategies which are undertaken to profit from
an expected decline in the market value of an asset or group of assets which the
Fund does not own or 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.
5
<PAGE>
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. The Fund will initially be required to deposit with the Trust's
custodian or the broker 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 the 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 the Fund has taken a long position in a
futures contract and the value of the underlying instrument has declined, the
position 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, the 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 the Fund
to the Trust's custodian for maintenance in a separate account to insure that
the use of such futures contracts is unleveraged. Similarly, assets having a
value equal to the aggregate face value of the futures contract will be
identified with respect to each short position. The Fund will utilize such
assets and methods of cover as appropriate under applicable exchange and
regulatory policies.
6
<PAGE>
Options
The 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.
Purchased options have defined risk, that is, the premium paid for the
option, no matter how adversely the price of the underlying asset moves, while
affording an opportunity for gain corresponding to the increase or decrease in
the value of the optioned 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 the 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.
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 the Fund may enter are options on securities
indices. 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.
7
<PAGE>
A securities index assigns relative values to the securities included in
the index and the index options are based on a broad market index. In connection
with the use of such options, the 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
The 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 nonhedging
purposes would exceed 5% of the market value of the Fund's net assets. The Fund
applies a similar policy to options that are not commodities.
As noted above, the 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. The 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.
Nonhedging strategies typically involve special risks. The profitability of
the Fund's nonhedging 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 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 the Fund's ability to effectively carry out their derivative
strategies and might, in some cases, require a Fund to deposit cash to meet
applicable margin requirements. The Fund will enter into an option or futures
position only if it appears to be a liquid investment.
8
<PAGE>
Swaps
The Fund may enter into various forms of swap arrangements with
counterparties with respect to interest rates, currency rates or indices,
including purchase of caps, floors and collars as described below. In an
interest rate swap the 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 the
Fund a fixed rate of interest on the notional principal amount. In a currency
swap the 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.
The 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 the 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, the Fund will set up a segregated custodial account to hold appropriate
liquid assets, including cash; 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 the 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 for
entities which are not commodity pool operators, such as the Fund. In entering a
swap arrangement, the 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
9
<PAGE>
securities transactions. If the Investment Manager is incorrect in its forecasts
of market values, interest rates and other applicable factors, the investment
performance of the 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.
Currency Transactions
The 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. The 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. The Fund's dealings in forward currency exchange contracts will be
limited to hedging involving either specific transactions or aggregate portfolio
positions. 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, the 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. Although
spot and forward contracts will be used primarily to protect the 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 the 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.
Repurchase Agreements
The Fund 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. The 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, including possible delays or restrictions upon
the Fund's ability to dispose of the underlying
10
<PAGE>
securities. Repurchase agreements will be limited to 30% of the Fund's total
assets, except that repurchase agreements extending for more than seven days
when combined with any other illiquid securities held by the Fund will be
limited to 10% of the Fund's total assets.
Reverse Repurchase Agreements
The Fund may enter into reverse repurchase agreements. However, the Fund
may not engage in reverse repurchase agreements in excess of 5% of the Fund's
total assets. In a reverse repurchase agreement the Fund transfers possession
of 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
The Fund 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 the 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 the
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 the Fund.
Restricted Securities
It is the Fund's 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 35%
of the Fund's total assets are invested in restricted securities, provided not
more than 10% of the Fund's total assets are invested in restricted securities
other than Rule 144A Securities.
11
<PAGE>
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 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 the Fund's
illiquidity to the extent that qualified institutional buyers become, for a
time, uninterested in purchasing such securities. Also, the 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.
Foreign Investments
The Fund reserves the right to invest without limitation in securities of
non-U.S. issuers directly, or indirectly in the form of American Depositary
Receipts ("ADRs") and European Depositary Receipts ("EDRs"). Under current
policy, however, the Fund limits such investments, including ADRs and EDRs, to a
maximum of 35% of its total assets.
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. Generally, ADRs in registered form are designed for use
in U.S. securities markets and EDRs are designed for use in European securities
markets. The underlying securities are not always denominated in the same
currency as the ADRs or EDRs. Although investment in the form of ADRs or EDRs
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.
12
<PAGE>
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 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.
It is anticipated that a majority of the foreign investments by the Fund
will consist of securities of issuers in countries with developed economies.
However, the Fund may also invest in the securities of issuers in countries with
less developed economies as deemed appropriate by the Investment Manager,
although the Fund presently does not expect to invest more than 5% of its total
assets in issuers in such less developed countries. Such countries include
countries that have an emerging stock market that trades a small number of
securities; countries with low- to middle-income economies; and/or countries
with economies that are based on only a few industries. Eastern European
countries are considered to have less developed capital markets.
Securities Lending
The Fund may lend portfolio securities with a value of up to 33 1/3% of its
total assets. The 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 the 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, irrevocable stand-by
letters of credit issued by a bank, or 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 the
Fund's outstanding securities. Such loans may be terminated at any time.
The Fund will retain rights to dividends, interest or other distributions,
on the loaned securities. Voting rights pass with the lending, although the 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.
13
<PAGE>
Short-Term Trading
The Fund may engage in short-term trading of securities and reserves 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. The Fund's portfolio turnover rate involves greater
transaction costs, relative to other funds in general, and may have tax and
other consequences.
Temporary and Defensive Investments
The Fund may hold up to 100% of its assets in cash or short-term debt
securities for temporary defensive purposes. The Fund will 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 short-term
instruments in which the Fund may invest for such purposes include short-term
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 Corporation ("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 Classifications
In determining how much of the Fund's portfolio is invested in a given
industry, 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.
14
<PAGE>
<TABLE>
<CAPTION>
Basic Industries Consumer Staple Science & Technology
- ---------------- --------------- --------------------
<S> <C> <C>
Chemical Business Service Aerospace
Diversified Container Computer Software & Service
Electrical Equipment Drug Electronic Components
Forest Products Food & Beverage Electronic Equipment
Machinery Hospital Supply Office Equipment
Metal & Mining Personal Care
Railroad Printing & Publishing
Truckers Tobacco
Utility Energy Consumer Cyclical
- ------- ------ -----------------
Electric Oil Refining & Marketing Airline
Gas Oil Production Automotive
Gas Transmission Oil Service Building
Telephone Hotel & Restaurant
Photography
Other Finance Recreation
- ----- ------- ----------
Trust Certificates - Bank Retail Trade
Government Related Lending Financial Service Textile & Apparel
Asset-backed-Mortgages Insurance
Asset-backed-Credit Card
Receivables
</TABLE>
DEBT INSTRUMENTS AND PERMITTED CASH INVESTMENTS
The Fund may invest in long-term and short-term debt securities. Certain
debt securities and money market instruments in which the Fund may invest are
described below.
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 Government corporations as described herein. The U.S. Government
securities in which the Fund invests 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
15
<PAGE>
(bullet) obligations of mixed-ownership Government corporations such as
Resolution Funding Corporation.
U.S. Government securities which the 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
Banks, the Federal Farm Credit Banks, 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 segregated account
with a Federal Reserve Bank. Except for certain mortgage-related securities, the
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 the 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, the 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.
The 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.
16
<PAGE>
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. The 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 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 10% 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.
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 corporations including but not
limited to (a) domestic or foreign bank holding companies or (b) 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.
Commercial Paper Ratings. Commercial paper investments at the time of
purchase will be rated within the "A" major rating category by S&P or within the
"Prime" major rating
17
<PAGE>
category by Moody's, 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 or
by Moody's. 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 or
within the "Prime" category by Moody's.
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 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.
In the event the lowering of ratings of debt instruments held by the Fund
by applicable rating agencies results in a material decline in the overall
quality of the Fund's portfolio, the Trustees of the Trust will review the
situation and take such action as they deem in the best interests of the Fund's
shareholders, including, if necessary, changing the composition of the
portfolio.
THE TRUST, THE FUND AND ITS SHARES
State Street Research Capital Trust is currently comprised of the following
series: State Street Research Capital Fund, State Street Research Emerging
Growth Fund and State Street Research Aurora Fund. The Trustees of the Trust
have authority to issue an unlimited number of shares of beneficial interest of
separate series, $.001 par value per share. The Trustees also have authority,
without the necessity of a shareholder vote, to create any number of new series
or classes or to commence the public offering of shares of any previously
established series or classes. A "series" is a separate pool of assets of the
Trust which is
18
<PAGE>
separately managed and has a different investment objective and different
investment policies from those of another series.
The Trustees have authorized shares of the Fund to be issued in four
classes: Class A, Class B, Class C and Class S shares. Prior to November 1,
1997, the Fund's current Class C shares were designated as Class D shares and
the Fund's current Class S shares were designated as Class C shares.
Each share of each class of shares represents an identical legal interest
in the same portfolio of investments of the Fund, has the same rights and is
identical in all respects, except that Class A, Class B and Class C shares bear
the expenses of the deferred sales arrangement and any expenses (including the
higher service and distribution fees) resulting from such sales arrangement, and
certain other incremental expenses related to a class. Each class will have
exclusive voting rights with respect to provisions of the Rule 12b-1
distribution plan pursuant to which the service and distribution fees, if any,
are paid. 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. The different classes of
shares of the Fund also have different exchange privileges. Except for those
differences between classes of shares described above, in the Fund's Prospectus
and otherwise this Statement of Additional Information, each share of the 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.
The rights of holders of shares may be modified by the Trustees at any
time, so long as such modifications do not have a material, adverse effect on
the rights of any shareholder. On any matter submitted to the shareholders, 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.
Under the Master Trust Agreement, no annual or regular meeting of
shareholders is required. Thus, there ordinarily will be no shareholder meetings
unless required by 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 Master Trust Agreement,
any Trustee may be removed by vote of two-thirds of the outstanding Trust
shares; holders of 10% or more of the outstanding shares of the Trust can
require that the Trustees call a meeting of shareholders for purposes of voting
on the removal of one or more Trustees. 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 for the Trust.
However, the
19
<PAGE>
Master Trust Agreement of the Trust disclaims shareholder liability for acts or
obligations of the Trust and provides for indemnification for all losses and
expenses of any shareholder of the 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.
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 59. His principal occupation is currently, and
during the past five years has been, Executive Vice President of State Street
Research & Management Company. Mr. Bennett is also a Director of State Street
Research & Management Company. Mr. Bennett's other principal business
affiliations include Director, State Street Research Investment Services, Inc.
and Executive Vice President, GFM International Investors Limited.
*+Jesus A. Cabrera, One Financial Center, Boston, MA 02111 serves as Vice
President of the Trust. He is 36. His principal occupation is Vice President of
State Street Research & Management Company. During the past five years he also
has served as Vice President at First Chicago Investment Management Company.
+Steve A. Garban, The Pennsylvania State University, 210 Old Main,
University Park, PA 16802, serves as Trustee of the Trust. He is 60. He is
retired and was formerly Senior Vice President for Finance and Operations and
Treasurer of The Pennsylvania State University.
+Malcolm T. Hopkins, 14 Brookside Road, Biltmore Forest, Asheville, NC
28803, serves as Trustee of the Trust. He is 69. He is engaged principally in
private investments. Previously, he was Vice Chairman of the Board and Chief
Financial Officer of St. Regis Corp.
*+Rudolph K. Kluiber, One Financial Center, Boston, MA 02111, serves as
Vice President of the Trust. He is 38. His principal occupation currently is
Vice President of State Street Research & Management Company. During the past
five years he has also served as an analyst for State Street Research &
Management Company.
- ----------------------
* or +, see footnotes on page 22.
20
<PAGE>
+Edward M. Lamont, Box 1234, Moores Hill Road, Syosset, NY 11791, serves as
Trustee of the Trust. He is 71. He is engaged principally in private investments
and civic affairs and is an author of business history. Previously, he was with
Morgan Guaranty Trust Company of New York.
+Robert A. Lawrence, Saltonstall & Co., 50 Congress Street, Boston, MA
02109, serves as Trustee of the Trust. He is 71. His principal occupation is
Associate of Saltonstall & Co., a private investment firm. During the past five
years he has also served as Partner of that firm.
*+Gerard P. Maus, One Financial Center, Boston, MA 02111, serves as
Treasurer of the Trust. He is 46. His principal occupation is Executive Vice
President, Treasurer, Chief Financial Officer and Director of State Street
Research & Management Company. During the past five years he has also served as
Executive Vice President and Chief Financial Officer of New England Investment
Companies and as Senior Vice President and Vice President of New England Mutual
Life Insurance Company. Mr. Maus's other principal business affiliations include
Executive Vice President, Treasurer, Chief Financial Officer and Director of
State Street Research Investment Services, Inc. and Executive Vice President,
Chief Financial Officer, Administrative Officer and Director, GFM International
Investors Limited.
*+Francis J. McNamara, III, One Financial Center, Boston, MA 02111, serves
as Secretary and General Counsel of the Trust. He is 42. 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
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 Senior Vice President, Clerk and General Counsel of State Street
Research Investment Services, Inc. and Executive Vice President and General
Counsel, GFM International Investors Limited.
+Dean O. Morton, 3200 Hillview Avenue, Palo Alto, CA 94304, serves as
Trustee of the Trust. He is 65. He is retired, having served during the past
five years, until October 1992, as Executive Vice President, Chief Operating
Officer and Director of Hewlett-Packard Company.
+Thomas L. Phillips, 141 Spring Street, Lexington, MA 02173, serves as
Trustee of the Trust. He is 73. He is retired and was formerly Chairman of the
Board and Chief Executive Officer of Raytheon Company, of which he remains a
Director.
- ----------------------
* or +, see footnotes on page 22.
21
<PAGE>
+Toby Rosenblatt, 3409 Pacific Avenue, San Francisco, CA 94118, serves as
Trustee of the Trust. He is 59. His principal occupations during the past five
years have been President of The Glen Ellen Company, a private investment
company, and Vice President of Founders Investments Ltd.
+Michael S. Scott Morton, Massachusetts Institute of Technology, 77
Massachusetts Avenue, Cambridge, MA 02139, serves as Trustee of the Trust. He is
60. His principal occupation during the past five years has been Jay W.
Forrester Professor of Management at Sloan School of Management, Massachusetts
Institute of Technology.
*+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 55. His principal occupation is Chairman of the Board, President,
Chief Executive Officer and Director of State Street Research & Management
Company. During the past five years he also served as President and Chief
Executive Officer of New England Investment Companies and as Chief Investment
Officer and Director of New England Mutual Life Insurance Company. Mr. Verni's
other principal business affiliations include Chairman of the Board and Director
of State Street Research Investment Services, Inc. and (until February, 1996,
prior positions as President and Chief Executive Officer of that company) and
Chairman of the Board, President, and Chief Executive Officer and Director of
GFM International Investors Limited.
+Jeptha H. Wade, 251 Old Billerica Road, Bedford, MA 01730, serves as
Trustee of the Trust. He is 73. He is retired and was formerly Of Counsel for
the law firm Choate, Hall & Stewart. He was a partner of that firm from 1960 to
1987.
*+James M. Weiss, One Financial Center, Boston, MA 02111, serves as Vice
President of the Trust. He is 51. His principal occupation is Senior Vice
President of State Street Research & Management Company. During the past five
years he has also served as President and Chief Investment Officer of IDS
Advisory Group and as Senior Vice President of Stein, Roe & Farnham.
- ----------------------
* 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 a direct or indirect
advisory relationship with the Investment Manager or its affiliates:
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.
22
<PAGE>
Record ownership of shares of the Fund as of October 31, 1997 was as
follows:
Class Holder % of Class
- ----- ------ ----------
A Merrill Lynch 6.02
B Merrill Lynch 33.15
C(a) Merrill Lynch 61.70
S(a) Chase Manhattan 86.40
The full name and address of the above persons or institutions are:
Merrill Lynch, Pierce,
Fenner & Smith (c)
4800 Deerlake Drive East
Jacksonville, FL 32246
Chase Manhattan Bank, N.A. (b)(c)
770 Broadway
New York, NY 10003
- -------------------
(a) Prior to November 1, 1997, the Fund's current Class C shares were
designated as Class D shares and the Fund's current Class S shares were
designated as Class C shares.
(b) Chase Manhattan Bank, N.A. holds such shares as trustee under certain
employee benefit plans serviced by Metropolitan Life Insurance Company
("Metropolitan").
(c) The Fund believes that each named recordholder does not have beneficial
ownership of such shares.
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, such as any
Distribution Plan for a given class.
As of October 31, 1997, the Trustees and principal officers of the Trust as
a group owned less than 1% of the outstanding Class A and Class S shares of the
Fund, respectively, and none of the Fund's Class B or Class C shares.
- ----------------------
* Prior to November 1, 1997, the Fund's current Class C shares were
designated as Class D shares and the Fund's current Class S shares were
designated as Class C shares.
23
<PAGE>
The Trustees were compensated as follows:
Total
Compensation
Aggregate From Trust and
Compensation Complex Paid
Name of Trustee From Trust(a) to Trustees(b)
--------------- ------------- ---------------
Steve A. Garban $ 3,111 $ 34,750
Malcolm T. Hopkins $ 3,611 $ 34,750
Edward M. Lamont $ 6,550 $ 59,375
Robert A. Lawrence $ 6,850 $ 88,875
Dean O. Morton $ 7,450 $ 92,875
Thomas L. Phillips $ 6,850 $ 59,375
Toby Rosenblatt $ 6,550 $ 59,375
Michael S. Scott Morton $ 8,350 $ 96,875
Ralph F. Verni $ 0 $ 0
Jeptha H. Wade $ 7,750 $ 63,375
- -----------------
(a) For the Fund's fiscal year ended September 30, 1997. Includes
compensation received from multiple series of the Trust. See "The Trust,
the Fund and its Shares" in this Statement of Additional Information for a
listing of series.
(b) Includes compensation on behalf of all series of 12 investment
companies for which the Investment Manager served directly or
indirectly as investment adviser or for which the Investment Manager
served as sub-investment adviser, and series of State Street Research
Portfolios, Inc., for which State Street Research Investment Services,
Inc. served as distributor. "Total Compensation from Trust and Complex
Paid to Trustees" for the 12 months ended December 31, 1996. The Trust
does not provide any pension or retirement benefits for the Trustees.
INVESTMENT ADVISORY SERVICES
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. In managing
24
<PAGE>
debt securities, if any, for a portfolio, the Investment Manager may consider
yield curve positioning, sector rotation and duration, among other factors.
The Advisory Agreement provides that the Investment Manager shall furnish
the Fund with an investment program, office 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.
The advisory fee payable monthly by the 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 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 0.75% of the net assets of the Fund.
The advisory fees paid by the Fund to the Investment Manager for the last
three fiscal years, prior to the assumption of fees or expenses, were as
follows: 1997, $5,786,403; 1996, $4,024,320; and 1995, $1,750,735.
The Advisory Agreement provides that it shall continue in effect from year
to year with respect to the Fund 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 Fund's Administration Agreement between the Investment Manager
and the Distributor, the Distributor provides assistance to the Investment
Manager in performing certain fund administration services for the Trust, such
as assistance in determining the daily net asset value of shares of each series
of the Trust and in preparing various reports required by regulations.
Under a Shareholders' Administrative Services Agreement between the Trust
and the Distributor, the Distributor provides shareholders' administrative
services, such as responding to inquiries and instructions from investors
respecting the purchase and redemption of shares of the Fund, and is entitled to
reimbursements of its costs for providing such services. Under
25
<PAGE>
certain arrangements for Metropolitan to provide subadministration services,
Metropolitan may receive a fee for the maintenance of certain share ownership
records for participants in sponsored arrangements, such as employee benefit
plans, through or under which the Fund's shares may be purchased.
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.
PURCHASE AND REDEMPTION OF SHARES
Shares of the Fund are distributed by State Street Research Investment
Services, Inc., the Distributor. The Fund offers four classes of shares which
may be purchased at the next determined net asset value per share plus, in the
case of all classes except Class S shares, a sales charge which, at the election
of the investor, may be imposed (i) at the time of purchase (the Class A shares)
or (ii) on a deferred basis (the Class B and Class C shares). General
information on how to buy shares of the Fund, as well as sales charges involved,
are set forth under "Your Account" 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 State Street Research
Service Center (the "Service Center"), 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. When a purchase order is placed through a
dealer, that dealer is responsible for transmitting the order promptly to the
Service Center in order to permit the investor to obtain the current price. Any
loss suffered by an investor which results from a dealer's failure to transmit
an order promptly is a matter for settlement between the investor and the
dealer.
Class A Shares--Reduced Sales Charges. The reduced sales charges set forth
under "Your Account--Class A Sales Charge Reductions and Waivers" in the Fund's
Prospectus apply to purchases made at any one time by any "person," which
includes: (i) an individual, or an individual combining with his or her spouse
and their children and purchasing for his, her or their own account; (ii) a
"company" as defined in Section 2(a)(8) of the 1940 Act; (iii) a trustee or
other fiduciary purchasing for a single trust estate or single fiduciary account
(including a pension, profit sharing or other employee benefit trust created
pursuant to a plan qualified under Section 401 of the Internal Revenue Code);
(iv) a tax-exempt organization under Section 501(c)(3) or (13) of the Internal
Revenue Code; and (v) an employee benefit plan of a single employer or of
affiliated employers.
26
<PAGE>
Investors may purchase Class A shares of the Fund at reduced sales charges
by executing a Letter of Intent to purchase no less than an aggregate of
$100,000 of the Fund or any combination of Class A shares of "Eligible Funds"
(which include the Fund and other funds as designated by the Distributor from
time to time) within a 13-month period. The sales charge applicable to each
purchase made pursuant to a Letter of Intent will be that which would apply if
the total dollar amount set forth in the Letter of Intent were being bought in a
single transaction. Purchases made within a 90-day period prior to the execution
of a Letter of Intent may be included therein; in such case the date of the
earliest of such purchases marks the commencement of the 13-month period.
An investor may include toward completion of a Letter of Intent the value
(at the current public offering price) of all of his or her Class A shares of
the Fund and of any of the other Class A shares of Eligible Funds held of record
as of the date of his or her Letter of Intent, plus the value (at the current
offering price) as of such date of all of such shares held by any "person"
described herein as eligible to join with the investor in a single purchase.
Class B, Class C and Class S shares may also be included in the combination
under certain circumstances.
A Letter of Intent does not bind the investor to purchase the specified
amount. Shares equivalent to 5% of the specified amount will, however, be taken
from the initial purchase (or, if necessary, subsequent purchases) and held in
escrow in the investor's account as collateral against the higher sales charge
which would apply if the total purchase is not completed within the allotted
time. The escrowed shares will be released when the Letter of Intent is
completed or, if it is not completed, when the balance of the higher sales
charge is, upon notice, remitted by the investor. All dividends and capital
gains distributions with respect to the escrowed shares will be credited to the
investor's account.
Investors may purchase Class A shares of the Fund or a combination of
Eligible Funds at reduced sales charges pursuant to a Right of Accumulation. The
applicable sales charge under the right is determined on the amount arrived at
by combining the dollar amount of the purchase with the value (at the current
public offering price) of all Class A shares of the other Eligible Funds owned
as of the purchase date by the investor plus the value (at the current public
offering price) of all such shares owned as of such date by any "person"
described herein as eligible to join with the investor in a single purchase.
Class B, Class C and Class S shares may also be included in the combination
under certain circumstances. Investors must submit to the Distributor sufficient
information to show that they qualify for this Right of Accumulation.
Other Programs Related to Class A Shares. Class A shares of the Fund may be
sold or issued in an exchange at a reduced sales charge or without sales charge
pursuant to certain sponsored arrangements, which include programs under which a
company, employee benefit plan or other organization makes recommendations to,
or permits group solicitation of, its employees, members or participants, except
any organization created primarily for the purpose of obtaining shares of the
Fund at a reduced sales charge or without a sales charge. Sales without a sales
charge, or with a reduced sales charge, may also be made through brokers,
registered investment advisers, financial planners, institutions, and others,
under managed
27
<PAGE>
fee-based programs (e.g., "wrap fee" or similar programs) which meet certain
requirements established from time to time by the Distributor. Information on
such arrangements and further conditions and limitations is available from the
Distributor.
In addition, no sales charge is imposed in connection with the sale of
Class A shares of the Fund to the following entities and person: (A) the
Investment Manager, Distributor or any affiliated entities, including any direct
or indirect parent companies and other subsidiaries of such parents
(collectively "Affiliated Companies"); (B) employees, officers, sales
representatives or current or retired directors or trustees of the Affiliated
Companies or any investment company managed by any of the Affiliated Companies,
any relatives of any such individuals whose relationship is directly verified by
such individuals to the Distributor, or any beneficial account for such
relatives or individuals; and (C) employees, officers, sales representatives or
directors of dealers and other entities with a selling agreement with the
Distributor to sell shares of any aforementioned investment company, any spouse
or child of such person, or any beneficial account for any of them. The purchase
must be made for investment and the shares purchased may not be resold except
through redemption. This purchase program is subject to such administrative
policies, regarding the qualification of purchasers and any other matters, as
may be adopted by the Distributor from time to time.
Conversion of Class B Shares to Class A Shares. A shareholder's Class B
shares of the Fund, including all shares received as dividends or distributions
with respect to such shares, will automatically convert to Class A shares of the
Fund at the end of eight years following the issuance of such Class B shares;
consequently, they will no longer be subject to the higher expenses borne by
Class B shares. The conversion rate will be determined on the basis of the
relative per share net asset values of the two classes and may result in a
shareholder receiving either a greater or fewer number of Class A shares than
the Class B shares so converted. As noted above, holding periods for Class B
shares received in exchange for Class B shares of other Eligible Funds will be
counted toward the eight-year period.
Contingent Deferred Sales Charges. The amount of any contingent deferred
sales charge paid on Class A shares (on sales of $1 million or more and which do
not involve an initial sales charge) or on Class B or Class C shares of the Fund
will be paid to the Distributor. The Distributor will pay dealers at the time of
sale a 4% commission for selling Class B shares and a 1% commission for selling
Class C shares. In certain cases, a dealer may elect to waive the 4% commission
on Class B shares and receive in lieu thereof a 1% annual fee with respect to
such outstanding shares until the shares convert to Class A shares. The proceeds
of the contingent deferred sales charges and the distribution fees are used to
offset distribution expenses and thereby permit the sale of Class B and Class C
shares without an initial sales charge.
In determining the applicability and rate of any contingent deferred sales
charge of Class B or Class C shares, it will be assumed that a redemption of the
shares is made first of those shares having the greatest capital appreciation,
next of shares representing reinvestment of dividends and capital gains
distributions and finally of remaining shares held by shareholder for the
longest period of time. Class B shares that are redeemed within a five-year
period after
28
<PAGE>
their purchase, and Class C shares that are redeemed within a one-year period
after their purchase, will not be subject to a contingent deferred sales charge
to the extent that the value of such shares represents (1) capital appreciation
of Fund assets or (2) reinvestment of dividends or capital gains distributions.
The holding period for purposes of applying a contingent deferred sales charge
for a particular class of shares of the Fund acquired through an exchange from
another Eligible Fund will be measured from the date that such shares were
initially acquired in the other Eligible Fund, and shares of the same class
being redeemed will be considered to represent, as applicable, capital
appreciation or dividend and capital gains distribution reinvestments in such
other Eligible Fund. These determinations will result in any contingent deferred
sales charge being imposed at the lowest possible rate. For federal income tax
purposes, the amount of the contingent deferred sales charge will reduce the
gain or increase the loss, as the case may be, on the amount realized on
redemption.
Contingent Deferred Sales Charge Waivers. With respect to Class A shares
(on sales of $1 million or more and which do not involve an initial sales
charge), and Class B and Class C shares of the Fund, the contingent deferred
sales charge does not apply to exchanges or to redemptions under a systematic
withdrawal plan which meets certain conditions. In addition, the contingent
deferred sales charge will be waived for: (i) redemptions made within one year
of the death or total disability, as defined by the Social Security
Administration, of all shareholders of an account; (ii) redemptions made after
attainment of a specific age in an amount which represents the minimum
distribution required at such age under Section 401(a)(9) of the Internal
Revenue Code of 1986, as amended, for retirement accounts or plans (e.g., age 70
1/2 for Individual Retirement Accounts and Section 403(b) plans), calculated
solely on the basis of assets invested in the Fund or other Eligible Funds; and
(iii) a redemption resulting from a tax-free return of an excess contribution to
an Individual Retirement Account. (The foregoing waivers do not apply to a
tax-free rollover or transfer of assets out of the Fund). The Fund may modify or
terminate the waivers at any time; for example, the Fund may limit the
application of multiple waivers and establish other conditions for employee
benefit plans.
Class S Shares. Class S shares are currently available to certain employee
benefit plans such as qualified retirement plans which meet criteria relating to
number of participants, service arrangements, or similar factors; insurance
companies; investment companies; advisory accounts of the Investment Manager;
endowment funds of nonprofit organizations with substantial minimum assets
(currently a minimum of $10 million); and other similar institutional investors.
Class S shares may be acquired through programs or products sponsored by
Metropolitan, its affiliates, or both for which Class S shares have been
designated. In addition, Class S shares are available through programs under
which, for example, investors pay an asset-based fee and/or a transaction fee to
intermediaries. Class S share availability is determined by the Distributor and
intermediaries based on the overall direct and indirect costs of a particular
program, expected assets, account sizes and similar considerations.
Reorganizations. In the event of mergers or reorganizations with other
public or private collective investment entities, including investment companies
as defined in the 1940
29
<PAGE>
Act, the Fund may issue its shares at net asset value (or more) to such entities
or to their security holders.
Redemptions. The Fund reserves the right to pay redemptions in kind with
portfolio securities in lieu of cash. In accordance with its election pursuant
to Rule 18f-1 under the 1940 Act, the Fund may limit the amount of redemption
proceeds paid in cash. Although it has no present intention to do so, the Fund
may, under unusual circumstances, limit redemptions in cash with respect to each
shareholder during any ninety-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. In
connection with any redemptions paid in kind with portfolio securities,
brokerage and other costs may be incurred by the redeeming shareholder in the
sale of the securities received.
Systematic Withdrawal Plan. A shareholder who owns noncertificated Class A
or Class S shares with a value of $5,000 or more, or Class B or Class C shares
with a value of $10,000 or more, may elect, by participating in the Fund's
Systematic Withdrawal Plan, to have periodic checks issued for specified
amounts. These amounts may not be less than certain minimums, depending on the
class of shares held. The Plan provides that all income dividends and capital
gains distributions of the Fund shall be credited to participating shareholders
in additional shares of the Fund. Thus, the withdrawal amounts paid can only be
realized by redeeming shares of the Fund under the Plan. To the extent such
amounts paid exceed dividends and distributions from the Fund, a shareholder's
investment will decrease and may eventually be exhausted.
In the case of shares otherwise subject to contingent deferred sales
charges, no such charges will be imposed on withdrawals of up to 8% annually of
either (a) the value, at the time the Systematic Withdrawal Plan is initiated,
of the shares then in the account or (b) the value, at the time of a withdrawal,
of the same number of shares as in the account when the Systematic Withdrawal
Plan was initiated, whichever is higher.
Expenses of the Systematic Withdrawal Plan are borne by the Fund. A
participating shareholder may withdraw from the Systematic Withdrawal Plan, and
the Fund may terminate the Systematic Withdrawal Plan at any time on written
notice. Purchase of additional shares while a shareholder is receiving payments
under a Systematic Withdrawal Plan is ordinarily disadvantageous because of
duplicative sales charges. For this reason, a shareholder may not participate in
the Investamatic Program (see "Your Account--Investor Services--Investamatic
Program" in the Fund's Prospectus) and the Systematic Withdrawal Plan at the
same time.
Request to Dealer to Repurchase. For the convenience of shareholders, the
Fund has authorized the Distributor as its agent to accept orders from dealers
by wire or telephone for the repurchase of shares by the Distributor from the
dealer. The Fund may revoke or suspend this authorization at any time. The
repurchase price is the net asset value for the applicable shares next
determined following the time at which the shares are offered for repurchase by
the dealer to the Distributor. The dealer is responsible for promptly
transmitting a shareholder's order to the Distributor.
30
<PAGE>
Signature Guarantees. Signature guarantees are required for, among other
things: (1) written requests for redemptions for more than $50,000; (2) written
requests for redemptions for any amount if the proceeds are transmitted to other
than the current address of record (unchanged in the past 30 days); (3) written
requests for redemptions for any amount submitted by corporations and certain
fiduciaries and other intermediaries; and (4) requests to transfer the
registration of shares to another owner. Signatures must be guaranteed by a
bank, a member firm of a national stock exchange, or other eligible guarantor
institution. The Transfer Agent will not accept guarantees (or notarizations)
from notaries public. The above requirements may be waived in certain instances.
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.
Processing Charges. Purchases and redemptions processed through securities
dealers may be subject to processing charges imposed by the securities dealer in
addition to sales charges that may be imposed by the Fund or the Distributor.
SHAREHOLDER ACCOUNTS
General information on shareholder accounts is included in the Fund's
Prospectus under "Your Account." The following supplements that information.
Maintenance Fees and Involuntary Redemption. Because of the relatively high
cost of maintaining small shareholder accounts, the Fund reserves the right to
redeem at its option any shareholder account which remains below $1,500 for a
period of 60 days after notice is mailed to the applicable shareholder, or to
impose a maintenance fee on such account after 60 days' notice. Such
involuntarily redemptions will be subject to applicable sales charges, if any.
The Fund may increase such minimum account value above such amount in the future
after notice to affected shareholders. Involuntarily redeemed shares will be
priced at the net asset value on the date fixed for redemption by the Fund, and
the proceeds of the redemption will be mailed to the affected shareholder at the
address of record. Currently, the maintenance fee is $18 annually, which is paid
to the Transfer Agent. The fee does not apply to certain retirement accounts or
if the shareholder has more than an aggregate $50,000 invested in the Fund and
other Eligible Funds combined. Imposition of a maintenance fee on a small
account could, over time, exhaust the assets of such account.
To cover the cost of additional compliance administration, a $20 fee will
be charged against any shareholder account that has been determined to be
subject to escheat under applicable state laws.
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 (a) it may
elect to suspend the redemption of shares or postpone the date of payment of
redemption proceeds: (1) during any
31
<PAGE>
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; and (b) the payment of redemption proceeds may be postponed as
otherwise provided under "Purchase and Redemption of Shares" in this Statement
of Additional Information.
The Open Account System. Under the Open Account System full and fractional
shares of the 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 representing Class B or Class C shares
will not be issued, while certificates representing Class A or Class S shares
will only be issued if specifically requested in writing and, in any case, will
only be issued for full shares, with any fractional shares to be carried on the
shareholder's account. Shareholders will receive periodic statements of
transactions in their accounts.
The Fund's Open Account System provides the following options:
1. Additional purchases of shares of the Fund may be made through
dealers, by wire or by mailing a check payable to "State Street
Research Funds" under the terms set forth above under "Purchase and
Redemption of Shares" in this Statement of Additional Information.
2. The following methods of receiving dividends from investment income
and distributions from capital gains generally are available:
(a) All income dividends and capital gains distributions reinvested in
additional shares of the Fund.
(b) All income dividends and capital gains distributions in cash.
(c) All income dividends and capital gains distributions invested in
any one available Eligible Fund designated by the shareholder as
described below. See "--Dividend Allocation Plan" herein.
Dividend and distribution selections should be made on the Application
accompanying the initial investment. If no selection is indicated on the
Application, that account will be automatically coded for reinvestment of all
dividends and distributions in additional shares of the same class of the Fund.
Selections may be changed at any time by telephone or written notice to the
Service Center. Dividends and distributions are reinvested at net asset value
without a sales charge.
32
<PAGE>
Exchange Privileges. Shareholders of the Fund may exchange their shares for
available shares with corresponding characteristics of any of the other Eligible
Funds at any time on the basis of the relative net asset values of the
respective shares to be exchanged, subject to compliance with applicable
securities laws. Shareholders of any other Eligible Fund may similarly exchange
their shares for Fund shares with corresponding characteristics. Prior to making
an exchange, shareholders should obtain the Prospectus of the Eligible Fund into
which they are exchanging. Under the Direct Program, subject to certain
conditions, shareholders may make arrangements for regular exchanges from the
Fund into other Eligible Funds. To effect an exchange, Class A, Class B and
Class C shares may be redeemed without the payment of any contingent deferred
sales charge that might otherwise be due upon an ordinary redemption of such
shares. The State Street Research Money Market Fund issues Class E shares which
are sold without any sales charge. Exchanges of State Street Research Money
Market Fund Class E shares into Class A shares of the Fund or any other Eligible
Fund are subject to the initial sales charge or contingent deferred sales charge
applicable to an initial investment in such Class A shares, unless a prior Class
A sales charge has been paid directly or indirectly with respect to the shares
redeemed. For purposes of computing the contingent deferred sales charge that
may be payable upon disposition of any acquired Class A, Class B and Class C
shares, the holding period of the redeemed shares is "tacked" to the holding
period of any acquired shares. No exchange transaction fee is currently imposed
on any exchange.
Shares of the Fund may also be acquired or redeemed in exchange for shares
of the Summit Cash Reserves Fund ("Summit Cash Reserves") by customers of
Merrill Lynch, Pierce, Fenner & Smith Incorporated (subject to completion of
steps necessary to implement the program). The Fund and Summit Cash Reserves are
related mutual funds for purposes of investment and investor services. Upon the
acquisition of shares of Summit Cash Reserves by exchange for redeemed shares of
the Fund, (a) no sales charge is imposed by Summit Cash Reserves, (b) no
contingent deferred sales charge is imposed by the Fund on the Fund shares
redeemed, and (c) any applicable holding period of the Fund shares redeemed is
"tolled," that is, the holding period clock stops running pending further
transactions. Upon the acquisition of shares of the Fund by exchange for
redeemed shares of Summit Cash Reserves, (a) the acquisition of Class A shares
shall be subject to the initial sales charges or contingent deferred sales
charges applicable to an initial investment in such Class A shares, unless a
prior Class A sales charge has been paid indirectly, and (b) the acquisition of
Class B or Class C shares of the Fund shall restart any holding period
previously tolled, or shall be subject to the contingent deferred sales charge
applicable to an initial investment in such shares.
The exchange privilege may be terminated or suspended or its terms changed
at any time, subject, if required under applicable regulations, to 60 days'
prior notice. New accounts established for investments upon exchange from an
existing account in another fund will have the same telephone privileges with
respect to the Fund (see "Your Account--Account Policies--Telephone Requests" in
the Fund's Prospectus and "--Telephone Privileges," below) as the existing
account unless the Service Center is instructed otherwise. Related
administrative policies and procedures may also be adopted with regard to a
series of exchanges, street name accounts, sponsored arrangements and other
matters.
33
<PAGE>
The exchange privilege is not designed for use in connection with
short-term trading or market timing strategies. To protect the interests of
shareholders, the Fund reserves the right to temporarily or permanently
terminate the exchange privilege for any person who makes more than six
exchanges out of or into the Fund per calendar year. Accounts under common
ownership or control, including accounts with the same taxpayer identification
number, may be aggregated for purposes of the six exchange limit.
Notwithstanding the six exchange limit, the Fund reserves the right to refuse
exchanges by any person or group if, in the Investment Manager's judgment, the
Fund would be unable to invest effectively in accordance with its investment
objective and policies, or would otherwise potentially be adversely affected.
Exchanges may be restricted or refused if the Fund receives or anticipates
simultaneous orders affecting significant portions of the Fund's assets. In
particular, a pattern of exchanges that coincides with a "market timing"
strategy may be disruptive to the Fund. The Fund may impose these restrictions
at any time. The exchange limit may be modified for accounts in certain
institutional retirement plans because of plan exchange limits, Department of
Labor regulations or administrative and other considerations. Subject to the
foregoing, if an exchange request in good order is received by the Service
Center and delivered by the Service Center to the Transfer Agent by 12 noon
Boston time on any business day, the exchange usually will occur that day. For
further information regarding the exchange privilege, shareholders should
contact the Service Center.
Reinvestment Privilege. A shareholder of the Fund who has redeemed shares
or had shares repurchased at his or her request may reinvest all or any portion
of the proceeds (plus that amount necessary to acquire a fractional share to
round off his or her reinvestment to full shares) in shares, of the same class
as the shares redeemed, of the Fund or any other Eligible Fund at net asset
value and without subjecting the reinvestment to an initial sales charge,
provided such reinvestment is made within 120 calendar days after a redemption
or repurchase. Upon such reinvestment, the shareholder will be credited with any
contingent deferred sales charge previously charged with respect to the amount
reinvested. The redemption of shares is, for federal income tax purposes, a sale
on which the shareholder may realize a gain or loss. If a redemption at a loss
is followed by a reinvestment within 30 days, the transaction may be a "wash
sale" resulting in a denial of the loss for federal income tax purposes.
Any reinvestment pursuant to the reinvestment privilege will be subject to
any applicable minimum account standards imposed by the fund into which the
reinvestment is made. Shares are sold to a reinvesting shareholder at the net
asset value thereof next determined following timely receipt by the Service
Center of such shareholder's written purchase request and delivery of the
request by the Service Center to the Transfer Agent. A shareholder may exercise
this reinvestment privilege only once per 12-month period with respect to his or
her shares of the Fund.
Dividend Allocation Plan. The Dividend Allocation Plan allows shareholders
to elect to have all their dividends and any other distributions from the Fund
or any Eligible Fund automatically invested at net asset value in one other such
Eligible Fund designated by the shareholder, provided the account into which the
dividends and distributions are directed is initially funded with the requisite
minimum amount.
34
<PAGE>
Telephone Privileges. Unless a shareholder declines telephone privileges
that are offered with his or her Account, (see "Your Account--Account
Policies--Telephone Requests"), he or she is deemed to authorize the Service
Center and the Transfer Agent to: (1) act upon the telephone instructions of any
person purporting to be the shareholder to redeem, or purporting to be the
shareholder or the shareholder's dealer to exchange, shares from any account;
and (2) honor any written instructions for a change of address regardless of
whether such request is accompanied by a signature guarantee. All telephone
calls will be recorded. Neither the Fund, the other Eligible Funds, the Transfer
Agent, the Investment Manager nor the Distributor will be liable for any loss,
expense or cost arising out of any request, including any fraudulent or
unauthorized requests. Shareholders assume the risk to the full extent of their
accounts that telephone requests may be unauthorized. Reasonable procedures will
be followed to confirm that instructions communicated by telephone are genuine.
The shareholder will not be liable for any losses arising from unauthorized or
fraudulent instructions if such procedures are not followed.
Alternative Means of Contacting the Fund. It is unlikely, during periods of
extraordinary market conditions, that a shareholder may have difficulty in
reaching the Service Center. In that event, however, the shareholder should
contact the Service Center at 1-800-562-0032, 1-617-357-7800 or otherwise at its
main office at One Financial Center, Boston, Massachusetts 02111-2690.
NET ASSET VALUE
The net asset value of the shares of the 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 NYSE is currently closed on New Year's Day, Presidents
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
The net asset value per share of the 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 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.
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
35
<PAGE>
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 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 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% of 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
Portfolio Turnover
The Fund's portfolio turnover rate is determined by dividing the lesser of
securities purchases or sales for a year by the monthly average value of
securities held by the Fund (excluding, for purposes of this determination,
securities the maturities of which as of the time of their acquisition were one
year or less). The Fund's portfolio turnover rates for the fiscal years ended
September 30, 1996 and 1997, respectively, were as follows: 215.07% and 230.66%.
Brokerage Allocation
The Investment Manager's policy is to seek for its clients, including the
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
36
<PAGE>
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, 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 the 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 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 used for
portfolio analysis and modeling and including software providing investment
personnel with efficient access to current and historical data from a variety of
internal and external sources) and portfolio evaluation services and relative
performance of accounts.
In the case of the 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 has an investment in less
than ten percent of the outstanding equity of one such third party which is
engaged in the development and licensing
37
<PAGE>
of trading systems which include portfolio analysis and modeling and other
research and investment decision-making capabilities. The Investment Manager may
allocate brokerage to broker-dealers who in turn pay this third party for the
portion of the third party's trading system provided to the Investment Manager,
which is estimated by the Investment Manager to provide appropriate assistance
in the investment decision-making process. Because of its minority interest in
the third party, the Investment Manager could be said to benefit indirectly from
such brokerage allocation.
The Investment Manager regularly reviews and evaluates the services
furnished by broker-dealers. Among other measures, the Investment Manager's
investment management personnel seek to evaluate the quality of research and
other services received, and the results of this effort are made available to
the equity trading department, which sometimes uses this information as
consideration 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 such services to determine the appropriate proportion of the cost which is
allocable to purposes other than research or investment decision-making and the
Investment Manager pays for that portion directly from its own funds. 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 producing 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
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, to the extent applicable.
Brokerage commissions paid by the Fund in secondary trading during the last
three fiscal years ended September 30 were as follows: 1995, $990,000; 1996,
$2,032,000; and 1997, $3,182,000.
During and at the end of its most recent fiscal year, the Fund did not
hold in its portfolio securities of any entity that might be deemed to be a
regular broker-dealer of the Fund as defined under the 1940 Act.
38
<PAGE>
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.
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 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
Federal Income Taxation of the Fund--in General
The 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 do so. Accordingly, for each of the Fund's tax years that has begun
on or prior to August 5, 1997, the 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 business of investing in such stock,
securities or currencies (the "90% test"); (b) derive less than 30% of its gross
income in each taxable year from the sale or other disposition of any of
39
<PAGE>
the following held for less than three months (the "30% test"): (i) stock or
securities, (ii) options, futures, or forward contracts (other than options,
futures, or forward contracts on foreign currencies), or (iii) foreign
currencies (or options, futures, or forward contracts on foreign currencies) but
only if such currencies (or options, futures, or forward contracts) are not
directly related to the Fund's principal business of investing in stocks or
securities (or options and futures with respect to stocks or securities); (c)
satisfy certain diversification requirements; and (d) in order to be entitled to
utilize the dividends paid deduction, distribute annually at least 90% of its
investment company taxable income (determined without regard to the deduction
for dividends paid). For any Fund tax year beginning after August 5, 1997, the
Fund will have to comply with each of those requirements except the 30% test in
order to qualify to be treated as a regulated investment company under
Subchapter M.
Beginning October 1, 1997 (the start of the Fund's first tax year that has
begun after August 5, 1997), when the Fund no longer has had to comply with the
30% test in order to qualify under Subchapter M, the Fund has had greater
flexibility in buying and selling securities and in the use of futures and
options in managing risks. The 30% test has had the effect of limiting the
extent to which the Fund may sell securities held for less than three months;
write options which expire in less than three months; and effect closing
transactions with respect to call or put options that have been written or
purchased within the preceding three months. (If the Fund has purchased a put
option for the purpose of hedging an underlying portfolio security, the
acquisition of the option is treated as a short sale of the underlying security
unless, for purposes only of the 30% test, the option and the security have been
acquired on the same date.) The 30% test also has limited investments by the
Fund in options on stock indices, listed options on nonconvertible debt
securities, futures contracts, options on interest rate futures contracts and
certain foreign currency contracts.
If the Fund should fail to qualify as a regulated investment company in any
year, it would lose the beneficial tax treatment accorded regulated investment
companies under Subchapter M of the Code and all of its taxable income would be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will 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.
The Fund will be liable for a nondeductible 4% excise tax on amounts not
distributed (or deemed distributed) on a timely basis in accordance with a
calendar year distribution requirement. To avoid the tax, during each calendar
year the Fund must distribute (or be deemed to have distributed) an amount equal
to at least 98% of the sum of its ordinary income (not taking into account any
capital gains or losses) for the calendar year, and 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. For that purpose, any
income or gain
40
<PAGE>
retained by the Fund that is subject to corporate tax will be considered to have
been distributed by year-end. The Fund intends to make sufficient distributions
to avoid this 4% excise tax.
Federal Income Taxation of the Fund's Investments
Original Issue Discount. For federal income tax purposes, debt securities
purchased by the 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.
Debt securities may be purchased by the Fund at a discount that exceeds the
original issue discount plus previously accrued original issue discount
remaining on the securities, if any, at the time the Fund purchases the
securities. This additional discount represents market discount for federal
income tax purposes. In the case of any debt security issued after July 18,
1984, having a fixed 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. The 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 currently. Because the
Fund must include original issue discount in income, 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 under Subchapter M of the Code or to
avoid the 4% excise tax described above.
Options and Futures Transactions. Certain of the Fund's investments 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, the 30% test (until
October 1, 1997), 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,
medium-term or long-term gain or loss. Such provisions generally apply to, among
other investments, options on debt securities, indices on securities and futures
contracts.
Federal Income Taxation of Shareholders
Dividends paid by the Fund may be eligible for the 70% dividends-received
deduction for corporations. The percentage of the Fund's dividends eligible for
such tax treatment may
41
<PAGE>
be less than 100% to the extent that less than 100% of the Fund's gross income
may be from qualifying dividends of domestic corporations. Any dividend declared
in October, November or December and made payable to shareholders of record in
any such month is treated as received by such shareholder on December 31,
provided that the Fund pays the dividend during January of the following
calendar year.
Distributions by the Fund can 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 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 then
receive a return of investment upon distribution which will nevertheless be
taxable to them.
DISTRIBUTION OF SHARES OF THE FUND
The Trust has entered into a Distribution Agreement with State Street
Research Investment Services, Inc., as Distributor, whereby the Distributor acts
as agent to sell and distribute shares of the Fund. Shares of the Fund are sold
through dealers who have entered into sales agreements with the Distributor. The
Distributor distributes shares of the Fund on a continuous basis at an offering
price which is based on the net asset value per share of the Fund plus (subject
to certain exceptions) a sales charge which, at the election of the investor,
may be imposed (i) at the time of purchase (the Class A shares) or (ii) on a
deferred basis (Class B and Class C shares). The Distributor may reallow all or
portions of such sales charges as concessions to dealers.
Total sales charges on Class A shares paid to the Distributor for the last
three fiscal years were as follows: 1997, $757,196; 1996, $1,597,620; and 1995,
$799,572.
For the same periods, the Distributor retained the following amounts after
reallowance of concessions to dealers: 1997, $106,989; 1996, $188,067; and 1995,
$92,294.
The differences in the price at which the Fund's Class A shares are offered
due to scheduled variations in sales charges, as described in the Fund's
Prospectus, result from cost savings inherent in economies of scale. Management
believes that the cost of sales efforts of the Distributor and broker-dealers
tends to decrease as the size of purchases increases, or does not involve any
incremental sales expenses as in the case of, for example, exchanges,
reinvestments or dividend investments at net asset value. Similarly, no
significant sales effort is necessary for sales of shares at net asset value to
certain Directors, Trustees, officers, employees, their relatives and other
persons directly or indirectly related to the Fund or associated entities. Where
shares of the Fund are offered at a reduced sales charge or without a sales
charge pursuant to sponsored arrangements, managed fee-based programs and
so-called
42
<PAGE>
"mutual fund supermarkets," among other programs, the amount of the sales charge
reduction will similarly reflect the anticipated reduction in sales expenses
associated with such arrangements. The reductions in sales expenses, and
therefore the reduction in sales charges, will vary depending on factors such as
the size and other characteristics of the organization or program, and the
nature of its membership or the participants. The Fund reserves the right to
make variations in, or eliminate, sales charges at any time or to revise the
terms of or to suspend or discontinue sales pursuant to sponsored arrangements
or similar programs at any time.
On any sale of Class A shares to a single investor in the amount of
$1,000,000 or more, the Distributor will pay the authorized securities dealer
making such sale a commission based on the aggregate of such sales. Such
commission also is payable to authorized securities dealers upon sales of Class
A shares made pursuant to a Letter of Intent to purchase shares having a net
asset value of $1,000,000 or more. Shares sold with such commissions payable are
subject to a one-year contingent deferred sales charge of 1.00% on any portion
of such shares redeemed within one year following their sale. After a particular
purchase of Class A shares is made under the Letter of Intent, the commission
will be paid only in respect of that particular purchase of shares. If the
Letter of Intent is not completed, the commission paid will be deducted from any
discounts or commissions otherwise payable to such dealer in respect of shares
actually sold. If an investor is eligible to purchase shares at net asset value
on account of the Right of Accumulation, the commission will be paid only in
respect of the incremental purchase at net asset value.
For the periods shown below, the Distributor received contingent deferred
sales charges upon redemption of Class A, Class B and Class C shares of the Fund
and paid initial commissions to securities dealers for sales of such Class A,
Class B and Class C shares as follows:
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year Fiscal Year
Ended September 30, 1997 Ended September 30, 1996 Ended September 30, 1995
------------------------ ------------------------ ------------------------
Contingent Commissions Contingent Commissions Contingent Commissions
Deferred Paid to Deferred Paid to Deferred Paid to
Sales Charges Dealers Sales Charges Dealers Sales Charges Dealers
------------- ----------- ------------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Class A $ 0 $ 650,207 $ 0 $ 1,409,553 $ 0 $ 707,278
Class B $ 983,625 $2,925,793 $ 312,620 $ 6,661,535 $ 192,789 $ 3,836,570
Class C $ 47,574 $ 317,862 $ 29,193 $ 929,607 $ 9,688 $ 410,729
</TABLE>
The Fund has adopted a "Plan of Distribution Pursuant to Rule 12b-1" (the
"Distribution Plan") under which the Fund may engage, directly or indirectly, in
financing any activities primarily intended to result in the sale of Class A,
Class B and Class C shares, including, but not limited to, (1) the payment of
commissions and/or reimbursement to underwriters, securities dealers and others
engaged in the sale of shares, including payments to the Distributor to be used
to pay commissions and/or reimbursement to securities dealers
43
<PAGE>
(which securities dealers may be affiliates of the Distributor) engaged in the
distribution and marketing of shares and furnishing ongoing assistance to
investors, (2) reimbursement of direct out-of-pocket expenditures incurred by
the Distributor in connection with the distribution and marketing of shares and
the servicing of investor accounts including expenses relating to the
formulation and implementation of marketing strategies and promotional
activities such as direct mail promotions and television, radio, newspaper,
magazine and other mass media advertising, the preparation, printing and
distribution of Prospectuses of the Fund and reports for recipients other than
existing shareholders of the Fund, and obtaining such information, analyses and
reports with respect to marketing and promotional activities and investor
accounts as the Fund may, from time to time, deem advisable, and (3)
reimbursement of expenses incurred by the Distributor in connection with the
servicing of shareholder accounts including payments to securities dealers and
others in consideration of the provision of personal service to investors and/or
the maintenance or servicing of shareholder accounts and expenses associated
with the provision of personal service by the Distributor directly to investors.
In addition, the Distribution Plan is deemed to authorize the Distributor and
the Investment Manager to make payments out of general profits, revenues or
other sources to underwriters, securities dealers and others in connection with
sales of shares, to the extent, if any, that such payments may be deemed to be
within the scope of Rule 12b-1 under the 1940 Act.
Some or all of the service fees are used to pay or reimburse dealers
(including dealers that are affiliates of the Distributor) or others for
personal services and/or the maintenance of shareholder accounts. A portion of
any initial commission paid to dealers for the sale of shares of the Fund
represents payment for personal services and/or the maintenance or servicing of
shareholder accounts by such dealers. Dealers who have sold Class A shares are
eligible for further reimbursement commencing as of the time of such sale.
Dealers who have sold Class B and Class C shares are eligible for further
reimbursement after the first year during which such shares have been held of
record by such dealer as nominee for its clients (or by such clients directly).
Any service fees received by the Distributor and not allocated to dealers may be
applied by the Distributor in reduction of expenses incurred by it directly for
personal services and the maintenance or servicing of shareholder accounts.
The distribution fees are used primarily to offset initial and ongoing
commissions paid to dealers for selling such shares. Any distribution fees
received by the Distributor and not allocated to dealers may be applied by the
Distributor in connection with sales or marketing efforts, including special
promotional fees and cash and noncash incentives based upon sales by dealers.
The Distributor provides distribution services on behalf of other funds
having distribution plans and receives similar payments from, and incurs similar
expenses on behalf of, such other funds. When expenses of the Distributor cannot
be identified as relating to a specific fund, the Distributor allocates expenses
among the funds in a manner deemed fair and equitable to each fund.
Commissions and other cash and noncash incentives and payments to dealers,
to the extent payable out of the general profits, revenues or other sources of
the Distributor
44
<PAGE>
(including the advisory fees paid by the Fund), have also been authorized
pursuant to the Distribution Plan.
The expenditures to be made pursuant to the Distribution Plan may not
exceed (i) with respect to Class A shares, an annual rate of 0.25% of the
average daily value of net assets represented by such Class A shares, and (ii)
with respect to Class B and Class C shares, an annual rate of 0.75% of the
average daily value of the net assets represented by such Class B or Class C
shares (as the case may be) to finance sales or promotion expenses and an annual
rate of 0.25% of the average daily value of the net assets represented by such
Class B or Class C shares (as the case may be) to make payments for personal
services and/or the maintenance or servicing of shareholder accounts. The
distribution and servicing expenses of a particular class will be borne solely
by that class. In addition, a rule of the NASD limits annual expenditures that
the Fund may incur under the Distribution Plan to 1%, of which 0.75% may be used
to pay distribution expenses and 0.25% may be used to pay shareholder service
fees. The NASD rule also limits the aggregate amount that the Fund may pay for
such distribution costs to 6.25% of gross share sales of a class since the
inception of any asset-based sales charge plus interest at the prime rate plus
1% on unpaid amounts thereof (less any contingent deferred sales charges). Such
limitation does not apply to shareholder service fees. Payments to the
Distributor or to dealers funded under the Distribution Plan may be discontinued
at any time.
The Distributor may pay certain dealers and other intermediaries additional
compensation for sales and administrative services. The Distributor may provide
cash and noncash incentives to intermediaries who, for example, sell significant
amounts of shares or develop particular distribution channels. The Distributor
may compensate dealers with clients who maintain their investments in the Fund
over a period of years. The incentives can include merchandise and trips to, and
attendance at, sales seminars at resorts. The Distributor may pay for
administrative services, such as technological and computer systems support for
the maintenance of pension plan participant records, for subaccounting, and for
distribution through mutual fund supermarkets or similar arrangements.
During the fiscal year ended September 30, 1997, the Fund paid the
Distributor fees under the Distribution Plan and the Distributor used all of
such payments for expenses incurred on behalf of the Fund as follows:
45
<PAGE>
Class A Class B Class C
------- ------- -------
Advertising $ 0 $ 0 $ 48,715
Printing and mailing
of prospectuses to
other than current
shareholders 0 0 17,842
Compensation to dealers 378,641 3,983,871 1,226,790
Compensation to sales
personnel 0 0 139,259
Interest 0 0 0
Carrying or other
financing charges 0 0 0
Other expenses: marketing; general 0 0 70,497
Total fees received $378,641 $3,983,871 $1,695,482
======== ========== ----------
Difference $ 191,929*
==========
- ----------
* Net fees result from the timing of expenditures and are used against future
expenses.
The Distributor may have also used additional resources of its own for
further expenses on behalf of the Fund.
No interested Trustee of the Trust has any direct or indirect financial
interest in the operation of the Distribution Plan or any related agreements
thereunder. The Distributor's interest in the Distribution Plan is described
above.
To the extent that the Glass-Steagall Act may be interpreted as prohibiting
banks and other depository institutions from being paid for performing services
under the Distribution Plan, the Fund will make alternative arrangements for
such services for shareholders who acquired shares through such institutions.
CALCULATION OF PERFORMANCE DATA
From time to time, in advertisements or in communications to shareholders
or prospective investors, the Fund may compare the performance of its Class A,
Class B, Class C or Class S shares to the performance of other mutual funds with
similar investment objectives, to certificates of deposit and/or to other
financial alternatives. The Fund may also compare its performance to appropriate
indices, such as Standard & Poor's 500 Index, Consumer Price
46
<PAGE>
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. For example, the performance of the Fund
might be compared to the Lipper Capital Appreciation Funds Index.
The average annual total return ("standard total return") and yield of the
Class A, Class B, Class C and Class S shares of the Fund will be calculated as
set forth below. Total return and yield are computed separately for each class
of shares of the Fund. Performance data for a specified class includes periods
prior to the adoption of class designations on June 1, 1993, when designations
were assigned based on the pricing and Rule 12b-1 fees applicable to shares sold
thereafter. The application of the additional Rule 12b-1 fees, if any, of up to
1% will, for periods after June 1, 1993, adversely affect Fund performance
results. Thus, performance data or rankings for a given class of shares should
be interpreted carefully by investors who hold or may invest in a different
class of shares.
The performance data below reflect Rule 12b-1 fees and, where applicable,
sales charges as follows:
<TABLE>
<CAPTION>
Rule 12b-1 Fee Sales Charges
----------------------------------------------- -----------------------------------------
Class Amount Period
- ----- ------ ------
<S> <C> <C> <C>
A 0.25% February 17, 1993 to present; Maximum 4.5% sales charge reflected
Fee will reduce performance
for periods after February 17,
1993
B 1.00% March 15, 1993 to present; fee 1- and 5-year periods reflect a 5% and a
will reduce performance for 2% contingent deferred sales charge,
periods after March 15, 1993 respectively
C* 1.00% March 15, 1993 to present; fee 1-year period reflects a 1% contingent
will reduce performance for deferred sales charge
periods after March 15, 1993
S* 0.00% Since commencement of None
operations to present
</TABLE>
- ---------------------------
* Prior to November 1, 1997, the Fund's current Class C shares were
designated as Class D shares and the Fund's current Class S shares were
designated as Class C shares.
All calculations of performance data in this section 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.
47
<PAGE>
Total Return
The Fund's standard average annual total returns ("standard total return")
of each class of shares were as follows:
Five Years One Year
Ten Years Ended Ended Ended
September 30, 1997 September 30, 1997 September 30, 1997
------------------ ------------------ ------------------
Class A 13.69% 19.64% 2.30%
Class B 14.13% 19.80% 1.27%
Class C* 14.14% 20.02% 5.26%
Class S* 14.65% 21.08% 7.36%
- ----------------
* Prior to November 1, 1997, the Fund's current Class C shares were
designated as Class D shares and the Fund's current Class S shares were
designated as Class C shares.
Standard total return is 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.
48
<PAGE>
Accrued Expenses and Recurring Charges
Accrued expenses include all recurring charges that are charged to all
shareholder accounts in proportion to the length of the base period. The
standard total return [and yield] results take sales charges, if applicable,
into account, although the results do not take into account recurring and
nonrecurring charges for optional services which only certain shareholders elect
and which involve nominal fees, such as the $7.50 fee for wire orders.
Accrued expenses do not include the subsidization, if any, by affiliates of
fees or expenses during the subject period. In the absence of such
subsidization, the performance of the Fund would have been lower.
Nonstandardized Total Return
The Fund may provide the above described standard total return results for
Class A, Class B, Class C and Class S shares for periods which end no earlier
than the most recent calendar quarter end and which begin twelve months before,
five years before and ten years before. In addition, the Fund may provide
nonstandardized total return results for differing periods, such as for the most
recent six months, and/or without taking 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 may not be taken into account and therefore not deducted
from the hypothetical initial payment of $1,000. For example, the Fund's
nonstandardized total returns for the six months ended September 30, 1997,
without taking sales charges into account, were as follows:
49
<PAGE>
Class A 23.87%
Class B 23.40%
Class C* 23.36%
Class S* 23.94%
- ------------------------
* Prior to November 1, 1997, the Fund's current Class C shares were
designated as Class D shares and the Fund's current Class S shares were
designated as Class C shares.
50
<PAGE>
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 the Fund's cash and securities, handling the receipt and delivery of
securities and collecting interest and dividends on the Fund's investments.
State Street Bank and Trust Company is not an affiliate of the Investment
Manager or its affiliates.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., 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 Fund.
FINANCIAL STATEMENTS
In addition to the reports provided to holders of record on a semiannual
basis, other supplementary financial reports may be made available from time to
time through electronic or other media. Shareholders with substantial holdings
in one or more State Street Research Funds may also receive reports and other
information which reflect or analyze their positions in a consolidated manner.
For more information, call State Street Research Service Center.
The following financial statements are for the Fund's fiscal year ended
September 30, 1997 and reflect the Fund's class designations prior to November
1, 1997. Information pertaining to Class C and Class D in the financial
statements now pertains to Class S and Class C, respectively.
51
<PAGE>
STATE STREET RESEARCH CAPITAL FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
September 30, 1997
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Value
Shares (Note 1)
- -------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 99.5%
Basic Industries 2.3%
Machinery 1.7%
Terex Corp.* ........................... 252,200 $ 5,233,150
Tyco International Ltd. ............... 208,900 17,142,856
------------
22,376,006
------------
Metal & Mining 0.6%
Chicago Bridge & Iron Co. NV ......... 275,400 5,714,550
Ispat International NV Cl. A* ......... 75,200 2,152,600
------------
7,867,150
------------
Total Basic Industries ............................. 30,243,156
-------------
Consumer Cyclical 22.0%
Automotive 1.4%
Budget Group Inc. Cl. A* ............... 426,700 14,081,100
Danaher Corp. ........................... 96,000 5,568,000
------------
19,649,100
------------
Hotel & Restaurant 6.9%
Apple South Inc. ........................ 130,900 2,519,825
Extended Stay America Inc.* ............ 885,000 13,275,000
Four Seasons Hotels Inc. ............... 62,900 2,578,900
HFS Inc.* .............................. 768,200 57,182,887
Interstate Hotels Co.* .................. 310,200 10,120,275
Trump Hotels & Casino Resorts Inc.* ... 704,600 7,266,188
------------
92,943,075
------------
Recreation 5.6%
Action Performance Companies Inc.* ... 279,700 8,146,262
Ascent Entertainment Group Inc.* ...... 200,000 2,300,000
Chancellor Media Corp.* ............... 146,700 7,720,088
Florida Panthers Holdings Inc. Cl. A* 521,900 12,297,269
International Game Technology Inc. ...... 570,000 12,967,500
Oakley Inc.* ........................... 912,700 9,811,525
Ticketmaster Group Inc.* ............... 315,300 7,330,725
Westinghouse Electric Corp. ............ 526,500 14,248,406
------------
74,821,775
------------
Retail Trade 5.4%
Abercrombie & Fitch Co. Cl. A* ......... 80,900 2,123,625
Borders Group Inc.* ..................... 532,700 14,649,250
CVS Corp. .............................. 42,600 2,422,875
Jones Apparel Group Inc.* ............... 469,600 25,358,400
Linens 'n Things Inc.* .................. 292,100 9,785,350
Proffitts Inc.* ........................ 197,200 11,684,100
RDO Equipment Co. Cl. A* ............... 74,900 1,722,700
Sunglass Hut International Inc.* ...... 606,500 4,700,375
------------
72,446,675
------------
- -------------------------------------------------------------------
Value
Shares (Note 1)
- -------------------------------------------------------------------
<S> <C> <C>
Textile & Apparel 2.7%
Men's Wearhouse, Inc.* .................. 614,775 $ 22,900,369
Timberland Co. Cl. A* .................. 162,400 12,951,400
------------
35,851,769
------------
Total Consumer Cyclical ............... 295,712,394
------------
Consumer Staple 24.0%
Business Service 14.3%
Caribiner International Inc.* ......... 756,400 30,823,300
Creative Technology Ltd.* ............... 938,600 23,992,962
HBO & Co. .............................. 338,600 12,782,150
Outdoor Systems Inc.* .................. 341,775 8,971,594
Republic Industries Inc.* ............... 1,610,800 53,055,725
Snyder Communications Inc.* ............ 459,200 12,628,000
U.S. Office Products Co.* ............... 937,900 33,060,975
Universal Outdoor Holdings Inc.* ...... 343,000 12,862,500
USA Waste Services Inc.* ............... 97,400 3,883,825
------------
192,061,031
------------
Drug 3.2%
Eli Lilly & Co. ........................ 154,100 18,559,419
Schering-Plough Corp. .................. 216,100 11,129,150
Warner-Lambert Co. ..................... 98,000 13,223,875
------------
42,912,444
------------
Food & Beverage 0.7%
Peapod Inc.* ........................... 195,300 2,441,250
Starbucks Corp.* ........................ 182,200 7,618,237
------------
10,059,487
------------
Hospital Supply 3.2%
Aetna Inc. .............................. 101,600 8,274,050
Boston Scientific Corp.* ............... 233,600 12,891,800
Tenet Healthcare Corp.* ............... 347,700 10,126,763
Trigon Healthcare Inc.* ............... 477,000 11,835,562
------------
43,128,175
------------
Personal Care 0.9%
Avon Products Inc. ..................... 192,900 11,959,800
------------
Printing & Publishing 0.7%
Big Flower Press Holdings Inc.* ...... 74,600 1,729,788
Valassis Communications Inc.* ......... 237,000 7,554,375
------------
9,284,163
------------
Tobacco 1.0%
Philip Morris Companies, Inc. ......... 317,100 13,179,469
------------
Total Consumer Staple .................. 322,584,569
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH CAPITAL FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Value
Shares (Note 1)
- ---------------------------------------------------------------------
<S> <C> <C>
Energy 3.1%
Oil Service 3.1%
Diamond Offshore Drilling Inc.* ......... 126,800 $ 6,997,775
Ensco International Inc. .................. 178,600 7,043,537
Newpark Resources Inc.* .................. 106,800 4,198,575
Schlumberger Ltd. ........................ 154,000 12,964,875
Varco International Inc.* ............... 82,500 4,001,250
Weatherford Enterra Inc.* ............... 118,000 6,290,875
--------------
41,496,887
--------------
Total Energy .................................... 41,496,887
--------------
Finance 9.5%
Bank 4.3%
Bank United Corp. Cl. A .................. 227,000 10,044,750
BankAmerica Corp. ........................ 259,800 19,046,587
Citicorp ................................. 73,200 9,804,225
H.F. Ahmanson & Co. ..................... 166,000 9,430,875
NationsBank Corp. ........................ 150,000 9,281,250
--------------
57,607,687
--------------
Financial Service 1.4%
Merrill Lynch & Company Inc. ............ 247,700 18,376,244
--------------
Insurance 3.8%
Ace Ltd. ................................. 138,100 12,981,400
Hartford Financial Services Group, Inc. 81,100 6,979,669
Provident Companies, Inc. ............... 161,100 11,266,931
Travelers Group Inc. ..................... 292,500 19,963,125
--------------
51,191,125
--------------
Total Finance ................................. 127,175,056
--------------
Science & Technology 38.6%
Aerospace 0.9%
Boeing Co. .............................. 234,600 12,771,038
--------------
Computer Software & Service 8.3%
America Online Inc.* ..................... 336,900 25,414,894
Ascend Communications Inc.* ............ 174,200 5,639,725
Computer Associates International Inc. ... 310,900 22,326,506
EMC Corp.* .............................. 193,800 11,313,075
Geoworks* ................................. 214,100 3,505,888
McAfee Associates Inc.* .................. 214,800 11,384,400
Microsoft Corp.* ........................ 107,900 14,276,519
P-Com, Inc.* .............................. 313,000 7,492,437
Westell Technologies, Inc. Cl. A* ...... 193,100 4,284,406
Xilinx Inc.* .............................. 107,800 5,457,375
--------------
111,095,225
--------------
- ---------------------------------------------------------------------
Value
Shares (Note 1)
- ---------------------------------------------------------------------
<S> <C> <C>
Electronic Components 12.9%
Altera Corp.* ........................... 416,400 $ 21,340,500
Analog Devices Inc.* ..................... 298,600 10,003,100
Atmel Corp.* .............................. 283,600 10,333,675
CHS Electronics Inc.* ..................... 640,950 17,546,006
Intel Corp. .............................. 205,700 18,988,681
Kulicke & Soffa Industries Inc.* ......... 372,800 17,265,300
Lattice Semiconductor Corp.* ............ 117,600 7,658,700
LSI Logic Corp.* ........................ 420,700 13,514,988
Microchip Technology Inc.* ............... 98,300 4,438,859
Sanmina Corp.* ........................... 304,000 26,315,000
Texas Instruments Inc. .................. 195,200 26,376,400
--------------
173,781,209
--------------
Electronic Equipment 9.7%
Advanced Fibre Communications, Inc.* ... 774,000 31,734,000
Applied Materials Inc.* .................. 202,400 19,278,600
ASM Lithography Holdings NV* ............ 128,900 12,728,875
KLA-Tencor Corp.* ........................ 202,600 13,688,162
Motorola Inc. ........................... 334,400 24,035,000
Qwest Communications International Inc.* 44,900 2,071,013
Tellabs Inc.* ........................... 171,000 8,806,500
Teradyne Inc.* ........................... 322,900 17,376,056
--------------
129,718,206
--------------
Office Equipment 6.8%
Compaq Computer Corp.* .................. 385,200 28,793,700
Dell Computer Corp.* ..................... 146,000 14,143,750
Diebold Inc. .............................. 109,100 5,168,613
Hewlett-Packard Co. ..................... 350,700 24,395,569
Sun Microsystems Inc.* .................. 410,200 19,202,487
--------------
91,704,119
--------------
Total Science & Technology ............... 519,069,797
--------------
Total Common Stocks (Cost $986,944,517) ... 1,336,281,859
--------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Principal Maturity
Amount Date
- --------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS 0.7%
Chevron Oil Finance Co.,
6.00% ............... $9,880,000 10/01/1997 9,880,000
--------------
Total Short-Term Obligations (Cost $9,880,000) ... 9,880,000
--------------
Total Investments (Cost $996,824,517)--100.2% ... 1,346,161,859
Cash and Other Assets, Less Liabilities--(0.2%) (2,964,219)
--------------
Net Assets--100.0% .............................. $1,343,197,640
==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH CAPITAL FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
September 30, 1997
<TABLE>
<S> <C>
Federal Income Tax Information:
At September 30, 1997, the net unrealized
appreciation of investments based on cost for
for federal income tax purposes of $9,9,303,261 was
as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost $373,298,404
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
over value (26,439,806)
-------------
$ 346,858,598
=============
</TABLE>
- -------------------------------------
* Nonincome-producing securities
ADR stands for American Depositary Receipt, representing ownership of
foreign securities.
- -------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- -------------------------------------------------------------------------------
September 30, 1997
<TABLE>
<S> <C>
Assets
Investments, at value (Cost $996,824,517)(Note 1) ............ $1,346,161,859
Cash ......................................................... 218
Receivable for securities sold .............................. 3,678,217
Receivable for fund shares sold .............................. 779,668
Dividends and interest receivable ........................... 497,568
Other assets ................................................ 72,077
--------------
1,351,189,607
Liabilities
Payable for fund shares redeemed ........................... 5,363,416
Accrued management fee (Note 2) .............................. 841,559
Accrued transfer agent and shareholder services
(Note 2) ................................................... 809,106
Accrued distribution and service fees (Note 4) ............... 677,778
Accrued trustees' fees (Note 2) .............................. 27,781
Other accrued expenses ....................................... 272,327
--------------
7,991,967
--------------
Net Assets $1,343,197,640
==============
Net Assets consist of:
Unrealized appreciation of investments ..................... $ 349,337,342
Accumulated net realized gain .............................. 8,511,656
Shares of beneficial interest .............................. 985,348,642
--------------
$1,343,197,640
==============
Net Asset Value and redemption price per share of
Class A shares ($470,976,964 [divided by] 31,944,062 shares
of beneficial interest) .................................... $14.74
======
Maximum Offering Price per share of Class A shares
($14.74 [divided by] .955) ................................. $15.43
======
Net Asset Value and offering price per share of Class
B shares ($562,392,009 [divided by] 39,506,904 shares of
beneficial interest)* ....................................... $14.24
======
Net Asset Value, offering price and redemption price
per share of Class C shares ($189,777,868 [divided by]
12,682,096 shares of beneficial interest) .................. $14.96
======
Net Asset Value and offering price per share of Class
D shares ($120,050,799 [divided by] 8,418,494 shares of
beneficial interest)* ....................................... $14.26
======
</TABLE>
- -------------------------------------------------------------------------------
* Redemption price per share for Class B and Class D is equal to net asset
value less any applicable contingent deferred sales charge.
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH CAPITAL FUND
- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------
For the year ended September 30, 1997
<TABLE>
<S> <C>
Investment Income
Dividends, net of foreign taxes of $23,175 ............ $ 3,023,118
Interest ............................................. 1,999,857
------------
5,022,975
Expenses
Management fee (Note 2) .............................. 5,786,403
Transfer agent and shareholder services (Note 2) ...... 1,218,977
Service fee--Class A (Note 4) ........................ 378,641
Distribution and service fees--Class B (Note 4) ...... 3,983,871
Distribution and service fees--Class D (Note 4) ...... 1,695,482
Custodian fee ....................................... 213,923
Reports to shareholders .............................. 132,102
Registration fees .................................... 74,821
Trustees' fees (Note 2) .............................. 33,811
Audit fee ............................................. 25,909
Legal fees .......................................... 14,421
Miscellaneous ....................................... 31,620
------------
13,589,981
------------
Net investment loss ................................. (8,567,006)
------------
Realized and Unrealized Gain on Investments
Net realized gain on investments (Notes 1 and 3) ...... 11,938,430
Net unrealized appreciation of investments (Note 5) ... 91,743,820
------------
Net gain on investments .............................. 103,682,250
------------
Net increase in net assets resulting from operations $ 95,115,244
============
</TABLE>
- -------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended September 30
----------------------------------
1997 1996
- -----------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment loss ............ $ (8,567,006) $ (5,102,129)
Net realized gain (loss) on
investments .................. 11,938,430 (2,073,183)
Net unrealized appreciation of
investments .................. 91,743,820 70,731,585
--------------- -------------
Net increase resulting from
operations .................. 95,115,244 63,556,273
--------------- -------------
Distribution from net realized gains:
Class A ........................ -- (4,170,914)
Class B ........................ -- (15,632,187)
Class C ........................ -- (3,556,781)
Class D ........................ -- (7,349,181)
--------------- -------------
-- (30,709,063)
--------------- -------------
Net increase from fund share
transactions (Note 6) ......... 521,782,662 291,406,436
--------------- -------------
Total increase in net assets ... 616,897,906 324,253,646
Net Assets
Beginning of year ............... 726,299,734 402,046,088
--------------- -------------
End of year ..................... $ 1,343,197,640 $ 726,299,734
=============== =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH CAPITAL FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
September 30, 1997
Note 1
State Street Research Capital Fund (the "Fund"), is a series of State Street
Research Capital Trust (the "Trust"), which is a Massachusetts business trust
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Trust was organized in
November, 1988 as a successor to State Street Capital Fund, Inc., a
Massachusetts corporation. The Trust consists presently of three separate
funds: State Street Research Capital Fund, State Street Research Emerging
Growth Fund and State Street Research Aurora Fund.
The investment objective of the Fund is to seek maximum capital appreciation by
investing primarily in common stocks of emerging growth companies and of
companies considered to be undervalued special situations, as determined by the
Fund's investment manager.
The Fund offers four classes of shares. Class A shares are subject to an
initial sales charge of up to 4.50% and pay an annual service fee equal to
0.25% of average daily net assets. Class B shares are subject to a contingent
deferred sales charge on certain redemptions made within five years of purchase
and pay annual distribution and service fees of 1.00%. Class B shares
automatically convert into Class A shares (which pay lower ongoing expenses) at
the end of eight years after the issuance of the Class B shares. Class C shares
are only offered to certain employee benefit plans and large institutions.
Class D shares are subject to a contingent deferred sales charge of 1.00% on
any shares redeemed within one year of their purchase. Class D shares also pay
annual distribution and service fees of 1.00%. The Fund's expenses are borne
pro-rata by each class, except that each class bears expenses, and has
exclusive voting rights with respect to provisions of the Plan of Distribution,
related specifically to that class. The Trustees declare separate dividends on
each class of shares.
The following significant policies are consistently followed by the Fund in
preparing its financial statements, and such policies are in conformity with
generally accepted accounting principles for investment companies.
A. Investments in Securities
Values for listed securities represent the last sale on national securities
exchanges quoted prior to the close of the New York Stock Exchange.
Over-the-counter securities quoted on the National Association of Securities
Dealers Automated Quotation ("NASDAQ") system are valued at the closing price
supplied through such system. In the absence of recorded sales and for those
over-the-counter securities not quoted on the NASDAQ system, valuations are at
the mean of the closing bid and asked quotations, except for certain securities
that may be restricted as to public resale, which are valued in accordance with
methods adopted by the Trustees. Security transactions are accounted for on the
trade date (date the order to buy or sell is executed), and dividends declared
but not received are accrued on the ex-dividend date. Interest income is
determined on the accrual basis. Realized gains and losses from security
transactions are reported on the basis of identified cost of securities
delivered for both financial reporting and Federal income tax purposes.
B. Federal Income Taxes
No provision for Federal income taxes is necessary since the Fund has elected
to qualify under Subchapter M of the Internal Revenue Code and its policy is to
distribute all of its taxable income, including net realized capital gains,
within the prescribed time periods.
In order to meet certain excise tax distribution requirements under Section
4982 of the Internal Revenue Code, the Fund is required to measure and
distribute annually, if necessary, net capital gains realized during a
twelve-month period ending October 31. In this connection, the Fund is
permitted to defer into its next fiscal year any net capital losses incurred
between each November 1 and the end of its fiscal year. From November 1, 1995
through September 30, 1996, the Fund incurred net capital losses of $355,768
and has deferred and treated such losses as arising in the fiscal year ended
September 30, 1997.
C. Dividends
Dividends from net investment income, if any, are declared and paid or
reinvested annually. Net realized capital gains, if any, are distributed
annually, unless additional distributions are required for compliance with
applicable tax regulations.
Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles.
D. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
Note 2
The Trust and State Street Research & Management Company (the "Adviser"), an
indirect wholly owned subsidiary of Metropolitan Life Insurance Company
("Metropolitan"), have entered into an agreement under which the Adviser earns
monthly fees at an annual rate of 0.75% of the Fund's average daily net assets.
In consideration of these fees, the Adviser furnishes the Fund with management,
investment advisory, statistical and research facilities and services. The
Adviser also pays all salaries, rent and certain other expenses of management.
During the year ended September 30, 1997, the fees pursuant to such agreement
amounted to $5,786,403.
State Street Research Shareholder Services, a division of State Street Research
Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), an indirect wholly owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. In addition, Metropolitan receives a fee for maintenance of
the accounts of certain shareholders who are participants in sponsored
arrangements, employee benefit plans and similar programs or plans, through or
under which shares of the Fund may be purchased. During the year ended
September 30, 1997, the amount of such expenses was $623,372.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$33,811 during the year ended September 30, 1997.
<PAGE>
STATE STREET RESEARCH CAPITAL FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Note 3
For the year ended September 30, 1997, exclusive of short-term investments and
U.S. Government obligations, purchases and sales of securities aggregated
$1,749,341,564 and $1,915,835,515, respectively.
Note 4
The Trust has adopted a Plan of Distribution pursuant to Rule 12b-1 (the
"Plan") under the Investment Company Act of 1940. Under the Plan, the Fund pays
annual service fees to the Distributor at a rate of 0.25% of average daily net
assets for Class A, Class B and Class D shares. In addition, the Fund pays
annual distribution fees of 0.75% of average daily net assets for Class B and
Class D shares. The Distributor uses such payments for personal services and/or
the maintenance or servicing of shareholder accounts, to reimburse securities
dealers for distribution and marketing services, to furnish ongoing assistance
to investors and to defray a portion of its distribution and marketing
expenses. For the year ended September 30, 1997, fees pursuant to such plan
amounted to $378,641, $3,983,871 and $1,695,482 for Class A, Class B and Class
D shares, respectively.
The Fund has been informed that the Distributor and MetLife Securities, Inc., a
wholly owned subsidiary of Metropolitan, earned initial sales charges
aggregating $106,989 and $341,138, respectively, on sales of Class A shares of
the Fund during the year ended September 30, 1997, and that MetLife Securities,
Inc. earned commissions aggregating $1,016,713 on sales of Class B shares, and
that the Distributor collected contingent deferred sales charges of $983,625
and $47,574 on redemptions of Class B and Class D shares, respectively, during
the same period.
Note 5
On August 15, 1997, the Fund acquired the assets and liabilities of State
Street Research Capital Appreciation Fund ("Capital Appreciation Fund") in
exchange for shares of each class of the Fund. The acquisition was accounted
for as a tax-free exchange of 26,138,898 Class A shares, 14,162,121 Class B
shares, 10,217,407 Class C shares and 361,359 Class D shares of the Fund for
the net assets of Capital Appreciation Fund which amounted to $353,659,292,
$185,240,546, $140,284,992 and $4,733,802 for Class A, Class B, Class C and
Class D shares, respectively. The net assets of Capital Appreciation Fund
included $123,785,793 of unrealized appreciation at the close of business on
August 15, 1997. The net assets of the Fund immediately after the acquisition
were $1,337,213,570.
Note 6
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share.
At September 30, 1997, the Distributor owned 6,133 Class A shares of the Fund.
Share transactions were as follows:
<TABLE>
<CAPTION>
Year ended September 30
-----------------------------
1997
-----------------------------
Class A Shares Amount
- ------------------------------------------------------------------- -------------- --------------
<S> <C> <C>
Shares sold ...................................................... 3,871,815 $ 51,103,143
Issued in connection with acquisition of Capital Appreciation Fund 26,138,898 353,659,292
Issued upon reinvestment of distribution from net realized gains -- --
Shares repurchased ............................................. (6,367,582) (84,655,673)
------------ ---------------
Net increase ................................................... 23,643,131 $ 320,106,762
============ ==============
Class B Shares Amount
- ------------------------------------------------------------------- ------------ --------------
Shares sold ...................................................... 6,813,680 $ 86,756,398
Issued in connection with acquisition of Capital Appreciation Fund 14,162,121 185,240,546
Issued upon reinvestment of distribution from net realized gains -- --
Shares repurchased ............................................. (10,341,798) (133,779,126)
------------ --------------
Net increase ................................................... 10,634,003 $ 138,217,818
============ ==============
Class C Shares Amount
- ------------------------------------------------------------------- ------------ --------------
Shares sold ...................................................... 1,093,116 $ 14,973,137
Issued in connection with acquisition of Capital Appreciation Fund 10,217,407 140,284,992
Issued upon reinvestment of distribution from net realized gains -- --
Shares repurchased ............................................. (1,127,539) (15,594,561)
------------ --------------
Net increase (decrease) .......................................... 10,182,984 $ 139,663,568
============ ==============
Class D Shares Amount
- ------------------------------------------------------------------- ------------ --------------
Shares sold ...................................................... 3,002,442 $ 38,095,940
Issued in connection with acquisition of Capital Appreciation Fund 361,359 4,733,802
Issued upon reinvestment of distribution from net realized gains -- --
Shares repurchased ............................................. (9,125,682) (119,035,228)
------------ --------------
Net increase (decrease) .......................................... (5,761,881) $ (76,205,486)
============ ==============
<CAPTION>
Year ended September 30
----------------------------
1996
----------------------------
Class A Shares Amount
- ------------------------------------------------------------------- ---------- ------------
<S> <C> <C>
Shares sold ...................................................... 4,999,832 $ 62,467,171
Issued in connection with acquisition of Capital Appreciation Fund -- --
Issued upon reinvestment of distribution from net realized gains 302,993 3,738,939
Shares repurchased ............................................. (1,085,442) (13,577,652)
---------- ------------
Net increase ................................................... 4,217,383 $ 52,628,458
========== ============
Class B Shares Amount
- ------------------------------------------------------------------- ---------- -------------
Shares sold ...................................................... 14,984,596 $183,598,870
Issued in connection with acquisition of Capital Appreciation Fund -- --
Issued upon reinvestment of distribution from net realized gains 1,171,523 14,187,153
Shares repurchased ............................................. (2,587,886) (31,537,100)
---------- ------------
Net increase ................................................... 13,568,233 $166,248,923
========== ============
Class C Shares Amount
- ------------------------------------------------------------------- ---------- ------------
Shares sold ...................................................... 822,474 $ 10,670,766
Issued in connection with acquisition of Capital Appreciation Fund -- --
Issued upon reinvestment of distribution from net realized gains 267,147 3,331,325
Shares repurchased ............................................. (2,072,769) (26,820,873)
---------- ------------
Net increase (decrease) .......................................... (983,148) $(12,818,782)
========== ============
Class D Shares Amount
- ------------------------------------------------------------------- ---------- -----------
Shares sold ...................................................... 7,893,265 $96,528,582
Issued in connection with acquisition of Capital Appreciation Fund -- --
Issued upon reinvestment of distribution from net realized gains 561,501 6,811,002
Shares repurchased ............................................. (1,469,595) (17,991,747)
---------- -----------
Net increase (decrease) .......................................... 6,985,171 $85,347,837
========== ===========
</TABLE>
<PAGE>
STATE STREET RESEARCH CAPITAL FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a share outstanding throughout each year:
<TABLE>
<CAPTION>
Class A
---------------------------------------------------------------------------
Year ended September 30
---------------------------------------------------------------------------
1997* 1996* 1995* 1994 1993**
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of year $13.76 $13.53 $9.92 $10.43 $8.03
------ ------ ----- ------ -----
Net investment loss (0.08) (0.05) (0.04) (0.04) (0.03)
Net realized and unrealized
gain on investments 1.06 1.30 3.69 0.28 2.43
------ ------ ----- ------ -----
Total from investment
operations 0.98 1.25 3.65 0.24 2.40
------ ------ ----- ------ -----
Distributions from net
realized gains -- (1.02) (0.04) (0.75) --
------ ------ ----- ------ -----
Total distributions -- (1.02) (0.04) (0.75) --
------ ------ ----- ------ -----
Net asset value, end of
year $14.74 $13.76 $13.53 $9.92 $10.43
====== ====== ====== ===== ======
Total return 7.12%+ 10.12%+ 36.95%+ 2.51%+ 24.61%++
Net assets at end of year
(000s) $470,977 $114,247 $55,250 $19,891 $7,251
Ratio of operating expenses
to average net assets 1.21% 1.26% 1.33% 1.41% 2.43%[dbldag]
Ratio of net investment loss
to average net assets (0.60)% (0.39)% (0.34)% (0.55)% (1.43)%[dbldag]
Portfolio turnover rate 230.66% 215.07% 214.59% 167.08% 129.57%
Average commission rate@ $0.0337 $0.0278 -- -- --
<CAPTION>
Class B
---------------------------------------------------------------------------
Year ended September 30
---------------------------------------------------------------------------
1997* 1996* 1995* 1994 1993**
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of year $13.40 $13.29 $9.82 $10.40 $8.68
------ ------ ----- ------ -----
Net investment loss (0.17) (0.14) (0.12) (0.08) (0.04)
Net realized and unrealized
gain on investments 1.01 1.27 3.63 0.25 1.76
------ ------ ----- ------ -----
Total from investment
operations 0.84 1.13 3.51 0.17 1.72
------ ------ ----- ------ -----
Distributions from net
realized gains -- (1.02) (0.04) (0.75) --
------ ------ ----- ------ -----
Total distributions -- (1.02) (0.04) (0.75) --
Net asset value, end of
year $14.24 $13.40 $13.29 $9.82 $10.40
====== ====== ====== ===== ======
Total return 6.27%+ 9.33%+ 35.90%+ 1.79%+ 19.82%++
Net assets at end of year
(000s) $562,392 $386,899 $203,446 $73,354 $16,044
Ratio of operating expenses
to average net assets 1.98% 2.01% 2.08% 2.16% 3.16%[dbldag]
Ratio of net investment loss
to average net assets (1.32)% (1.13)% (1.10)% (1.28)% (2.15)%[dbldag]
Portfolio turnover rate 230.66% 215.07% 214.59% 167.08% 129.57%
Average commission rate@ $0.0337 $0.0278 -- -- --
</TABLE>
<TABLE>
<CAPTION>
Class C
---------------------------------------------------------------------------
Year ended September 30
---------------------------------------------------------------------------
1997* 1996* 1995* 1994 1993**
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of year $13.94 $13.66 $9.99 $10.46 $7.96
------ ------ ----- ------ -----
Net investment loss (0.05) (0.01) (0.01) (0.03) (0.06)
Net realized and unrealized
gain on investments 1.07 1.31 3.72 0.31 3.90
------ ------ ----- ------ -----
Total from investment
operations 1.02 1.30 3.71 0.28 3.84
------ ------ ----- ------ -----
Distributions from net
realized gains -- (1.02) ( 0.04) (0.75) (1.34)
------ ------ ----- ------ -----
Total distributions -- (1.02) ( 0.04) (0.75) (1.34)
------ ------ ----- ------ -----
Net asset value, end of
year $14.96 $13.94 $13.66 $9.99 $10.46
====== ====== ====== ===== ======
Total return 7.32%+ 10.41%+ 37.30%+ 2.91%+ 55.46%+
Net assets at end of year
(000s) $189,778 $34,835 $47,553 $23,967 $18,342
Ratio of operating expenses
to average net assets 0.96% 1.01% 1.08% 1.16% 2.11%
Ratio of net investment loss
to average net assets (0.37)% (0.08)% (0.07)% (0.32)% (1.30)%
Portfolio turnover rate 230.66% 215.07% 214.59% 167.08% 129.57%
Average commission rate@ $0.0337 $0.0278 -- -- --
<CAPTION>
Class D
-------------------------------------------------------------------------------
Year ended September 30
-------------------------------------------------------------------------------
1997* 1996* 1995* 1994 1993***
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of year $13.42 $13.31 $9.83 $10.39 $8.68
Net investment loss (0.17) (0.14) (0.12) (0.09) (0.04)
Net realized and unrealized
gain on investments 1.01 1.27 3.64 0.28 1.75
Total from investment
operations 0.84 1.13 3.52 0.19 1.71
Distributions from net
realized gains -- (1.02) (0.04) (0.75) --
Total distributions -- (1.02) (0.04) (0.75) --
Net asset value, end of
year $14.26 $13.42 $13.31 $9.83 $10.39
Total return 6.26%+ 9.23%+ 36.07%+ 2.00%+ 19.70%++
Net assets at end of year
(000s) $120,051 $190,319 $95,797 $37,783 $5,011
Ratio of operating expenses
to average net assets 1.98% 2.01% 2.08% 2.16% 3.16%[dbldag]
Ratio of net investment loss
to average net assets (1.30)% (1.13)% (1.09)% (1.28)% (2.16)%[dbldag]
Portfolio turnover rate 230.66% 215.07% 214.59% 167.08% 129.57%
Average commission rate@ $0.0337 $0.0278 -- -- --
- --------------------------------------------------------------------------------
[dbldag] Annualized
* Per-share figures have been calculated using the average shares method.
** February 17, 1993 (commencement of share class designations) to September 30, 1993.
*** March 15, 1993 (commencement of share class designations) to September 30, 1993.
+ Total return figures do not reflect any front-end or contingent deferred sales charges.
++ Represents aggregate return for the period without annualization and does not reflect any f
Front-end or contingent deferred sales charges.
@ Average commission rate per share paid for security trades beginning with the fiscal year ended September 30, 1996.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Trustees of State Street Research Capital Trust
and Shareholders of State Street Research Capital Fund
We have audited the accompanying statement of assets and liabilities of State
Street Research Capital Fund, including the schedule of portfolio investments,
as of September 30, 1997, and the related statement of operations for the year
then ended, the statement of changes in net assets for each of the two years in
the period then ended and the financial highlights for each of the periods
indicated herein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of State
Street Research Capital Fund as of September 30, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each
of the periods indicated therein, in conformity with generally accepted
accounting principles.
/s/ Coopers & Lybrand L.L.P.
----------------------------
Coopers & Lybrand L.L.P.
Boston, Massachusetts
November 7, 1997
<PAGE>
STATE STREET RESEARCH CAPITAL FUND
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
Capital Fund had a difficult year. Class A shares of the Fund returned +7.12%
[without sales charge] to investors for the 12 months ended September 30, 1997.
This total return performance was less than that of the average capital
appreciation fund tracked by Lipper Analytical Services, which returned +27.47%
for the same period. The S&P 500 Composite Index was up 40.43%. However,
performance picked up in the second half of the year. During the last six
months, total return for Class A shares was 23.87%, just short of the average
capital appreciation fund which gained +29.11%, according to Lipper.
The Fund invests primarily in emerging growth stocks and undervalued special
situation stocks.
The Fund's emphasis on small and mid-cap stocks during a period that generally
favored large-cap stocks hurt the Fund's performance. However, as the market
began to rotate away from large caps and to recognize some of the smaller and
mid-size stocks owned by the Fund, performance picked up significantly.
Investments in basic industries such as chemicals and metal & mining were cut
back during the last six months, along with airlines, retail and oil companies.
Additions were made to the Fund's science and technology positions after the
sector had come down some, and to business services, the Fund's largest single
industry at 14.3%. The Fund's investment in recreation companies was also
increased.
September 30, 1997
The Standard & Poor's 500 Composite Index (S&P 500) is a market-value weighted
index composed of 500 widely held common stocks. The index is unmanaged and
does not take sales charges into consideration. Direct investment in the index
is not possible; results are for illustrative purposes only. All returns
represent past performance, which is no guarantee of future results. During the
periods prior to 1993 that shares of the Fund were not offered to the general
public, the Fund was not subject to the cash inflows and higher redemptions and
expenses that have occurred during the Fund's current, continuous public
offering. Performance for a class includes periods prior to the adoption of
class designations in 1993, which resulted in new or increased 12b-1 fees of up
to 1% per class thereafter and which will reduce subsequent performance. The
investment return and principal value of an investment made in the Fund will
fluctuate and shares, when redeemed, may be worth more or less than their
original cost. All returns assume reinvestment of capital gain distributions
and income dividends. Performance reflects maximum 4.5% "A" share front-end
sales charge or 5% "B" share or 1% "D" share contingent deferred sales charge.
"C" shares, offered without a sales charge, are available only to certain
employee benefit plans and large institutions.
Change in Value of
$10,000 Based on the S&P 500
Compared to Change in Value of $10,000
Invested in the Fund
Class A Shares
Average Annual Total Return
1 Year 5 Years 10 Years
2.30% 19.64% 13.96%
Capital Fund S&P 500
9/87 9,500 10,000
9/88 8,217 8,761
9/89 11,005 11,648
9/90 8,714 10,571
9/91 13,409 13,858
9/92 14,393 15,389
9/93 22,312 17,384
9/94 22,781 18,024
9/95 31,323 23,378
9/96 34,492 28,129
9/97 36,949 39,500
Class B Shares
Average Annual Total Return
1 Year 5 Years 10 Years
1.27% 19.80% 14.13%
Capital Fund S&P 500
9/87 10,000 10,000
9/88 8,217 8,761
9/89 11,005 11,648
9/90 8,714 10,571
9/91 13,409 13,858
9/92 14,393 15,389
9/93 22,273 17,384
9/94 22,672 18,024
9/95 30,811 23,378
9/96 33,687 28,129
9/97 37,485 39,500
Class C Shares
Average Annual Total Return
1 Year 5 Years 10 Years
7.32% 21.04% 14.65%
Capital Fund S&P 500
9/87 10,000 10,000
9/88 8,217 8,761
9/89 11,005 11,648
9/90 8,714 10,571
9/91 13,409 13,858
9/92 14,393 15,389
9/93 22,403 17,384
9/94 23,604 18,024
9/95 31,225 23,387
9/96 33,254 28,129
9/97 39,226 39,500
Class D Shares
Average Annual Total Return
1 Year 5 Years 10 Years
5.26% 20.02% 14.14%
Capital Fund S&P 500
9/87 10,000 10,000
9/88 8,217 8,761
9/89 11,005 11,648
9/90 8,714 10,571
9/91 13,409 13,858
9/92 14,393 15,389
9/93 22,252 17,384
9/94 22,697 18,024
9/95 30,883 23,378
9/96 35,324 28,129
9/97 37,535 39,500
<PAGE>
STATE STREET RESEARCH EMERGING GROWTH FUND
a Series of
STATE STREET RESEARCH CAPITAL TRUST
STATEMENT OF ADDITIONAL INFORMATION
February 1, 1998
TABLE OF CONTENTS
Page
INVESTMENT OBJECTIVE.....................................................3
ADDITIONAL INVESTMENT POLICIES AND RESTRICTIONS..........................3
ADDITIONAL INFORMATION CONCERNING CERTAIN INVESTMENT
TECHNIQUES...............................................................5
DEBT INSTRUMENTS AND PERMITTED CASH INVESTMENTS.........................16
THE TRUST, THE FUND AND ITS SHARES......................................19
TRUSTEES AND OFFICERS...................................................21
INVESTMENT ADVISORY SERVICES............................................26
PURCHASE AND REDEMPTION OF SHARES.......................................28
SHAREHOLDER ACCOUNTS....................................................33
NET ASSET VALUE.........................................................37
PORTFOLIO TRANSACTIONS..................................................38
CERTAIN TAX MATTERS.....................................................42
DISTRIBUTION OF SHARES OF THE FUND......................................45
CALCULATION OF PERFORMANCE DATA.........................................50
CUSTODIAN...............................................................56
INDEPENDENT ACCOUNTANTS.................................................56
FINANCIAL STATEMENTS....................................................56
The following Statement of Additional Information is not a Prospectus. It
should be read in conjunction with the Prospectus of State Street Research
Emerging Growth Fund (the "Fund") dated February 1, 1998, which may be obtained
without charge from the offices of State Street Research Capital Trust (the
"Trust") or State Street Research Investment Services, Inc. (the "Distributor"),
One Financial Center, Boston, Massachusetts 02111-2690.
[CONTROL NUMBER: 1285N-970131(0298)SSR-LD SCG-879D-297]
<PAGE>
INVESTMENT OBJECTIVE
As set forth under "Emerging Growth Fund--Goal and Strategy--Fundamental
Goal" in the Prospectus of State Street Research Emerging Growth Fund (the
"Fund"), the Fund's investment goal, which is to provide growth of capital, is
fundamental and may not be changed by the Fund except by the affirmative vote of
a majority of the outstanding voting securities of the Fund, as defined in the
Investment Company Act of 1940, as amended (the "1940 Act"). (Under the 1940
Act, a "vote of the majority of the outstanding voting securities" means the
vote, at the annual or a special meeting of security holders duly called, (i) of
67% or more of the voting securities present at the meeting if the holders of
more than 50% of the outstanding voting securities are present or represented by
proxy or (ii) of more than 50% of the outstanding voting securities, whichever
is less.)
ADDITIONAL INVESTMENT POLICIES AND RESTRICTIONS
As set forth under "Emerging Growth Fund--Portfolio Risks" and "Other
Securities and Risks" in the Fund's Prospectus, the Fund has adopted certain
investment restrictions, and those restrictions are either fundamental or not
fundamental. Fundamental restrictions may not be changed by the Fund except by
the affirmative vote of a majority of the outstanding voting securities of the
Fund. Restrictions that are not fundamental may be changed by a vote of a
majority of the Trustees of the Trust.
The Fund's fundamental investment restrictions are set forth below. Under
these restrictions, it is the Fund's policy:
(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
Government corporations) 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, except in
connection with investments in other investment companies to the
extent permitted by law and regulatory authorities;
(2) not to purchase a security of any one issuer if such purchase would
cause more than 10% of the voting securities of such issuer to be
held by the Fund, except in connection with investments in other
investment companies to the extent permitted by law and regulatory
authorities;
(3) not to issue senior securities;
(4) 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
2
<PAGE>
underwriters of such securities and (b) to the extent that, in
connection with the disposition of the Fund's securities, the
Fund may be deemed to be an underwriter under certain federal
securities laws;
(5) not to purchase or sell fee simple interests in real estate,
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 own or invest or deal in real estate;
(6) not to invest in commodities or commodity contracts in excess of 10%
of the Fund's total assets, except that investments in currencies,
futures contracts and options on futures contracts on securities,
securities indices and currencies shall not be deemed an investment
in commodities or commodities contracts;
(7) not to make loans, except that the Fund may lend portfolio
securities and purchase bonds, debentures, notes and similar
obligations (and enter into repurchase agreements with respect
thereto);
(8) 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
issuers principally engaged in any one industry [for purposes of
this restriction, (a) utilities will be divided according to their
services so that, for example, gas, gas transmission, electric and
telephone companies will each be deemed in a separate industry, (b)
oil and oil related companies will be divided by type so that, for
example, oil production companies, oil service companies and
refining and marketing companies will each be deemed in a separate
industry, (c) finance companies will be classified according to the
industries of their parent companies, and (d) securities issued or
guaranteed by the U.S. Government or its agencies or
instrumentalities (including repurchase agreements involving such
U.S. Government securities to the extent excludable under relevant
regulatory interpretations) shall be excluded]; and
(9) not to borrow money except for borrowings from banks for
extraordinary and emergency purposes, such as permitting redemption
requests to be honored, and then not in an amount in excess of 25%
of the value of its total assets, and except insofar as reverse
repurchase agreements may be regarded as borrowing.
The following investment restrictions are not fundamental. Under these
restrictions, it is the Fund's policy:
(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);
3
<PAGE>
(2) not to engage in transactions in options except in connection with
options on securities, securities indices and currencies, and
options on futures on securities, securities indices and currencies;
(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;"
(4) not to hypothecate, mortgage or pledge any of its assets except as
may be necessary in connection with permitted borrowings (for the
purpose of this restriction, futures, options and forward
commitments, and related escrow or custodian receipts or letters,
margin or safekeeping accounts, or similar arrangements used in the
industry in connection with the trading of such investments, are not
deemed to involve a hypothecation, mortgage or pledge of assets);
(5) not to purchase a security issued by another investment company,
except to the extent permitted under the 1940 Act 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;
(6) not to invest in companies for the purpose of exercising control
over their management, although the Trust may from time to time
present its views on various matters to the management of issuers in
which it holds investments.
ADDITIONAL INFORMATION CONCERNING
CERTAIN INVESTMENT TECHNIQUES
The Fund 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 the Fund's investment objective. The 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 the 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 increase in the market value
of a particular asset or index). The Fund may also use strategies
4
<PAGE>
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.
The Investment Manager may enter into derivative positions for the Fund for
either hedging or non-hedging purposes. The term hedging is applied to defensive
strategies designed to protect the 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 the 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). Non-hedging strategies include strategies
designed to produce incremental income (such as the option writing strategy
described below) or "speculative" strategies which are undertaken to profit from
an expected decline in the market value of an asset or group of assets which the
Fund does not own or 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. The Fund will initially be required to deposit with the Trust's
custodian or the broker 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 the 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 the Fund has taken a long position in a
futures contract and the value of the underlying instrument has declined, the
position 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, the Fund may elect
to close the position by taking an opposite position which will terminate the
Fund's position in the futures
5
<PAGE>
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 the Fund
to the Trust's custodian for maintenance in a separate account to insure that
the use of such futures contracts is unleveraged. Similarly, assets having a
value equal to the aggregate face value of the futures contract will be
identified with respect to each short position. The Fund will utilize such
assets and methods of cover as appropriate under applicable exchange and
regulatory policies.
Options
The 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.
Purchased options have defined risk, that is, the premium paid for the
option, no matter how adversely the price of the underlying asset moves, while
affording an opportunity for gain corresponding to the increase or decrease in
the value of the optioned 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 the 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.
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.
6
<PAGE>
Among the options which the Fund may enter are options on securities
indices. 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.
A securities index assigns relative values to the securities included in
the index and the index options are based on a broad market index. In connection
with the use of such options, the 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
The 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 nonhedging
purposes would exceed 5% of the market value of the Fund's net assets. The Fund
applies a similar policy to options that are not commodies.
As noted above, the 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. The 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.
Nonhedging strategies typically involve special risks. The profitability of
the Fund's non-hedging strategies will depend on the ability of the Investment
Manger 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 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.
7
<PAGE>
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 the Fund's ability to effectively carry out their derivative
strategies and might, in some cases, require a Fund to deposit cash to meet
applicable margin requirements. The Fund will enter into an option or futures
position only if it appears to be a liquid investment.
Swaps
The Fund may enter into various forms of swap arrangements with
counterparties with respect to interest rates, currency rates or indices,
including purchase of caps, floors and collars as described below. In an
interest rate swap the 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 the
Fund a fixed rate of interest on the notional principal amount. In a currency
swap the 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.
The 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 default by the referenced creditor on the
underlying debt or a bankruptcy event of the creditor.
Most swaps entered into by the 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, the Fund will set up a segregated custodial account to hold appropriate
liquid assets, including cash; 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 the Fund's portfolio. However,
the Fund may, as
8
<PAGE>
noted above, enter into such arrangements for income purposes to the extent
permitted by the Commodities Futures Trading Commission for entities which are
not commodity pool operators, such as the Fund. In entering a swap arrangement,
the 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 the 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.
Currency Transactions
The 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. The 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. The Fund's dealings in forward currency exchange contracts will be
limited to hedging involving either specific transactions or aggregate portfolio
positions. 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, the 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. Although
spot and forward contracts will be used primarily to protect the 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 the 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.
9
<PAGE>
Repurchase Agreements
The Fund 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. The 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, including possible delays or restrictions upon
the Fund's ability to dispose of the underlying securities. Repurchase
agreements will be limited to 30% of the Fund's total assets, except that
repurchase agreements extending for more than seven days when combined with any
other illiquid securities held by the Fund will be limited to 10% of the Fund's
total assets.
Reverse Repurchase Agreements
The Fund 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 possession of 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
The Fund 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 the 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 the
Fund purchases securities on a when-issued basis consisting of cash or liquid
securities equal to the amount of the when-issued commitments. Securities
10
<PAGE>
transactions involving delayed deliveries or forward commitments are frequently
characterized as when-issued transactions and are similarly treated by the Fund.
Restricted Securities
It is the Fund's 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 35%
of the Fund's total assets are invested in restricted securities, provided not
more than 10% of the Fund's total assets are invested in restricted securities
other than Rule 144A 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 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 the Fund's
illiquidity to the extent that qualified institutional buyers become, for a
time, uninterested in purchasing such securities. Also, the 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.
Indexed Securities
The 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.
Foreign Investments
The Fund reserves the right to invest without limitation in securities of
non-U.S. issuers directly, or indirectly in the form of American Depositary
Receipts ("ADRs") and European Depositary Receipts ("EDRs"). Under current
policy, however, the Fund limits such investments, including ADRs and EDRs, to a
maximum of 35% of its total assets.
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. Generally, ADRs in registered form are designed for use
in U.S. securities markets and EDRs are designed for use in European securities
markets. The underlying securities are not always denominated in
11
<PAGE>
the same currency as the ADRs or EDRs. Although investment in the form of ADRs
or EDRs 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 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.
It is anticipated that a majority of the foreign investments by the Fund
will consist of securities of issuers in countries with developed economies.
However, the Fund may also invest in the securities of issuers in countries with
less developed economies as deemed appropriate by the Investment Manager,
although the Fund presently does not expect to invest more than 5% of its total
assets in issuers in such less developed countries. Such countries include
countries that have an emerging stock market that trades a small number of
securities; countries with low- to middle-income economies; and/or countries
with economies that are based on only a few industries. Eastern European
countries are considered to have less developed capital markets.
Securities Lending
The Fund may lend portfolio securities with a value of up to 33 1/3% of its
total assets. The Fund will receive cash or cash equivalents (e.g., U.S.
Government obligations) as
12
<PAGE>
collateral in an amount equal to at least 100% of the current market value of
any loaned securities plus accrued interest. Collateral received by the 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, irrevocable stand-by letters of credit issued
by a bank, or 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 the Fund's outstanding
securities. Such loans may be terminated at any time.
The Fund will retain rights to dividends, interest or other distributions,
on the loaned securities. Voting rights pass with the lending, although the 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.
Short-Term Trading
The Fund may engage in short-term trading of securities and reserves full
freedom with respect to portfolio turnover. In periods where there are rapid
changes in economic conditions and security price levels or when investment
strategy changes significantly, portfolio turnover may be higher than during
times of economic and market price stability or when investment strategy remains
relatively constant. The Fund's portfolio turnover rate involves quarter
transaction costs, relative to other funds in general, and may have tax and
other consequences.
Temporary and Defensive Investments
The Fund may hold up to 100% of its assets in cash or short-term debt
securities for temporary defensive purposes. The Fund will 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 short-term
instruments in which the Fund may invest for such purposes include short-term
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 Corporation ("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.
13
<PAGE>
Industry Classifications
In determining how much of the Fund's portfolio is invested in a given
industry, 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.
14
<PAGE>
<TABLE>
<CAPTION>
Basic Industries Consumer Staple Science & Technology
- ---------------- --------------- --------------------
<S> <C> <C>
Chemical Business Service Aerospace
Diversified Container Computer Software &
Electrical Equipment Drug Service
Forest Products Food & Beverage Electronic Components
Machinery Hospital Supply Electronic Equipment
Metal & Mining Personal Care Office Equipment
Railroad Printing & Publishing
Truckers Tobacco
Utility Energy Consumer Cyclical
- ------- ------ ------------------
Electric Oil Refining & Marketing Airline
Gas Oil Production Automotive
Gas Transmission Oil Service Building
Telephone Hotel & Restaurant
Photography
Other Finance Recreation
- ----- ------- Retail Trade
Trust Certificates -- Bank Textile & Apparel
Government Related Lending Financial Service
Asset-backed -- Mortgages Insurance
Asset-backed -- Credit
Card Receivables
</TABLE>
DEBT INSTRUMENTS AND PERMITTED CASH INVESTMENTS
The Fund may invest in long-term and short-term debt securities. Certain
debt securities and money market instruments in which the Fund may invest are
described below.
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 Government corporations as described herein. The U.S. Government
securities in which the Fund invests 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
15
<PAGE>
(bullet) obligations of mixed-ownership Government corporations such as
Resolution Funding Corporation.
U.S. Government securities which the 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
Banks, the Federal Farm Credit Banks, 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 segregated account
with a Federal Reserve Bank. Except for certain mortgage-related securities, the
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 the 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, the 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.
The 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.
16
<PAGE>
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. The 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 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 10% 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.
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 corporations including but not
limited to (a) domestic or foreign bank holding companies or (b) 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.
Commercial Paper Ratings. Commercial paper investments at the time of
purchase will be rated within the "A" major rating category by S&P or within the
"Prime" major rating
17
<PAGE>
category by Moody's, 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 or
by Moody's. 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 or
within the "Prime" category by Moody's.
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 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.
In the event the lowering of ratings of debt instruments held by the Fund
by applicable rating agencies results in a material decline in the overall
quality of the Fund's portfolio, the Trustees of the Trust will review the
situation and take such action as they deem in the best interests of the Fund's
shareholders, including if necessary, changing the composition of the portfolio.
THE TRUST, THE FUND AND ITS SHARES
State Street Research Capital Trust is currently comprised of the following
series: State Street Research Capital Fund, State Street Research Emerging
Growth Fund and State Street Research Aurora Fund. The Trustees of the Trust
have authority to issue an unlimited number of shares of beneficial interest of
separate series, $.001 par value per share. The Trustees also have authority,
without the necessity of a shareholder vote, to create any number of new series
or classes or to commence the public offering of shares of any previously
established series or
18
<PAGE>
classes. A "series" is a separate pool of assets of the Trust which is
separately managed and has a different investment objective and different
investment policies from those of another series.
The Trustees have authorized shares of the Fund to be issued in four
classes: Class A, Class B, Class C and Class S shares. Prior to November 1,
1997, the Fund's current Class C shares were designated as Class D shares and
the Fund's current Class S shares were designated as Class C shares.
Each share of each class of shares represents an identical legal interest
in the same portfolio of investments of the Fund, has the same rights and is
identical in all respects, except that Class A, Class B and Class C shares bear
the expenses of the deferred sales arrangement and any expenses (including the
higher service and distribution fees) resulting from such sales arrangement, and
certain other incremental expenses related to a class. Each class will have
exclusive voting rights with respect to provisions of the Rule 12b-1
distribution plan pursuant to which the service and distribution fees, if any,
are paid. 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. The different classes of
shares of the Fund also have different exchange privileges. Except for those
differences between classes of shares described above, in the Fund's Prospectus
and otherwise this Statement of Additional Information, each share of the 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.
The rights of holders of shares may be modified by the Trustees at any
time, so long as such modifications do not have a material, adverse effect on
the rights of any shareholder. On any matter submitted to the shareholders, 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.
Under the Master Trust Agreement, no annual or regular meeting of
shareholders is required. Thus, there ordinarily will be no shareholder meetings
unless required by 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 Master Trust Agreement,
any Trustee may be removed by vote of two-thirds of the outstanding Trust
shares; holders of 10% or more of the outstanding shares of the Trust can
require that the Trustees call a meeting of shareholders for purposes of voting
on the removal of one or more Trustees. In connection with such meetings called
by shareholders, shareholders will be assisted in shareholder communications to
the extent required by applicable law.
19
<PAGE>
Under Massachusetts law, the shareholders of the Trust could, under certain
circumstances, be held personally liable for the obligations for the Trust.
However, the Master Trust Agreement of the Trust disclaims shareholder liability
for acts or obligations of the Trust and provides for indemnification for all
losses and expenses of any shareholder of the 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.
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 59. His principal occupation is currently, and
during the past five years has been, Executive Vice President of State Street
Research & Management Company. Mr. Bennett is also a Director of State Street
Research & Management Company. Mr. Bennett's other principal business
affiliations include Director, State Street Research Investment Services, Inc.
and Executive Vice President, GFM International Investors Limited.
*+Jesus A. Cabrera, One Financial Center, Boston, MA 02111 serves as Vice
President of the Trust. He is 36. His principal occupation is Vice President of
State Street Research & Management Company. During the past five years he also
has served as Vice President at First Chicago Investment Management Company.
+Steve A. Garban, The Pennsylvania State University, 210 Old Main,
University Park, PA 16802, serves as Trustee of the Trust. He is 60. He is
retired and was formerly Senior Vice President for Finance and Operations and
Treasurer of The Pennsylvania State University.
+Malcolm T. Hopkins, 14 Brookside Road, Biltmore Forest, Asheville, NC
28803, serves as Trustee of the Trust. He is 69. He is engaged principally in
private investments. Previously, he was Vice Chairman of the Board and Chief
Financial Officer of St. Regis Corp.
*+Rudolph K. Kluiber, One Financial Center, Boston, MA 02111, serves as
Vice President of the Trust. He is 38. His principal occupation currently is
Vice President of State Street Research & Management Company. During the past
five years he has also served as an analyst for State Street Research &
Management Company.
+Edward M. Lamont, Box 1234, Moores Hill Road, Syosset, NY 11791, serves as
Trustee of the Trust. He is 71. He is engaged principally in private investments
and civic
20
<PAGE>
affairs and is an author of business history. Previously, he was with Morgan
Guaranty Trust Company of New York.
+Robert A. Lawrence, Saltonstall & Co., 50 Congress Street, Boston, MA
02109, serves as Trustee of the Trust. He is 71. His principal occupation is
Associate of Saltonstall & Co., a private investment firm. During the past five
years he has also served as Partner of that firm.
*+Gerard P. Maus, One Financial Center, Boston, MA 02111, serves as
Treasurer of the Trust. He is 46. His principal occupation is Executive Vice
President, Treasurer, Chief Financial Officer and Director of State Street
Research & Management Company. During the past five years he has also served as
Executive Vice President and Chief Financial Officer of New England Investment
Companies and as Senior Vice President and Vice President of New England Mutual
Life Insurance Company. Mr. Maus's other principal business affiliations include
Executive Vice President, Treasurer, Chief Financial Officer and Director of
State Street Research Investment Services, Inc. and Executive Vice President,
Chief Financial Officer, Administrative Officer and Director, GFM International
Investors Limited.
*+Francis J. McNamara, III, One Financial Center, Boston, MA 02111, serves
as Secretary and General Counsel of the Trust. He is 42. 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
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 Senior Vice President, Clerk and General Counsel of State Street
Research Investment Services, Inc. and Executive Vice President and General
Counsel, GFM International Investors Limited.
+Dean O. Morton, 3200 Hillview Avenue, Palo Alto, CA 94304, serves as
Trustee of the Trust. He is 65. He is retired, having served during the past
five years, until October 1992, as Executive Vice President, Chief Operating
Officer and Director of Hewlett-Packard Company.
+Thomas L. Phillips, 141 Spring Street, Lexington, MA 02173, serves as
Trustee of the Trust. He is 73. He is retired and was formerly Chairman of the
Board and Chief Executive Officer of Raytheon Company, of which he remains a
Director.
+Toby Rosenblatt, 3409 Pacific Avenue, San Francisco, CA 94118, serves as
Trustee of the Trust. He is 59. His principal occupations during the past five
years have been President of The Glen Ellen Company, a private investment
company, and Vice President of Founders Investments Ltd.
21
<PAGE>
+Michael S. Scott Morton, Massachusetts Institute of Technology, 77
Massachusetts Avenue, Cambridge, MA 02139, serves as Trustee of the Trust. He is
60. His principal occupation during the past five years has been Jay W.
Forrester Professor of Management at Sloan School of Management, Massachusetts
Institute of Technology.
*+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 55. His principal occupation is Chairman of the Board, President,
Chief Executive Officer and Director of State Street Research & Management
Company. During the past five years he also served as President and Chief
Executive Officer of New England Investment Companies and as Chief Investment
Officer and Director of New England Mutual Life Insurance Company. Mr. Verni's
other principal business affiliations include Chairman of the Board and Director
of State Street Research Investment Services, Inc. and (until February, 1996,
prior positions as President and Chief Executive Officer of that company) and
Chairman of the Board, President, and Chief Executive Officer and Director of
GFM International Investors Limited.
+Jeptha H. Wade, 251 Old Billerica Road, Bedford, MA 01730, serves as
Trustee of the Trust. He is 73. He is retired and was formerly Of Counsel for
the law firm Choate, Hall & Stewart. He was a partner of that firm from 1960 to
1987.
*+James M. Weiss, One Financial Center, Boston, MA 02111, serves as Vice
President of the Trust. He is 51. His principal occupation is Senior Vice
President of State Street Research & Management Company. During the past five
years he has also served as President and Chief Investment Officer of IDS
Advisory Group and as Senior Vice President of Stein, Roe & Farnham.
- ---------------------
* 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 a direct or indirect
advisory relationship with the Investment Manager or its affiliates:
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.
22
<PAGE>
Record ownership of shares of the Fund as of October 31, 1997 was as
follows:
Class Shareholder % of Class
A Merrill Lynch 6.95
B Merrill Lynch 22.43
C (a) Merrill Lynch 39.50
S (a) Chase Manhattan Bank, N.A. 86.68
The full name and address of the above institutions are:
Chase Manhattan Bank, N.A. (b)(c)
770 Broadway
New York, New York 10003
Merrill Lynch, Pierce, Fenner & Smith, Inc. (c)
4800 Deerlake Drive East
Jacksonville, FL 32246
(a) Prior to November 1, 1997, the Fund's current Class C shares were
designated as Class D shares and the Fund's current Class S shares were
designated as Class C shares.
(b) Chase Manhattan Bank, N.A. holds such shares as trustee under certain
employee benefit plans serviced by Metropolitan Life Insurance Company
("Metropolitan").
(c) The Fund believes that each named recordholder does not have beneficial
ownership of such shares.
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, such as any
Distribution Plan for a given class.
As of October 31, 1997, the Trustees and principal officers of the Trust as
a group owned approximately 1.7% of the outstanding Class A shares of the Fund,
and none of the outstanding Class B, Class C or Class S shares.*
* Prior to November 1, 1997, the Fund's current Class C shares were
designated as Class D shares and the Fund's current Class S shares were
designated as Class C shares.
23
<PAGE>
The Trustees were compensated as follows:
Total
Compensation
Aggregate From Trust and
Compensation Complex Paid
Name of Trustee From Trust(a) to Trustees(b)
--------------- ------------- ---------------
Steve A. Garban $ 3,111 $ 34,750
Malcolm T. Hopkins $ 3,611 $ 34,750
Edward M. Lamont $ 6,550 $ 59,375
Robert A. Lawrence $ 6,850 $ 88,875
Dean O. Morton $ 7,450 $ 92,875
Thomas L. Phillips $ 6,850 $ 59,375
Toby Rosenblatt $ 6,550 $ 59,375
Michael S. Scott Morton $ 8,350 $ 96,875
Ralph F. Verni $ 0 $ 0
Jeptha H. Wade $ 7,750 $ 63,375
(a) For the Fund's fiscal year ended September 30, 1997. Includes
compensation received from multiple series of the Trust. See "The
Trust, the Fund and its Shares" in this Statement of Additional
Information for a listing of series.
(b) Includes compensation on behalf of all series of 12 investment
companies for which the Investment Manager served directly or
indirectly as investment adviser or for which the Investment Manager
served as sub-investment adviser, and series of State Street Research
Portfolios, Inc., for which State Street Research Investment Services,
Inc. served as distributor. "Total Compensation from Trust and Complex
Paid to Trustees" for the 12 months ended December 31, 1996. The Trust
does not provide any pension or retirement benefits for the Trustees.
INVESTMENT ADVISORY SERVICES
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
24
<PAGE>
extensive investment industry experience managing equity and debt securities. In
managing debt securities, if any, for a portfolio, the Investment Manager may
consider yield curve positioning, sector rotation and duration, among other
factors.
The Advisory Agreement provides that the Investment Manager shall furnish
the Fund with an investment program, office 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.
The advisory fee payable monthly by the 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 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 0.75% of the net assets of the Fund.
The advisory fees paid by the Fund to the Investment Manager for the last
three fiscal years, prior to the assumption of fees or expenses, were as
follows: 1997, $461,544; 1996, $443,318; and 1995, $501,000.
The Distributor and its affiliates have from time to time and in varying
amounts voluntarily assumed some portion of fees or expenses relating to the
Fund. The voluntary reduction of fees or assumption of expenses for the same
periods were as follows: 1997, $185,818; 1996, $233,624; and 1995, $453,010.
The Advisory Agreement provides that it shall continue in effect from year
to year with respect to the Fund 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 Fund's Administration Agreement between the Investment Manager
and the Distributor, the Distributor provides assistance to the Investment
Manager in performing certain fund administration services for the Trust, such
as assistance in determining the daily net asset value of shares of each series
of the Trust and in preparing various reports required by regulations.
Under a Shareholders' Administrative Services Agreement between the Trust
and the Distributor, the Distributor provides shareholders' administrative
services, such as responding
25
<PAGE>
to inquiries and instructions from investors respecting the purchase and
redemption of shares of the Fund, and is entitled to reimbursements of its costs
for providing such services. Under certain arrangements for Metropolitan to
provide subadministration services, Metropolitan may receive a fee for the
maintenance of certain share ownership records for participants in sponsored
arrangements, such as employee benefit plans, through or under which the Fund's
shares may be purchased.
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.
PURCHASE AND REDEMPTION OF SHARES
Shares of the Fund are distributed by State Street Research Investment
Services, Inc., the Distributor. The Fund offers four classes of shares which
may be purchased at the next determined net asset value per share plus, in the
case of all classes except Class S shares, a sales charge which, at the election
of the investor, may be imposed (i) at the time of purchase (the Class A shares)
or (ii) on a deferred basis (the Class B and Class C shares). General
information on how to buy shares of the Fund, as well as sales charges involved,
are set forth under "Your Account" 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 State Street Research
Service Center (the "Service Center"), provided that the order is received prior
to the close of 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. When a purchase order is placed through a dealer, that
dealer is responsible for transmitting the order promptly to the Service Center
in order to permit the investor to obtain the current price. Any loss suffered
by an investor which results from a dealer's failure to transmit an order
promptly is a matter for settlement between the investor and the dealer.
Class A Shares--Reduced Sales Charges. The reduced sales charges, set forth
under "Your Account--Class A Sales Charge Reductions and Waivers" in the Fund's
Prospectus apply to purchases made at any one time by any "person," which
includes: (i) an individual, or an individual combining with his or her spouse
and their children and purchasing for his, her or their own account; (ii) a
"company" as defined in Section 2(a)(8) of the 1940 Act; (iii) a trustee or
other fiduciary purchasing for a single trust estate or single fiduciary account
(including a pension, profit sharing or other employee benefit trust created
pursuant to a plan qualified under Section 401 of the Internal Revenue Code);
(iv) a tax-exempt organization
26
<PAGE>
under Section 501(c)(3) or (13) of the Internal Revenue Code; and (v) an
employee benefit plan of a single employer or of affiliated employers.
Investors may purchase Class A shares of the Fund at reduced sales charges
by executing a Letter of Intent to purchase no less than an aggregate of
$100,000 of the Fund or any combination of Class A shares of "Eligible Funds"
(which include the Fund and other funds as designated by the Distributor from
time to time) within a 13-month period. The sales charge applicable to each
purchase made pursuant to a Letter of Intent will be that which would apply if
the total dollar amount set forth in the Letter of Intent were being bought in a
single transaction. Purchases made within a 90-day period prior to the execution
of a Letter of Intent may be included therein; in such case the date of the
earliest of such purchases marks the commencement of the 13-month period.
An investor may include toward completion of a Letter of Intent the value
(at public offering price) of all of his or her Class A shares of
the Fund and of any of the other Class A shares of Eligible Funds held of record
as of the date of his or her Letter of Intent, plus the value (at the current
offering price) as of such date of all of such shares held by any "person"
described herein as eligible to join with the investor in a single purchase.
Class B, Class C and Class S shares may also be included in the combination
under certain circumstances.
A Letter of Intent does not bind the investor to purchase the specified
amount. Shares equivalent to 5% of the specified amount will, however, be taken
from the initial purchase (or, if necessary, subsequent purchases) and held in
escrow in the investor's account as collateral against the higher sales charge
which would apply if the total purchase is not completed within the allotted
time. The escrowed shares will be released when the Letter of Intent is
completed or, if it is not completed, when the balance of the higher sales
charge is, upon notice, remitted by the investor. All dividends and capital
gains distributions with respect to the escrowed shares will be credited to the
investor's account.
Investors may purchase Class A shares of the Fund or a combination of
Eligible Funds at reduced sales charges pursuant to a Right of Accumulation. The
applicable sales charge under the right is determined on the amount arrived at
by combining the dollar amount of the purchase with the value (at the current
public offering price) of all Class A shares of the other Eligible Funds owned
as of the purchase date by the investor plus the value (at the current public
offering price) of all such shares owned as of such date by any "person"
described herein as eligible to join with the investor in a single purchase.
Class B, Class C and Class S shares may also be included in the combination
under certain circumstances. Investors must submit to the Distributor sufficient
information to show that they qualify for this Right of Accumulation.
Other Programs Related to Class A Shares. Class A shares of the Fund may be
sold or issued in an exchange at a reduced sales charge or without sales charge
pursuant to certain sponsored arrangements, which include programs under which a
company, employee benefit plan or other organization makes recommendations to,
or permits group solicitation of, its
27
<PAGE>
employees, members or participants, except any organization created primarily
for the purpose of obtaining shares of the Fund at a reduced sales charge or
without a sales charge. Sales without a sales charge, or with a reduced sales
charge, may also be made through brokers, registered investment advisers,
financial planners, institutions, and others, under managed fee-based programs
(e.g., "wrap fee" or similar programs) which meet certain requirements
established from time to time by the Distributor. Information on such
arrangements and further conditions and limitations is available from the
Distributor.
In addition, no sales charge is imposed in connection with the sale of
Class A shares of the Fund to the following entities and person: (A) the
Investment Manager, Distributor or any affiliated entities, including any direct
or indirect parent companies and other subsidiaries of such parents
(collectively "Affiliated Companies"); (B) employees, officers, sales
representatives or current or retired directors or trustees of the Affiliated
Companies or any investment company managed by any of the Affiliated Companies,
any relatives of any such individuals whose relationship is directly verified by
such individuals to the Distributor, or any beneficial account for such
relatives or individuals; and (C) employees, officers, sales representatives or
directors of dealers and other entities with a selling agreement with the
Distributor to sell shares of any aforementioned investment company, any spouse
or child of such person, or any beneficial account for any of them. The purchase
must be made for investment and the shares purchased may not be resold except
through redemption. This purchase program is subject to such administrative
policies, regarding the qualification of purchasers and any other matters, as
may be adopted by the Distributor from time to time.
Conversion of Class B Shares to Class A Shares. A shareholder's Class B
shares of the Fund, including all shares received as dividends or distributions
with respect to such shares, will automatically convert to Class A shares of the
Fund at the end of eight years following the issuance of such Class B shares;
consequently, they will no longer be subject to the higher expenses borne by
Class B shares. The conversion rate will be determined on the basis of the
relative per share net asset values of the two classes and may result in a
shareholder receiving either a greater or fewer number of Class A shares than
the Class B shares so converted. As noted above, holding periods for Class B
shares received in exchange for Class B shares of other Eligible Funds will be
counted toward the eight-year period.
Contingent Deferred Sales Charges. The amount of any contingent deferred
sales charge paid on Class A shares (on sales of $1 million or more and which do
not involve an initial sales charge) or on Class B or Class C shares of the Fund
will be paid to the Distributor. The Distributor will pay dealers at the time of
sale a 4% commission for selling Class B shares and a 1% commission for selling
Class C shares. In certain cases, a dealer may elect to waive the 4% commission
on Class B shares and receive in lieu thereof a 1% annual fee with respect to
such outstanding shares until the shares convert to Class A shares. The proceeds
of the contingent deferred sales charges and the distribution fees are used to
offset distribution expenses and thereby permit the sale of Class B and Class C
shares without an initial sales charge.
28
<PAGE>
In determining the applicability and rate of any contingent deferred sales
charge of Class B or Class C shares, it will be assumed that a redemption of the
shares is made first of those shares having the greatest capital appreciation,
next of shares representing reinvestment of dividends and capital gains
distributions and finally of remaining shares held by shareholder for the
longest period of time. Class B shares that are redeemed within a five-year
period after their purchase, and Class C shares that are redeemed within a
one-year period after their purchase, will not be subject to a contingent
deferred sales charge to the extent that the value of such shares represents (1)
capital appreciation of Fund assets or (2) reinvestment of dividends or capital
gains distributions. The holding period for purposes of applying a contingent
deferred sales charge for a particular class of shares of the Fund acquired
through an exchange from another Eligible Fund will be measured from the date
that such shares were initially acquired in the other Eligible Fund, and shares
of the same class being redeemed will be considered to represent, as applicable,
capital appreciation or dividend and capital gains distribution reinvestments in
such other Eligible Fund. These determinations will result in any contingent
deferred sales charge being imposed at the lowest possible rate. For federal
income tax purposes, the amount of the contingent deferred sales charge will
reduce the gain or increase the loss, as the case may be, on the amount realized
on redemption.
Contingent Deferred Sales Charge Waivers. With respect to Class A shares
(on sales of $1 million or more and which do not involve an initial sales
charge), and Class B and Class C shares of the Fund, the contingent deferred
sales charge does not apply to exchanges or to redemptions under a systematic
withdrawal plan which meets certain conditions. In addition, the contingent
deferred sales charge will be waived for: (i) redemptions made within one year
of the death or total disability, as defined by the Social Security
Administration, of all shareholders of an account; (ii) redemptions made after
attainment of a specific age in an amount which represents the minimum
distribution required at such age under Section 401(a)(9) of the Internal
Revenue Code of 1986, as amended, for retirement accounts or plans (e.g., age 70
1/2 for Individual Retirement Accounts and Section 403(b) plans), calculated
solely on the basis of assets invested in the Fund or other Eligible Funds; and
(iii) a redemption resulting from a tax-free return of an excess contribution to
an Individual Retirement Account. (The foregoing waivers do not apply to a
tax-free rollover or transfer of assets out of the Fund). The Fund may modify or
terminate the waivers at any time; for example, the Fund may limit the
application of multiple waivers and establish other conditions for employee
benefit plans.
Class S Shares. Class S shares are currently available to certain employee
benefit plans such as qualified retirement plans which meet criteria relating to
number of participants, service arrangements, or similar factors; insurance
companies; investment companies; advisory accounts of the Investment Manager;
endowment funds of nonprofit organizations with substantial minimum assets
(currently a minimum of $10 million); and other similar institutional investors.
Class S shares may be acquired through programs or products sponsored by
Metropolitan, its affiliates, or both for which Class S shares have been
designated. In addition, Class S shares are available through programs under
which, for example, investors pay an asset-based fee and/or a transaction fee to
intermediaries. Class S
29
<PAGE>
share availability is determined by the Distributor and intermediaries based on
the overall direct and indirect costs of a particular program, expected assets,
account sizes and similar considerations.
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, the Fund may issue its shares at net asset value (or
more) to such entities or to their security holders.
Redemptions. The Fund reserves the right to pay redemptions in kind with
portfolio securities in lieu of cash. In accordance with its election pursuant
to Rule 18f-1 under the 1940 Act, the Fund may limit the amount of redemption
proceeds paid in cash. Although it has no present intention to do so, the Fund
may, under unusual circumstances, limit redemptions in cash with respect to each
shareholder during any ninety-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. In
connection with any redemptions paid in kind with portfolio securities,
brokerage and other costs may be incurred by the redeeming shareholder in the
sale of the securities received.
Systematic Withdrawal Plan. A shareholder who owns noncertificated Class A
or Class S shares with a value of $5,000 or more, or Class B or Class C shares
with a value of $10,000 or more, may elect, by participating in the Fund's
Systematic Withdrawal Plan, to have periodic checks issued for specified
amounts. These amounts may not be less than certain minimums, depending on the
class of shares held. The Plan provides that all income dividends and capital
gains distributions of the Fund shall be credited to participating shareholders
in additional shares of the Fund. Thus, the withdrawal amounts paid can only be
realized by redeeming shares of the Fund under the Plan. To the extent such
amounts paid exceed dividends and distributions from the Fund, a shareholder's
investment will decrease and may eventually be exhausted.
In the case of shares otherwise subject to contingent deferred sales
charges, no such charges will be imposed on withdrawals of up to 8% annually of
either (a) the value, at the time the Systematic Withdrawal Plan is initiated,
of the shares then in the account or (b) the value, at the time of a withdrawal,
of the same number of shares as in the account when the Systematic Withdrawal
Plan was initiated, whichever is higher.
Expenses of the Systematic Withdrawal Plan are borne by the Fund. A
participating shareholder may withdraw from the Systematic Withdrawal Plan, and
the Fund may terminate the Systematic Withdrawal Plan at any time on written
notice. Purchase of additional shares while a shareholder is receiving payments
under a Systematic Withdrawal Plan is ordinarily disadvantageous because of
duplicative sales charges. For this reason, a shareholder may not participate in
the Investamatic Program (see "Your Account--Investor Services--Investamatic
Program" in the Fund's Prospectus) and the Systematic Withdrawal Plan at the
same time.
30
<PAGE>
Request to Dealer to Repurchase. For the convenience of shareholders, the
Fund has authorized the Distributor as its agent to accept orders from dealers
by wire or telephone for the repurchase of shares by the Distributor from the
dealer. The Fund may revoke or suspend this authorization at any time. The
repurchase price is the net asset value for the applicable shares next
determined following the time at which the shares are offered for repurchase by
the dealer to the Distributor. The dealer is responsible for promptly
transmitting a shareholder's order to the Distributor.
Signature Guarantees. Signature guarantees are required for, among other
things: (1) written requests for redemptions for more than $50,000; (2) written
requests for redemptions for any amount if the proceeds are transmitted to other
than the current address of record (unchanged in the past 30 days); (3) written
requests for redemptions for any amount submitted by corporations and certain
fiduciaries and other intermediaries; and (4) requests to transfer the
registration of shares to another owner. Signatures must be guaranteed by a
bank, a member firm of a national stock exchange, or other eligible guarantor
institution. The Transfer Agent will not accept guarantees (or notarizations)
from notaries public. The above requirements may be waived in certain instances.
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.
Processing Charges. Purchases and redemptions processed through securities
dealers may be subject to processing charges imposed by the securities dealer in
addition to sales charges that may be imposed by the Fund or the Distributor.
SHAREHOLDER ACCOUNTS
General information on shareholder accounts is included in the Fund's
Prospectus under "Your Account." The following supplements that information.
Maintenance Fees and Involuntary Redemption. Because of the relatively high
cost of maintaining small shareholder accounts, the Fund reserves the right to
redeem at its option any shareholder account which remains below $1,500 for a
period of 60 days after notice is mailed to the applicable shareholder, or to
impose a maintenance fee on such account after 60 days' notice. Such
involuntarily redemptions will be subject to applicable sales charges, if any.
The Fund may increase such minimum account value above such amount in the future
after notice to affected shareholders. Involuntarily redeemed shares will be
priced at the net asset value on the date fixed for redemption by the Fund, and
the proceeds of the redemption will be mailed to the affected shareholder at the
address of record. Currently, the maintenance fee is $18 annually, which is paid
to the Transfer Agent. The fee does not apply to certain retirement accounts or
if the shareholder has more than an aggregate $50,000
31
<PAGE>
invested in the Fund and other Eligible Funds combined. Imposition of a
maintenance fee on a small account could, over time, exhaust the assets of such
account.
To cover the cost of additional compliance administration, a $20 fee will
be charged against any shareholder account that has been determined to be
subject to escheat under applicable state laws.
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 (a) 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; and (b) the payment of redemption
proceeds may be postponed as otherwise provided under "Purchase and Redemption
of Shares" in this Statement of Additional Information.
The Open Account System. Under the Open Account System full and fractional
shares of the 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 representing Class B or Class C shares
will not be issued, while certificates representing Class A or Class S shares
will only be issued if specifically requested in writing and, in any case, will
only be issued for full shares, with any fractional shares to be carried on the
shareholder's account. Shareholders will receive periodic statements of
transactions in their accounts.
The Fund's Open Account System provides the following options:
1. Additional purchases of shares of the Fund may be made through
dealers, by wire or by mailing a check payable to "State Street
Research Funds" under the terms set forth above under "Purchase and
Redemption of Shares" in this Statement of Additional Information.
2. The following methods of receiving dividends from investment income
and distributions from capital gains generally are available:
(a) All income dividends and capital gains distributions reinvested in
additional shares of the Fund.
(b) All income dividends and capital gains distributions in cash.
32
<PAGE>
(c) All income dividends and capital gains distributions invested in
any one available Eligible Fund designated by the shareholder as
described below. See "--Dividend Allocation Plan" herein.
Dividend and distribution selections should be made on the Application
accompanying the initial investment. If no selection is indicated on the
Application, that account will be automatically coded for reinvestment of all
dividends and distributions in additional shares of the same class of the Fund.
Selections may be changed at any time by telephone or written notice to the
Service Center. Dividends and distributions are reinvested at net asset value
without a sales charge.
Exchange Privileges. Shareholders of the Fund may exchange their shares for
available shares with corresponding characteristics of any of the other Eligible
Funds at any time on the basis of the relative net asset values of the
respective shares to be exchanged, subject to compliance with applicable
securities laws. Shareholders of any other Eligible Fund may similarly exchange
their shares for Fund shares with corresponding characteristics. Prior to making
an exchange, shareholders should obtain the Prospectus of the Eligible Fund into
which they are exchanging. Under the Direct Program, subject to certain
conditions, shareholders may make arrangements for regular exchanges from the
Fund into other Eligible Funds. To effect an exchange, Class A, Class B and
Class C shares may be redeemed without the payment of any contingent deferred
sales charge that might otherwise be due upon an ordinary redemption of such
shares. The State Street Research Money Market Fund issues Class E shares which
are sold without any sales charge. Exchanges of State Street Research Money
Market Fund Class E shares into Class A shares of the Fund or any other Eligible
Fund are subject to the initial sales charge or contingent deferred sales charge
applicable to an initial investment in such Class A shares, unless a prior Class
A sales charge has been paid directly or indirectly with respect to the shares
redeemed. For purposes of computing the contingent deferred sales charge that
may be payable upon disposition of any acquired Class A, Class B and Class C
shares, the holding period of the redeemed shares is "tacked" to the holding
period of any acquired shares. No exchange transaction fee is currently imposed
on any exchange.
Shares of the Fund may also be acquired or redeemed in exchange for shares
of the Summit Cash Reserves Fund ("Summit Cash Reserves") by customers of
Merrill Lynch, Pierce, Fenner & Smith Incorporated (subject to completion of
steps necessary to implement the program). The Fund and Summit Cash Reserves are
related mutual funds for purposes of investment and investor services. Upon the
acquisition of shares of Summit Cash Reserves by exchange for redeemed shares of
the Fund, (a) no sales charge is imposed by Summit Cash Reserves, (b) no
contingent deferred sales charge is imposed by the Fund on the Fund shares
redeemed, and (c) any applicable holding period of the Fund shares redeemed is
"tolled," that is, the holding period clock stops running pending further
transactions. Upon the acquisition of shares of the Fund by exchange for
redeemed shares of Summit Cash Reserves, (a) the acquisition of Class A shares
shall be subject to the initial sales charges or contingent deferred sales
charges applicable to an initial investment in such Class A shares, unless a
prior Class A
33
<PAGE>
sales charge has been paid indirectly, and (b) the acquisition of Class B or
Class C shares of the Fund shall restart any holding period previously tolled,
or shall be subject to the contingent deferred sales charge applicable to an
initial investment in such shares.
The exchange privilege may be terminated or suspended or its terms changed
at any time, subject, if required under applicable regulations, to 60 days'
prior notice. New accounts established for investments upon exchange from an
existing account in another fund will have the same telephone privileges with
respect to the Fund (see "Your Account--Account Policies--Telephone Requests" in
the Fund's Prospectus and "--Telephone Privileges," below) as the existing
account unless the Service Center is instructed otherwise. Related
administrative policies and procedures may also be adopted with regard to a
series of exchanges, street name accounts, sponsored arrangements and other
matters.
The exchange privilege is not designed for use in connection with
short-term trading or market timing strategies. To protect the interests of
shareholders, the Fund reserves the right to temporarily or permanently
terminate the exchange privilege for any person who makes more than six
exchanges out of or into the Fund per calendar year. Accounts under common
ownership or control, including accounts with the same taxpayer identification
number, may be aggregated for purposes of the six exchange limit.
Notwithstanding the six exchange limit, the Fund reserves the right to refuse
exchanges by any person or group if, in the Investment Manager's judgment, the
Fund would be unable to invest effectively in accordance with its investment
objective and policies, or would otherwise potentially be adversely affected.
Exchanges may be restricted or refused if the Fund receives or anticipates
simultaneous orders affecting significant portions of the Fund's assets. In
particular, a pattern of exchanges that coincides with a "market timing"
strategy may be disruptive to the Fund. The Fund may impose these restrictions
at any time. The exchange limit may be modified for accounts in certain
institutional retirement plans because of plan exchange limits, Department of
Labor regulations or administrative and other considerations. Subject to the
foregoing, if an exchange request in good order is received by the Service
Center and delivered by the Service Center to the Transfer Agent by 12 noon
Boston time on any business day, the exchange usually will occur that day. For
further information regarding the exchange privilege, shareholders should
contact the Service Center.
Reinvestment Privilege. A shareholder of the Fund who has redeemed shares
or had shares repurchased at his or her request may reinvest all or any portion
of the proceeds (plus that amount necessary to acquire a fractional share to
round off his or her reinvestment to full shares) in shares, of the same class
as the shares redeemed, of the Fund or any other Eligible Fund at net asset
value and without subjecting the reinvestment to an initial sales charge,
provided such reinvestment is made within 120 calendar days after a redemption
or repurchase. Upon such reinvestment, the shareholder will be credited with any
contingent deferred sales charge previously charged with respect to the amount
reinvested. The redemption of shares is, for federal income tax purposes, a sale
on which the shareholder may realize a gain or loss. If a redemption at a loss
is followed by a reinvestment within 30 days, the transaction may be a "wash
sale" resulting in a denial of the loss for federal income tax purposes.
34
<PAGE>
Any reinvestment pursuant to the reinvestment privilege will be subject to
any applicable minimum account standards imposed by the fund into which the
reinvestment is made. Shares are sold to a reinvesting shareholder at the net
asset value thereof next determined following timely receipt by the Service
Center of such shareholder's written purchase request and delivery of the
request by the Service Center to the Transfer Agent. A shareholder may exercise
this reinvestment privilege only once per 12-month period with respect to his or
her shares of the Fund.
Dividend Allocation Plan. The Dividend Allocation Plan allows shareholders
to elect to have all their dividends and any other distributions from the Fund
or any Eligible Fund automatically invested at net asset value in one other such
Eligible Fund designated by the shareholder, provided the account into which the
dividends and distributions are directed is initially funded with the requisite
minimum amount.
Telephone Privileges. Unless a shareholder declines telephone privileges
that are offered with his or her Account, (see "Your Account--Account
Policies--Telephone Requests"), he or she is deemed to authorize the Service
Center and the Transfer Agent to: (1) act upon the telephone instructions of any
person purporting to be the shareholder to redeem, or purporting to be the
shareholder or the shareholder's dealer to exchange, shares from any account;
and (2) honor any written instructions for a change of address regardless of
whether such request is accompanied by a signature guarantee. All telephone
calls will be recorded. Neither the Fund, the other Eligible Funds, the Transfer
Agent, the Investment Manager nor the Distributor will be liable for any loss,
expense or cost arising out of any request, including any fraudulent or
unauthorized requests. Shareholders assume the risk to the full extent of their
accounts that telephone requests may be unauthorized. Reasonable procedures will
be followed to confirm that instructions communicated by telephone are genuine.
The shareholder will not be liable for any losses arising from unauthorized or
fraudulent instructions if such procedures are not followed.
Alternative Means of Contacting the Fund. It is unlikely, during periods of
extraordinary market conditions, that a shareholder may have difficulty in
reaching the Service Center. In that event, however, the shareholder should
contact the Service Center at 1-800- 562-0032, 1-617-357-7800 or otherwise at
its main office at One Financial Center, Boston, Massachusetts 02111-2690.
NET ASSET VALUE
The net asset value of the shares of the 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 NYSE is currently closed on New Year's Day, Presidents
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
35
<PAGE>
The net asset value per share of the 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 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.
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 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 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% of 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.
36
<PAGE>
PORTFOLIO TRANSACTIONS
Portfolio Turnover
The Fund's portfolio turnover rate is determined by dividing the lesser of
securities purchases or sales for a year by the monthly average value of
securities held by the Fund (excluding, for purposes of this determination,
securities the maturities of which as of the time of their acquisition were one
year or less). The Fund's portfolio turnover rates for the fiscal years ended
September 30, 1996 and 1997, respectively, were as follows: 155.85% and 273.33%.
The Investment Manager believes the portfolio turnover rate for the
fiscal year ended September 30, 1997 was significantly higher than that of the
previous year because of strategic repositioning of the portfolio in response
to rapid changes and heightened volatility in the market for small
capitalization and emerging growth companies during the year.
Brokerage Allocation
The Investment Manager's policy is to seek for its clients, including the
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, 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 the 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 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
37
<PAGE>
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 used for portfolio analysis and modeling, and including software providing
investment personnel with efficient access to current and historical data from a
variety of internal and external sources); and portfolio evaluation services and
relative performance of accounts.
In the case of the 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 has an investment in less
than ten percent of the outstanding equity of one such third party which is
engaged in the development and licensing of trading systems which include
portfolio analysis and modeling and other research and investment
decision-making capabilities. The Investment Manager may allocate brokerage to
broker-dealers who in turn pay this third party for the portion of the third
party's trading system provided to the Investment Manager, which is estimated by
the Investment Manager to provide appropriate assistance in the investment
decision-making process. Because of its minority interest in the third party,
the Investment Manager could be said to benefit indirectly from such brokerage
allocation.
The Investment Manager regularly reviews and evaluates the services
furnished by broker-dealers. Among other measures, the Investment Manager's
investment management personnel seek to evaluate the quality of research and
other services received, and the results of this effort are made available to
the equity trading department, which sometimes uses this information as
consideration 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 such services to determine the appropriate proportion of the cost which is
allocable to purposes other than research or investment decision-making and the
Investment Manager pays for that portion directly from its own funds. 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
38
<PAGE>
will necessarily be used exclusively in connection with the accounts which pay
the commissions to the broker-dealer producing 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
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, to the extent applicable.
Brokerage commissions paid by the Fund in secondary trading during the last
three fiscal years ended September 30 were as follows: 1995, $169,000; 1996,
$133,000; and 1997, $328,000.
During and at the end of its most recent fiscal year, the Fund did not
hold in its portfolio securities of any entity that might be deemed to be a
regular broker-dealer of the Fund as defined under the 1940 Act.
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.
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 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
39
<PAGE>
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
Federal Income Taxation of the Fund--in General
The 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 do so. Accordingly, for each of the Fund's tax years that has begun
on or prior to August 5, 1997, the 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 business of investing in such stock,
securities or currencies (the "90% test"); (b) derive less than 30% of its gross
income in each taxable year from the sale or other disposition of any of the
following held for less than three months (the "30% test"): (i) stock or
securities, (ii) options, futures or forward contracts (other than options,
futures, or forward contracts on foreign currencies), or (iii) foreign
currencies (or options, futures, or forward contracts on foreign currencies) but
only if such currencies (or options, futures, or forward contracts) are not
directly related to the Fund's principal business of investing in stocks or
securities (or options and futures with respect to stocks or securities); (c)
satisfy certain diversification requirements; and (d) in order to be entitled to
utilize the dividends paid deduction, distribute annually at least 90% of its
investment company taxable income (determined without regard to the deduction
for dividends paid). For any Fund tax year beginning after August 5, 1997, the
Fund will have to comply with each of those requirements except the 30% test in
order to qualify to be treated as a regulated investment company under
Subchapter M.
Beginning October 1, 1997 (the start of the Fund's first tax year that has
begun after August 5, 1997), when the Fund no longer has had to comply with the
30% test in order to qualify under Subchapter M, the Fund has had greater
flexibility in buying and selling securities and in the use of futures and
options in managing risks. The 30% test has had the effect of limiting the
extent to which the Fund may sell securities held for less than three months;
write options which expire in less than three months; and effect closing
transactions
40
<PAGE>
with respect to call or put options that have been written or purchased within
the preceding three months. (If the Fund has purchased a put option for the
purpose of hedging an underlying portfolio security, the acquisition of the
option is treated as a short sale of the underlying security unless, for
purposes only of the 30% test, the option and the security has been acquired on
the same date.) The 30% test also has limited investments by the Fund in options
on stock indices, listed options on nonconvertible debt securities, futures
contracts, options on interest rate futures contracts and certain foreign
currency contracts.
If the Fund should fail to qualify as a regulated investment company in any
year, it would lose the beneficial tax treatment accorded regulated investment
companies under Subchapter M of the Code and all of its taxable income would be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will 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.
The Fund will be liable for a nondeductible 4% excise tax on amounts not
distributed (or deemed distributed) on a timely basis in accordance with a
calendar year distribution requirement. To avoid the tax, during each calendar
year the Fund must distribute (or be deemed to have distributed) an amount equal
to at least 98% of the sum of its ordinary income (not taking into account any
capital gains or losses) for the calendar year, and 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. For that purpose, any
income or gain retained by the Fund that is subject to corporate tax will be
considered to have been distributed by year end. The Fund intends to make
sufficient distributions to avoid this 4% excise tax.
Federal Income Taxation of the Fund's Investments
Original Issue Discount. For federal income tax purposes, debt securities
purchased by the 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.
Debt securities may be purchased by the Fund at a discount that exceeds the
original issue discount plus previously accrued original issue discount
remaining on the securities, if
41
<PAGE>
any, at the time the Fund purchases the securities. This additional discount
represents market discount for federal income tax purposes. In the case of any
debt security issued after July 18, 1984, having a fixed 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. The 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 currently. Because the Fund must include original issue discount
in income, 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
under Subchapter M of the Code or to avoid the 4% excise tax described above.
Options and Futures Transactions. Certain of the Fund's investments 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, the 30% test (until
October 1, 1997), 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,
medium-term or long-term gain or loss. Such provisions generally apply to, among
other investments, options on debt securities, indices on securities and futures
contracts.
Federal Income Taxation of Shareholders
Dividends paid by the Fund may be eligible for the 70% dividends-received
deduction for corporations. The percentage of the Fund's dividends eligible for
such tax treatment may be less than 100% to the extent that less than 100% of
the Fund's gross income may be from qualifying dividends of domestic
corporations. Any dividend declared in October, November or December and made
payable to shareholders of record in any such month is treated as received by
such shareholder on December 31, provided that the Fund pays the dividend during
January of the following calendar year.
Distributions by the Fund can 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 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 then
receive a return of investment upon distribution which will nevertheless be
taxable to them.
42
<PAGE>
DISTRIBUTION OF SHARES OF THE FUND
The Trust has entered into a Distribution Agreement with State Street
Research Investment Services, Inc., as Distributor, whereby the Distributor acts
as agent to sell and distribute shares of the Fund. Shares of the Fund are sold
through dealers who have entered into sales agreements with the Distributor. The
Distributor distributes shares of the Fund on a continuous basis at an offering
price which is based on the net asset value per share of the Fund plus (subject
to certain exceptions) a sales charge which, at the election of the investor,
may be imposed (i) at the time of purchase (the Class A shares) or (ii) on a
deferred basis (Class B and Class C shares). The Distributor may reallow all or
portions of such sales charges as concessions to dealers.
Total sales charges on Class A shares paid to the Distributor for the last
three fiscal years were as follows: 1997, $108,632; 1996, $17,809; and 1995,
$84,789.
For the same periods, the Distributor retained the following amounts after
reallowance of concessions to dealers: 1997, $13,429; 1996, $2,120; and 1995,
$9,616.
The differences in the price at which the Fund's Class A shares are offered
due to scheduled variations in sales charges, as described in the Fund's
Prospectus, result from cost savings inherent in economies of scale. Management
believes that the cost of sales efforts of the Distributor and broker-dealers
tends to decrease as the size of purchases increases, or does not involve any
incremental sales expenses as in the case of, for example, exchanges,
reinvestments or dividend investments at net asset value. Similarly, no
significant sales effort is necessary for sales of shares at net asset value to
certain Directors, Trustees, officers, employees, their relatives and other
persons directly or indirectly related to the Fund or associated entities. Where
shares of the Fund are offered at a reduced sales charge or without a sales
charge pursuant to sponsored arrangements, managed fee-based programs and
so-called "mutual fund supermarkets," among other programs, the amount of the
sales charge reduction will similarly reflect the anticipated reduction in sales
expenses associated with such arrangements. The reductions in sales expenses,
and therefore the reduction in sales charges, will vary depending on factors
such as the size and other characteristics of the organization or program, and
the nature of its membership or the participants. The Fund reserves the right to
make variations in, or eliminate, sales charges at any time or to revise the
terms of or to suspend or discontinue sales pursuant to sponsored arrangements
or similar programs at any time.
On any sale of Class A shares to a single investor in the amount of
$1,000,000 or more, the Distributor will pay the authorized securities dealer
making such sale a commission based on the aggregate of such sales. Such
commission also is payable to authorized securities dealers upon sales of Class
A shares made pursuant to a Letter of Intent to purchase shares having a net
asset value of $1,000,000 or more. Shares sold with such commissions payable are
subject to a one-year contingent deferred sales charge of 1.00% on any portion
of such shares redeemed within one year following their sale. After a particular
purchase of Class A
43
<PAGE>
shares is made under the Letter of Intent, the commission will be paid only in
respect of that particular purchase of shares. If the Letter of Intent is not
completed, the commission paid will be deducted from any discounts or
commissions otherwise payable to such dealer in respect of shares actually sold.
If an investor is eligible to purchase shares at net asset value on account of
the Right of Accumulation, the commission will be paid only in respect of the
incremental purchase at net asset value.
For the periods shown below, the Distributor received contingent deferred
sales charges upon redemption of Class A, Class B and Class C shares of the Fund
and paid initial commissions to securities dealers for sales of such Class A,
Class B and Class C shares as follows:
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year Fiscal Year
Ended September 30, 1997 Ended September 30, 1996 Ending September 30, 1995
------------------------ ------------------------ -------------------------
Contingent Commissions Contingent Commissions Contingent Commissions
Deferred Paid to Deferred Paid to Deferred Paid to
Sales Charges Dealers Sales Charges Dealers Sales Charges Dealers
------------- ----------- ------------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Class A $ 0 $ 95,203 $ 0 $15,689 $ 0 $ 75,173
Class B $69,904 $289,915 $81,122 $20,187 $ 128,068 $133,801
Class C $ 163 $ 13,320 $ 264 $ 1,054 $ 6,586 $ 6,453
</TABLE>
The Fund has adopted a "Plan of Distribution Pursuant to Rule 12b-1" (the
"Distribution Plan") under which the Fund may engage, directly or indirectly, in
financing any activities primarily intended to result in the sale of Class A,
Class B and Class C shares, including, but not limited to, (1) the payment of
commissions and/or reimbursement to underwriters, securities dealers and others
engaged in the sale of shares, including payments to the Distributor to be used
to pay commissions and/or reimbursement to securities dealers (which securities
dealers may be affiliates of the Distributor) engaged in the distribution and
marketing of shares and furnishing ongoing assistance to investors, (2)
reimbursement of direct out-of-pocket expenditures incurred by the Distributor
in connection with the distribution and marketing of shares and the servicing of
investor accounts including expenses relating to the formulation and
implementation of marketing strategies and promotional activities such as direct
mail promotions and television, radio, newspaper, magazine and other mass media
advertising, the preparation, printing and distribution of Prospectuses of the
Fund and reports for recipients other than existing shareholders of the Fund,
and obtaining such information, analyses and reports with respect to marketing
and promotional activities and investor accounts as the Fund may, from time to
time, deem advisable, and (3) reimbursement of expenses incurred by the
Distributor in connection with the servicing of shareholder accounts including
payments to securities dealers and others in consideration of the provision of
personal service to investors and/or the maintenance or servicing of shareholder
accounts and expenses associated with the provision of personal service by the
Distributor directly to investors. In addition, the Distribution Plan is deemed
to authorize the Distributor and the Investment Manager to make payments out of
44
<PAGE>
general profits, revenues or other sources to underwriters, securities dealers
and others in connection with sales of shares, to the extent, if any, that such
payments may be deemed to be within the scope of Rule 12b-1 under the 1940 Act.
Some or all of the service fees are used to pay or reimburse dealers
(including dealers that are affiliates of the Distributor) or others for
personal services and/or the maintenance of shareholder accounts. A portion of
any initial commission paid to dealers for the sale of shares of the Fund
represents payment for personal services and/or the maintenance or servicing of
shareholder accounts by such dealers. Dealers who have sold Class A shares are
eligible for further reimbursement commencing as of the time of such sale.
Dealers who have sold Class B and Class C shares are eligible for further
reimbursement after the first year during which such shares have been held of
record by such dealer as nominee for its clients (or by such clients directly).
Any service fees received by the Distributor and not allocated to dealers may be
applied by the Distributor in reduction of expenses incurred by it directly for
personal services and the maintenance or servicing of shareholder accounts.
The distribution fees are used primarily to offset initial and ongoing
commissions paid to dealers for selling such shares. Any distribution fees
received by the Distributor and not allocated to dealers may be applied by the
Distributor in connection with sales or marketing efforts, including special
promotional fees and cash and noncash incentives based upon sales by dealers.
The Distributor provides distribution services on behalf of other funds
having distribution plans and receives similar payments from, and incurs similar
expenses on behalf of, such other funds. When expenses of the Distributor cannot
be identified as relating to a specific fund, the Distributor allocates expenses
among the funds in a manner deemed fair and equitable to each fund.
Commissions and other cash and noncash incentives and payments to dealers,
to the extent payable out of the general profits, revenues or other sources of
the Distributor (including the advisory fees paid by the Fund), have also been
authorized pursuant to the Distribution Plan.
The expenditures to be made pursuant to the Distribution Plan may not
exceed (i) with respect to Class A shares, an annual rate of 0.25% of the
average daily value of net assets represented by such Class A shares, and (ii)
with respect to Class B and Class C shares, an annual rate of 0.75% of the
average daily value of the net assets represented by such Class B or Class C
shares (as the case may be) to finance sales or promotion expenses and an annual
rate of 0.25% of the average daily value of the net assets represented by such
Class B or Class C shares (as the case may be) to make payments for personal
services and/or the maintenance or servicing of shareholder accounts. The
distribution and servicing expenses of a particular class will be borne solely
by that class. In addition, a rule of the NASD limits annual expenditures that
the Fund may incur under the Distribution Plan to 1%, of which 0.75% may be used
to pay distribution expenses and 0.25% may be used to pay shareholder service
fees. The NASD rule also limits the aggregate amount that the Fund may pay for
such distribution costs to 6.25% of gross share sales of a class since the
inception of any asset-based sales charge plus interest at the prime rate plus
1% on unpaid amounts thereof (less any contingent deferred sales charges). Such
limitation does not apply to shareholder service fees. Payments to the
Distributor or to dealers funded under the Distribution Plan may be discontinued
at any time.
45
<PAGE>
The Distributor may pay certain dealers and other intermediaries additional
compensation for sales and administrative services. The Distributor may provide
cash and noncash incentives to intermediaries who, for example, sell significant
amounts of shares or develop particular distribution channels. The Distributor
may compensate dealers with clients who maintain their investments in the Fund
over a period of years. The incentives can include merchandise and trips to, and
attendance at, sales seminars at resorts. The Distributor may pay for
administrative services, such as technological and computer systems support for
the maintenance of pension plan participant records, for subaccounting, and for
distribution through mutual fund supermarkets or similar arrangements.
During the fiscal year ended September 30, 1997, the Fund paid the
Distributor fees under the Distribution Plan and the Distributor used all of
such payments for expenses incurred on behalf of the Fund as follows:
Class A Class B Class C
Advertising $ 811 $ 0 $ 0
Printing and mailing of
prospectuses to other
than current shareholders $ 298 $ 0 $ 0
Compensation to dealers $52,077 $265,078 $48,253
Compensation to sales personnel $ 2,438 $ 0 $ 0
Interest $ 0 $ 0 $ 0
Carrying or other
financing charges $ 0 $ 0 $ 0
Other expenses: marketing;
general $ 1,186 $ 0 $ 0
Total fees $56,810 $265,078 $48,253
======= ======== =======
The Distributor may have also used additional resources of its own for
further expenses on behalf of the Fund.
46
<PAGE>
No interested Trustee of the Trust has any direct or indirect financial
interest in the operation of the Distribution Plan or any related agreements
thereunder. The Distributor's interest in the Distribution Plan is described
above.
To the extent that the Glass-Steagall Act may be interpreted as prohibiting
banks and other depository institutions from being paid for performing services
under the Distribution Plan, the Fund will make alternative arrangements for
such services for shareholders who acquired shares through such institutions.
47
<PAGE>
CALCULATION OF PERFORMANCE DATA
From time to time, in advertisements or in communications to shareholders
or prospective investors, the Fund may compare the performance of its Class A,
Class B, Class C or Class S shares to the performance of other mutual funds with
similar investment objectives, to certificates of deposit and/or to other
financial alternatives. The Fund may also compare its performance to appropriate
indices, such as Standard & Poor's 500 Index, Russell 2000 Growth 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. For example, the performance of the
Fund might be compared to the Lipper Small-Cap Funds Index.
The average annual total return ("standard total return") and yield of the
Class A, Class B, Class C and Class S shares of the Fund will be calculated as
set forth below. Total return and yield are computed separately for each class
of shares of the Fund. Performance data for a specified class includes periods
prior to the adoption of class designations on June 1, 1993, when designations
were assigned based on the pricing and Rule 12b-1 fees applicable to shares sold
thereafter. The application of the additional Rule 12b-1 fees, if any, of up to
1% will, for periods after to June 1, 1993 adversely affect Fund performance
results. Thus, performance data or rankings for a given class of shares should
be interpreted carefully by investors who hold or may invest in a different
class of shares.
The performance data below reflect Rule 12b-1 fees and, where applicable,
sales charges as follows:
<TABLE>
<CAPTION>
Rule 12b-1 Fees Sales Charges
------------------------------------------------------------- ----------------------------------------------
Class Amount Period
----- ----- ------
<S> <C> <C> <C>
A 0.25% February 1, 1994 to present; fee will Maximum 4.5% sales charge reflected
reduce performance for periods after
February 1, 1994
B 1.00% February 1, 1994 to present; fee will 1- and 5-year periods reflect a 5% and a 2%
reduce performance for periods after contingent deferred sales charge, respectively
February 1, 1994
C* 1.00% February 1, 1994 to present; fee will None
reduce performance for periods after
February 1, 1994
S* None Since commencement of operations to 1-year period reflects a 1% contingent deferred
present sales charge
</TABLE>
- ------------------------
* Prior to November 1, 1997, the Fund's current Class C shares were
designated as Class D shares and the Fund's current Class S shares were
designated as Class C shares.
48
<PAGE>
All calculations of performance data in this section 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
The Fund's standard average annual total returns ("standard total return")
of each class of shares were as follows:
Commencement of
Operations (October 4, 1993) One Year Ended
to September 30, 1997 September 30,1997
---------------------------- -----------------
Class A 41.34% 13.82%
Class B 41.91% 13.85%
Class C* 46.15% 14.38%
Class S* 48.34% 15.48%
- ------------------
* Prior to November 1, 1997, the Fund's current Class C shares were
designated as Class D shares and the Fund's current Class S shares were
designated as Class C shares. Standard total return is 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
49
<PAGE>
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.
50
<PAGE>
Accrued Expenses and Recurring Charges
Accrued expenses include all recurring charges that are charged to all
shareholder accounts in proportion to the length of the base period. The
standard total return [and yield] results take sales charges, if applicable,
into account, although the results do not take into account recurring and
nonrecurring charges for optional services which only certain shareholders elect
and which involve nominal fees, such as the $7.50 fee for wire orders.
Accrued expenses do not include the subsidization, if any, by affiliates of
fees or expenses during the subject period. In the absence of such
subsidization, the performance of the Fund would have been lower.
Nonstandardized Total Return
The Fund may provide the above described standard total return results for
Class A, Class B, Class C and Class S 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 the Fund's operations. In addition, the Fund
may provide nonstandardized total return results for differing periods, such as
for the most recent six months, and/or without taking sales charges into
account. Such nonstandardized total return is computed as otherwise described
under "--Total Return" except the
51
<PAGE>
result may or may not be annualized, and as noted any applicable sales charge
may not be taken into account and therefore not deducted from the hypothetical
initial payment of $1,000. For example, the Fund's nonstandardized total returns
for the six months ended September 30, 1997, without taking sales charges into
account, were as follows:
Class A 49.04%
Class B 48.52%
Class C* 48.77%
Class S* 49.38%
- ------------------------
* Prior to November 1, 1997, the Fund's current Class C shares were
designated as Class D shares and the Fund's current Class S shares were
designated as Class C shares.
52
<PAGE>
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 the Fund's cash and securities, handling the receipt and delivery of
securities and collecting interest and dividends on the Fund's investments.
State Street Bank and Trust Company is not an affiliate of the Investment
Manager or its affiliates.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., 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 Fund.
FINANCIAL STATEMENTS
In addition to the reports provided to holders of record on a semiannual
basis, other supplementary financial reports may be made available from time to
time through electronic or other media. Shareholders with substantial holdings
in one or more State Street Research Funds may also receive reports and other
information which reflect or analyze their positions in a consolidated manner.
For more information, call State Street Research Service Center.
The following financial statements are for the Fund's fiscal year ended
September 30, 1997 and reflect the Fund's class designations prior to November
1, 1997. Information pertaining to Class C and Class D in the financial
statements now pertains to Class S and Class C, respectively.
53
<PAGE>
STATE STREET RESEARCH EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
September 30, 1997
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Value
Shares (Note 1)
- ----------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 92.8%
Basic Industries 10.3%
Electrical Equipment 3.4%
Aavid Thermal Technologies Inc.* ......... 40,700 $ 1,226,087
Aztec Manufacturing Co. .................. 60,000 1,290,000
Essex International Inc.* ............... 13,300 512,050
------------
3,028,137
------------
Machinery 4.8%
Elamex SA de CV* ........................ 67,200 730,800
Terex Corp.* ........................... 64,200 1,332,150
US Filter Corp.* ........................ 52,000 2,239,250
------------
4,302,200
------------
Metal & Mining 1.6%
Chicago Bridge & Iron Co. NV ............ 30,800 639,100
Wyman-Gordon Co.* ........................ 29,300 769,125
------------
1,408,225
------------
Truckers 0.5%
CNF Transportation Inc. .................. 10,400 453,050
------------
Total Basic Industries ........................... 9,191,612
------------
Consumer Cyclical 23.6%
Automotive 0.4%
Budget Group Inc. Cl. A* ............... 11,800 389,400
------------
Hotel & Restaurant 2.9%
Apple South Inc. ........................ 34,200 658,350
Extended Stay America Inc.* ............ 35,300 529,500
Fine Host Corp.* ........................ 24,500 949,375
Interstate Hotels Co.* .................. 14,500 473,063
------------
2,610,288
------------
Recreation 4.3%
Action Performance Companies Inc.* ...... 24,500 713,562
HSN Inc.* .............................. 20,600 836,875
International Game Technology Inc. ...... 30,600 696,150
Steiner Leisure Ltd.* .................. 43,000 1,580,250
------------
3,826,837
------------
Retail Trade 11.6%
Abercrombie & Fitch Co. Cl. A* ......... 34,000 892,500
Ames Department Stores Inc.* ............ 62,500 937,500
Borders Group Inc.* ..................... 29,500 811,250
Brylane Inc.* ........................... 18,700 857,863
InaCom Corp.* ........................... 17,200 639,625
Jones Apparel Group Inc.* ............... 15,000 810,000
Linens 'n Things Inc.* .................. 13,400 448,900
- ---------------------------------------------------------------------
Value
Shares (Note 1)
- ---------------------------------------------------------------------
<S> <C> <C>
Retail Trade (cont'd)
Micro Warehouse Inc.* .................. 39,900 $ 872,812
Proffitts Inc.* ........................ 15,000 888,750
RDO Equipment Co. Cl. A* ............... 33,400 768,200
Talbots Inc. ........................... 15,600 445,575
Winsloew Furniture Inc.* ............... 127,200 1,971,600
------------
10,344,575
------------
Textile & Apparel 4.4%
Men's Wearhouse, Inc.* .................. 21,800 812,050
Paul Harris Stores Inc.* ............... 50,000 1,381,250
Timberland Co. Cl. A* .................. 22,300 1,778,425
------------
3,971,725
------------
Total Consumer Cyclical .................. 21,142,825
------------
Consumer Staple 24.6%
Business Service 12.1%
American Eco Corp* ..................... 16,400 213,200
Aris Corp.* .............................. 11,100 235,875
Avis Rent A Car, Inc.* .................. 11,600 276,950
Caribiner International Inc.* ............ 72,500 2,954,375
Carriage Services, Inc. Cl. A* ......... 25,100 439,250
Hall, Kinion & Associates Inc.* ......... 5,500 116,188
HBO & Co. .............................. 20,800 785,200
Microage Inc.* ........................... 21,300 617,700
Norrell Corp. ........................... 18,900 649,687
Snyder Communications Inc.* ............ 44,900 1,234,750
U.S. Office Products Co.* ............... 72,000 2,538,000
Universal Outdoor Holdings Inc.* ......... 20,400 765,000
------------
10,826,175
------------
Drug 2.9%
BioVail Corp.* ........................... 27,900 810,844
Chirex Inc.* ........................... 45,300 1,155,150
Columbia Laboratories Inc.* ............ 35,600 658,600
------------
2,624,594
------------
Hospital Supply 3.4%
Henry Schein Inc.* ..................... 11,600 414,700
National Surgery Centers Inc.* ......... 29,200 635,100
Sierra Health Services Inc.* ............ 20,000 732,500
Trigon Healthcare Inc.* .................. 52,300 1,297,694
------------
3,079,994
------------
Personal Care 4.5%
Cooper Companies Inc.* .................. 77,200 2,837,100
Wesley Jessen VisionCare Inc.* ......... 40,900 1,155,425
------------
3,992,525
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
Value
Shares (Note 1)
- -----------------------------------------------------------------------
<S> <C> <C>
Printing & Publishing 1.7%
Hollinger International, Inc. Cl. A ......... 52,400 $ 700,850
Valassis Communications Inc.* ............... 24,900 793,687
------------
1,494,537
------------
Total Consumer Staple .............................. 22,017,825
------------
Energy 2.5%
Oil 2.5%
Gulf Indonesia Resources Ltd.* ............ 12,100 269,225
KCS Energy Inc. ........................... 28,900 852,550
Maxx Petroleum Ltd.* ........................ 99,100 215,115
Post Energy Corp.* ........................ 26,800 85,323
Seagull Energy Corp.* ..................... 31,700 808,350
------------
2,230,563
------------
Total Energy ....................................... 2,230,563
------------
Finance 9.8%
Bank 3.1%
Bank United Corp. Cl. A ..................... 17,600 778,800
Commercial Federal Corp. .................. 14,700 692,738
North Fork Bancorporation Inc.* ............ 20,800 603,200
Sovereign Bancorp Inc. ..................... 41,160 720,300
------------
2,795,038
------------
Financial Service 3.5%
Granite Financial Inc.* ..................... 30,900 355,350
Healthcare Financial Partners Inc.* ......... 45,800 1,414,075
Medallion Financial Corp. .................. 33,300 724,275
MoneyGram Payment Systems Inc.* ............ 38,200 685,212
------------
3,178,912
------------
Insurance 3.2%
Chartwell Re Corp. ........................ 19,400 688,700
Delphi Financial Group Inc. Cl. A ......... 12,852 551,833
E.W. Blanch Holdings Inc.* .................. 30,000 928,125
Mutual Risk Management Ltd. ............... 13,266 674,078
------------
2,842,736
------------
Total Finance ....................................... 8,816,686
------------
Science & Technology 21.4%
Aerospace 0.7%
Gulfstream Aerospace Corp.* ............... 20,200 585,800
------------
Computer Software & Service 6.2%
Advantage Learning Systems Inc.* ............ 3,500 88,375
Applied Graphics Technologies, Inc.* ...... 26,700 1,501,875
Aspen Technology Inc.* ..................... 14,700 516,338
Box Hill Systems Corp.* ..................... 13,900 243,250
- -----------------------------------------------------------------------
Value
Shares (Note 1)
- -----------------------------------------------------------------------
<S> <C> <C>
Computer Software & Service (cont'd)
Crystal Systems Solutions Ltd.* ............ 24,400 $ 652,700
Diamond Multimedia Systems Inc.* ............ 41,400 507,150
J.D. Edwards & Co.* ........................ 10,400 348,400
Network Solutions Inc. Cl. A* ............... 3,600 78,300
P-Com, Inc.* .............................. 16,800 402,150
QAD Inc.* ................................. 34,300 638,837
Standard Microsystems Corp.* ............... 15,600 268,125
Viasoft Inc.* .............................. 5,100 252,450
------------
5,497,950
------------
Electronic Components 8.5%
CHS Electronics Inc.* ..................... 39,450 1,079,944
Dynatech Corp.* ........................... 18,300 751,444
Kulicke & Soffa Industries Inc.* ............ 15,900 736,369
Microchip Technology Inc.* .................. 24,700 1,115,359
Qlogic Corp.* .............................. 25,000 1,046,875
Sanmina Corp.* .............................. 9,800 848,312
SBS Technologies Inc.* ..................... 39,900 952,612
TriQuint Semiconductors Inc.* ............... 19,700 717,819
World Access Inc.* ........................ 12,100 393,250
------------
7,641,984
------------
Electronic Equipment 6.0%
Advanced Fibre Communications, Inc.* ...... 10,400 426,400
Aeroflex Inc.* .............................. 100,200 1,014,525
Brooks Automation Inc.* ..................... 40,400 1,550,350
EIS International Inc.* ..................... 35,000 280,000
Silicon Valley Group Inc.* .................. 17,100 608,119
Spectrian Corp.* ........................... 23,600 1,513,350
------------
5,392,744
------------
Total Science & Technology .................. 19,118,478
------------
Utility 0.6%
Telephone 0.6%
Bell Canada International Inc* ............ 8,700 164,213
NEXTLINK Communications Inc. Cl. A* ......... 15,100 362,400
------------
526,613
------------
Total Utility .............................. 526,613
------------
Total Common Stocks (Cost $61,413,529) ...... 83,044,602
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Maturity Value
Amount Date (Note 1)
------------ ------------ ------------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS 6.2%
Chevron Oil Finance Co., 5.58% . $ 778,000 10/01/1997 $ 778,000
Ford Motor Credit Co., 5.56% ...... 1,737,000 10/01/1997 1,737,000
General Electric Capital Corp.,
5.73% ........................... 1,964,000 10/02/1997 1,964,000
General Electric Capital Corp.,
5.57% ........................... 1,036,000 10/07/1997 1,036,000
------------
Total Short-Term Obligations (Cost $5,515,000) ............ 5,515,000
------------
REPURCHASE AGREEMENTS 0.3%
State Street Bank and Trust
Company, dated 9/30/97,
repurchase proceeds $272,032,
collateralized by $280,000 U.S.
Treasury Bill, 4.25%, due
11/13/97, Market Value
$278,354 ........................ 272,000 10/01/1997 272,000
------------
Total Repurchase Agreements (Cost $272,000) ............... 272,000
------------
Total Investments (Cost $67,200,529)--99.3% ............... 88,831,602
Cash and Other Assets, Less Liabilities--0.7% ............ 593,562
------------
Net Assets--100.0% ....................................... $89,425,164
============
Federal Income Tax Information:
At September 30, 1997, the net unrealized appreciation
of investments based on cost for Federal income tax
purposes of $67,227,172 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value over
tax cost ................................................ $21,947,790
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value .............................................. (343,360)
------------
$21,604,430
============
</TABLE>
- --------------------------------------------------------------------------------
* Nonincome-producing securities.
ADR stands for American Depositary Receipt, representing ownership of
foreign securities.
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
September 30, 1997
<TABLE>
<S> <C>
Assets
Investments, at value (Cost $67,200,529) (Note 1) ............ $88,831,602
Cash ......................................................... 115
Receivable for securities sold .............................. 2,562,989
Receivable for fund shares sold .............................. 528,043
Receivable from Distributor (Note 3) ........................ 14,476
Dividends and interest receivable ........................... 10,474
Deferred organization costs and other assets (Note 1) ......... 23,918
------------
91,971,617
Liabilities
Payable for securities purchased .............................. 2,260,501
Payable for fund shares redeemed .............................. 53,747
Accrued management fee (Note 2) .............................. 52,187
Accrued transfer agent and shareholder services
(Note 2) ................................................... 47,409
Accrued distribution and service fees (Note 5) ............... 43,761
Accrued trustees' fees (Note 2) .............................. 9,017
Other accrued expenses ....................................... 79,831
------------
2,546,453
------------
Net Assets $89,425,164
============
Net Assets consist of:
Unrealized appreciation of investments ..................... $21,631,073
Accumulated net realized gain .............................. 13,593,174
Shares of beneficial interest .............................. 54,200,917
------------
$89,425,164
============
Net Asset Value and redemption price per share of
Class A shares ($34,445,976 [divided by] 2,218,121 shares of
beneficial interest) ....................................... $ 15.53
============
Maximum Offering Price per share of Class A shares
($15.53 [divided by] .955) ................................. $ 16.26
============
Net Asset Value and offering price per share of
Class B shares ($40,511,543 [divided by] 2,684,484 shares of
beneficial interest)* ....................................... $ 15.09
============
Net Asset Value, offering price and redemption price
per share of Class C shares ($7,007,912 [divided by] 445,503
shares of beneficial interest) .............................. $ 15.73
============
Net Asset Value and offering price per share of
Class D shares ($7,459,733 [divided by] 494,177 shares
of beneficial interest)* .................................... $ 15.10
============
</TABLE>
- --------------------------------------------------------------------------------
* Redemption price per share for Class B and Class D is equal to net asset value
less any applicable contingent deferred sales charge.
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the year ended September 30, 1997
<TABLE>
<S> <C>
Investment Income
Dividends, net of foreign taxes of $924 .................. $ 132,030
Interest ................................................ 302,291
-----------
434,321
Expenses
Management fee (Note 2) ................................. 461,544
Transfer agent and shareholder services (Note 2) ...... 142,385
Custodian fee .......................................... 112,722
Service fee--Class A (Note 5) ........................... 56,810
Distribution and service fees--Class B (Note 5) ......... 265,078
Distribution and service fees--Class D (Note 5) ......... 48,253
Reports to shareholders ................................. 43,935
Registration fees ....................................... 43,581
Audit fee ............................................. 20,267
Trustees' fees (Note 2) ................................. 14,921
Legal fees ............................................. 7,646
Amortization of organization costs (Note 1) ............ 6,555
Miscellaneous .......................................... 11,480
-----------
1,235,177
Expenses borne by the Distributor (Note 3) ............ (185,818)
-----------
1,049,359
-----------
Net investment loss .................................... (615,038)
-----------
Realized and Unrealized Gain on Investments
Net realized gain on investments (Notes 1 and 4) ...... 14,594,498
Net unrealized appreciation of investments ............ 12,653,977
-----------
Net gain on investments ................................. 27,248,475
-----------
Net increase in net assets resulting from operations . $26,633,437
===========
</TABLE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended September 30
--------------------------------
1997 1996
-------------- ---------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment loss ......... $ (615,038) $ (749,639)
Net realized gain on
investments ............... 14,594,498 11,088,837
Net unrealized appreciation
(depreciation) of
investments ............... 12,653,977 (2,000,953)
------------ -------------
Net increase resulting from
operations ............... 26,633,437 8,338,245
------------ -------------
Distribution from net realized
gains:
Class A .................. (1,462,798) --
Class B .................. (1,761,067) --
Class C .................. (1,026,873) --
Class D .................. (320,673) --
------------ -------------
(4,571,411) --
------------ -------------
Net increase (decrease) from
fund share transactions
(Note 7) .................. 6,103,327 (14,818,177)
------------ -------------
Total increase (decrease) in
net assets ............... 28,165,353 (6,479,932)
Net Assets
Beginning of year ......... 61,259,811 67,739,743
------------ -------------
End of year ............... $89,425,164 $ 61,259,811
============ =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
September 30, 1997
Note 1
State Street Research Emerging Growth Fund, formerly State Street Research Small
Capitalization Growth Fund (the "Fund"), is a series of State Street Research
Capital Trust (the "Trust"), which is a Massachusetts business trust registered
under the Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The Trust was organized in November, 1988 as a
successor to State Street Capital Fund, Inc., a Massachusetts corporation. The
Trust consists presently of three separate funds: State Street Research Emerging
Growth Fund, State Street Research Capital Fund and State Street Research Aurora
Fund.
The investment objective of the Fund is to provide growth of capital. In seeking
to achieve its investment objective, the Fund invests primarily in the equity
securities of emerging growth and small capitalization companies.
The Fund offers four classes of shares. Class A shares are subject to an initial
sales charge of up to 4.50% and pay an annual service fee equal to 0.25% of
average daily net assets. Class B shares are subject to a contingent deferred
sales charge on certain redemptions made within five years of purchase and pay
annual distribution and service fees of 1.00%. Class B shares automatically
convert into Class A shares (which pay lower ongoing expenses) at the end of
eight years after the issuance of the Class B shares. Class C shares are only
offered to certain employee benefit plans and large institutions. Class D shares
are subject to a contingent deferred sales charge of 1.00% on any shares
redeemed within one year of their purchase. Class D shares also pay annual
distribution and service fees of 1.00%. The Fund's expenses are borne pro-rata
by each class, except that each class bears expenses, and has exclusive voting
rights with respect to provisions of the Plan of Distribution, related
specifically to that class. The Trustees declare separate dividends on each
class of shares.
The following significant policies are consistently followed by the Fund in
preparing its financial statements, and such policies are in conformity with
generally accepted accounting principles for investment companies.
A. Investments in Securities
Values for listed securities represent the last sale on national securities
exchanges quoted prior to the close of the New York Stock Exchange.
Over-the-counter securities quoted on the National Association of Securities
Dealers Automated Quotation ("NASDAQ") system are valued at the closing price
supplied through such system. In the absence of recorded sales and for those
over-the-counter securities not quoted on the NASDAQ system, valuations are at
the mean of the closing bid and asked quotations, except for certain securities
that may be restricted as to public resale, which are valued in accordance with
methods adopted by the Trustees. Security transactions are accounted for on the
trade date (date the order to buy or sell is executed), and dividends declared
but not received are accrued on the ex-dividend date. Interest income is
determined on the accrual basis. Realized gains and losses from security
transactions are reported on the basis of identified cost of securities
delivered for both financial reporting and Federal income tax purposes.
B. Federal Income Taxes
No provision for Federal income taxes is necessary since the Fund intends to
qualify under Subchapter M of the Internal Revenue Code and its policy is to
distribute all of its taxable income, including net realized capital gains, if
any, within the prescribed time periods.
C. Dividends
Dividends from net investment income, if any, are declared and paid or
reinvested annually. Net realized capital gains, if any, are distributed
annually, unless additional distributions are required for compliance with
applicable tax regulations. For the year ended September 30, 1997, the Fund has
designated as long-term $3,902,152 of the distributions from net realized gains.
Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles.
D. Deferred Organization Costs
Certain costs incurred in the organization and registration of the Fund were
capitalized and are being amortized under the straight-line method over a period
of five years.
E. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
Note 2
The Trust and State Street Research & Management Company (the "Adviser"), an
indirect wholly owned subsidiary of Metropolitan Life Insurance Company
("Metropolitan"), have entered into an agreement under which the Adviser earns
monthly fees at an annual rate of 0.75% of the Fund's average daily net assets.
In consideration of these fees, the Adviser furnishes the Fund with management,
investment advisory, statistical and research facilities and services. The
Adviser also pays all salaries, rent and certain other expenses of management.
During the year ended September 30, 1997, the fees pursuant to such agreement
amounted to $461,544.
State Street Research Shareholder Services, a division of State Street Research
Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), an indirect wholly owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. In addition, Metropolitan receives a fee for maintenance of
the accounts of certain shareholders who are participants in sponsored
arrangements, employee benefit plans and similar programs or plans, through or
under which shares of the Fund may be purchased. During the year ended September
30, 1997, the amount of such shareholder servicing and account maintenance
expenses was $49,427.
<PAGE>
STATE STREET RESEARCH EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The fees of the Trustees not currently affiliated with the Adviser amounted to
$14,921 during the year ended September 30, 1997.
Note 3
The Distributor and its affiliates may from time to time and in varying amounts
voluntarily assume some portion of fees or expenses relating to the Fund. During
the year ended September 30, 1997, the amount of such expenses assumed by the
Distributor and its affiliates was $185,818.
Note 4
For the year ended September 30, 1997, exclusive of short-term investments and
U.S. Government obligations, purchases and sales of securities aggregated
$165,211,838 and $164,782,304, respectively.
Note 5
The Trust has adopted a Plan of Distribution Pursuant to Rule 12b-1 (the "Plan")
under the Investment Company Act of 1940. Under the Plan, the Fund pays annual
service fees to the Distributor at a rate of 0.25% of average daily net assets
for Class A, Class B and Class D shares. In addition, the Fund pays annual
distribution fees of 0.75% of average daily net assets for Class B and Class D
shares. The Distributor uses such payments for personal services and/or the
maintenance or servicing of shareholder accounts, to reimburse securities
dealers for distribution and marketing services, to furnish ongoing assistance
to investors and to defray a portion of its distribution and marketing expenses.
For the year ended September 30, 1997, fees pursuant to such plan amounted to
$56,810, $265,078 and $48,253 for Class A, Class B and Class D shares,
respectively.
The Fund has been informed that the Distributor and MetLife Securities, Inc., a
wholly owned subsidiary of Metropolitan, earned initial sales charges
aggregating $13,429 and $40,039, respectively, on sales of Class A shares of the
Fund during the year ended September 30, 1997, and that MetLife Securities, Inc.
earned commissions aggregating $108,768 on sales of Class B shares, and that the
Distributor collected contingent deferred sales charges aggregating $69,904 and
$163 on redemptions of Class B and Class D shares, respectively, during the same
period.
Note 6
The Trustees declared a distribution of all capital gains realized during the
year ended September 30, 1997 (approximately $1.68 short-term and $.59 long-term
per share), payable October 31, 1997 to shareholders of record on October 30,
1997.
Note 7
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share. At September 30, 1997, the
Adviser owned one Class C share of the Fund.
Share transactions were as follows:
<TABLE>
<CAPTION>
Year ended September 30
-----------------------------------------------------------
1997 1996
---------------------------- ----------------------------
Class A Shares Amount Shares Amount
- ----------------------------------------------------------------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Shares sold ................................................... 736,606 $ 9,356,719 163,674 $ 1,606,790
Issued upon reinvestment of distribution from net realized gains 133,558 1,418,423 -- --
Shares redeemed ................................................ (399,385) (4,800,572) (632,394) (6,137,327)
----------- ------------- --------- ------------
Net increase (decrease) ....................................... 470,779 $ 5,974,570 (468,720) $ (4,530,537)
=========== ============= ========= ============
Class B Shares Amount Shares Amount
- ----------------------------------------------------------------- ----------- ------------- -------- ------------
Shares sold ................................................... 916,437 $ 11,267,074 84,647 $ 831,719
Issued upon reinvestment of distribution from net realized gains 157,306 1,632,835 -- --
Shares redeemed ................................................ (519,013) (5,932,931) (721,298) (6,831,042)
----------- ------------- --------- ------------
Net increase (decrease) ....................................... 554,730 $ 6,966,978 (636,651) $ (5,999,323)
=========== ============= ========= ============
Class C Shares Amount Shares Amount
- ----------------------------------------------------------------- ----------- ------------- -------- ------------
Shares sold ................................................... 315,695 $ 3,716,288 490,032 $ 5,072,988
Issued upon reinvestment of distribution from net realized gains 95,612 1,026,868 -- --
Shares redeemed ................................................ (1,129,494) (12,739,878) (593,777) (5,912,012)
----------- ------------- --------- ------------
Net decrease ................................................... (718,187) $ (7,996,722) (103,745) $ (839,024)
=========== ============= ========= ============
Class D Shares Amount Shares Amount
- ----------------------------------------------------------------- ----------- ------------- --------- ------------
Shares sold ................................................... 146,268 $ 1,835,625 14,475 $ 143,867
Issued upon reinvestment of distribution from net realized gains 29,013 300,866 -- --
Shares redeemed ................................................ (86,639) (977,990) (380,626) (3,593,160)
----------- ------------- --------- ------------
Net increase (decrease) ....................................... 88,642 $ 1,158,501 (366,151) $ (3,449,293)
=========== ============= ========= ============
</TABLE>
<PAGE>
STATE STREET RESEARCH EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a share outstanding throughout each year:
<TABLE>
<CAPTION>
Class A
------------------------------------------------------
Year ended September 30
------------------------------------------------------
1997**** 1996**** 1995**** 1994**
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $11.33 $9.69 $8.56 $9.45
Net investment loss* (0.08) (0.09) (0.08) (0.02)
Net realized and unrealized gain (loss) on
investments 5.13 1.73 1.21 (0.87)
------- ----- ------- -----
Total from investment operations 5.05 1.64 1.13 (0.89)
------- ----- ------- -----
Distribution from net realized gains (0.85) -- -- --
------- ----- ------- -----
Total distributions (0.85) -- -- --
------- ----- ------- -----
Net asset value, end of year $ 15.53 $11.33 $9.69 $8.56
======= ====== ======= =====
Total return 48.00%+ 16.92%+ 13.20%+ (9.42)%++
Net assets at end of year (000s) $34,446 $19,791 $21,480 $21,986
Ratio of operating expenses to average
net assets* 1.35% 1.35% 1.35% 1.35%[dbldag]
Ratio of net investment loss to average
net assets* (0.64)% (0.96)% (0.93)% (0.58)%[dbldag]
Portfolio turnover rate 273.33% 155.85% 178.60% 83.61%
Average commission rate@ $0.0201 $0.0159 -- --
*Reflects voluntary assumption of fees or
expenses per share in each year (Note 3) $0.04 $0.04 $0.06 $0.02
<CAPTION>
Class B
----------------------------------------------------------------
Year ended September 30
----------------------------------------------------------------
1997**** 1996**** 1995**** 1994**
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $11.11 $9.58 $8.52 $9.45
Net investment loss* (0.16) (0.17) (0.14) (0.06)
Net realized and unrealized gain (loss) on
investments 4.99 1.70 1.20 (0.87)
---- ---- ---- -----
Total from investment operations 4.83 1.53 1.06 (0.93)
---- ---- ---- -----
Distribution from net realized gains (0.85) -- -- --
----- ---- ---- -----
Total distributions (0.85) -- -- --
----- ---- ---- -----
Net asset value, end of year $15.09 $11.11 $9.58 $8.52
====== ====== ===== =====
Total return 46.91%+ 15.97%+ 12.44%+ (9.84)%++
Net assets at end of year (000s) $40,512 $23,656 $26,489 $29,287
Ratio of operating expenses to average
net assets* 2.10% 2.10% 2.10% 2.10%[dbldag]
Ratio of net investment loss to average
net assets* (1.40)% (1.71)% (1.67)% (1.32)%[dbldag]
Portfolio turnover rate 273.33% 155.85% 178.60% 83.61%
Average commission rate@ $0.0201 $0.0159 -- --
*Reflects voluntary assumption of fees or
expenses per share in each year (Note 3) $0.03 $0.04 $0.06 $0.02
</TABLE>
<TABLE>
<CAPTION>
Class C
----------------------------------------------------------------
Year ended September 30
----------------------------------------------------------------
1997**** 1996**** 1995**** 1994***
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $11.44 $9.77 $8.60 $9.55
Net investment loss* (0.04) (0.07) (0.06) (0.06)
Net realized and unrealized gain (loss) on
investments 5.18 1.74 1.23 (0.89)
---- ---- ---- -----
Total from investment operations 5.14 1.67 1.17 (0.95)
---- ---- ---- -----
Distribution from net realized gains (0.85) -- -- --
----- ---- ---- -----
Total distributions (0.85) -- -- --
----- ---- ---- ------
Net asset value, end of year $15.73 $11.44 $9.77 $8.60
====== ====== ===== =====
Total return 48.34%+ 17.09%+ 13.60%+ (9.95)%++
Net assets at end of year (000s) $7,008 $13,311 $12,380 $7,033
Ratio of operating expenses to average
net assets* 1.10% 1.10% 1.10% 1.10%[dbldag]
Ratio of net investment loss to average
net assets* (0.39)% (0.71)% (0.71)% (0.68)%[dbldag]
Portfolio turnover rate 273.33% 155.85% 178.60% 83.61%
Average commission rate@ $0.0201 $0.0159 -- --
*Reflects voluntary assumption of fees or
expenses per share in each year (Note 3). $0.03 $0.04 $0.06 $0.04
<CAPTION>
Class D
----------------------------------------------------------------
Year ended September 30
----------------------------------------------------------------
1997**** 1996**** 1995**** 1994**
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $11.10 $9.58 $8.52 $ 9.45
Net investment loss* (0.16) (0.16) (0.14) (0.06)
Net realized and unrealized gain (loss) on
investments 5.01 1.68 1.20 (0.87)
---- ---- ---- -----
Total from investment operations 4.85 1.52 1.06 (0.93)
---- ---- ---- -----
Distribution from net realized gains (0.85) -- -- --
----- ---- ---- ----
Total distributions (0.85) -- -- --
----- ---- ---- ----
Net asset value, end of year $15.10 $11.10 $9.58 $8.52
Total return 47.15%+ 15.87%+ 12.44%+ (9.84)%++
Net assets at end of year (000s) $7,460 $4,503 $7,391 $10,032
Ratio of operating expenses to average
net assets* 2.10% 2.10% 2.10% 2.10%[dbldag]
Ratio of net investment loss to average
net assets* (1.41)% (1.71)% (1.67)% (1.32)%[dbldag]
Portfolio turnover rate 273.33% 155.85% 178.60% 83.61%
Average commission rate@ $0.0201 $0.0159 -- --
*Reflects voluntary assumption of fees or
expenses per share in each year (Note 3). $0.03 $0.04 $0.06 $0.02
</TABLE>
- --------------------------------------------------------------------------------
[dbldag] Annualized.
+ Total return figures do not reflect any front-end or contingent deferred
sales charges. Total return would be lower if the Distributor and its
affiliates had not voluntarily assumed a portion of the Fund's expenses.
++ Represents aggregate return for the period without annualization and does not
reflect any front-end or contingent deferred sales charges. Total return
would be lower if the Distributor and its affiliates had not voluntarily
assumed a portion of the Fund's expenses.
** February 1, 1994 (commencement of share class designations) to September 30,
1994.
*** October 4, 1993 (commencement of operations) to September 30, 1994.
**** Per-share figures have been calculated using the average shares method.
@ Average commission rate per share paid for security trades beginning with the
fiscal year ended September 30, 1996.
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Trustees of State Street Research Capital Trust and Shareholders of State
Street Research Emerging Growth Fund (Formerly State Street Research Small
Capitalization Growth Fund):
We have audited the accompanying statement of assets and liabilities of State
Street Research Emerging Growth Fund, formerly State Street Research Small
Capitalization Growth Fund, including the schedule of portfolio investments, as
of September 30, 1997, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended and the financial highlights for each of the periods indicated
therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of State
Street Research Emerging Growth Fund as of September 30, 1997, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and the financial highlights for each
of the periods indicated therein, in conformity with generally accepted
accounting principles.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
November 7, 1997
<PAGE>
STATE STREET RESEARCH EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
Emerging Growth Fund provided shareholders with outstanding performance during
the year. For the 12 months ended September 30, 1997 Class A shares returned
+48.00% [without sales charge]. The fund outperformed the average small company
growth fund, which was up 29.79%, according to Lipper Analytical Services.
The Fund invests primarily in emerging growth companies and small companies.
Performance varied over the course of the year, somewhat in line with the
market. The first quarter was positive. However, any gains for small company
stocks were erased in the second quarter, as the stock market fell and small
company stocks lost approximately 10%, on average. Science and technology was
one of the weakest sectors in the second quarter decline, but it also led the
advance late in the spring.
The Fund missed out on the science and technology rebound, because it was
underweighted in that sector and overweighted in consumer companies. However,
strong stock selection among consumer companies was the key to the Fund's
outperformance. Management focused on consumer companies with attractive
valuations, proven management and sales growth potential.
September 30, 1997
The Standard & Poor's 500 Composite Index (S&P 500) is a market-value weighted
index composed of 500 widely held common stocks. The index is unmanaged and does
not take sales charges into consideration. Direct investment in the index is not
possible; results are for illustrative purposes only. All returns represent past
performance, which is no guarantee of future results. The investment return and
principal value of an investment made in the Fund will fluctuate and shares,
when redeemed, may be worth more or less than their original cost. All returns
assume reinvestment of capital gain distributions and income dividends.
Performance for a class includes periods prior to the adoption of class
designations in 1994, which resulted in new or increased 12b-1 fees of up to 1%
per class thereafter and which will reduce subsequent performance. Performance
reflects maximum 4.5% "A" share front-end sales charge or 5% "B" share or 1% "D"
share contingent deferred sales charges. "C" shares, offered without a sales
charge, are available only to certain employee benefit plans and large
institutions. Performance results for the Fund are increased by the
Distributor's voluntary reduction of Fund fees and expenses; without
subsidization, performance would have been lower.
Change in Value of $10,000 Based on
the S&P 500 Compared to Change in Value
of $10,000 Invested in the Fund
[Line charts]
Class A Shares
Average Annual Total Return
1 Year 3 Years Life of Fund
41.34% 23.22% 13.82%
Emerging Growth Fund S&P 500
10/93 9550 10000
9/94 8560 10368
9/95 9690 13448
9/96 11330 16181
9/97 16769 22722
Class B Shares
Average Annual Total Return
1 Year 3 Years Life of Fund
41.91% 23.54% 13.85%
Emerging Growth Fund S&P 500
10/93 10000 10000
9/94 8921 10368
9/95 9631 13448
9/96 11334 16181
9/97 16790 22722
Class C Shares
Average Annual Total Return
1 Year 3 Years Life of Fund
48.34% 25.43% 15.48%
Emerging Growth Fund S&P 500
10/93 10000 10000
9/94 9005 10368
9/95 10230 13448
9/96 11979 16181
9/97 17770 22722
<PAGE>
STATE STREET RESEARCH AURORA FUND
a Series of
STATE STREET RESEARCH CAPITAL TRUST
STATEMENT OF ADDITIONAL INFORMATION
February 1, 1998
TABLE OF CONTENTS
Page
INVESTMENT OBJECTIVE........................................................2
ADDITIONAL INVESTMENT POLICIES AND RESTRICTIONS.............................2
ADDITIONAL INFORMATION CONCERNING
CERTAIN INVESTMENT TECHNIQUES......................................4
DEBT INSTRUMENTS AND PERMITTED CASH INVESTMENTS............................15
THE TRUST, THE FUND AND ITS SHARES.........................................18
TRUSTEES AND OFFICERS......................................................20
INVESTMENT ADVISORY SERVICES...............................................24
PURCHASE AND REDEMPTION OF SHARES..........................................26
SHAREHOLDER ACCOUNTS.......................................................31
NET ASSET VALUE............................................................35
PORTFOLIO TRANSACTIONS.....................................................36
CERTAIN TAX MATTERS........................................................40
DISTRIBUTION OF SHARES OF THE FUND.........................................42
CALCULATION OF PERFORMANCE DATA............................................47
CUSTODIAN..................................................................52
INDEPENDENT ACCOUNTANTS....................................................52
FINANCIAL STATEMENTS.......................................................53
The following Statement of Additional Information is not a Prospectus.
It should be read in conjunction with the Prospectus of State Street Research
Aurora Fund dated February 1, 1998, which may be obtained without charge from
the offices of State Street Research Capital Trust (the "Trust") or State Street
Research Investment Services, Inc. (the "Distributor"), One Financial Center,
Boston, Massachusetts 02111-2690.
[CONTROL NUMBER: 1285R-970127(0298)SSR-LD AR-879D-297]
<PAGE>
INVESTMENT OBJECTIVE
As set forth under "Aurora Fund--Goal and Strategy--Fundamental Goal"
in the Prospectus of State Street Research Aurora Fund (the "Fund"), the Fund's
investment goal, which is to provide high total return consisting principally of
capital appreciation, is fundamental and may not be changed by the Fund except
by the affirmative vote of a majority of the outstanding voting securities of
the Fund, as defined in the Investment Company Act of 1940, as amended (the
"1940 Act"). (Under the 1940 Act, a "vote of the majority of the outstanding
voting securities" means the vote, at the annual or a special meeting of
security holders duly called, (i) of 67% or more of the voting securities
present at the meeting if the holders of more than 50% of the outstanding voting
securities are present or represented by proxy or (ii) of more than 50% of the
outstanding voting securities, whichever is less.)
ADDITIONAL INVESTMENT POLICIES AND RESTRICTIONS
As set forth under "Aurora Fund--Portfolio Risks" and "Other Securities
and Risks" in the Fund's Prospectus, the Fund has adopted certain investment
restrictions, and those restrictions are either fundamental or not fundamental.
Fundamental restrictions may not be changed by the Fund except by the
affirmative vote of a majority of the outstanding voting securities of the Fund.
Restrictions that are not fundamental may be changed by a vote of a majority of
the Trustees of the Trust.
The Fund's fundamental investment restrictions are set forth below.
Under these restrictions, it is the Fund's policy:
(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 Government corporations) 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) not to issue senior securities as defined in the 1940 Act,
except as permitted by that Act and the rules thereunder or as
permitted by the Securities and Exchange Commission (the
creation of general liens or security interests under normal
brokerage arrangements 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
2
<PAGE>
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 in excess of 10% of the Fund's total assets, except
that investments in essentially financial items such as, but
not limited to, swap arrangements, hybrids, currencies,
currency and other forward contracts, futures contracts and
options on futures contracts on securities, securities indices
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 and similar
obligations (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 issuers principally engaged in any one industry
[for purposes of this restriction, (a) utilities may be
divided according to their services so that, for example, gas,
gas transmission, electric and telephone companies may each be
deemed in a separate industry, (b) oil and oil related
companies may be divided by type so that, for example, oil
production companies, oil service companies and refining and
marketing companies may each be deemed in a separate industry,
(c) finance companies may be classified according to the
industries of their parent companies, and (d) securities
issued or guaranteed as to principal or interest by the U.S.
Government or its agencies or instrumentalities or
mixed-ownership Government corporations (including repurchase
agreements involving such U.S. Government securities to the
extent excludable under relevant regulatory interpretations)
may be excluded]; 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.
The following investment restrictions are not fundamental. Under these
restrictions, it is the Fund's policy:
(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
3
<PAGE>
(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 and currencies,
and options on futures on securities, securities indices and
currencies;
(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;
(4) not to purchase a security issued by another investment
company, except to the extent permitted under the 1940 Act 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
CERTAIN INVESTMENT TECHNIQUES
The Fund 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 the Fund's investment objective. The 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 the 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 increase in the market value
of a particular asset or index). The 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.
The Investment Manager may enter into derivative positions for the Fund
for either hedging or non-hedging purposes. The term hedging is applied to
defensive strategies designed to protect the 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 the Fund from an expected rise in the market
value of an asset or group of assets which it intends to acquire in
4
<PAGE>
the future (in the case of a long or "anticipatory" hedge). Non-hedging
strategies include strategies designed to produce incremental income (such as
the option writing strategy described below) or "speculative" strategies which
are undertaken to profit from an expected decline in the market value of an
asset or group of assets asset which the Fund does not own or 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. The Fund will initially be required to deposit with the Trust's
custodian or the broker 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 the 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 the Fund has taken a long position in a
futures contract and the value of the underlying instrument has declined, the
position 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, the 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 the
Fund to the Trust's custodian for maintenance in a separate account to insure
that the use of such futures contracts is
5
<PAGE>
unleveraged. Similarly, assets having a value equal to the aggregate face value
of the futures contract will be identified with respect to each short position.
The Fund will utilize such assets and methods of cover as appropriate under
applicable exchange and regulatory policies.
Options
The 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.
Purchased options have defined risk, that is, the premium paid for the
option, no matter how adversely the price of the underlying asset moves, while
affording an opportunity for gain corresponding to the increase or decrease in
the value of the optioned 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 the 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.
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 the Fund may enter are options on securities
indices. 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
6
<PAGE>
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.
A securities index assigns relative values to the securities included
in the index and the index options are based on a broad market index. In
connection with the use of such options, the 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
The 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 nonhedging
purposes would exceed 5% of the market value of the Fund's net assets. The Fund
applies a similar policy to options that are not commodities.
As noted above, the 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. The 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.
Nonhedging strategies typically involve special risks. The
profitability of the Fund's nonhedging 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 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 the Fund's ability to effectively carry out their derivative
strategies and might, in some cases, require a
7
<PAGE>
Fund to deposit cash to meet applicable margin requirements. The Fund will enter
into an option or futures position only if it appears to be a liquid investment.
Swaps
The Fund may enter into various forms of swap arrangements with
counterparties with respect to interest rates, currency rates or indices,
including purchase of caps, floors and collars as described below. In an
interest rate swap the 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 the
Fund a fixed rate of interest on the notional principal amount. In a currency
swap the 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.
The 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 the 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, the Fund will set up a segregated custodial account to hold
appropriate liquid assets, including cash; 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 the 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
for entities which are not commodity pool operators, such as the Fund. In
entering a swap arrangement, the 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
8
<PAGE>
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 the 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.
Currency Transactions
The 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. The 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. The Fund's dealings in forward currency exchange contracts will
be limited to hedging involving either specific transactions or aggregate
portfolio positions. 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, the 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. Although spot and forward contracts will be used primarily to
protect the 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 the 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.
Repurchase Agreements
The Fund 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. The Fund
9
<PAGE>
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, including possible delays or restrictions upon
the Fund's ability to dispose of the underlying securities. Repurchase
agreements will be limited to 30% of the Fund's total assets, except that
repurchase agreements extending for more than seven days when combined with any
other illiquid securities held by the Fund will be limited to 10% of the Fund's
total assets.
Reverse Repurchase Agreements
The Fund 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
The Fund 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 the 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 the
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 the Fund.
Restricted Securities
It is the Fund's 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 35% of the Fund's total assets are invested in restricted securities,
provided not more than 10% of the Fund's total assets are invested in
10
<PAGE>
restricted securities other than Rule 144A 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 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 the Fund's illiquidity to the extent
that qualified institutional buyers become, for a time, uninterested in
purchasing such securities. Also, the 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.
Indexed Securities
The 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.
Lower Quality Debt Securities ("Junk Bonds")
Lower quality convertible or nonconvertible debt securities generally
involve more credit risk than higher rated securities and are considered by
Standard & Poor's Corporation ("S&P") and Moody's Investor's Service, Inc.
("Moody's") to be speculative with respect to capacity to 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, commonly known as "junk bonds," include (i)
limited liquidity and secondary market support; (ii) substantial market price
volatility resulting from changes in prevailing interest rates and/or investor
perceptions; (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 period of rising interest rates and economic
downturn. For further information concerning the rating categories of debt
securities, see the Appendix to this Statement of Additional Information. The
Fund may invest up to 5% of its total assets in debt securities rated as low as
securities in the C rating category by S&P and Moody's.
11
<PAGE>
In the event the rating of a security is downgraded, the Investment
Manager will determine whether the security should be retained or sold depending
on an assessment of all facts and circumstances at that time.
Foreign Investments
The Fund reserves the right to invest without limitation in securities
of non-U.S. issuers directly, or indirectly in the form of American Depositary
Receipts ("ADRs") and European Depositary Receipts ("EDRs"). Under current
policy, however, the Fund limits such investments, including ADRs and EDRs, to a
maximum of 35% of its total assets.
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. Generally, ADRs in registered form are designed
for use in U.S. securities markets and EDRs are designed for use in European
securities markets. The underlying securities are not always denominated in the
same currency as the ADRs or EDRs. Although investment in the form of ADRs or
EDRs 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.
12
<PAGE>
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 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.
It is anticipated that a majority of the foreign investments by the
Fund will consist of securities of issuers in countries with developed
economies. However, the Fund may also invest in the securities of issuers in
countries with less developed economies as deemed appropriate by the Investment
Manager, although the Fund presently does not expect to invest more than 5% of
its total assets in issuers in such less developed countries. Such countries
include countries that have an emerging stock market that trades a small number
of securities; countries with low- to middle-income economies; and/or countries
with economies that are based on only a few industries. Eastern European
countries are considered to have less developed capital markets.
Securities Lending
The Fund may lend portfolio securities with a value of up to 33 1/3% of
its total assets. The 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 the 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, irrevocable stand-by
letters of credit issued by a bank, or 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 the
Fund's outstanding securities. Such loans may be terminated at any time.
The Fund will retain rights to dividends, interest or other
distributions, on the loaned securities. Voting rights pass with the lending,
although the 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.
13
<PAGE>
Short-Term Trading
The Fund may engage in short-term trading of securities and reserves
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 reinvestment
strategy remains relatively constant. The Fund's portfolio turnover rate
involves greater transaction costs, relative to other funds in general, and may
have tax and other consequences.
Temporary and Defensive Investments
The Fund may hold up to 100% of its assets in cash or short-term debt
securities for temporary defensive purposes. The Fund will 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 short-term
instruments in which the Fund may invest for such purposes include short-term
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 S&P
or the "Prime" major rating category by 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 Classifications
In determining how much of the Fund's portfolio is invested in a given
industry, 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.
14
<PAGE>
<TABLE>
<S> <C> <C>
Basic Industries Consumer Staple Science & Technology
Chemical Business Service Aerospace
Diversified Container Computer Software & Service
Electrical Equipment Drug Electronic Components
Forest Products Food & Beverage Electronic Equipment
Machinery Hospital Supply Office Equipment
Metal & Mining Personal Care
Railroad Printing & Publishing Consumer Cyclical
Truckers Tobacco Airline
Automotive
Utility Energy Building
Electric Oil Refining & Marketing Hotel & Restaurant
Gas Oil Production Photocopy
Gas Transmission Oil Service Recreation
Telephone Retail Trade
Finance Textile & Apparel
Other Bank
Trust Certificates -- Financial Service
Government Related Lending Insurance
Asset-backed--Mortgages
Asset-backed--Credit
Card Receivables
</TABLE>
DEBT INSTRUMENTS AND PERMITTED CASH INVESTMENTS
The Fund may invest in long-term and short-term debt securities.
Certain debt securities and money market instruments in which the Fund may
invest are described below.
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 Government corporations as described herein. The U.S. Government
securities in which the Fund invests include, among others:
o direct obligations of the U.S. Treasury, i.e., U.S. Treasury
bills, notes, certificates and bonds;
o 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
15
<PAGE>
o obligations of mixed-ownership Government corporations such as
Resolution Funding Corporation.
U.S. Government securities which the 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 Banks, the Federal Farm Credit Banks, 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
segregated account with a Federal Reserve Bank. Except for certain
mortgage-related securities, the 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 the 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, the 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.
The 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.
16
<PAGE>
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. The 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 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 10% 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.
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 corporations including but not
limited to (a) domestic or foreign bank holding companies or (b) 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.
Commercial Paper Ratings. Commercial paper investments at the time of
purchase will be rated within the "A" major rating category by S&P or within the
"Prime" major rating
17
<PAGE>
category by Moody's, 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 or
by Moody's. 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 or
within the "Prime" category by Moody's.
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 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.
In the event the lowering of ratings of debt instruments held by the
Fund by applicable rating agencies results in a material decline in the overall
quality of the Fund's portfolio, the Trustees of the Trust will review the
situation and take such action as they deem in the best interests of the Fund's
shareholders, including, if necessary, changing the composition of the
portfolio.
THE TRUST, THE FUND AND ITS SHARES
State Street Research Capital Trust is currently comprised of the
following series: State Street Research Capital Fund, State Street Research
Emerging Growth Fund and State Street Research Aurora Fund. The Trustees of the
Trust have authority to issue an unlimited number of shares of beneficial
interest of separate series, $.001 par value per share. The Trustees also have
authority, without the necessity of a shareholder vote, to create any number of
new series or classes or to commence the public offering of shares of any
previously established series or
18
<PAGE>
class. A "series" is a separate pool of assets of the Trust which is separately
managed and has a different investment objective and different investment
policies from those of another series.
The Trustees have authorized shares of the Fund to be issued in four
classes: Class A, Class B, Class C and Class S shares. Prior to November 1,
1997, the Fund's current Class C shares were designated as Class D shares and
the Fund's current Class S shares were designated as Class C shares.
Each share of each class of shares represents an identical legal
interest in the same portfolio of investments of the Fund, has the same rights
and is identical in all respects, except that Class A, Class B and Class C
shares bear the expenses of the deferred sales arrangement and any expenses
(including the higher service and distribution fees) resulting from such sales
arrangement, and certain other incremental expenses related to a class. Each
class will have exclusive voting rights with respect to provisions of the Rule
12b-1 distribution plan pursuant to which the service and distribution fees, if
any, are paid. 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. The different classes of
shares of the Fund also have different exchange privileges. Except for those
differences between classes of shares described above, in the Fund's Prospectus
and otherwise this Statement of Additional Information, each share of the 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.
The rights of holders of shares may be modified by the Trustees at any
time, so long as such modifications do not have a material, adverse effect on
the rights of any shareholder. On any matter submitted to the shareholders, 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.
Under the Master Trust Agreement, no annual or regular meeting of
shareholders is required. Thus, there ordinarily will be no shareholder meetings
unless required by 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 Master Trust Agreement,
any Trustee may be removed by vote of two-thirds of the outstanding Trust
shares; holders of 10% or more of the outstanding shares of the Trust can
require that the Trustees call a meeting of shareholders for purposes of voting
on the removal of one or more Trustees. 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 for the
Trust. However, the
19
<PAGE>
Master Trust Agreement of the Trust disclaims shareholder liability for acts or
obligations of the Trust and provides for indemnification for all losses and
expenses of any shareholder of the 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.
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 59. His principal occupation is currently,
and during the past five years has been, Executive Vice President of State
Street Research & Management Company. Mr. Bennett is also a Director of State
Street Research & Management Company. Mr. Bennett's other principal business
affiliations include Director, State Street Research Investment Services, Inc.
and Executive Vice President, GFM International Investors Limited.
*+Jesus A. Cabrera, One Financial Center, Boston, MA 02111 serves as
Vice President of the Trust. He is 36. His principal occupation is Vice
President of State Street Research & Management Company. During the past five
years he also has served as Vice President at First Chicago Investment
Management Company.
+Steve A. Garban, The Pennsylvania State University, 210 Old Main,
University Park, PA 16802, serves as Trustee of the Trust. He is 60. He is
retired and was formerly Senior Vice President for Finance and Operations and
Treasurer of The Pennsylvania State University.
+Malcolm T. Hopkins, 14 Brookside Road, Biltmore Forest, Asheville, NC
28803, serves as Trustee of the Trust. He is 69. He is engaged principally in
private investments. Previously, he was Vice Chairman of the Board and Chief
Financial Officer of St. Regis Corp.
*+Rudolph K. Kluiber, One Financial Center, Boston, MA 02111, serves as
Vice President of the Trust. He is 38. His principal occupation currently is
Vice President of State Street Research & Management Company. During the past
five years he has also served as an analyst for State Street Research &
Management Company.
- ----------------------
* or +, see footnotes on page 22.
20
<PAGE>
+Edward M. Lamont, Box 1234, Moores Hill Road, Syosset, NY 11791,
serves as Trustee of the Trust. He is 71. He is engaged principally in private
investments and civic affairs and is an author of business history. Previously,
he was with Morgan Guaranty Trust Company of New York.
+Robert A. Lawrence, Saltonstall & Co., 50 Congress Street, Boston, MA
02109, serves as Trustee of the Trust. He is 71. His principal occupation is
Associate of Saltonstall & Co., a private investment firm. During the past five
years he has also served as Partner of that firm.
*+Gerard P. Maus, One Financial Center, Boston, MA 02111, serves as
Treasurer of the Trust. He is 46. His principal occupation is Executive Vice
President, Treasurer, Chief Financial Officer and Director of State Street
Research & Management Company. During the past five years he has also served as
Executive Vice President and Chief Financial Officer of New England Investment
Companies and as Senior Vice President and Vice President of New England Mutual
Life Insurance Company. Mr. Maus's other principal business affiliations include
Executive Vice President, Treasurer, Chief Financial Officer and Director of
State Street Research Investment Services, Inc. and Executive Vice President,
Chief Financial Officer, Administrative Officer and Director, GFM International
Investors Limited.
*+Francis J. McNamara, III, One Financial Center, Boston, MA 02111,
serves as Secretary and General Counsel of the Trust. He is 42. 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
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 Senior Vice President, Clerk and General Counsel of State Street
Research Investment Services, Inc. and Executive Vice President and General
Counsel, GFM International Investors Limited.
+Dean O. Morton, 3200 Hillview Avenue, Palo Alto, CA 94304, serves as
Trustee of the Trust. He is 65. He is retired, having served during the past
five years, until October 1992, as Executive Vice President, Chief Operating
Officer and Director of Hewlett-Packard Company.
+Thomas L. Phillips, 141 Spring Street, Lexington, MA 02173, serves as
Trustee of the Trust. He is 73. He is retired and was formerly Chairman of the
Board and Chief Executive Officer of Raytheon Company, of which he remains a
Director.
- ----------------------
* or +, see footnotes on page 22.
21
<PAGE>
+Toby Rosenblatt, 3409 Pacific Avenue, San Francisco, CA 94118, serves
as Trustee of the Trust. He is 59. His principal occupations during the past
five years have been President of The Glen Ellen Company, a private investment
company, and Vice President of Founders Investments Ltd.
+Michael S. Scott Morton, Massachusetts Institute of Technology, 77
Massachusetts Avenue, Cambridge, MA 02139, serves as Trustee of the Trust. He is
60. His principal occupation during the past five years has been Jay W.
Forrester Professor of Management at Sloan School of Management, Massachusetts
Institute of Technology.
*+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 55. His principal occupation is Chairman of the Board, President,
Chief Executive Officer and Director of State Street Research & Management
Company. During the past five years he also served as President and Chief
Executive Officer of New England Investment Companies and as Chief Investment
Officer and Director of New England Mutual Life Insurance Company. Mr. Verni's
other principal business affiliations include Chairman of the Board and Director
of State Street Research Investment Services, Inc. and (until February, 1996,
prior positions as President and Chief Executive Officer of that company) and
Chairman of the Board, President, and Chief Executive Officer and Director of
GFM International Investors Limited.
+Jeptha H. Wade, 251 Old Billerica Road, Bedford, MA 01730, serves as
Trustee of the Trust. He is 73. He is retired and was formerly Of Counsel for
the law firm Choate, Hall & Stewart. He was a partner of that firm from 1960 to
1987.
*+James M. Weiss, One Financial Center, Boston, MA 02111, serves as
Vice President of the Trust. He is 51. His principal occupation is Senior Vice
President of State Street Research & Management Company. During the past five
years he has also served as President and Chief Investment Officer of IDS
Advisory Group and as Senior Vice President of Stein, Roe & Farnham.
- --------------
* 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 a direct or indirect advisory
relationship with the Investment Manager or its affiliates: 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.
22
<PAGE>
Record ownership of shares of the Fund as of October 31, 1997 was as
follows:
Class Holder % of Class
A Merrill Lynch 17.73
B Merrill Lynch 47.28
C (a) Merrill Lynch 58.82
S (a) Metropolitan Life 90.96
The full name and address of the above institutions are:
Merrill Lynch, Pierce,
Fenner & Smith (b)
4800 Deerlake Drive East
Jacksonville, FL 32246
Metropolitan Life Insurance Company (b)
One Madison Avenue
New York, NY 10010
- -----------------
(a) Prior to November 1, 1997, the Fund's current Class C shares were
designated as Class D shares and the Fund's current Class S shares were
designated as Class C shares.
(b) The Fund believes that each named recordholder does not have beneficial
ownership of such shares.
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, such as any
Distribution Plan for a given class.
As of October 31, 1997, the Trustees and principal officers of the
Trust as a group owned approximately 1% of the outstanding Class A shares of the
Fund, and none of the outstanding Class B, Class C or Class S shares.*
- ------------------------
* Prior to November 1, 1997, the Fund's current Class C shares were
designated as Class D shares and the Fund's current Class S shares were
designated as Class C shares.
23
<PAGE>
The Trustees were compensated as follows:
<TABLE>
<CAPTION>
Total Compensation
Aggregate From Trust and
Compensation Complex Paid
Name of Trustee From Trust (a) to Trustees (b)
--------------- -------------- ---------------
<S> <C> <C>
Steve A. Garban $3,111 $ 34,750
Malcolm T. Hopkins $3,611 $ 34,750
Edward M. Lamont $6,550 $ 59,375
Robert A. Lawrence $6,850 $ 88,875
Dean O. Morton $7,450 $ 92,875
Thomas L. Phillips $6,850 $ 59,375
Toby Rosenblatt $6,550 $ 59,375
Michael S. Scott Morton $8,350 $ 96,875
Ralph F. Verni $ 0 $ 0
Jeptha H. Wade $7,750 $ 63,375
</TABLE>
- ----------------
(a) For the Fund's fiscal year ended September 30, 1997. Includes
compensation received from multiple series of the Trust. See "The
Trust, the Fund and its Shares" in this Statement of Additional
Information for a listing of series.
(b) Includes compensation on behalf of all series of 12 investment
companies for which the Investment Manager served directly or
indirectly as investment adviser or for which the Investment Manager
served as sub-investment adviser, and series of, State Street Research
Portfolios, Inc., for which State Street Research Investment Services,
Inc. served as distributor. "Total Compensation from Trust and Complex
Paid to Trustees" for the 12 months ended December 31, 1996. The Trust
does not provide any pension or retirement benefits for the Trustees.
INVESTMENT ADVISORY SERVICES
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. In managing debt securities, if any, for a portfolio, the
Investment Manager may consider yield curve positioning, sector rotation and
duration, among other factors.
24
<PAGE>
The Advisory Agreement provides that the Investment Manager shall
furnish the Fund with an investment program, office 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.
The advisory fee payable monthly by the 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 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 0.85% of the net assets of the Fund.
The advisory fees paid by the Fund to the Investment Manager for the
last three fiscal years, prior to the assumption of fees or expenses, were as
follows: 1997, $726,266; 1996, $62,107; and for the period February 13, 1995
(commencement of operations) through September 30, 1995, $30,298.
The Distributor and its affiliates have from time to time and in
varying amounts voluntarily assumed some portion of fees or expenses relating to
the Fund. The voluntary reduction of fees or assumption of expenses for the same
periods were as follows: 1997, $135,389; 1996, $187,754; and 1995, $80,022.
The Advisory Agreement provides that it shall continue in effect from
year to year with respect to the Fund 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 Fund's Administration Agreement between the Investment
Manager and the Distributor, the Distributor provides assistance to the
Investment Manager in performing certain fund administration services for the
Trust, such as assistance in determining the daily net asset value of shares of
each series of the Trust and in preparing various reports required by
regulations.
Under a Shareholders' Administrative Services Agreement between the
Trust and the Distributor, the Distributor provides shareholders' administrative
services, such as responding to inquiries and instructions from investors
respecting the purchase and redemption of shares of the Fund, and is entitled to
reimbursements of its costs for providing such services. Under certain
arrangements for Metropolitan to provide subadministration services,
Metropolitan may
25
<PAGE>
receive a fee for the maintenance of certain share ownership records for
participants in sponsored arrangements, such as employee benefit plans, through
or under which the Fund's shares may be purchased.
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.
PURCHASE AND REDEMPTION OF SHARES
Shares of the Fund are distributed by State Street Research Investment
Services, Inc., the Distributor. The Fund offers four classes of shares which
may be purchased at the next determined net asset value per share plus, in the
case of all classes except Class S shares, a sales charge which, at the election
of the investor, may be imposed (i) at the time of purchase (the Class A shares)
or (ii) on a deferred basis (the Class B and Class C shares). General
information on how to buy shares of the Fund, as well as sales charges involved,
are set forth under "Your Account" 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 State Street
Research Service Center (the "Service Center"), provided that the order is
received prior to the close of 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. When a purchase order is placed through a dealer,
that dealer is responsible for transmitting the order promptly to the Service
Center in order to permit the investor to obtain the current price. Any loss
suffered by an investor which results from a dealer's failure to transmit an
order promptly is a matter for settlement between the investor and the dealer.
Class A Shares--Reduced Sales Charges. The reduced sales charges set
forth under "Your Account--Class A Sales Charge Reductions and Waivers" in the
Fund's Prospectus apply to purchases made at any one time by any "person," which
includes: (i) an individual, or an individual combining with his or her spouse
and their children and purchasing for his, her or their own account; (ii) a
"company" as defined in Section 2(a)(8) of the 1940 Act; (iii) a trustee or
other fiduciary purchasing for a single trust estate or single fiduciary account
(including a pension, profit sharing or other employee benefit trust created
pursuant to a plan qualified under Section 401 of the Internal Revenue Code);
(iv) a tax-exempt organization under Section 501(c)(3) or (13) of the Internal
Revenue Code; and (v) an employee benefit plan of a single employer or of
affiliated employers.
26
<PAGE>
Investors may purchase Class A shares of the Fund at reduced sales
charges by executing a Letter of Intent to purchase no less than an aggregate of
$100,000 of the Fund or any combination of Class A shares of "Eligible Funds"
(which include the Fund and other funds as designated by the Distributor from
time to time) within a 13-month period. The sales charge applicable to each
purchase made pursuant to a Letter of Intent will be that which would apply if
the total dollar amount set forth in the Letter of Intent were being bought in a
single transaction. Purchases made within a 90-day period prior to the execution
of a Letter of Intent may be included therein; in such case the date of the
earliest of such purchases marks the commencement of the 13-month period.
An investor may include toward completion of a Letter of Intent the
value (at the current public offering price) of all of his or her Class A shares
of the Fund and of any of the other Class A shares of Eligible Funds held of
record as of the date of his or her Letter of Intent, plus the value (at the
current offering price) as of such date of all of such shares held by any
"person" described herein as eligible to join with the investor in a single
purchase. Class B, Class C and Class S shares may also be included in the
combination under certain circumstances.
A Letter of Intent does not bind the investor to purchase the specified
amount. Shares equivalent to 5% of the specified amount will, however, be taken
from the initial purchase (or, if necessary, subsequent purchases) and held in
escrow in the investor's account as collateral against the higher sales charge
which would apply if the total purchase is not completed within the allotted
time. The escrowed shares will be released when the Letter of Intent is
completed or, if it is not completed, when the balance of the higher sales
charge is, upon notice, remitted by the investor. All dividends and capital
gains distributions with respect to the escrowed shares will be credited to the
investor's account.
Investors may purchase Class A shares of the Fund or a combination of
Eligible Funds at reduced sales charges pursuant to a Right of Accumulation. The
applicable sales charge under the right is determined on the amount arrived at
by combining the dollar amount of the purchase with the value (at the current
public offering price) of all Class A shares of the other Eligible Funds owned
as of the purchase date by the investor plus the value (at the current public
offering price) of all such shares owned as of such date by any "person"
described herein as eligible to join with the investor in a single purchase.
Class B, Class C and Class S shares may also be included in the combination
under certain circumstances. Investors must submit to the Distributor sufficient
information to show that they qualify for this Right of Accumulation.
Other Programs Related to Class A Shares. Class A shares of the Fund
may be sold or issued in an exchange at a reduced sales charge or without sales
charge pursuant to certain sponsored arrangements, which include programs under
which a company, employee benefit plan or other organization makes
recommendations to, or permits group solicitation of, its employees, members or
participants, except any organization created primarily for the purpose of
obtaining shares of the Fund at a reduced sales charge or without a sales
charge. Sales without a sales charge, or with a reduced sales charge, may also
be made through brokers,
27
<PAGE>
registered investment advisers, financial planners, institutions, and others,
under managed fee-based programs (e.g., "wrap fee" or similar programs) which
meet certain requirements established from time to time by the Distributor.
Information on such arrangements and further conditions and limitations is
available from the Distributor.
In addition, no sales charge is imposed in connection with the sale of
Class A shares of the Fund to the following entities and person: (A) the
Investment Manager, Distributor or any affiliated entities, including any direct
or indirect parent companies and other subsidiaries of such parents
(collectively "Affiliated Companies"); (B) employees, officers, sales
representatives or current or retired directors or trustees of the Affiliated
Companies or any investment company managed by any of the Affiliated Companies,
any relatives of any such individuals whose relationship is directly verified by
such individuals to the Distributor, or any beneficial account for such
relatives or individuals; and (C) employees, officers, sales representatives or
directors of dealers and other entities with a selling agreement with the
Distributor to sell shares of any aforementioned investment company, any spouse
or child of such person, or any beneficial account for any of them. The purchase
must be made for investment and the shares purchased may not be resold except
through redemption. This purchase program is subject to such administrative
policies, regarding the qualification of purchasers and any other matters, as
may be adopted by the Distributor from time to time.
Conversion of Class B Shares to Class A Shares. A shareholder's Class B
shares of the Fund, including all shares received as dividends or distributions
with respect to such shares, will automatically convert to Class A shares of the
Fund at the end of eight years following the issuance of such Class B shares;
consequently, they will no longer be subject to the higher expenses borne by
Class B shares. The conversion rate will be determined on the basis of the
relative per share net asset values of the two classes and may result in a
shareholder receiving either a greater or fewer number of Class A shares than
the Class B shares so converted. As noted above, holding periods for Class B
shares received in exchange for Class B shares of other Eligible Funds will be
counted toward the eight-year period.
Contingent Deferred Sales Charges. The amount of any contingent
deferred sales charge paid on Class A shares (on sales of $1 million or more and
which do not involve an initial sales charge) or on Class B or Class C shares of
the Fund will be paid to the Distributor. The Distributor will pay dealers at
the time of sale a 4% commission for selling Class B shares and a 1% commission
for selling Class C shares. In certain cases, a dealer may elect to waive the 4%
commission on Class B shares and receive in lieu thereof a 1% annual fee with
respect to such outstanding shares until the shares convert to Class A shares.
The proceeds of the contingent deferred sales charges and the distribution fees
are used to offset distribution expenses and thereby permit the sale of Class B
and Class C shares without an initial sales charge.
In determining the applicability and rate of any contingent deferred
sales charge of Class B or Class C shares, it will be assumed that a redemption
of the shares is made first of those shares having the greatest capital
appreciation, next of shares representing reinvestment
28
<PAGE>
of dividends and capital gains distributions and finally of remaining shares
held by shareholder for the longest period of time. Class B shares that are
redeemed within a five-year period after their purchase, and Class C shares that
are redeemed within a one-year period after their purchase, will not be subject
to a contingent deferred sales charge to the extent that the value of such
shares represents (1) capital appreciation of Fund assets or (2) reinvestment of
dividends or capital gains distributions. The holding period for purposes of
applying a contingent deferred sales charge for a particular class of shares of
the Fund acquired through an exchange from another Eligible Fund will be
measured from the date that such shares were initially acquired in the other
Eligible Fund, and shares of the same class being redeemed will be considered to
represent, as applicable, capital appreciation or dividend and capital gains
distribution reinvestments in such other Eligible Fund. These determinations
will result in any contingent deferred sales charge being imposed at the lowest
possible rate. For federal income tax purposes, the amount of the contingent
deferred sales charge will reduce the gain or increase the loss, as the case may
be, on the amount realized on redemption.
Contingent Deferred Sales Charge Waivers. With respect to Class A
shares (on sales of $1 million or more and which do not involve an initial sales
charge), and Class B and Class C shares of the Fund, the contingent deferred
sales charge does not apply to exchanges or to redemptions under a systematic
withdrawal plan which meets certain conditions. In addition, the contingent
deferred sales charge will be waived for: (i) redemptions made within one year
of the death or total disability, as defined by the Social Security
Administration, of all shareholders of an account; (ii) redemptions made after
attainment of a specific age in an amount which represents the minimum
distribution required at such age under Section 401(a)(9) of the Internal
Revenue Code of 1986, as amended, for retirement accounts or plans (e.g., age 70
1/2 for Individual Retirement Accounts and Section 403(b) plans), calculated
solely on the basis of assets invested in the Fund or other Eligible Funds; and
(iii) a redemption resulting from a tax-free return of an excess contribution to
an Individual Retirement Account. (The foregoing waivers do not apply to a
tax-free rollover or transfer of assets out of the Fund). The Fund may modify or
terminate the waivers at any time; for example, the Fund may limit the
application of multiple waivers and establish other conditions for employee
benefit plans.
Class S Shares. Class S shares are currently available to certain
employee benefit plans such as qualified retirement plans which meet criteria
relating to number of participants, service arrangements, or similar factors;
insurance companies; investment companies; advisory accounts of the Investment
Manager; endowment funds of nonprofit organizations with substantial minimum
assets (currently a minimum of $10 million); and other similar institutional
investors. Class S shares may be acquired through programs or products sponsored
by Metropolitan, its affiliates, or both for which Class S shares have been
designated. In addition, Class S shares are available through programs under
which, for example, investors pay an asset-based fee and/or a transaction fee to
intermediaries. Class S share availability is determined by the Distributor and
intermediaries based on the overall direct and indirect costs of a particular
program, expected assets, account sizes and similar considerations.
29
<PAGE>
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, the Fund may issue its shares at net asset value (or
more) to such entities or to their security holders.
Redemptions. The Fund reserves the right to pay redemptions in kind
with portfolio securities in lieu of cash. In accordance with its election
pursuant to Rule 18f-1 under the 1940 Act, the Fund may limit the amount of
redemption proceeds paid in cash. Although it has no present intention to do so,
the Fund may, under unusual circumstances, limit redemptions in cash with
respect to each shareholder during any ninety-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. In connection with any redemptions paid in kind with portfolio
securities, brokerage and other costs may be incurred by the redeeming
shareholder in the sale of the securities received.
Systematic Withdrawal Plan. A shareholder who owns noncertificated
Class A or Class S shares with a value of $5,000 or more, or Class B or Class C
shares with a value of $10,000 or more, may elect, by participating in the
Fund's Systematic Withdrawal Plan, to have periodic checks issued for specified
amounts. These amounts may not be less than certain minimums, depending on the
class of shares held. The Plan provides that all income dividends and capital
gains distributions of the Fund shall be credited to participating shareholders
in additional shares of the Fund. Thus, the withdrawal amounts paid can only be
realized by redeeming shares of the Fund under the Plan. To the extent such
amounts paid exceed dividends and distributions from the Fund, a shareholder's
investment will decrease and may eventually be exhausted.
In the case of shares otherwise subject to contingent deferred sales
charges, no such charges will be imposed on withdrawals of up to 8% annually of
either (a) the value, at the time the Systematic Withdrawal Plan is initiated,
of the shares then in the account or (b) the value, at the time of a withdrawal,
of the same number of shares as in the account when the Systematic Withdrawal
Plan was initiated, whichever is higher.
Expenses of the Systematic Withdrawal Plan are borne by the Fund. A
participating shareholder may withdraw from the Systematic Withdrawal Plan, and
the Fund may terminate the Systematic Withdrawal Plan at any time on written
notice. Purchase of additional shares while a shareholder is receiving payments
under a Systematic Withdrawal Plan is ordinarily disadvantageous because of
duplicative sales charges. For this reason, a shareholder may not participate in
the Investamatic Program (see "Your Account--Investor Services--Investamatic
Program" in the Fund's Prospectus) and the Systematic Withdrawal Plan at the
same time.
Request to Dealer to Repurchase. For the convenience of shareholders,
the Fund has authorized the Distributor as its agent to accept orders from
dealers by wire or telephone for the repurchase of shares by the Distributor
from the dealer. The Fund may revoke or suspend this authorization at any time.
The repurchase price is the net asset value for the applicable shares next
determined following the time at which the shares are offered for repurchase by
the
30
<PAGE>
dealer to the Distributor. The dealer is responsible for promptly transmitting a
shareholder's order to the Distributor.
Signature Guarantees. Signature guarantees are required for, among
other things: (1) written requests for redemptions for more than $50,000; (2)
written requests for redemptions for any amount if the proceeds are transmitted
to other than the current address of record (unchanged in the past 30 days); (3)
written requests for redemptions for any amount submitted by corporations and
certain fiduciaries and other intermediaries; and (4) requests to transfer the
registration of shares to another owner. Signatures must be guaranteed by a
bank, a member firm of a national stock exchange, or other eligible guarantor
institution. The Transfer Agent will not accept guarantees (or notarizations)
from notaries public. The above requirements may be waived in certain instances.
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.
Processing Charges. Purchases and redemptions processed through
securities dealers may be subject to processing charges imposed by the
securities dealer in addition to sales charges that may be imposed by the Fund
or the Distributor.
SHAREHOLDER ACCOUNTS
General information on shareholder accounts is included in the Fund's
Prospectus under "Your Account." The following supplements that information.
Maintenance Fees and Involuntary Redemption. Because of the relatively
high cost of maintaining small shareholder accounts, the Fund reserves the right
to redeem at its option any shareholder account which remains below $1,500 for a
period of 60 days after notice is mailed to the applicable shareholder, or to
impose a maintenance fee on such account after 60 days' notice. Such
involuntarily redemptions will be subject to applicable sales charges, if any.
The Fund may increase such minimum account value above such amount in the future
after notice to affected shareholders. Involuntarily redeemed shares will be
priced at the net asset value on the date fixed for redemption by the Fund, and
the proceeds of the redemption will be mailed to the affected shareholder at the
address of record. Currently, the maintenance fee is $18 annually, which is paid
to the Transfer Agent. The fee does not apply to certain retirement accounts or
if the shareholder has more than an aggregate $50,000 invested in the Fund and
other Eligible Funds combined. Imposition of a maintenance fee on a small
account could, over time, exhaust the assets of such account.
To cover the cost of additional compliance administration, a $20 fee
will be charged against any shareholder account that has been determined to be
subject to escheat under applicable state laws.
31
<PAGE>
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 (a) 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; and (b) the payment of redemption
proceeds may be postponed as otherwise provided under "Purchase and Redemption
of Shares" in this Statement of Additional Information.
The Open Account System. Under the Open Account System full and
fractional shares of the 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 representing Class B
or Class C shares will not be issued, while certificates representing Class A or
Class S shares will only be issued if specifically requested in writing and, in
any case, will only be issued for full shares, with any fractional shares to be
carried on the shareholder's account. Shareholders will receive periodic
statements of transactions in their accounts.
The Fund's Open Account System provides the following options:
1. Additional purchases of shares of the Fund may be made through
dealers, by wire or by mailing a check payable to "State
Street Research Funds" under the terms set forth above under
"Purchase and Redemption of Shares" in this Statement of
Additional Information.
2. The following methods of receiving dividends from investment
income and distributions from capital gains generally are
available:
(a) All income dividends and capital gains distributions
reinvested in additional shares of the Fund.
(b) All income dividends and capital gains distributions
in cash.
(c) All income dividends and capital gains distributions
invested in any one available Eligible Fund
designated by the shareholder as described below. See
"--Dividend Allocation Plan" herein.
Dividend and distribution selections should be made on the Application
accompanying the initial investment. If no selection is indicated on the
Application, that account will be automatically coded for reinvestment of all
dividends and distributions in additional shares of the same class of the Fund.
Selections may be changed at any time by telephone or written
32
<PAGE>
notice to the Service Center. Dividends and distributions are reinvested at net
asset value without a sales charge.
Exchange Privileges. Shareholders of the Fund may exchange their shares
for available shares with corresponding characteristics of any of the other
Eligible Funds at any time on the basis of the relative net asset values of the
respective shares to be exchanged, subject to compliance with applicable
securities laws. Shareholders of any other Eligible Fund may similarly exchange
their shares for Fund shares with corresponding characteristics. Prior to making
an exchange, shareholders should obtain the Prospectus of the Eligible Fund into
which they are exchanging. Under the Direct Program, subject to certain
conditions, shareholders may make arrangements for regular exchanges from the
Fund into other Eligible Funds. To effect an exchange, Class A, Class B and
Class C shares may be redeemed without the payment of any contingent deferred
sales charge that might otherwise be due upon an ordinary redemption of such
shares. The State Street Research Money Market Fund issues Class E shares which
are sold without any sales charge. Exchanges of State Street Research Money
Market Fund Class E shares into Class A shares of the Fund or any other Eligible
Fund are subject to the initial sales charge or contingent deferred sales charge
applicable to an initial investment in such Class A shares, unless a prior Class
A sales charge has been paid directly or indirectly with respect to the shares
redeemed. For purposes of computing the contingent deferred sales charge that
may be payable upon disposition of any acquired Class A, Class B and Class C
shares, the holding period of the redeemed shares is "tacked" to the holding
period of any acquired shares. No exchange transaction fee is currently imposed
on any exchange.
Shares of the Fund may also be acquired or redeemed in exchange for
shares of the Summit Cash Reserves Fund ("Summit Cash Reserves") by customers of
Merrill Lynch, Pierce, Fenner & Smith Incorporated (subject to completion of
steps necessary to implement the program). The Fund and Summit Cash Reserves are
related mutual funds for purposes of investment and investor services. Upon the
acquisition of shares of Summit Cash Reserves by exchange for redeemed shares of
the Fund, (a) no sales charge is imposed by Summit Cash Reserves, (b) no
contingent deferred sales charge is imposed by the Fund on the Fund shares
redeemed, and (c) any applicable holding period of the Fund shares redeemed is
"tolled," that is, the holding period clock stops running pending further
transactions. Upon the acquisition of shares of the Fund by exchange for
redeemed shares of Summit Cash Reserves, (a) the acquisition of Class A shares
shall be subject to the initial sales charges or contingent deferred sales
charges applicable to an initial investment in such Class A shares, unless a
prior Class A sales charge has been paid indirectly, and (b) the acquisition of
Class B or Class C shares of the Fund shall restart any holding period
previously tolled, or shall be subject to the contingent deferred sales charge
applicable to an initial investment in such shares.
The exchange privilege may be terminated or suspended or its terms
changed at any time, subject, if required under applicable regulations, to 60
days' prior notice. New accounts established for investments upon exchange from
an existing account in another fund will have the same telephone privileges with
respect to the Fund (see "Your Account--Account
33
<PAGE>
Policies--Telephone Requests" in the Fund's Prospectus and "--Telephone
Privileges," below) as the existing account unless the Service Center is
instructed otherwise. Related administrative policies and procedures may also be
adopted with regard to a series of exchanges, street name accounts, sponsored
arrangements and other matters.
The exchange privilege is not designed for use in connection with
short-term trading or market timing strategies. To protect the interests of
shareholders, the Fund reserves the right to temporarily or permanently
terminate the exchange privilege for any person who makes more than six
exchanges out of or into the Fund per calendar year. Accounts under common
ownership or control, including accounts with the same taxpayer identification
number, may be aggregated for purposes of the six exchange limit.
Notwithstanding the six exchange limit, the Fund reserves the right to refuse
exchanges by any person or group if, in the Investment Manager's judgment, the
Fund would be unable to invest effectively in accordance with its investment
objective and policies, or would otherwise potentially be adversely affected.
Exchanges may be restricted or refused if the Fund receives or anticipates
simultaneous orders affecting significant portions of the Fund's assets. In
particular, a pattern of exchanges that coincides with a "market timing"
strategy may be disruptive to the Fund. The Fund may impose these restrictions
at any time. The exchange limit may be modified for accounts in certain
institutional retirement plans because of plan exchange limits, Department of
Labor regulations or administrative and other considerations. Subject to the
foregoing, if an exchange request in good order is received by the Service
Center and delivered by the Service Center to the Transfer Agent by 12 noon
Boston time on any business day, the exchange usually will occur that day. For
further information regarding the exchange privilege, shareholders should
contact the Service Center.
Reinvestment Privilege. A shareholder of the Fund who has redeemed
shares or had shares repurchased at his or her request may reinvest all or any
portion of the proceeds (plus that amount necessary to acquire a fractional
share to round off his or her reinvestment to full shares) in shares, of the
same class as the shares redeemed, of the Fund or any other Eligible Fund at net
asset value and without subjecting the reinvestment to an initial sales charge,
provided such reinvestment is made within 120 calendar days after a redemption
or repurchase. Upon such reinvestment, the shareholder will be credited with any
contingent deferred sales charge previously charged with respect to the amount
reinvested. The redemption of shares is, for federal income tax purposes, a sale
on which the shareholder may realize a gain or loss. If a redemption at a loss
is followed by a reinvestment within 30 days, the transaction may be a "wash
sale" resulting in a denial of the loss for federal income tax purposes.
Any reinvestment pursuant to the reinvestment privilege will be subject
to any applicable minimum account standards imposed by the fund into which the
reinvestment is made. Shares are sold to a reinvesting shareholder at the net
asset value thereof next determined following timely receipt by the Service
Center of such shareholder's written purchase request and delivery of the
request by the Service Center to the Transfer Agent. A shareholder may exercise
this reinvestment privilege only once per 12-month period with respect to his or
her shares of the Fund.
34
<PAGE>
Dividend Allocation Plan. The Dividend Allocation Plan allows
shareholders to elect to have all their dividends and any other distributions
from the Fund or any Eligible Fund automatically invested at net asset value in
one other such Eligible Fund designated by the shareholder, provided the account
into which the dividends and distributions are directed is initially funded with
the requisite minimum amount.
Telephone Privileges. Unless a shareholder declines telephone
privileges that are offered with his or her Account, (see "Your Account--Account
Policies--Telephone Requests"), he or she is deemed to authorize the Service
Center and the Transfer Agent to: (1) act upon the telephone instructions of any
person purporting to be the shareholder to redeem, or purporting to be the
shareholder or the shareholder's dealer to exchange, shares from any account;
and (2) honor any written instructions for a change of address regardless of
whether such request is accompanied by a signature guarantee. All telephone
calls will be recorded. Neither the Fund, the other Eligible Funds, the Transfer
Agent, the Investment Manager nor the Distributor will be liable for any loss,
expense or cost arising out of any request, including any fraudulent or
unauthorized requests. Shareholders assume the risk to the full extent of their
accounts that telephone requests may be unauthorized. Reasonable procedures will
be followed to confirm that instructions communicated by telephone are genuine.
The shareholder will not be liable for any losses arising from unauthorized or
fraudulent instructions if such procedures are not followed.
Alternative Means of Contacting the Fund. It is unlikely, during
periods of extraordinary market conditions, that a shareholder may have
difficulty in reaching the Service Center. In that event, however, the
shareholder should contact the Service Center at 1-800- 562-0032, 1-617-357-7800
or otherwise at its main office at One Financial Center, Boston, Massachusetts
02111-2690.
NET ASSET VALUE
The net asset value of the shares of the 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 NYSE is currently closed on New Year's Day, Presidents
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
The net asset value per share of the 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 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
35
<PAGE>
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.
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 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 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% of 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
Portfolio Turnover
The Fund's portfolio turnover rate is determined by dividing the lesser
of securities purchases or sales for a year by the monthly average value of
securities held by the Fund (excluding, for purposes of this determination,
securities the maturities of which as of the time of their acquisition were one
year or less). The Fund's portfolio turnover rates for the fiscal years ended
September 30, 1996 and 1997, respectively, were as follows: 124.79% and 25.03%.
Brokerage Allocation
The Investment Manager's policy is to seek for its clients, including
the Fund, what in the Investment Manager's judgment will be the best overall
execution of purchase or sale
36
<PAGE>
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, 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
the 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 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 used for
portfolio analysis and modeling and including software providing investment
personnel with efficient access to current and historical data from a variety of
internal and external sources) and portfolio evaluation services and relative
performance of accounts.
In the case of the 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
37
<PAGE>
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 has an investment in less
than ten percent of the outstanding equity of one such third party which is
engaged in the development and licensing of trading systems which include
portfolio analysis and modeling and other research and investment
decision-making capabilities. The Investment Manager may allocate brokerage to
broker-dealers who in turn pay this third party for the portion of the third
party's trading system provided to the Investment Manager, which is estimated by
the Investment Manager to provide appropriate assistance in the investment
decision-making process. Because of its minority interest in the third party,
the Investment Manager could be said to benefit indirectly from such brokerage
allocation.
The Investment Manager regularly reviews and evaluates the services
furnished by broker-dealers. Among other measures, the Investment Manager's
investment management personnel seek to evaluate the quality of research and
other services received, and the results of this effort are made available to
the equity trading department, which sometimes uses this information as
consideration 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 such services to determine the appropriate proportion of the cost which is
allocable to purposes other than research or investment decision-making and the
Investment Manager pays for that portion directly from its own funds. 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 producing 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
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
38
<PAGE>
the provisions of Section 28(e) of the Securities Exchange Act of 1934, to the
extent applicable. Brokerage commissions paid by the Fund in secondary trading
during the last three fiscal years ended September 30 were as follows: the
period February 13, 1995 (commencement of operations) through September 30,
1995, $15,000; 1996, $20,000; and 1997, $347,000.
During and at the end of its most recent fiscal year, the Fund did not
hold in its portfolio securities of any entity that might be deemed to be a
regular broker-dealer of the Fund as defined under the 1940 Act.
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.
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 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.
39
<PAGE>
CERTAIN TAX MATTERS
Federal Income Taxation of the Fund -- in General.
The 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 do so. Accordingly, for each of the Fund's tax years that
has begun on or prior to August 5, 1997, the 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 business of investing in such stock,
securities or currencies (the "90% test"); (b) derive less than 30% of its gross
income in each taxable year from the sale or other disposition of any of the
following held for less than three months (the "30% test"): (i) stock or
securities, (ii) options, futures, or forward contracts (other than options,
futures or forward contracts on foreign currencies), or (iii) foreign currencies
(or options, futures, or forward contracts on foreign currencies) but only if
such currencies (or options, futures, or forward contracts) are not directly
related to the Fund's principal business of investing in stocks or securities
(or options and futures with respect to stocks or securities); (c) satisfy
certain diversification requirements; and (d) in order to be entitled to utilize
the dividends paid deduction, distribute annually at least 90% of its investment
company taxable income (determined without regard to the deduction for dividends
paid). For any Fund tax year beginning after August 5, 1997, the Fund will have
to comply with each of those requirements except the 30% test in order to
qualify to be treated as a regulated investment company under Subchapter M.
Beginning October 1, 1997 (the start of the Fund's first tax year that
has begun after August 5, 1997), when the Fund no longer has had to comply with
the 30% test in order to qualify under Subchapter M, the Fund has had greater
flexibility in buying and selling securities and in the use of futures and
options in managing risks. The 30% test has had the effect of limiting the
extent to which the Fund may sell securities held for less than three months;
write options which expire in less than three months; and effect closing
transactions with respect to call or put options that have been written or
purchased within the preceding three months. (If the Fund has purchased a put
option for the purpose of hedging an underlying portfolio security, the
acquisition of the option is treated as a short sale of the underlying security
unless, for purposes only of the 30% test, the option and the security have been
acquired on the same date.) The 30% test also has limited investments by the
Fund in options on stock indices, listed options on nonconvertible debt
securities, futures contracts, options on interest rate futures contracts and
certain foreign currency contracts.
If the Fund should fail to qualify as a regulated investment company in
any year, it would lose the beneficial tax treatment accorded regulated
investment companies under Subchapter M of the Code and all of its taxable
income would be subject to tax at regular corporate rates without any deduction
for distributions to shareholders, and such distributions
40
<PAGE>
will 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.
The Fund will be liable for a nondeductible 4% excise tax on amounts
not distributed (or deemed distributed) on a timely basis in accordance with a
calendar year distribution requirement. To avoid the tax, during each calendar
year the Fund must distribute (or be deemed to have distributed) an amount equal
to at least 98% of the sum of its ordinary income (not taking into account any
capital gains or losses) for the calendar year, and 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. For that purpose, any
income or gain retained by the Fund that is subject to corporate tax will be
considered to have been distributed by year-end. The Fund intends to make
sufficient distributions to avoid this 4% excise tax.
Federal Income Taxation of the Fund's Investments
Original Issue Discount. For federal income tax purposes, debt
securities purchased by the 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.
Debt securities may be purchased by the Fund at a discount that exceeds
the original issue discount plus previously accrued original issue discount
remaining on the securities, if any, at the time the Fund purchases the
securities. This additional discount represents market discount for federal
income tax purposes. In the case of any debt security issued after July 18,
1984, having a fixed 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. The 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 currently. Because the
Fund must include original issue discount in income, it will be more difficult
for the Fund to make the distributions required for the Fund to
41
<PAGE>
maintain its status as a regulated investment company under Subchapter M of the
Code or to avoid the 4% excise tax described above.
Options and Futures Transactions. Certain of the Fund's investments 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, the 30% test
(until October 1, 1997), 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, medium term or long-term gain or loss. Such provisions generally
apply to, among other investments, options on debt securities, indices on
securities and futures contracts.
Federal Income Taxation of Shareholders
Dividends paid by the Fund may be eligible for the 70%
dividends-received deduction for corporations. The percentage of the Fund's
dividends eligible for such tax treatment may be less than 100% to the extent
that less than 100% of the Fund's gross income may be from qualifying dividends
of domestic corporations. Any dividend declared in October, November or December
and made payable to shareholders of record in any such month is treated as
received by such shareholder on December 31, provided that the Fund pays the
dividend during January of the following calendar year.
Distributions by the Fund can 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 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 then
receive a return of investment upon distribution which will nevertheless be
taxable to them.
DISTRIBUTION OF SHARES OF THE FUND
The Trust has entered into a Distribution Agreement with State Street
Research Investment Services, Inc., as Distributor, whereby the Distributor acts
as agent to sell and distribute shares of the Fund. Shares of the Fund are sold
through dealers who have entered into sales agreements with the Distributor. The
Distributor distributes shares of the Fund on a continuous basis at an offering
price which is based on the net asset value per share of the Fund plus (subject
to certain exceptions) a sales charge which, at the election of the investor,
may be imposed (i) at the time of purchase (the Class A shares) or (ii) on a
deferred basis (Class B and Class C shares). The Distributor may reallow all or
portions of such sales charges as concessions to dealers.
42
<PAGE>
Total sales charges on Class A shares paid to the Distributor for the
last three fiscal years were as follows: 1997, $2,602,606; 1996, $449; and for
the period February 13, 1995 (commencement of operations) through September 30,
1995, $642.
For the same periods, the Distributor retained the following amounts
after reallowance of concessions to dealers: 1997, $314,023; 1996, $49; and for
the period February 13, 1995 (commencement of operations) through September 30,
1995, $74.
The differences in the price at which the Fund's Class A shares are
offered due to scheduled variations in sales charges, as described in the Fund's
Prospectus, result from cost savings inherent in economies of scale. Management
believes that the cost of sales efforts of the Distributor and broker-dealers
tends to decrease as the size of purchases increases, or does not involve any
incremental sales expenses as in the case of, for example, exchanges,
reinvestments or dividend investments at net asset value. Similarly, no
significant sales effort is necessary for sales of shares at net asset value to
certain Directors, Trustees, officers, employees, their relatives and other
persons directly or indirectly related to the Fund or associated entities. Where
shares of the Fund are offered at a reduced sales charge or without a sales
charge pursuant to sponsored arrangements, managed fee-based programs and
so-called "mutual fund supermarkets," among other programs, the amount of the
sales charge reduction will similarly reflect the anticipated reduction in sales
expenses associated with such arrangements. The reductions in sales expenses,
and therefore the reduction in sales charges, will vary depending on factors
such as the size and other characteristics of the organization or program, and
the nature of its membership or the participants. The Fund reserves the right to
make variations in, or eliminate, sales charges at any time or to revise the
terms of or to suspend or discontinue sales pursuant to sponsored arrangements
or similar programs at any time.
On any sale of Class A shares to a single investor in the amount of
$1,000,000 or more, the Distributor will pay the authorized securities dealer
making such sale a commission based on the aggregate of such sales. Such
commission also is payable to authorized securities dealers upon sales of Class
A shares made pursuant to a Letter of Intent to purchase shares having a net
asset value of $1,000,000 or more. Shares sold with such commissions payable are
subject to a one-year contingent deferred sales charge of 1.00% on any portion
of such shares redeemed within one year following their sale. After a particular
purchase of Class A shares is made under the Letter of Intent, the commission
will be paid only in respect of that particular purchase of shares. If the
Letter of Intent is not completed, the commission paid will be deducted from any
discounts or commissions otherwise payable to such dealer in respect of shares
actually sold. If an investor is eligible to purchase shares at net asset value
on account of the Right of Accumulation, the commission will be paid only in
respect of the incremental purchase at net asset value.
For the periods shown below, the Distributor received contingent
deferred sales charges upon redemption of Class A, Class B and Class C shares of
the Fund and paid initial
43
<PAGE>
commissions to securities dealers for sales of such Class A, Class B and Class C
shares as follows:
<TABLE>
<CAPTION>
February 13, 1995
(Commencement of Operations)
Fiscal Year Ended Fiscal Year Ended through Period Ended
September 30, 1997 September 30, 1996 September 30, 1995
------------------ ------------------ ------------------
Contingent Deferred Commissions Paid Contingent Deferred Commissions Paid Contingent Deferred Commissions Paid
Sales Charges to Dealers Sales Charges to Dealers Sales Charges to Dealers
-------------------- ---------------- ------------------- ---------------- ------------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Class A $ 0 $2,288,583 $ 0 $ 400 $ 0 $ 568
Class B $8,896 $7,025,505 $ 0 $ 0 $ 0 $ 4,008
Class C $3,376 $ 505,683 $ 0 $ 0 $ 0 $ 1,002
</TABLE>
The Fund has adopted a "Plan of Distribution Pursuant to Rule 12b-1"
(the "Distribution Plan") under which the Fund may engage, directly or
indirectly, in financing any activities primarily intended to result in the sale
of Class A, Class B and Class C shares, including, but not limited to, (1) the
payment of commissions and/or reimbursement to underwriters, securities dealers
and others engaged in the sale of shares, including payments to the Distributor
to be used to pay commissions and/or reimbursement to securities dealers (which
securities dealers may be affiliates of the Distributor) engaged in the
distribution and marketing of shares and furnishing ongoing assistance to
investors, (2) reimbursement of direct out-of-pocket expenditures incurred by
the Distributor in connection with the distribution and marketing of shares and
the servicing of investor accounts including expenses relating to the
formulation and implementation of marketing strategies and promotional
activities such as direct mail promotions and television, radio, newspaper,
magazine and other mass media advertising, the preparation, printing and
distribution of Prospectuses of the Fund and reports for recipients other than
existing shareholders of the Fund, and obtaining such information, analyses and
reports with respect to marketing and promotional activities and investor
accounts as the Fund may, from time to time, deem advisable, and (3)
reimbursement of expenses incurred by the Distributor in connection with the
servicing of shareholder accounts including payments to securities dealers and
others in consideration of the provision of personal service to investors and/or
the maintenance or servicing of shareholder accounts and expenses associated
with the provision of personal service by the Distributor directly to investors.
In addition, the Distribution Plan is deemed to authorize the Distributor and
the Investment Manager to make payments out of general profits, revenues or
other sources to underwriters, securities dealers and others in connection with
sales of shares, to the extent, if any, that such payments may be deemed to be
within the scope of Rule 12b-1 under the 1940 Act.
Some or all of the service fees are used to pay or reimburse dealers
(including dealers that are affiliates of the Distributor) or others for
personal services and/or the maintenance of shareholder accounts. A portion of
any initial commission paid to dealers for the sale of shares of the Fund
represents payment for personal services and/or the maintenance or servicing of
shareholder accounts by such dealers. Dealers who have sold Class A shares are
eligible for further reimbursement commencing as of the time of such sale.
Dealers who have sold Class B and Class C shares are eligible for further
reimbursement after the first year during which such
44
<PAGE>
shares have been held of record by such dealer as nominee for its clients (or by
such clients directly). Any service fees received by the Distributor and not
allocated to dealers may be applied by the Distributor in reduction of expenses
incurred by it directly for personal services and the maintenance or servicing
of shareholder accounts.
The distribution fees are used primarily to offset initial and ongoing
commissions paid to dealers for selling such shares. Any distribution fees
received by the Distributor and not allocated to dealers may be applied by the
Distributor in connection with sales or marketing efforts, including special
promotional fees and cash and noncash incentives based upon sales by dealers.
The Distributor provides distribution services on behalf of other funds
having distribution plans and receives similar payments from, and incurs similar
expenses on behalf of, such other funds. When expenses of the Distributor cannot
be identified as relating to a specific fund, the Distributor allocates expenses
among the funds in a manner deemed fair and equitable to each fund.
Commissions and other cash and noncash incentives and payments to
dealers, to the extent payable out of the general profits, revenues or other
sources of the Distributor (including the advisory fees paid by the Fund), have
also been authorized pursuant to the Distribution Plan.
The expenditures to be made pursuant to the Distribution Plan may not
exceed (i) with respect to Class A shares, an annual rate of 0.25% of the
average daily value of net assets represented by such Class A shares, and (ii)
with respect to Class B and Class C shares, an annual rate of 0.75% of the
average daily value of the net assets represented by such Class B or Class C
shares (as the case may be) to finance sales or promotion expenses and an annual
rate of 0.25% of the average daily value of the net assets represented by such
Class B or Class C shares (as the case may be) to make payments for personal
services and/or the maintenance or servicing of shareholder accounts. The
distribution and servicing expenses of a particular class will be borne solely
by that class. In addition, a rule of the NASD limits annual expenditures that
the Fund may incur under the Distribution Plan to 1%, of which 0.75% may be used
to pay distribution expenses and 0.25% may be used to pay shareholder service
fees. The NASD rule also limits the aggregate amount that the Fund may pay for
such distribution costs to 6.25% of gross share sales of a class since the
inception of any asset-based sales charge plus interest at the prime rate plus
1% on unpaid amounts thereof (less any contingent deferred sales charges). Such
limitation does not apply to shareholder service fees. Payments to the
Distributor or to dealers funded under the Distribution Plan may be discontinued
at any time.
45
<PAGE>
The Distributor may pay certain dealers and other intermediaries
additional compensation for sales and administrative services. The Distributor
may provide cash and noncash incentives to intermediaries who, for example, sell
significant amounts of shares or develop particular distribution channels. The
Distributor may compensate dealers with clients who maintain their investments
in the Fund over a period of years. The incentives can include merchandise and
trips to, and attendance at, sales seminars at resorts. The Distributor may pay
for administrative services, such as technological and computer systems support
for the maintenance of pension plan participant records, for subaccounting, and
for distribution through mutual fund supermarkets or similar arrangements.
During the fiscal year ended September 30, 1997, the Fund paid the
Distributor fees under the Distribution Plan and the Distributor used all of
such payments for expenses incurred on behalf of the Fund as follows:
Class A Class B Class C
Advertising $ 0 $ 38,300 $ 0
Printing and mailing of prospectuses to
other than current shareholders $ 0 $ 14,022 $ 0
Compensation to dealers $ 0 $169,891 $ 0
Compensation to sales personnel $64,258 $106,698 $112,831
Interest $ 0 $ 0 $ 0
Carrying or other financing charges $ 0 $ 0 $ 0
Other expenses: marketing; general $ 0 $ 55,668 $ 0
Total fees $64,258 $384,579 $112,831
======= ======== ========
The Distributor may have also used additional resources of its own for
further expenses on behalf of the Fund.
No interested Trustee of the Trust has any direct or indirect financial
interest in the operation of the Distribution Plan or any related agreements
thereunder. The Distributor's interest in the Distribution Plan is described
above.
To the extent that the Glass-Steagall Act may be interpreted as
prohibiting banks and other depository institutions from being paid for
performing services under the Distribution
46
<PAGE>
Plan, the Fund will make alternative arrangements for such services for
shareholders who acquired shares through such institutions.
CALCULATION OF PERFORMANCE DATA
From time to time, in advertisements or in communications to
shareholders or prospective investors, the Fund may compare the performance of
its Class A, Class B, Class C or Class S shares to the performance of other
mutual funds with similar investment objectives, to certificates of deposit
and/or to other financial alternatives. The Fund may also compare its
performance to appropriate indices, such as Standard & Poor's 500 Index, Russell
2000 Value 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. For example, the
performance of the Fund might be compared to the Lipper Small-Cap Funds Index.
The average annual total return ("standard total return") and yield of
the Class A, Class B, Class C and Class S shares of the Fund will be calculated
as set forth below. Total return and yield are computed separately for each
class of shares of the Fund. Performance data for a specified class includes
periods prior to the adoption of class designations on June 1, 1993, when
designations were assigned based on the pricing and Rule 12b-1 fees applicable
to shares sold thereafter. The application of the additional Rule 12b-1 fees, if
any, of up to 1% will, for periods after to June 1, 1993 adversely affect Fund
performance results. Thus, performance data or rankings for a given class of
shares should be interpreted carefully by investors who hold or may invest in a
different class of shares.
The performance data below reflect Rule 12b-1 fees and, where
applicable, sales charges as follows:
47
<PAGE>
<TABLE>
<CAPTION>
Rule 12b-1 Fees Sales Charges
-------------------------------------------- --------------------------------------
Class Amount
----- ------
<S> <C> <C>
A 0.25% Maximum 4.5% sales charge reflected
B 1.00% 1- and 5-year periods reflect a 5% and
a 2% contingent deferred sales charge,
respectively
C* 1.00% 1-year period reflects a 1% contingent
deferred sales charge
S* None None
</TABLE>
- ------------------------
* Prior to November 1, 1997, the Fund's current Class C shares were
designated as Class D shares and the Fund's current Class S shares were
designated as Class C shares.
All calculations of performance data in this section 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
The Fund's standard average annual total returns ("standard total
return") of each class of shares were as follows:
<TABLE>
<CAPTION>
Commencement of Operations One Year
(February 13, 1995) Ended
to September 30, 1997 September 30, 1997
--------------------- ------------------
<S> <C> <C>
Class A 47.06% 64.92%
Class B 47.92% 66.34%
Class C* 48.29% 70.26%
Class S* 50.02% 73.10%
</TABLE>
- ------------------
* Prior to November 1, 1997, the Fund's current Class C shares were
designated as Class D shares and the Fund's current Class S shares were
designated as Class C shares.
48
<PAGE>
Standard total return is 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.
49
<PAGE>
Accrued Expenses and Recurring Charges
Accrued expenses include all recurring charges that are charged to all
shareholder accounts in proportion to the length of the base period. The
standard total return [and yield] results take sales charges, if applicable,
into account, although the results do not take into account recurring and
nonrecurring charges for optional services which only certain shareholders elect
and which involve nominal fees, such as the $7.50 fee for wire orders.
Accrued expenses do not include the subsidization, if any, by
affiliates of fees or expenses during the subject period. In the absence of such
subsidization, the performance of the Fund would have been lower.
Nonstandardized Total Return
The Fund may provide the above described standard total return results
for Class A, Class B, Class C and Class S shares for periods which end no
earlier than the most recent calendar quarter end and which begin twelve months
before, five years before and ten years before. In addition, the Fund may
provide nonstandardized total return results for differing periods, such as for
the most recent six months, and/or without taking 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 may not be taken into account and therefore not
deducted from the hypothetical initial payment of $1,000. For example, the
Fund's nonstandardized total returns for the six months ended September 30,
1997, without taking sales charges into account, were as follows:
Class A 47.82%
Class B 47.21%
Class C* 47.14%
Class S* 47.94%
- ------------------------
* Prior to November 1, 1997, the Fund's current Class C shares were
designated as Class D shares and the Fund's current Class S shares were
designated as Class C shares.
50
<PAGE>
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 the Fund's cash and securities, handling the receipt and delivery of
securities and collecting interest and dividends on the Fund's investments.
State Street Bank and Trust Company is not an affiliate of the Investment
Manager or its affiliates.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., 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 Fund.
51
<PAGE>
FINANCIAL STATEMENTS
In addition to the reports provided to holders of record on a
semiannual basis, other supplementary financial reports may be made available
from time to time through electronic or other media. Shareholders with
substantial holdings in one or more State Street Research Funds may also receive
reports and other information which reflect or analyze their positions in a
consolidated manner. For more information, call State Street Research Service
Center.
The following financial statements are for the Fund's fiscal year ended
September 30, 1997 and reflect the Fund's class designations prior to November
1, 1997. Information pertaining to Class C and Class D in the financial
statements now pertains to Class S and Class C, respectively.
DOCSC\561047.3
53
<PAGE>
STATE STREET RESEARCH AURORA FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
September 30, 1997
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Value
Shares (Note 1)
- ----------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 73.5%
Basic Industries 19.4%
Chemical 1.7%
Amcol International Corp.* ............ 10,000 $ 207,500
Cambrex Corp. ........................... 6,450 300,731
Hawkins Chemical Inc. .................. 25,100 244,725
Lilly Industrial Inc. Cl. A ............ 73,500 1,543,500
McWhorter Technologies Inc.* ............ 2,000 50,250
Mississippi Chemical Corp. ............ 301,600 5,881,200
-----------
8,227,906
-----------
Diversified 0.9%
Commercial Intertech Corp. ............ 82,800 1,511,100
Noel Group Inc. ........................ 102,000 404,813
Quixote Corp. ........................... 10,000 88,750
Recoton Corp.* ........................ 102,900 1,466,325
Titan International Inc. ............... 30,000 600,000
Zero Corp. .............................. 3,300 93,431
-----------
4,164,419
------------
Electrical Equipment 0.8%
AFC Cable Systems Inc.* ............... 2,000 71,000
Asia Pacific Wire & Cable Corp. Ltd.* ... 102,000 1,153,875
Channell Commercial Corp.* ............ 50,000 706,250
Compass Plastics & Technologies Inc.* ... 96,200 877,825
Hughes Supply Inc. ..................... 12,000 362,250
LSI Industries Inc. ..................... 2,000 31,500
Methode Electronics Inc. Cl. A ......... 17,000 437,750
Overland Data Inc.* ..................... 25,000 195,312
T. B. Woods Corp. ..................... 9,000 164,250
-----------
4,000,012
-----------
Forest Product 0.2%
Gaylord Container Corp Cl. A* ......... 40,000 340,000
Gaylord Container Corp. Wts.* ......... 200 1,762
Morgan Products Ltd.* .................. 50,500 337,719
----------
679,481
----------
Machinery 7.8%
ADE Corp.* .............................. 7,000 280,875
CTB International Corp.* ............... 42,000 661,500
DT Industries Inc. ..................... 30,000 990,000
Gleason Corp.* ........................ 16,000 440,000
Greenfield Industrial Inc. ............ 10,000 287,500
Hanover Compressor Co.* ............... 28,400 695,800
ICF Kaiser International Inc.* ......... 260,000 682,500
Instron Corp. ........................... 43,100 813,513
Intermet Corp. ........................ 174,700 3,057,250
- ----------------------------------------------------------------------
Value
Shares (Note 1)
- ----------------------------------------------------------------------
Machinery (cont'd)
International Comfort Products Inc.* ... 76,300 $ 538,869
ITEQ Inc.* .............................. 48,200 671,788
JLK Direct Distribution Inc. Cl. A* ... 7,600 227,525
Keystone Automotive Industries Inc.* ... 33,000 697,125
Memtec Ltd. ADR ........................ 293,700 10,095,937
Miller Industries Inc.* ............... 30,000 358,125
OmniQuip International Inc.* ............ 16,000 294,000
Penn Engineering & Manufacturing Corp. 101,700 2,834,887
Pfeiffer Vacuum Technology AG ADR* ...... 3,600 111,600
Rofin-Sinar Technologies Inc.* ......... 3,000 50,250
Specialty Equipment Companies Inc.* ... 6,000 100,500
Sun Hydraulics Inc. ..................... 9,000 112,500
Thermadyne Holdings Corp.* ............ 62,500 1,875,000
Tokheim Corp.* ........................ 344,300 5,680,950
Varlen Corp. ........................... 48,000 1,896,000
Wolverine Tube Inc.* .................. 112,600 3,532,825
------------
36,986,819
------------
Metal & Mining 4.7%
Carbide / Graphite Group Inc.* ......... 48,000 1,632,000
Chase Industries Inc.* .................. 53,400 1,535,250
Citation Corp.* ........................ 1,000 19,250
Commonwealth Industries Inc. ............ 161,000 3,099,250
Easco Inc. .............................. 61,700 755,825
Global Industrial Technologies Inc.* ... 110,000 2,275,625
Huntco Inc. Cl. A ..................... 13,000 186,062
Interlake Corp.* ........................ 25,000 160,938
Keystone Consolidated Industries Inc.* 10,197 142,758
Metals USA Inc.* ........................ 28,000 432,250
N.N. Ball and Roller Inc. ............... 32,300 371,450
NS Group Inc.* ........................ 60,000 1,942,500
Ryerson Tull Inc. Cl. A* ............... 96,700 1,565,331
Shaw Group Inc.* ........................ 3,000 65,813
Special Metals Corp.* .................. 23,400 438,750
Webco Industries Inc.* .................. 49,500 396,000
Wyman-Gordon Co.* ..................... 285,200 7,486,500
------------
22,505,552
------------
Railroad 2.9%
ABC Rail Products Corp.* ............... 22,000 401,500
Genesee & Wyoming Inc. Cl. A* ......... 89,100 2,817,787
Johnstown America Industries Inc.* ...... 114,000 976,125
OMI Corp. .............................. 445,000 5,562,500
RailTex Inc.* ........................... 38,000 646,000
Tranz Rail Holdings Ltd. ADR ............ 206,000 3,399,000
------------
13,802,912
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH AURORA FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Value
Shares (Note 1)
- ----------------------------------------------------------------------
<S> <C> <C>
Truckers 0.4%
Central Transport Rental Group PLC ADR* 1,321,800 $ 908,738
Smithway Motor Xpress Corp. Cl. A* ...... 20,000 280,000
Trailer Bridge Inc.* .................. 54,900 727,425
------------
1,916,163
------------
Total Basic Industries ........................... 92,283,264
------------
Consumer Cyclical 18.8%
Airline 0.4%
America West Holding Corp. Cl. B* ...... 100,000 1,456,250
Ryanair Holdings PLC ADR* ............... 9,900 297,464
------------
1,753,714
------------
Automotive 7.8%
Aftermarket Technology Corp.* ......... 5,000 118,750
Borg-Warner Automotive Inc. ............ 50,000 2,843,750
Collins & Aikman Corp.* ............... 40,000 440,000
Control Devices Inc.* .................. 102,100 1,531,500
Defiance Inc. ........................... 132,000 957,000
Excel Industries Inc. .................. 407,600 8,126,525
Exide Corp. ........................... 767,100 17,403,581
Federal-Mogul Corp. ..................... 3,000 111,375
Lund International Holdings Inc.* ...... 21,000 296,625
Motorcar Parts & Accessories Inc.* ...... 4,000 80,750
Simpson Industries Inc. ............... 338,000 3,908,125
Strattec Security Corp.* ............... 1,000 27,813
TransPro Inc. ........................... 88,700 964,612
Wescast Industries Inc. Cl. A ......... 5,000 166,016
------------
36,976,422
------------
Building 2.9%
Belmont Homes Inc.* ..................... 3,000 24,188
Cameron Ashley Inc.* .................. 7,000 127,750
Castle & Cooke Inc.* .................. 28,000 549,500
Centex Construction Products Inc. ...... 14,500 429,563
Dal-Tile International Inc.* ............ 43,000 645,000
Dayton Superior Corp. Cl. A* ............ 18,000 342,000
Hospitality Worldwide Services Inc.* ... 20,000 262,500
Interface Inc. Cl. A .................. 85,000 2,475,625
Kevco Inc.* ........................... 181,900 2,251,012
Morrison Knudsen Corp.* ............... 25,000 303,125
Nobility Homes Inc.* .................. 5,000 66,250
Nortek Inc.* ........................... 84,800 2,199,500
Shelby Williams Industries Inc. ......... 20,000 396,250
Simpson Manufacturing Inc.* ............ 4,000 167,500
Stimsonite Corp.* ..................... 80,000 520,000
Triangle Pacific Corp.* ............... 88,000 3,058,000
------------
13,817,763
------------
Value
Shares (Note 1)
----------- -------------
Hotel & Restaurant 1.5%
Casino America Inc.* .................. 7,000 $ 24,281
Il Fornaio Corp.* ..................... 24,000 366,000
Primadonna Resorts Inc.* ............... 207,000 3,726,000
Silverleaf Resorts Inc.* ............... 45,000 1,029,375
Station Casinos Inc.* .................. 49,000 398,125
Total Entertainment Restaurant Corp.* ... 20,000 157,500
Trendwest Resorts Inc.* ............... 48,000 1,128,000
Trump Hotels & Casino Resorts Inc.* ... 20,000 206,250
Vistana Inc.* ........................... 15,000 322,500
------------
7,358,031
------------
Photography 0.1%
CPI Corp. .............................. 14,600 372,300
------------
Recreation 2.3%
Alliance Gaming Corp.* .................. 30,000 198,750
AMC Entertainment Inc.* ............... 1,000 19,875
Bacou USA Inc.* ........................ 56,500 988,750
Cineplex Odeon Corp.* .................. 20,000 36,250
HMG Worldwide Corp.* .................. 22,000 26,125
HSN Inc.* .............................. 1,000 40,625
Lewis Galoob Toys Inc.* ............... 26,000 383,500
Panavision Inc.* ........................ 43,200 901,800
Polaris Industries Inc. ............... 45,000 1,324,687
Racing Champions Corp.* ............... 5,000 59,375
Rawlings Sporting Goods Co.* ............ 96,700 954,913
Rockshox Inc.* ........................ 1,000 14,250
Safety First Inc.* ..................... 500 2,656
Steinway Musical Instruments Inc.* ...... 216,700 5,200,800
Sturm Ruger & Company Inc. ............ 48,000 909,000
Travel Services International Inc.* ... 1,400 29,050
------------
11,090,406
------------
Retail Trade 2.6%
Acorn Products Inc.* .................. 53,800 860,800
Big Dog Holdings Inc.* .................. 22,000 308,000
Chromcraft Revington Inc.* ............ 200 6,125
Cole National Corp. Cl. A* ............ 63,000 2,618,437
DSI Toys Inc.* ........................ 55,000 515,625
Finlay Enterprises Inc.* ............... 10,000 192,500
Footstar Inc.* ........................ 43,700 1,177,169
Friedman's Inc Cl. A* .................. 37,200 627,750
Hanover Direct Inc.* .................. 20,000 33,750
Hibbett Sporting Goods Inc.* ............ 3,000 83,625
Krause's Furniture Inc.* ............... 9,200 26,163
Little Switzerland Inc.* ............... 8,000 53,000
Mark Brothers Jewelers Inc.* ............ 150,000 2,100,000
RDO Equipment Co. Cl. A* ............... 73,100 1,681,300
Stage Stores Inc.* ..................... 22,000 948,750
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH AURORA FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Value
Shares (Note 1)
- ----------------------------------------------------------------------
<S> <C> <C>
Retail Trade (cont'd)
TBC Corp.* .............................. 40,000 $ 377,500
Winsloew Furniture Inc.* ............... 20,000 310,000
York Group Inc. ........................ 4,000 87,000
Zale Corp.* ........................... 8,500 220,469
------------
12,227,963
------------
Textile & Apparel 1.2%
Chic By HIS Inc.* ..................... 36,000 254,250
Childrens Place Retail Stores Inc.* ... 47,000 681,500
Hirsch International Corp. Cl. A* ...... 47,700 843,694
Marisa Christina Inc.* .................. 10,000 70,000
Novel Denim Holdings Ltd.* ............ 12,600 340,200
Oshkosh B' Gosh Inc. Cl. A ............ 79,300 2,071,712
Tefron Ltd.* ........................... 73,300 1,466,000
------------
5,727,356
------------
Total Consumer Cyclical ........................ 89,323,955
------------
Consumer Staple 15.3%
Business Service 6.1%
Amerco* ................................. 148,700 4,535,350
American Pad & Paper Co.* ............... 20,000 248,750
American Residential Services Inc.* ... 63,000 1,106,437
Aris Corp.* ........................... 1,100 23,375
BioReliance Corp.* ..................... 37,200 976,500
Bridgestreet Accommodations Inc.* ...... 34,000 391,000
Carriage Services, Inc. Cl. A* ......... 14,000 245,000
Comfort Systems USA Inc.* ............... 89,000 1,702,125
CorporateFamily Solutions Inc.* ......... 18,900 318,938
Data Documents Inc.* .................. 127,900 2,701,887
Edutrek International Inc. Cl. A* ...... 29,100 774,787
Envirosource Inc.* ..................... 271,200 694,950
Firearms Training Systems Inc. Cl. A* ... 310,000 1,937,500
Hagler Bailly Inc.* ..................... 12,000 304,500
Industrial Distribution Group Inc.* ... 24,300 510,300
Integrated Systems Consulting Group* ... 37,000 420,875
International Total Services Inc.* ...... 180,400 2,751,100
Jackson Hewitt Inc.* .................. 44,000 1,683,000
Kendle International Inc.* ............ 63,600 1,192,500
Lamar Advertising Co. Cl. A* ............ 2,700 82,688
Melita International Corp.* ............ 30,000 352,500
OrthAlliance Inc. Cl. A* ............... 9,700 143,075
Pameco Corp.* ........................... 11,100 197,025
Pierce Leahy Corp.* ..................... 45,000 1,220,625
ProBusiness Services Inc.* ............ 6,900 131,963
ProMedCo Management Co.* ............... 70,000 735,000
Protection One Inc.* .................. 47,000 860,687
RCM Technologies Inc.* .................. 35,500 572,438
- ----------------------------------------------------------------------
Value
Shares (Note 1)
- ----------------------------------------------------------------------
Business Service (cont'd)
Right Management Consultants Inc.* ...... 70,900 $ 726,725
Staffing Resources Inc.* ............... 6,500 58,500
Todd-AO Corp. ........................... 13,500 150,188
Vestcom International Inc.* ............ 37,100 742,000
Waste Industries Inc.* .................. 15,500 371,031
Waterlink Inc.* ........................ 10,000 187,500
------------
29,050,819
------------
Container 1.3%
Bway Corp.* ........................... 9,000 191,250
Gundle/SLT Environmental Inc.* ......... 88,100 495,562
Home Products International Inc.* ...... 38,000 555,750
Intertape Polymer Group Inc. ............ 24,000 582,000
Ivex Packaging Corp.* .................. 110,200 1,763,200
Rock Tennessee Co. Cl. A ............... 36,950 736,691
Sealright Company Inc.* ............... 3,000 39,375
Shorewood Packaging Corp.* ............ 65,000 1,551,875
Silgan Holdings Inc.* .................. 6,000 240,000
U.S. Can Corp.* ........................ 12,900 214,463
------------
6,370,166
------------
Drug 0.2%
Chirex Inc.* ........................... 20,000 510,000
ImmuLogic Pharmaceutical Corp.* ......... 22,000 72,875
Martek Biosciences Corp.* ............... 14,000 210,000
Unigene Labs Inc.* ..................... 15,000 57,188
------------
850,063
------------
Food & Beverage 0.8%
Authentic Specialty Foods Inc.* ......... 140,000 1,347,500
BJ's Wholesale Club Inc.* ............... 23,000 671,313
Coca-Cola Bottling Co. .................. 2,500 143,750
Darling International Inc.* ............ 23,600 678,500
Garden Fresh Restaurant Corp.* ......... 7,000 103,250
Northland Cranberries Inc. Cl. A ...... 15,000 281,250
Robert Mondavi Corp. Cl. A* ............ 1,000 54,750
Star Buffet Inc.* ..................... 27,400 431,550
------------
3,711,863
------------
Hospital Supply 1.4%
Arrow International Inc. ............... 20,000 662,500
Centennial Healthcare Corp.* ............ 21,000 483,000
Circon Corp.* ........................... 20,000 312,500
CN Biosciences Inc.* .................. 33,000 775,500
Fusion Medical Technologies Inc.* ...... 3,000 15,750
General Surgical Innovations Inc.* ...... 1,500 6,188
Healthplan Services Corp. ............... 20,794 439,273
Hyseq Inc.* ........................... 13,000 258,375
Invivo Corp.* ........................... 165,000 1,144,687
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH AURORA FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Value
Shares (Note 1)
- ----------------------------------------------------------------------
<S> <C> <C>
Hospital Supply (cont'd)
Lunar Corp.* ........................... 70,000 $ 1,338,750
SeaMed Corp.* ........................... 11,000 204,875
Sunrise Medical Inc.* .................. 1,000 15,625
Trigon Healthcare Inc.* ............... 20,000 496,250
Urohealth Systems Inc. Cl. A* ......... 25,200 144,900
Vista Medical Technologies Inc.* ...... 39,000 580,125
------------
6,878,298
------------
Personal Care 1.3%
Bush Boake Allen Inc.* .................. 35,000 1,163,750
Carson Inc. Cl. A* ..................... 45,000 486,562
Castle Dental Centers Inc.* ............ 8,100 113,400
Cooper Companies Inc.* .................. 1,000 36,750
First Brands Corp. ..................... 80,000 2,140,000
Monarch Dental Corp.* .................. 35,000 752,500
Ocular Sciences Inc.* .................. 32,000 740,000
Polymer Group Inc.* ..................... 50,000 643,750
------------
6,076,712
------------
Printing & Publishing 2.8%
American Media Inc. Cl. A* ............ 845,200 7,184,200
Central Newspapers Inc. Cl. A ......... 3,000 222,750
Hollinger International, Inc. Cv. Pfd. 175,000 2,154,687
Journal Register Co.* .................. 16,900 331,663
Katz Media Group Inc.* .................. 52,000 533,000
McClatchy Newspapers Inc. Cl. A ......... 23,000 790,625
Pulitzer Publishing Co. ............... 31,200 1,762,800
Valassis Communications Inc.* ......... 14,000 446,250
------------
13,425,975
------------
Tobacco 1.4%
800-JR. CIGAR Inc.* ..................... 35,500 1,242,500
Dimon Inc. .............................. 82,000 2,050,000
Standard Commercial Corp.* ............ 198,140 3,343,612
------------
6,636,112
------------
Total Consumer Staple ........................ 73,000,008
------------
Energy 5.0%
Oil 1.3%
Crystal Oil Co.* ........................ 3,800 147,488
KCS Energy Inc. ........................ 105,000 3,097,500
National Energy Group Inc. Cl. A* ...... 100,000 550,000
Nuevo Energy Co.* ..................... 18,000 861,750
Pease Oil & Gas Co.* .................. 100,000 303,125
Probe Exploration Inc.* ............... 280,500 1,187,312
------------
6,147,175
------------
- ----------------------------------------------------------------------
Value
Shares (Note 1)
- ----------------------------------------------------------------------
Oil Service 3.7%
American Oilfield Divers Inc.* ......... 335,200 $ 5,174,650
Atwood Oceanics Inc.* .................. 28,100 3,164,762
Cal Dive International Inc.* ............ 3,100 115,475
Daniel Industries Inc. .................. 30,000 583,125
Friede Goldman International Inc.* ...... 18,300 1,098,000
Gulfmark Offshore Inc.* ............... 28,000 966,000
Patterson Energy, Inc.* ............... 17,464 914,677
Stolt Comex Seaway SA* .................. 4,000 250,250
TMBR / Sharp Drilling Inc.* ............ 132,600 3,580,200
UNIFAB International Inc.* ............ 7,800 255,450
UTI Energy Corp.* ..................... 39,300 1,552,350
------------
17,654,939
------------
Total Energy ........................... 23,802,114
------------
Finance 3.4%
Bank 0.7%
AMBANC Holding Co. Inc. ............... 6,000 96,750
Ambase Corp.* ........................... 5,000 14,650
Bank of the Ozarks Inc.* ............... 41,400 812,475
First International Bancorp Inc.* ...... 7,000 125,563
ITLA Capital Corp.* ..................... 4,000 81,000
Life Financial Corp.* .................. 91,000 1,672,125
Meritor Savings Bank* .................. 60,000 157,500
Net.B@nk Inc.* ........................ 18,600 197,625
Prime Bancshares Inc.* .................. 9,700 184,300
------------
3,341,988
------------
Financial Service 2.3%
Alliance Global Environment Fund Inc. ... 10,000 188,438
American Capital Strategies Ltd.* ...... 106,800 2,136,000
CCA Prison Realty Trust ............... 26,500 1,000,375
Delta Financial Corp.* .................. 47,000 948,812
Gentra Inc.* ........................... 12,000 37,423
Granite Financial Inc.* ............... 63,200 726,800
LaSalle Partners Inc.* .................. 1,600 56,000
Matrix Capital Corp.* .................. 5,000 81,875
Mego Financial Corp.* .................. 18,200 81,900
MoneyGram Payment Systems Inc.* ......... 6,000 107,625
New Century Financial Corp.* ............ 60,000 1,023,750
Security Capital Group Inc. Cl. B* ...... 97,700 3,358,437
SL Green Realty Corp.* .................. 30,600 791,775
Triad Park LLC* ........................ 10,000 12,600
Willis Lease Finance Corp.* ............ 6,000 138,750
------------
10,690,560
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH AURORA FUND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (cont'd)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Value
Shares (Note 1)
- ----------------------------------------------------------------------
<S> <C> <C>
Insurance 0.4%
Foremost Corp. ........................... 35,000 $ 2,065,000
-------------
Total Finance ................................. 16,097,548
--------------
Science & Technology 10.8%
Aerospace 0.8%
Curtiss-Wright Corp. ..................... 30,000 2,321,250
Doncasters PLC ADR* ..................... 22,900 687,000
First Aviation Services Inc.* ............ 35,000 293,125
Rohr Industries Inc.* .................. 14,000 433,125
-------------
3,734,500
-------------
Computer Software & Service 3.0%
Advantage Learning Systems Inc.* ......... 17,800 449,450
Bell & Howell Co.* ..................... 45,000 1,459,687
Best Software Inc.* ..................... 127,200 1,704,114
Box Hill Systems Corp.* .................. 61,800 1,081,500
Computervision Corp.* .................. 3,000 11,063
Corsair Communications Inc.* ............ 10,200 215,475
DRS Technologies Inc.* .................. 36,500 529,250
H.T.E. Inc.* ........................... 127,700 1,931,462
Information Management Associates Inc.* 83,900 1,027,775
Information Storage Devices Inc.* ...... 3,000 33,750
InTEST Corp.* ........................... 66,000 1,122,000
J.D. Edwards & Co.* ..................... 51,800 1,735,300
Larscom Inc. Cl. A* ..................... 1,100 11,138
Network Solutions Inc. Cl. A* ............ 17,900 389,325
Pegasus Systems Inc.* .................. 42,000 761,250
Phoenix International Inc.* ............ 4,000 95,500
Puma Technology Inc.* .................. 97,500 609,375
QAD Inc.* .............................. 37,000 689,125
SeaChange International Inc.* ............ 100 1,475
Template Software Inc.* .................. 11,000 143,000
TSI International Software Ltd.* ......... 13,000 172,250
Walsh International Inc.* ............... 17,000 212,500
-------------
14,385,764
-------------
Electronic Components 3.8%
Apex PC Solutions Inc.* .................. 13,000 492,375
BEI Electronics Inc. ..................... 165,000 2,598,750
DeCrane Aircraft Holdings Inc.* ......... 74,000 1,359,750
Denison International PLC ADR* ......... 253,200 ,889,925
Electro Scientific Industries Inc.* ...... 5,000 305,000
Fusion Systems Corp.* .................. 1,000 875
Galileo Technology Ltd.* ............... 9,000 297,000
Innova Corp.* ........................... 3,300 77,963
Optek Technology Inc.* .................. 182,600 3,446,575
- ----------------------------------------------------------------------
Value
Shares (Note 1)
- ----------------------------------------------------------------------
Electronic Components (cont'd)
Peak International Ltd.* ............... 41,000 $ 978,875
Power-One Inc.* ........................ 68,000 952,000
Reliability Inc.* ........................ 33,000 1,427,250
Reptron Electronics Inc.* ............... 65,000 1,190,312
Richey Electronics Inc.* ............... 10,000 102,500
-------------
18,119,150
-------------
Electronic Equipment 2.7%
Aehr Test Systems Inc.* .................. 4,800 84,900
Brooks Automation Inc.* .................. 25,400 974,725
Coherent Inc.* ........................... 104,000 5,759,000
Detection Systems Inc.* .................. 112,400 2,318,250
FARO Technologies Inc.* .................. 63,400 1,038,175
Flir Systems Inc.* ..................... 7,500 149,063
Instrumentation Laboratories SPA ADR* ... 40,000 112,500
Mackie Designs Inc.* ..................... 15,000 142,500
Magnetic Technologies Corp.* ............ 70,000 334,687
Novametrix Medical Systems Inc.* ......... 45,000 452,812
Pioneer-Standard Electronics Inc. ...... 17,000 292,188
Plantronics Inc.* ........................ 16,000 604,000
Positron Fiber Systems Corp. Cl. A* ...... 31,300 322,781
Silicon Valley Group Inc.* ............... 1,000 35,563
-------------
12,621,144
-------------
Office Equipment 0.5%
Davel Communications Group* ............ 8,000 184,000
ErgoBilt Inc.* ........................... 45,000 447,187
Exabyte Corp.* ........................... 128,000 1,408,000
Laser Power Corp.* ..................... 42,000 304,500
-------------
2,343,687
-------------
Total Science & Technology ............ 51,204,245
-------------
Utility 0.8%
Natural Gas 0.2%
Continental Natural Gas Inc.* ............ 32,700 392,400
TransTexas Gas Corp.* .................. 32,500 520,000
-------------
912,400
-------------
Telephone 0.6%
Bell Canada International Inc* ......... 45,500 858,812
NACT Telecommunications Inc.* ............ 25,000 395,313
NEXTLINK Communications Inc. Cl. A* ...... 75,600 1,814,400
-------------
3,068,525
-------------
Total Utility ....................................... 3,980,925
-------------
Total Common Stocks (Cost $290,434,166)............... 349,692,059
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH AURORA FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Maturity Value
Amount Date (Note 1)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
FIXED INCOME SECURITIES 0.1%
System Software Associates
Inc. Cv. Sub. Note, 7.00% ...... $ 300,000 9/15/2002 $ 332,250
-------------
Total Fixed Income Securities (Cost $300,000) ............... 332,250
-------------
SHORT-TERM OBLIGATIONS 28.5%
American Express Credit Corp.,
5.60% ........................... 6,600,000 10/01/1997 6,600,000
American Express Credit Corp.,
5.54% ........................... 5,454,000 10/07/1997 5,454,000
American Express Credit Corp.,
5.50% ........................... 10,000,000 10/10/1997 10,000,000
Bell Atlantic Financial Services
Inc., 5.52% ..................... 5,511,000 10/06/1997 5,506,775
Beneficial Corp., 5.52% ......... 8,069,000 10/24/1997 8,069,000
Commercial Credit Co., 5.50% . 19,460,000 10/03/1997 19,460,000
Ford Motor Credit Co., 5.51% . 5,000,000 10/06/1997 5,000,000
Ford Motor Credit Co., 5.52% . 6,000,000 10/07/1997 6,000,000
Ford Motor Credit Co., 5.51% . 9,000,000 10/15/1997 9,000,000
General Electric Capital Corp.,
5.52% ........................... 9,806,000 10/20/1997 9,806,000
General Electric Capital Corp.,
5.53% ........................... 6,857,000 10/24/1997 6,857,000
Household Finance Corp.,
5.51% ........................... 14,033,000 10/08/1997 14,033,000
John Deere Capital Corp.,
5.51% ........................... 8,521,000 10/02/1997 8,521,000
John Deere Capital Corp.,
5.49% ........................... 8,514,000 10/09/1997 8,514,000
Toys R Us Inc., 5.48% ............ 2,885,000 10/10/1997 2,881,047
Walt Disney Co., 5.47% ............ 10,000,000 10/02/1997 9,998,481
-------------
Total Short-Term Obligations (Cost $135,700,303) ............ 135,700,303
-------------
Total Investments (Cost $426,434,469)--102.1% ............... 485,724,612
Cash and Other Assets, Less Liabilities--(2.1%) ............ (10,270,000)
-------------
Net Assets--100.0% .......................................... $ 475,454,612
=============
</TABLE>
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------
Federal Income Tax Information:
At September 30 1997, the net unrealized appreciation
of investments based on cost for Federal income tax
purposes of $426,523,579 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value over
tax cost $ 61,386,319
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over valu (2,185,286)
------------
$ 59,201,033
============
</TABLE>
- -------------------------------------------------------------------------------
*Nonincome-producing securities.
ADR stands for American Depositary Receipt, representing ownership of foreign
securities.
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH AURORA FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
September 30, 1997
<TABLE>
<S> <C>
Assets
Investments, at value (Cost $426,434,469) (Note 1) ............ $485,724,612
Cash ......................................................... 81,486
Receivable for fund shares sold .............................. 10,491,205
Receivable for securities sold ................................. 409,114
Dividends and interest receivable .............................. 271,527
Deferred organization costs and other assets (Note 1) 37,004
-------------
497,014,948
Liabilities
Payable for securities purchased .............................. 20,687,805
Accrued management fee (Note 2) .............................. 278,020
Payable for fund shares redeemed .............................. 263,692
Accrued distribution and service fees (Note 5) ............... 236,922
Accrued transfer agent and shareholder services
(Note 2) ................................................... 11,230
Accrued trustees' fees (Note 2) .............................. 9,275
Other accrued expenses ....................................... 73,392
-------------
21,560,336
-------------
Net Assets $475,454,612
=============
Net Assets consist of:
Unrealized appreciation of investments ........................ $ 59,290,143
Accumulated net realized gain ................................. 4,156,803
Shares of beneficial interest ................................. 412,007,666
-------------
$475,454,612
=============
Net Asset Value and redemption price per share of
Class A shares ($157,853,458 [divided by] 7,621,324 shares of
beneficial interest) ....................................... $20.71
======
Maximum Offering Price per share of Class A shares
($20.71 [divided by] .955) .................................... $21.69
======
Net Asset Value and offering price per share of Class
B shares $235,938,105 [divided by] 11,606,420 shares of
beneficial interest)* ....................................... $20.33
======
Net Asset Value, offering price and redemption price
per share of Class C shares ($14,542,027 [divided by]
697,968 shares of beneficial interest) ...................... $20.83
======
Net Asset Value and offering price per share of Class
D shares ($67,121,022 [divided by] 3,302,603 shares of
beneficial interest)* ....................................... $20.32
======
</TABLE>
- -------------------------------------
* Redemption price per share for Class B and Class D is equal to net asset value
less any applicable contingent deferred sales charge.
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the year ended September 30, 1997
<TABLE>
<S> <C>
Investment Income
Dividends, net of foreign taxes of $101 .................. $ 212,366
Interest ................................................ 1,052,808
-----------
1,265,174
Expenses
Management fee (Note 2) ................................. 726,266
Custodian fee .......................................... 121,027
Transfer agent and shareholder services (Note 2) ...... 55,656
Service fee--Class A (Note 5) ........................... 64,258
Distribution and service fees--Class B (Note 5) ......... 384,579
Distribution and service fees--Class D (Note 5) ......... 112,831
Registration fees ....................................... 88,786
Reports to shareholders ................................. 18,630
Trustees' fees (Note 2) ................................. 17,094
Audit fee ............................................. 16,698
Amortization of organization costs (Note 1) ............ 14,595
Legal fees ............................................. 6,906
Miscellaneous .......................................... 6,613
-----------
1,633,939
Expenses borne by the Distributor (Note 3) ............ (135,389)
-----------
1,498,550
-----------
Net investment loss .................................... (233,376)
-----------
Realized and Unrealized Gain on Investments
Net realized gain on investments (Notes 1 and 4) ...... 4,589,402
Net unrealized appreciation of investments ............ 57,978,769
-----------
Net gain on investments ................................. 62,568,171
-----------
Net increase in net assets resulting from operations . $62,334,795
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH AURORA FUND
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended September 30
------------------------------
1997 1996
-------------- -------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment loss ............ $ (233,376) $ (38,012)
Net realized gain on investments 4,589,402 1,978,638
Net unrealized appreciation of
investments .................. 57,978,769 774,969
------------ ----------
Net increase resulting from
operations .................. 62,334,795 2,715,595
------------ ----------
Dividend from net investment income:
Class A ........................ -- (46,536)
Class B ........................ -- (430)
Class C ........................ -- (1,112)
Class D ........................ -- (430)
------------ ----------
-- (48,508)
------------ ----------
Distributions from net realized gains:
Class A ........................ (275,192) (259,563)
Class B ........................ (38,226) (5,268)
Class C ........................ (1,776,578) (5,268)
Class D ........................ (38,226) (5,268)
------------ ----------
(2,128,222) (275,367)
------------ ----------
Net increase from fund share
transactions (Note 7) ......... 406,056,397 668,649
------------ ----------
Total increase in net assets ... 466,262,970 3,060,369
Net Assets
Beginning of year ............... 9,191,642 6,131,273
------------ ----------
End of year ..................... $475,454,612 $9,191,642
============ ==========
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
September 30, 1997
Note 1
State Street Research Aurora Fund, formerly State Street Research Small
Capitalization Value Fund (the "Fund"), is a series of State Street Research
Capital Trust (the "Trust"), which is a Massachusetts business trust registered
under the Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The Trust was organized in November, 1988 as a
successor to State Street Capital Fund, Inc., a Massachusetts corporation. The
Trust consists presently of three separate funds: State Street Research Aurora
Fund, State Street Research Emerging Growth Fund and State Street Research
Capital Fund.
The investment objective of the Fund is to provide high total return consisting
principally of capital appreciation. In seeking to achieve its investment
objective, the Fund invests primarily in the equity securities of small
capitalization companies which are trading at prices believed to be below the
true values of such securities.
The Fund is authorized to issue four classes of shares. Effective November 5,
1997, the Fund discontinued offering all four classes of shares. Class A share
are subject to an initial sales charge of up to 4.50% and pay an annual service
fee equal to 0.25% of average daily net assets. Class B shares are subject to a
contingent deferred sales charge on certain redemptions made within five years
of purchase and pay annual distribution and service fees of 1.00%. Class B
shares automatically convert into Class A shares (which pay lower ongoing
expenses) at the end of the eight years after the issuance of the Class B
shares. Class C shares are only offered to certain employee benefit plans and
large institutions. Class D shares are subject to a contingent deferred sales
charge of 1.00% on any shares redeemed within one year of their purchase. Class
D shares also pay annual distribution and service fees of 1.00%. The Fund's
expenses are borne pro rata by each class, except that each class bears
expenses, and has exclusive voting rights with respect to provisions of the Plan
of Distribution, related specifically to that class. The Trustees declared
separate dividends on each class of shares.
The following significant policies are consistently followed by the Fund in
preparing its financial statements, and such policies are in conformity with
generally accepted accounting principles for investment companies.
A. Investments in Securities
Values for listed securities represent the last sale on national securities
exchanges quoted prior to the close of the New York Stock Exchange.
Over-the-counter securities quoted on the National Association of Securities
Dealers Automated Quotation ("NASDAQ") system are valued at the closing price
supplied through such system. In the absence of recorded sales and for those
over-the-counter securities not quoted on the NASDAQ system, valuations are at
the mean of the closing bid and asked quotations, except for certain securities
that may be restricted as to public resale, which are valued in accordance with
methods adopted by the Trustees. Securities transactions are
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATE STREET RESEARCH AURORA FUND
- --------------------------------------------------------------------------------
NOTES (cont'd)
- --------------------------------------------------------------------------------
accounted for on the trade date (date the order to buy or sell is executed), and
dividends declared but not received are accrued on the ex-dividend date.
Interest income is determined on the accrual basis. Realized gains and losses
from security transactions are reported on the basis of identified cost of
securities delivered for both financial reporting and Federal income tax
purposes.
B. Federal Income Taxes
No provision for Federal income taxes is necessary since the Fund intends to
qualify under Subchapter M of the Internal Revenue Code and its policy is to
distribute all of its taxable income, including net realized capital gains, if
any, within the prescribed time period.
C. Dividends
Dividends from net investment income, if any, are declared and paid or
reinvested annually. Net realized capital gains, if any, are distributed
annually, unless additional distributions are required for compliance with
applicable tax regulations. For the year ended September 30, 1997, the Fund has
designated as long-term $290,046 of the distributions from net realized gains.
Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles.
D. Deferred Organization Costs
Certain costs incurred in the organization and registration of the Fund were
capitalized and are being amortized under the straight-line method over a period
of five years.
E. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
Note 2
The Trust and State Street Research & Management Company (the "Adviser"), an
indirect wholly owned subsidiary of Metropolitan Life Insurance Company
("Metropolitan"), have entered into an agreement under which the Adviser earns
monthly fees at an annual rate of 0.85% of the Fund's average daily net assets.
In consideration of these fees, the Adviser furnishes the Fund with management,
investment advisory, statistical and research facilities and services. The
Adviser also pays all salaries, rent and certain other expenses of management.
During the year ended September 30, 1997, the fees pursuant to such agreement
amounted to $726,266.
State Street Research Shareholder Services, a division of State Street Research
Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), and indirect wholly owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. During the year ended September 30, 1997, the amount of such
expenses was $39,592.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$17,094 during the year ended September 30, 1997.
Note 3
The Distributor and its affiliates may from time to time and in varying amounts
voluntarily assume some portion of fees or expenses relating to the Fund. During
the year ended September 30, 1997, the amount of such expenses assumed by the
Distributor and its affiliates was $135,389.
Note 4
For the year ended September 30, 1997, exclusive of short-term investments and
U.S. Government obligations, purchases and sales of securities aggregated
$297,321,594 and $19,001,368, respectively.
Note 5
The Trust has adopted a Plan of Distribution Pursuant to Rule 12b-1 (the "Plan")
under the Investment Company Act of 1940. Under the Plan, the Fund pays annual
service fees to the Distributor at a rate of 0.25% of average daily net assets
for Class A, Class B and Class D shares. In addition, the Fund pays annual
distribution fees of 0.75% of average daily net assets for Class B and Class D
shares. The Distributor uses such payments for personal services and/or the
maintenance or servicing of shareholder accounts, to reimburse securities
dealers for distribution and marketing services, to furnish ongoing assistance
to investors and to defray a portion of its distribution and marketing expenses.
For the year ended September 30, 1997, fees pursuant to such plan amounted to
$64,258, $384,579, and $112,831 for Class A, Class B and Class D shares,
respectively.
The Fund has been informed that the Distributor and MetLife Securities, Inc., a
wholly owned subsidiary of Metropolitan, earned initial sales charges
aggregating $314,023 and $312,224, respectively, on sales of Class A shares of
the Fund during the year ended September 30, 1997, and that MetLife Securities,
Inc. earned commissions aggregating $784,669 on sales of Class B shares, and
that the Distributor collected contingent deferred sales charges aggregating
$8,896 and $3,376 on redemptions of Class B and Class D shares, respectively,
during the same period.
Note 6
The Trustees declared a distribution of all capital gains realized during the
year ended September 30, 1997, (approximately $.13 short-term and $.02 long-term
per share), payable October 31, 1997 to shareholders of record on October 30,
1997.
<PAGE>
STATE STREET RESEARCH AURORA FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Note 7
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share. At September 30, 1997, the
Adviser owned one share of each of Class A, Class B, Class C and Class D shares
and Metropolitan owned 19,510 Class A shares, 13,884 Class B shares, 636,481
Class C shares and 13,884 Class D shares of the Fund.
Share transactions were as follows:
<TABLE>
<CAPTION>
Year ended September 30
-------------------------------
1997
-------------------------------
Class A Shares Amount
- ------------------------------------------------------------------------ -------------- ----------------
<S> <C> <C>
Shares sold ......................................................... 7,718,462 $141,142,332
Issued upon reinvestment of:
Distributions from net realized gains .............................. 20,767 275,171
Dividend from net investment income ................................. -- --
Shares repurchased ................................................... (191,210) (3,448,807)
---------- ------------
Net increase (decrease) ............................................. 7,548,019 $137,968,696
========== ============
Class B Shares Amount
- ----------------------------------------------------------------------- --------- ------------
Shares sold ......................................................... 11,670,966 $208,229,024
Issued upon reinvestment of distributions from net realized gains ...... 2,920 38,204
Shares repurchased ................................................... (78,457) (1,385,012)
---------- ------------
Net increase ......................................................... 11,595,429 $206,882,216
========== ============
Class C Shares Amount
- ----------------------------------------------------------------------- --------- ------------
Shares sold ......................................................... 68,257 $ 1,187,984
Issued upon reinvestment of distributions from net realized gains ...... 133,575 1,776,556
Shares repurchased ................................................... (14,394) (233,957)
---------- ------------
Net increase ......................................................... 187,438 $ 2,730,583
========== ============
Class D Shares Amount
- ----------------------------------------------------------------------- --------- ------------
Shares sold ......................................................... 3,388,937 $ 60,155,313
Issued upon reinvestment of distributions from net realized gains ...... 2,921 38,204
Shares repurchased ................................................... (100,246) (1,718,615)
---------- ------------
Net increase ......................................................... 3,291,612 $ 58,474,902
========== ============
<CAPTION>
1996
-----------------------------
Class A Shares Amount
- ------------------------------------------------------------------------ ------------- ---------------
<S> <C> <C>
Shares sold ......................................................... 32,682 $ 424,234
Issued upon reinvestment of:
Distributions from net realized gains .............................. 24,487 259,562
Dividend from net investment income ................................. 211 2,242
Shares repurchased ................................................... (503,526) (5,963,085)
--------- ------------
Net increase (decrease) ............................................. (446,146) $ (5,277,047)
========= ============
Class B Shares Amount
- ----------------------------------------------------------------------- --------- ------------
Shares sold ......................................................... -- $ --
Issued upon reinvestment of distributions from net realized gains ...... 498 5,265
Shares repurchased ................................................... -- --
--------- ------------
Net increase ......................................................... 498 $ 5,265
========= ============
Class C Shares Amount
- ----------------------------------------------------------------------- --------- ------------
Shares sold ......................................................... 499,540 $ 5,929,901
Issued upon reinvestment of distributions from net realized gains ...... 497 5,265
Shares repurchased ................................................... -- --
--------- ------------
Net increase ......................................................... 500,037 $ 5,935,166
========= ============
Class D Shares Amount
- ----------------------------------------------------------------------- --------- ------------
Shares sold ......................................................... -- $ --
Issued upon reinvestment of distributions from net realized gains ...... 498 5,265
Shares repurchased ................................................... -- --
--------- ------------
Net increase ......................................................... 498 $ 5,265
========= ============
</TABLE>
<PAGE>
STATE STREET RESEARCH AURORA FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a share outstanding throughout each year:
<TABLE>
<CAPTION>
Class A
---------------------------------------------
Year ended September 30
---------------------------------------------
1997** 1996** 1995***
------------ ------------ -------------
<S> <C> <C> <C>
Net asset value, beginning of year $ 15.14 $ 11.13 $ 9.55
------------ ------------ ------------
Net investment income (loss)* 0.03 (0.06) 0.07
Net realized and unrealized gain on investments 9.02 4.66 1.51
------------ ------------ ------------
Total from investment operations 9.05 4.60 1.58
------------ ------------ ------------
Dividend from net investment income -- (0.09) --
Distributions from net realized gains (3.48) (0.50) --
------------ ------------ ------------
Total distributions (3.48) (0.59) --
------------ ------------ ------------
Net asset value, end of year $ 20.71 $ 15.14 $ 11.13
============ ============ ============
Total return 72.70%+ 43.63%+ 16.54%++
Net assets at end of year (000s) $ 157,853 $ 1,110 $ 5,782
Ratio of operating expenses to average net assets* 1.34% 1.45% 1.45%#
Ratio of net investment income (loss) to average net assets* 0.17% (0.56)% 1.05%#
Portfolio turnover rate 25.03% 124.79% 47.34%
Average commission rate @ $ 0.0154 $ 0.0174 --
*Reflects voluntary assumption of fees or expenses per
share in each year (Note 3) $ 0.02 $ 0.32 $ 0.15
<CAPTION>
Class B
---------------------------------------------
Year ended September 30
---------------------------------------------
1997** 1996** 1995***
------------ ------------ ------------
<S> <C> <C> <C>
Net asset value, beginning of year $ 15.02 $ 11.08 $ 9.55
------------ ------------ ------------
Net investment income (loss)* (0.09) (0.17) 0.02
Net realized and unrealized gain on investments 8.88 4.65 .51
------------ ------------ ------------
Total from investment operations 8.79 4.48 1.53
------------ ------------ ------------
Dividend from net investment income -- (0.04) --
Distributions from net realized gains (3.48) (0.50) --
------------ ------------ ------------
Total distributions (3.48) (0.54) --
------------ ------------ ------------
Net asset value, end of year $ 20.33 $ 15.02 $ 11.08
============ ============ ============
Total return 71.34%+ 42.52%+ 16.02%++
Net assets at end of year (000s) $ 235,938 $ 165 $ 116
Ratio of operating expenses to average net assets* 2.08% 2.20% 2.20%#
Ratio of net investment income (loss) to average net assets* (0.55)% (1.38)% 0.32%#
Portfolio turnover rate 25.03% 124.79% 47.34%
Average commission rate @ $ 0.0154 $ 0.0174 --
*Reflects voluntary assumption of fees or expenses per
share in each year (Note 3) $ 0.01 $ 0.32 $ 0.15
</TABLE>
<TABLE>
<CAPTION>
Class C
---------------------------------------------
Year ended September 30
---------------------------------------------
1997** 1996** 1995***
------------ ------------ -------------
<S> <C> <C> <C>
Net asset value, beginning of year $ 15.18 $ 11.15 $ 9.55
------------ ------------ ------------
Net investment income (loss) (0.00) (0.06) 0.09
Net realized and unrealized gain on investments 9.13 4.70 1.51
------------ ------------ ------------
Total from investment operations 9.13 4.64 1.60
------------ ------------ ------------
Dividend from net investment income -- (0.11) --
Distributions from net realized gains (3.48) (0.50) --
------------ ------------ ------------
Total distributions (3.48) (0.61) --
------------ ------------ ------------
Net asset value, end of year $ 20.83 $ 15.18 $ 11.15
============ ============ ============
Total return 73.10%+ 43.95%+ 16.75%+
Net assets at end of year (000s) $ 14,542 $ 7,752 $ 117
Ratio of operating expenses to average net assets* 1.16% 1.20% 1.20%#
Ratio of net investment income (loss) to average net assets* (0.02)% (0.43)% 1.32%#
Portfolio turnover rate 25.03% 124.79% 47.34%
Average commission rate @ $ 0.0154 $ 0.0174 --
*Reflects voluntary assumption of fees or expenses per
share in each year (Note 3) . $ 0.12 $ 0.32 $ 0.15
<CAPTION>
Class D
---------------------------------------------
Year ended September 30
---------------------------------------------
1997** 1996** 1995***
------------ ------------ -------------
<S> <C> <C> <C>
Net asset value, beginning of year $ 15.02 $ 11.08 $ 9.55
------------ ------------ ------------
Net investment income (loss) (0.09) (0.17) 0.02
Net realized and unrealized gain on investments 8.87 4.65 1.51
------------ ------------ ------------
Total from investment operations 8.78 4.48 1.53
------------ ------------ ------------
Dividend from net investment income -- (0.04) --
Distributions from net realized gains (3.48) (0.50) --
------------ ------------ ------------
Total distributions (3.48) (0.54) --
------------ ------------ ------------
Net asset value, end of year $ 20.32 $ 15.02 $ 11.08
============ ============ ============
Total return 71.26%+ 42.52%+ 16.02%++
Net assets at end of year (000s) $ 67,121 $ 165 $ 116
Ratio of operating expenses to average net assets* 2.09% 2.20% 2.20%#
Ratio of net investment income (loss) to average net assets* (0.58)% (1.38)% 0.32%#
Portfolio turnover rate 25.03% 124.79% 47.34%
Average commission rate @ $ 0.0154 $ 0.0174 --
*Reflects voluntary assumption of fees or expenses per
share in each year (Note 3) . $ 0.01 $ 0.32 $ 0.15
</TABLE>
- --------------------------------------------------------------------------------
# Annualized.
** Per-share figures have been calculated using the average shares
method.
*** February 13, 1995 (commencement of operations) to September 30, 1995.
+ Total return figures do not reflect any front-end or contingent
deferred sales charges. Total return would be lower if the Distributor
and its affiliates had not voluntarily assumed a portion of the Fund'
expenses.
++ Represents aggregate return for the period without annualization and
does not reflect any front-end or contingent deferred sales charges.
Total return would be lower if the Distributor and its affiliates had
not voluntarily assumed a portion of the Fund's expenses.
@ Average commission rate per share paid for security trades beginning
with the fiscal year ended September 30, 1996.
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Trustees of State Street Research Capital Trust and Shareholders of State
Street Research Aurora Fund (formerly State Street Research Small Capitalization
Value Fund):
We have audited the accompanying statement of assets and liabilities of State
Street Research Aurora Fund, formerly State Street Research Small Capitalization
Value Fund, including the schedule of portfolio investments, as of September 30,
1997, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended and the financial highlights for each of the periods indicated therein.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of State
Street Research Aurora Fund as of September 30, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the periods indicated therein, in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
November 7, 1997
<PAGE>
STATE STREET RESEARCH AURORA FUND
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
Aurora Fund provided shareholders with superior returns for the year ending
September 30, 1997. Class A shares returned +72.70% [without sales charge]. That
was significantly higher than its peer group, the Lipper small company fund
average, which was up 29.79%. It was also well above the Fund's benchmark, the
Russell 2000 Value Index, which gained 42.54% for the period.
Aurora Fund seeks high total return primarily through capital appreciation by
investing in small companies that are undervalued or special situations. The
manager's strategy is to look for a combination of relatively low valuation and
aggressive upside potential. Company visits, when possible, and communication
with management are the manager's primary research tools.
In general, large company stocks outperformed small company stocks during the
first half of the year. Small stocks came back stronger in the second half of
the year. The Fund benefited from stock selection in a wide range of sectors and
the manager's emphasis on his largest positions. Of the approximately 300 stocks
in the portfolio, the top 10 holdings account for 17% of the Fund's assets.
The Fund ended the year with 26% in cash, the result of an extraordinary inflow
of assets near the end of the period.
September 30, 1997
The Standard & Poor's 500 Composite Index (S&P 500) is a market-value weighted
index composed of 500 widely held common stocks. The Russell 2000 Value Index
contains those securities within the Russell 2000 Index with a less than average
growth orientation. The index is unmanaged and does not take sales charges into
consideration. Direct investment in the index is not possible; results are for
illustrative purposes only. All returns represent past performance, which is no
guarantee of future results. The investment return and principal value of an
investment made in the Fund will fluctuate and shares, when redeemed, may be
worth more or less than their original cost. All returns assume reinvestment of
capital gain distributions and income dividends. Performance reflects maximum
4.5% "A" share front-end sales charge or 5% "B" share or 1% "D" share contingent
deferred sales charge. "C" shares, offered without a sales charge, are available
only to certain employee benefit plans and large institutions. Performance
results for the Fund are increased by the voluntary reduction of Fund fees and
expenses; without subsidization, performance would have been lower.
Change in Value of
$10,000 Based on the S&P 500
Compared to Change in Value of $10,000
Invested in the Fund
[Line charts]
Class A Shares
Average Annual Total Return
1 Year Life of Fund
64.92% 47.06%
Aurora Fund S&P 500
2/95 9,550 10,000
9/95 11,130 12,425
9/96 15,986 14,949
9/97 27,606 20,993
Class B Shares
Average Annual Total Return
1 Year Life of Fund
66.34% 47.92%
Aurora Fund S&P 500
2/95 10,000 10,000
9.95 11,602 12,425
9/96 16,135 14,949
9/97 28,032 20,993
Class C Shares
Average Annual Total Return
1 Year Life of Fund
73.10% 50.02%
Aurora Fund S&P 500
2/95 10,000 10,000
9/95 11,675 12,425
9/96 16,806 14,949
9/97 29,092 20,993
Class D Shares
Average Annual Total Return
1 Year Life of Fund
70.26% 48.29%
Aurora Fund S&P 500
2/95 10,000 10,000
9/95 11,602 12,425
9/96 16,535 14,949
9/97 28,318 20,993
================================================
<PAGE>
STATE STREET RESEARCH CAPITAL TRUST
PART C
OTHER INFORMATION
-----------------
Item 24: Financial Statements and Exhibits*
- ------------------------------------------
(a) Financial Statements
(1) Financial Statements included in PART A (Prospectus) of this
Registration Statement:
Financial Highlights for State Street Research Capital Fund for
the fiscal years ended September 30, 1988 through September 30,
1997.
Financial Highlights for State Street Research
Emerging Growth Fund for the period October 4, 1993
(commencement of operations) through September 30, 1997.
Financial Highlights for State Street Research Aurora Fund for
the period February 13, 1995 (commencement of operations)
through September 30, 1997.
(2) Financial Statements included in PART B (Statement of
Additional Information) of this Registration Statement:
For State Street Research Capital Fund for the fiscal year
ended September 30, 1997 (except as provided below)
Investment Portfolio
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
(fiscal years ended September 30, 1997 and
September 30, 1996)
Notes to Financial Statements
(including financial highlights)
Report of Independent Accountants
Management's Discussion of Fund Performance
For State Street Research Emerging Growth Fund for the
fiscal year ended September 30, 1997 (except as provided
below):
Investment Portfolio
Statement of Assets and Liabilities
Statement of Operations
C-1
<PAGE>
Statement of Changes in Net Assets (fiscal years ended
September 30, 1997 and September 30, 1996)
Notes to Financial Statements
(including financial highlights)
Report of Independent Accountants
Management's Discussion of Fund Performance
Financial Statements for State Street Research Aurora Fund for
the fiscal year ended September 30, 1997 (except as provided
below):
Investment Portfolio
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
(fiscal years ended September 30, 1997 and 1996)
Notes to Financial Statements
(including financial highlights)
Report of Independent Accountants
Management's Discussion of Fund Performance
(b) Exhibits
(1)(a) First Amended and Restated Master Trust Agreement, Amendment
No. 1 and Amendment No. 2 (xi)
(1)(b) Amendment No. 3 to First Amended and Restated Master Trust
Agreement (xii)
(1)(c) Amendment No. 4 to First Amended and Restated Master Trust
Agreement (xiv)
(1)(d) Amendment No. 5 to First Amended and Restated Master
Trust Agreement
(2)(a) By-Laws of the Registrant (iii)**
(2)(b) Amendment No. 1 to By-Laws, effective September 30, 1992
(vii)**
(3) Not Applicable
(4)(a) Deleted.
(4)(b) Deleted.
(5)(a) Investment Advisory Contract with respect to State Street
Capital Fund (iii)**
(5)(b) Restated Advisory Agreement with respect to State Street
Research Small Capitalization Growth Fund and Letter Agreement
relating to State Street Research Small Capitalization Value
Fund (xi)
(6)(a) Distribution Agreement with State Street Research Investment
Services, Inc. (viii)**
(6)(b) Form of Selected Dealer Agreement, as Supplemented (xiv)
(6)(c) Form of Bank and Bank-Affiliated Broker-Dealer Agreement (x)**
C-2
<PAGE>
(6)(d) Letter Agreement with respect to the Distribution
Agreement relating to State Street Research Small
Capitalization Value Fund (xi)
(7) Not Applicable
(8)(a) Custodian Contract (iii)**
(8)(c) Letter Agreement with respect to the Custodian Contract
relating to State Street Small Capitalization Growth Fund
(vii)**
(8)(d) Letter Agreement with respect to the Custodian
Contract relating to State Street Research Small
Capitalization Value Fund (xi)
(9) Agreement and Plan of Reorganization and Liquidation (iii)**
(10)(a) Consent and Opinion of counsel on legality of shares being
issued with respect to State Street Capital Fund (vii)**
(10)(b) Consent and Opinion of counsel on legality of shares being
issued with respect to State Street Small Capitalization Growth
Fund (vi)**
(10)(c) Consent and Opinion of counsel on legality of shares being
issued with respect to MetLife - State Street Research Small
Capitalization Value Fund (x)**
(11) Consent of Coopers & Lybrand L.L.P.
(12) Not Applicable
(13)(a) Subscription and Investment Letters -- State Street Small
Capitalization Growth Fund (vii)**
(13)(b) Subscription and Investment Letters -- State
Street Research Small Capitalization Value Fund (xi)
(14)(a) State Street Research IRA: Disclosure Statement, Forms Booklet
and Transfer of Assets/Direct Rollover Form (xi)
C-3
<PAGE>
(14)(b) State Street Research 403(b) Plan Materials (xiv)
(14)(c) State Street Research SIMPLE IRA: Application, Terms &
Conditions and Disclosure Statement
(15)(a) Plan of Distribution Pursuant to Rule 12b-1 with respect to
State Street Research Capital Fund (x)**
(15)(b) Letter Agreement with respect to Plan of Distribution Pursuant
to Rule 12b-1 relating to State Street Research Small
Capitalization Growth Fund (viii)**
(15)(c) Letter Agreement with respect to Plan of Distribution
Pursuant to Rule 12b-1 relating to State Street
Research Small Capitalization Value Fund (xi)
(16)(a) Calculation of Performance Data with respect to State Street
Research Capital Fund (ii)**
(16)(b) Calculation of Performance Data with respect to State Street
Research Small Capitalization Growth Fund (ix)**
(17) First Amended and Restated Multiple Class Expense Allocation
Plan Adopted Pursuant to Rule 18f-3 (xiv)
(18)(a) Powers of Attorney
(18)(b) Certificate of Board Resolution Respecting Powers of Attorney
(19) Application Forms
(27) Financial Data Schedules
- ----------------
**Restated in electronic format in Post-Effective Amendment No. 15 filed on
December 3, 1997.
*The Series of the Registrant have changed their names at various times.
Documents in this listing of Financial Statements and Exhibits which were
effective prior to the most recent name change accordingly refer to a former
name of such Series.
C-4
<PAGE>
- -------------
Filed as part of the Registration Statement as noted below and incorporated
herein by reference:
Footnote Securities Act of 1933
Reference Registration/Amendment Date Filed
i Initial Registration August 22, 1983
ii Post-Effective Amendment No. 1 July 15, 1988
iii Post-Effective Amendment No. 2 December 2, 1988
iv Post-Effective Amendment No. 3 January 26, 1990
v Post-Effective Amendment No. 4 January 31, 1991
vi Post-Effective Amendment No. 6 May 26, 1992
vii Post-Effective Amendment No. 7 November 25, 1992
viii Post-Effective Amendment No. 8 November 26, 1993
ix Post-Effective Amendment No. 9 January 21, 1994
x Post-Effective Amendment No. 10 November 18, 1994
xi Post-Effective Amendment No. 11 October 11, 1995
xii Post-Effective Amendment No. 12 November 29, 1995
xiii Post-Effective Amendment No. 13 January 31, 1996
xiv Post-Effective Amendment No. 14 January 21, 1997
C-5
<PAGE>
Item 25. Persons Controlled by or Under Common Control with Registrant
ORGANIZATIONAL STRUCTURE OF METROPOLITAN AND SUBSIDIARIES
AS OF DECEMBER 31, 1996
The following is a list of subsidiaries of Metropolitan Life Insurance Company
("Metropolitan") as of December 31, 1996. Those entities which are listed at the
left margin (labelled with capital letters) are direct subsidiaries of
Metropolitan. Unless otherwise indicated, each entity which is indented under
another entity is a subsidiary of such indented entity and, therefore, an
indirect subsidiary of Metropolitan. Certain inactive subsidiaries have been
omitted from the Metropolitan Organizational listing. The voting securities
(excluding directors' qualifying shares, if any) of the subsidiaries listed are
100% owned by their respective parent corporations, unless otherwise indicated.
The jurisdiction of domicile of each subsidiary listed is set forth in the
parenthetical following such subsidiary.
A. Metropolitan Tower Corp. (Delaware)
1. Metropolitan Property and Casualty Insurance Company (Rhode Island)
a. Metropolitan Group Property and Casualty Insurance Company
(Rhode Island)
i. Metropolitan Reinsurance Company (U.K.) Limited (Great
Britain)
b. Metropolitan Casualty Insurance Company (Rhode Island)
c. Metropolitan General Insurance Company (Rhode Island)
d. First General Insurance Company (Georgia)
e. Metropolitan P&C Insurance Services, Inc. (California)
f. Metropolitan Lloyds, Inc. (Texas)
g. Met P&C Managing General Agency, Inc. (Texas)
2. Metropolitan Insurance and Annuity Company (Delaware)
a. MetLife Europe I, Inc. (Delaware)
b. MetLife Europe II, Inc. (Delaware)
c. MetLife Europe III, Inc. (Delaware)
d. MetLife Europe IV, Inc. (Delaware)
e. MetLife Europe V, Inc. (Delaware)
3. MetLife General Insurance Agency, Inc. (Delaware)
a. MetLife General Insurance Agency of Alabama, Inc. (Alabama)
b. MetLife General Insurance Agency of Kentucky, Inc. (Kentucky)
c. MetLife General Insurance Agency of Mississippi, Inc.
(Mississippi)
d. MetLife General Insurance Agency of Texas, Inc. (Texas)
e. MetLife General Insurance Agency of North Carolina, Inc. (North
Carolina)
f. MetLife General Insurance Agency of Massachusetts, Inc.
(Massachusetts)
C-6
<PAGE>
4. Metropolitan Asset Management Corporation (Delaware)
a. MetLife Capital Holdings, Inc. (Delaware)
i. MetLife Capital Corporation (Delaware)
(1) Searles Cogeneration, Inc. (Delaware)
(2) MLYC Cogen, Inc. (Delaware)
(3) MCC Yerkes Inc. (Washington)
(4) MetLife Capital, Limited Partnership (Delaware).
Partnership interests in MetLife Capital, Limited
Partnership are held by Metropolitan (90%) and MetLife
Capital Corporation (10%).
(5) CLJFinco, Inc. (Delaware)
(a) MetLife Capital Credit L.P. (Delaware).
Partnership interests in MetLife Capital Credit
L.P. are held by Metropolitan (90%) and CLJ
Finco, Inc. (10%).
(6) MetLife Capital Portfolio Investments, Inc. (Nevada)
(a) MetLife Capital Funding Corp. (Delaware)
(7) MetLife Capital Funding Corp. II (Delaware)
ii. MetLife Capital Financial Corporation (Delaware)
C-7
<PAGE>
iii. MetLife Financial Acceptance Corporation (Delaware).
MetLife Capital Holdings, Inc. holds 100% of the voting
preferred stock of MetLife Financial Acceptance Corporation.
Metropolitan Property and Casualty Insurance Company holds
100% of the common stock of MetLife Financial Acceptance
Corporation.
iv. MetLife Capital International Ltd. (Delaware).
b. MetLife Investment Management Corporation (Delaware)
i. MetLife Investments Limited (United Kingdom). 23rd Street
Investments, Inc. holds one share of MetLife Investments
Limited.
c. MetLife Investments Asia Limited (Hong Kong). One share of
MetLife Investments Asia Limited is held by W&C Services, Inc., a
nominee of Metropolitan Asset Management Corporation.
d. GFM International Investors Limited (United Kingdom). The common
stock of GFM International Investors Limited ("GFM") is held by
Metropolitan (99.5%) and by the former CEO of GFM (.5%). GFM is a
sub-investment manager for the International Stock Portfolio of
Metropolitan Series Fund, Inc.
i. GFM Investments Limited (United Kingdom)
5. SSRM Holdings, Inc. (Delaware)
a. State Street Research & Management Company (Delaware). Is a sub-
investment manager for the Growth, Income, Diversified and
Aggressive Growth Portfolios of Metropolitan Series Fund, Inc.
i. State Street Research Energy, Inc. (Massachusetts)
ii. State Street Research Investment Services, Inc.
(Massachusetts)
iii. SSRM Management Company (Luxembourg).
b. Metric Holdings, Inc. (Delaware)
i. Metric Management Inc. (Delaware)
ii. Metric Realty Corp. (Delaware)
(1) Metric Realty Services, Inc. (Delaware). Metric
Holdings, Inc. and Metric Realty Corp. each hold 50% of
the common stock of Metric Realty Services, Inc.
(a) Metric Colorado, Inc. (Colorado). Metric Realty
Services, Inc. holds 80% of the common stock of
Metric Colorado, Inc.
(2) Metric AV, Inc.
iii. Metric Realty (Illinois). Metric Realty Corp. and Metric
Holdings, Inc. each hold 50% of the common stock of Metric
Realty.
(1) Metric Capital Corporation (California)
(2) Metric Assignor, Inc. (California)
(3) Metric Institutional Realty Advisors, Inc. (California)
(4) Metric Institutional Realty Advisors, L.P.
(California).
Metric Realty holds a 99% limited partnership interest
and Metric Institutional Realty Advisors, Inc. holds a
1%
C-8
<PAGE>
interest as general partner in Metric Institutional
Realty Advisors, L.P.
(5) Metric Institutional Apartment Fund II, L.P.
(California). Metric Realty holds a 1% interest as
general partner and Metropolitan holds an approximately
14.6% limited partnership interest in Metric
Institutional Apartment Fund II, L.P.
iv. MetLife Realty Group, Inc. (Delaware)
6. MetLife Holdings, Inc. (Delaware)
a. MetLife Funding, Inc. (Delaware)
b. MetLife Credit Corp. (Delaware)
7. Metropolitan Tower Realty Company, Inc. (Delaware)
8. Met Life Real Estate Advisors, Inc. (California)
9. MetLife HealthCare Holdings, Inc. (Delaware)
B. Metropolitan Tower Life Insurance Company (Delaware)
C. MetLife Security Insurance Company of Louisiana (Louisiana)
D. MetLife Texas Holdings, Inc. (Delaware)
1. Texas Life Insurance Company (Texas)
a. Texas Life Agency Services, Inc. (Texas)
b. Texas Life Agency Services of Kansas, Inc. (Kansas)
E. MetLife Securities, Inc. (Delaware)
F. 23rd Street Investments, Inc. (Delaware)
G. Metropolitan Life Holdings Limited (Ontario, Canada)
1. Metropolitan Life Financial Services Limited (Ontario, Canada)
2. Metropolitan Life Financial Management Limited (Ontario, Canada)
a. Metropolitan Life Insurance Company of Canada (Canada)
C-9
<PAGE>
3. Morguard Investments Limited (Ontario, Canada)
Shares of Morguard Investments Limited ("Morguard") are held by
Metropolitan Life Holdings Limited (80%) and by employees of Morguard
(20%).
4. Services La Metropolitaine Quebec, Inc. (Quebec, Canada)
5. 3309347 Canada, Inc. (Canada)
H. MetLife (UK) Limited (Great Britain). One share held by Metropolitan Tower
Corp.
1. Albany Life Assurance Company Limited (Great Britain)
a. Albany Pension Managers and Trustees Limited (Great Britain)
2. Albany Home Loans Limited (Great Britain)
3. ACFC Corporate Finance Limited (Great Britain)
4. Metropolitan Unit Trust Managers Limited (Great Britain)
5. Albany International Assurance Limited (Isle of Man)
6. MetLife Group Services Limited (Great Britain)
I. Santander Met, S.A. (Spain). Shares of Santander Met, S.A. are held by
Metropolitan (50%) and by an entity (50%) unaffiliated with Metropolitan.
1. Seguros Genesis, S.A. (Spain)
2. Genesis Seguros Generales, Sociedad Anomina de Seguros y Reaseguros
(Spain)
J. Kolon-Met Life Insurance Company (Korea). Shares of Kolon-MetLife Insurance
Company are held by Metropolitan (51%) and by an entity (49%) unaffiliated
with Metropolitan.
C-10
<PAGE>
K. Metropolitan Life Seguros de Vida S.A. (Argentina)
L. Metropolitan Life Seguros de Retiro S.A. (Argentina).
M. Met Life Holdings Luxembourg (Luxembourg)
N. Metropolitan Life Holdings, Netherlands BV (Netherlands)
O. MetLife International Holdings, Inc. (Delaware)
P. Metropolitan Life Insurance Company of Hong Kong Limited (Hong Kong)
C-11
<PAGE>
Q. Metropolitan Realty Management, Inc. (Delaware)
1. Edison Supply and Distribution, Inc. (Delaware)
2. Cross & Brown Company (New York)
a. Cross & Brown Associates of New York, Inc. (New York)
b. Cross & Brown Construction Corp. (New York)
c. CBNJ, Inc. (New Jersey)
d. SubBrown Corp. (New York)
R. MetPark Funding, Inc. (Delaware)
S. 2154 Trading Corporation (New York)
T. Transmountain Land & Livestock Company (Montana)
U. Met West Agribusiness, Inc. (Delaware)
V. Farmers National Company (Nebraska)
1. Farmers National Commodities, Inc. (Nebraska)
C-12
<PAGE>
W. MetLife Trust Company, National Association. (United States)
X. PESCO Plus, L.C. (Florida). Metropolitan holds a 50% interest in
PESCO Plus, L.C. and an unaffiliated party holds a 50% interest.
1. Public Employees Equities Services Company (Florida)
Y. Benefit Services Corporation (Georgia)
Z. G.A. Holding Corporation (MA)
A.A. TNE-Y, Inc. (DE)
A.B. CRH Companies, Inc. (MA)
A.C. NELRECO Troy, Inc. (MA)
A.D. TNE Funding Corporation (DE)
A.E. L/C Development Corporation (CA)
A.F. Boylston Capital Advisors, Inc. (MA)
1. New England Portfolio Advisors, Inc. (MA)
A.G. CRB Co., Inc. (MA) AEW Real Estate Advisors, Inc. holds 49,000 preferred
non-voting shares of CRB Co., Inc. AEW Advisors, Inc. holds 1,000
preferred non-voting shares of CRB Co., Inc.
A.H. DPA Holding Corp. (MA)
A.I. Lyon/Copley Development Corporation (CA)
A.J. NEL Partnership Investments I, Inc. (MA)
A.K. New England Life Mortgage Funding Corporation (MA)
A.L. Mercadian Capital L.P. (DE). Metropolitan holds a 95% limited partner
interest and an unaffiliated third party holds 5% of Mercadian Capital
L.P.
A.M. Mercadian Funding L.P. ( DE). Metropolitan holds a 95% limited partner
interest and an unaffiliated third party holds 5% of Mercadian
Funding L.P.
A.N. MetLife New England Holdings, Inc. (DE)
1. New England Life Insurance Company (MA)
a. New England Securities Corporation (MA)
b. Hereford Insurance Agency, Inc. (MA)
c. Hereford Insurance Agency of Alabama, Inc. (AL)
d. Hereford Insurance Agency of Minnesota, Inc. (MN)
e. Newbury Insurance Company, Limited (Bermuda)
f. TNE Information Services, Inc. (MA)
g. Exeter Reassurance Company, Ltd. (MA)
h. Omega Reinsurance Corporation (AZ)
i. New England Pension and Annuity Company (DE)
j. TNE Advisers, Inc. (MA)
k. New England Investment Companies, Inc. (MA)
1. New England Investment Companies, L.P. (DE) New England
Investment Companies, Inc. hold a 0.29% general partnership
interest in New England Investment Companies, L.P. MetLife New
England Holdings, Inc. holds a 54.90% limited partnership
interest in New England Investment Companies, L.P.
a. NEIC Holdings, Inc. (MA)
i. (1) Back Bay Advisors, Inc. (MA)
(2) Back Bay Advisors, L.P. (DE)
Back Bay Advisors, Inc.
holds a 1% general partner
interest and NEIC
Holdings, Inc. holds a 99%
limited partner interest
in Back Bay Advisors, L.P.
ii. Reich & Tang Asset Management, Inc. (MA)
(1) Reich & Tang Distributors, L.P. (DE)
Reich & Tang Asset Management Inc.
holds a 1% general interest and
Reich & Tang Asset Management, L.P.
holds a 99.5% limited partner
interest in Reich Tang Distributors, L.P.
(2) Reich & Tang Asset Management L.P.
Reich & Tang Asset Management, Inc.
holds a 0.5% general partner interest and
NEIC Holdings, Inc. hold a 99.5% limited
partner interest in Reich & Tang
Asset Management, L.P.
(3) Reich & Tang Services, L.P. (DE)
Reich & Tang Asset Management, Inc.
holds a 1% general partner interest and
Reich & Tang Asset Management, L.P.
holds a 99% limited partner interest
in Reich & Tang Services, L.P.
iii. Loomis, Sayles & Company, Inc. (MA)
(1) Loomis Sayles & Company, L.P. (DE)
Loomis Sayles & Company, Inc.
holds a 1% general partner interest and
Reich & Tang Asset Management, Inc. holds a 99%
limited partner interest in Loomis Sayles &
Company, L.P.
iv. Westpeak Investment Advisors, Inc. (MA)
(1) Westpeak Investment Advisors, L.P. (DE)
Westpeak Investment Advisors, Inc.
holds a 1% general partner interest and
Reich & Tang holds a 99% limited partner interest in
Westpeak Investment Advisors, L.P.
v. VNSM, Inc. (DE)
(1) Vaughan, Nelson Scarborough & McConnell, L.P. (DE)
VNSM, Inc. holds a 1% general partner interest and
Reich & Tang Asset Management, Inc. holds a 99%
limited partner interest in Vaughan, Nelson
Scarborough & McConnell, L.P.
vi. MC Management, Inc. (MA)
(1) MC Management, L.P. (DE)
MC Management, Inc. holds a 1% general partner
interest and Reich & Tang Asset Management,
Inc. holds a 99% limited partner interest in MC
Management, L.P.
vii. Harris Associates, Inc. (DE)
(1) Harris Associates Securities L.P. (DE)
Harris Associates, Inc. holds a 1% general partner
interest and Harris Associates L.P. holds a
99% limited partner interest in Harris Associates
Securities, L.P.
(2) Harris Associates L.P. (DE)
Harris Associates, Inc. holds a 0.33% general
partner interest and New England Investment Company,
L.P. Inc. holds a 99.67% limited partner interest in
Harris Associates L.P.
(a) Harris Partners, Inc. (DE)
(b) Harris Partners L.L.C. (DE)
Harris Partners, Inc. holds a 1%
membership interest and
Harris Associates L.P. holds a 99%
membership interest in Harris Partners L.L.C.
(i) Aurora Limited Partnership (DE)
Harris Partners L.L.C. holds a 1% general
partner interest
(ii)Perseus Partners L.P. (DE) Harris
Partners L.L.C. holds a 1% general
partner interest
(iii)Pleiades Partners L.P. (DE) Harris
Partners L.L.C. holds a 1% general partner
interest
(iv) Stellar Partners L.P. (DE)
Harris Partners L.L.C. holds a 1% general
partner interest
(v) SPA Partners L.P. (DE) Harris Partners
L.L.C. holds a 1% general partner interest
viii. Graystone Partners, Inc. (MA)
(1) Graystone Partners, L.P. (DE)
Graystone Partners, Inc. holds a 1%
general partner interest and New England
Investment Company, L.P.
holds a 99% limited partner interest in
Graystone Partners, L.P.
ix. NEF Corporation (MA)
(1) New England Funds, L.P. (DE) NEF Corporation holds a
1% general partner interest and New England
Investment Company, L.P. holds a 99% limited partner
interest in New England Funds, L.P.
(2) New England Funds Management, L.P. (DE) NEF
Corporation holds a 1% general partner interest and
New England Investment Company, L.P. holds a 99%
limited partner interest in New England Funds
Management, L.P.
l. Capital Growth Management, L.P. (DE)
New England Investment Companies, L.P. holds a 50% limited partner
interest in Capital Growth Management, L.P.
m. AEW Capital Management L.P. (DE)
New England Investment Companies, L.P. holds a 99% limited partner
interest and AEW Capital Management, Inc. holds a 1% general partner
interest in AEW Capital Management, L.P.
1. AEW Investment Group, Inc. (MA)
a. BBC Investment Advisors, Inc. (MA)
b. Copley/Ochard Investors, Inc. (MA)
i. Copley/Ochard Investors, L.P. (DE)
Copley/Ochard Investors, Inc.
holds a 1% general partner interest in
Copley/Ochard Investors, L.P.
c. AEW Real Estate Advisors, Inc. (MA)
i. AEW Advisors, Inc. (MA)
(1) Copley Management Partnership (MA)
Copley Advisors, Inc. holds a 1% general partner
interest in Copley Management Partnership.
(2) Coptel Associates L.P. (DE)
Copley Advisors, Inc. holds a 1% general partner
interest in Coptel Associates L.P.
(3) CIIF Associates (MA)
Copley Advisors, Inc. holds a .15% general partner
interest in CIIF Associates.
(4) CIIF Associates II Limited Partnership (DE)
Copley Advisors, Inc. holds a .15% general partner
interest in CIIF Associates II Limited Partnership.
(5) CIIF McInnes Associates (MA)
AEW Advisors, Inc. holds a .15% general partnership
interest in CIIF McInnes Associates.
(6) CIIF Oxnard Associates (MA)
AEW Advisors, Inc. holds a .15% general partnership
in CIIF Oxnard Associates.
(7) CIIF II Crossroads Limited Partnership (DE)
AEW Advisors, Inc. holds a 1% general partnership
in CIIF II Crossroads Limited Partnership.
(8) CIIF II Tech Center Associates L.P. (DE)
AEW Advisors, Inc. holds a 1% general partnership
in CIIF II Tech Center Associates L.P.
(9) CIIF II Tech Center, Inc. (MA)
AEW Advisors, Inc. holds a 5% interest in CIIF
II Tech Center Associates, Inc.
ii. Copley Properties Company, Inc. (MA)
(1) New England Life Pension Properties (MA).
Copley Properties Company, Inc. holds a 1% general
partner interest in New England Life Pension
Properties.
iii. Copley Properties Company II, Inc. (MA)
(1) New England Life Pension Properties II (MA).
Copley Properties Company II, Inc. holds a 1%
general partner interest in New England Life
Pension Properties II.
iv. Copley Properties Company III, Inc. (MA)
(1) New England Life Pension Properties III (MA).
Copley Properties Company III, Inc. holds a 1%
general partner interest in New England Life
Pension Properties III.
v. Copley Securities Corporation (MA)
vi. Copley Margarita Associates L.P. (MA)
AEW Real Estate Advisors, Inc. holds a 0.001% general
partner interest in Copley Margarita Associates L.P.
vii. Fourth Copley Corp. (MA)
(1) New England Life Pension Properties IV (MA).
Fourth Copley Corp. holds a 1% general partner
interest in New England Life Pension Properties IV.
viii. Fifth Copley Corp. (MA)
(1) New England Life Pension Properties V (MA).
Fifth Copley Corp. holds a 1% general partner
interest in New England Life Pension Properties V.
ix. Sixth Copley Corp. (MA)
(1) Copley Pension Properties VI (MA).
Sixth Copley Corp. holds a 1% general partner
interest in Copley Pension Properties VI.
x. Seventh Copley Corp. (MA).
(1) Copley Pension Properties VII (MA).
Seventh Copley Corp. holds a 1% general partner
interest in Copley Pension Properties VII.
xi. Eighth Copley Corp. (MA).
xii. First Income Corp. (MA).
(1) Copley Realty Income Partners 1 (MA).
First Income Corp. holds a 1% general partner
interest in Copley Realty Income Partners 1.
xiii. Second Income Corp. (MA).
(1) Copley Realty Income Partners 2 (MA).
Second Income Corp. holds a 1% general partner
interest in Copley Realty Income Partners 2.
xiv. Third Income Corp. (MA).
(1) Copley Realty Income Partners 3 (MA).
Third Income Corp. holds a 1% general partner
interest in Copley Realty Income Partners 3.
xv. Fourth Income Corp. (MA).
(1) Copley Realty Income Partners 4 (MA).
Fourth Income Corp. holds a 1% general partner
interest in Copley Realty Income Partners 4.
xvi. Third Singleton Corp. (MA).
(1) Copley Business Parks Associates L.P. (MA).
Third Singleton Corp. holds a 1% general partner
interest in Copley Business Parks Associates L.P.
xvii. Fourth Singleton Corp. (MA)
xviii. Fifth Singleton Corp. (MA)
(1) Copley Regional Centers Associates L.P. (MA).
Fifth Singleton Corp. holds a 1% general partner
interest in Copley Regional Centers Associates L.P.
xix. Sixth Singleton Corp. (MA).
(1) Copley Commerce Centers Associates L.P. (MA).
Sixth Singleton Corp. holds a 1% general partner
interest in Copley Commerce Centers Associates L.P.
xx. CTR Corp. (MA ).
xxi. New England Investment Associates, Inc. (DE)
xxii. BCOP Associates L.P. (MA)
AEW Real Estate Advisors, Inc. holds a 1% general
partner interest in BCOP Associates L.P.
xxiii AEW Real Estate Advisors Limited Partnership.
AEW Real Estate Advisors, Inc. holds a 25% general
partner interest in AEW Real Estate Advisors, Limited
Partnership.
d. BBC Investment Advisors, Inc. (MA)
AEW Investment Group, Inc. holds a 60% general partner
interest in BBC Investment Advisors, Inc. and Back Bay
Advisors, L.P. holds a 40% limited partner interest.
N. AEW Capital Management, Inc. (MA)
(i) Copley Management and Advisors, L.P. (DE)
AEW Capital Management, Inc. holds a 75% limited
partner interest and AEW Investment Group, Inc.
holds a 25% general partner interest in Copley
Management and Advisors, L.P.
(a) BBC Investment Advisors, L.P. (DE)
Copley Management Advisors, L.P. holds a
59.4% limited partner interest, Back Bay
Advisors, L.P. holda 39.6% limited partner
interest and BBC Investment Advisors, Inc.
holds a 1% general partner interest in
BBC Investment Advisors, L.P.
2. Copley Public Partners Holding, L.P. (DE)
AEW Capital Management, L.P. holds a 75% limited partner interest and
AEW Investment Group, Inc. holds a 25% general partner interest.
3. AEW Hotel Investment Corporation.
C-13
<PAGE>
In addition to the entities listed above, Metropolitan (or where indicated an
affiliate) also owns an interest in the following entities, among others:
1) CP&S Communications, Inc., a New York corporation, holds federal radio
communications licenses for equipment used in Metropolitan owned facilities and
airplanes. It is not engaged in any business.
2) Quadreal Corp., a New York corporation, is the fee holder of a parcel of real
property subject to a 999 year prepaid lease. It is wholly owned by
Metropolitan, having been acquired by a wholly owned subsidiary of Metropolitan
in 1973 in connection with a real estate investment and transferred to
Metropolitan in 1988.
3) Met Life International Real Estate Equity Shares, Inc., a Delaware
corporation, is a real estate investment trust. Metropolitan owns approximately
18.4% of the outstanding common stock of this company and has the right to
designate 2 of the 5 members of its Board of Directors.
4) Metropolitan Structures is a general partnership in which Metropolitan owns a
50% interest. Metropolitan Structures owns 100% of the common stock of
Cicero/Cermak Corporation, an Illinois corporation.
5) Seguros Genesis, S.A. (Mexico), is a Mexican insurer in which Metropolitan
and two of its subsidiaries collectively own a 24.5% interest and have the right
to designate 2 of the 9 members of the Board of Directors.
6) Interbroker, Correduria de Reaseguros, S.A., is a Spanish insurance brokerage
company in which Santander Met, S. A., a subsidiary of Metropolitan in which
Metropolitan owns a 50% mt ST, owns a 50% interest and has the right to
designate 2 of the 4 members of the Board of Directors.
C-14
<PAGE>
Item 26. Number of Holders of Securities
As of October 31, 1997, the number of record holders of the Registrant's Funds
were as follows:
(1) (2)
Number of
Title of Class Record Holders
Shares of Beneficial Interest
State Street Research Capital Fund
Class A 46,267
Class B 34,858
Class C 581
Class S 2,837
State Street Research
Emerging Growth Fund
Class A 2,783
Class B 2,955
Class C 112
Class S 304
State Street Research Aurora Fund
Class A 9,269
Class B 10,638
Class C 107
Class S 1,683
Item 27. Indemnification
Article VI of Registrant's First Amended and Restated Master Trust
Agreement as further amended ("Master Trust Agreement") provides: The Trust
shall indemnify (from the assets of the Sub-Trust or Sub-Trusts in question)
each of its Trustees and officers (including persons who serve at the Trust's
request as directors, officers or trustees of another organization in which the
Trust has any interest as a shareholder, creditor or otherwise (hereinafter
referred to as a "Covered Person")) against all liabilities, including but not
limited to amounts paid in satisfaction of judgments, in compromise or as fines
and penalties, and expenses, including reasonable accountants' and counsel fees,
incurred by any Covered Person in connection with the defense or disposition of
any action, suit or other proceeding, whether civil or criminal, before any
court or administrative or legislative body, in which such Covered Person may be
or may have been involved as a party or otherwise 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, director or trustee, except with
respect to any matter as to which it has been determined that such Covered
Person had acted with willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of such Covered
Person's office (such conduct referred to hereafter as "Disabling Conduct"). A
determination that the Covered Person is entitled to indemnification may be made
by (i) a final decision on the merits by a court or other body before whom the
proceeding was brought that the person to be indemnified was not liable by
reason of Disabling Conduct, (ii) dismissal of a court action or an
administrative proceeding against a Covered Person for insufficiency of evidence
of Disabling Conduct, or (iii) a reasonable determination, based upon a review
of the facts, that the indemnitee was not liable by reason of Disabling Conduct
by (a) a vote of a majority of a quorum of Trustees who are neither "interested
persons" of the Trust as defined in section 2(a)(19) of the 1940 Act nor parties
to the proceeding, or (b) an independent legal counsel in a written opinion.
Under the Distribution Agreement between the Registrant and State Street
Research Investment Services, Inc., the Registrant's distributor, the Registrant
has agreed to indemnify and hold harmless State Street Research Investment
Services, Inc. and each person who has been, is, or may hereafter be an officer,
director, employee or agent of State Street Research Investment Services, Inc.
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 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 Registrant, or
any amendment or supplement thereto, unless such statement or omission was made
in reliance upon written information furnished by State Street Research
Investment Services, Inc.
C-15
<PAGE>
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act of 1933 may be permitted to trustees, officers, underwriters
and controlling persons of the Registrant, pursuant to Article VI of the
Registrant's Master Trust Agreement, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted against the
Registrant by such trustee, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question of whether such indemnification by it
is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
C-16
<PAGE>
Item 28. 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 Investment Adviser Various investment Boston, MA
Research & advisory clients
Management
Company
Arpiarian, Tanya None
Vice President
Bangs, Linda L. None
Vice President
Bennett, Peter C. Executive Vice GFM International Investors
Director and President Limited London, England
Executive Vice Vice President State Street Research Capital Trust Boston, MA
President Vice President State Street Research Exchange Trust Boston, MA
Vice President State Street Research Financial Trust Boston, MA
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
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
Director State Street Research Investment Services, Inc Boston, MA
Director Boston Private Bank & Trust Co. 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
Vice President (until 6/97)
Bray, Michael J. Employee Merrill Lynch & Co. Boston, MA
Vice President (until 7/96)
Brooks, David None
Vice President
Brown, Susan H. None
Vice President
Buffum, Andrea Project Manager BankBoston Boston, MA
Vice President (until 12/96)
Managing Director State Street Global Advisors Boston, MA
(until 12/95)
Burbank, John F. None
Senior Vice President
(Vice President until
7/96)
Cabrera, Jesus A. Vice President First Chicago Investment Management Co. Chicago, IL
Vice President (until 5/96)
Vice President State Street Research Capital Trust Boston, MA
Canavan, Joseph W. Vice President GFM International Investors Limited London, England
Vice President Assistant Treasurer State Street Research Equity Trust Boston, MA
Assistant Treasurer State Street Research Financial Trust Boston, MA
Assistant Treasurer State Street Research Income Trust Boston, MA
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
C-17
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Carstens, Linda C. None
Vice President
Clifford, Jr., Paul J. Vice President State Street Research Tax-Exempt Trust Boston, MA
Vice President
Coleman, Thomas J. Account Manager MetLife Investment New York, NY
Vice President (until 9/96) Management
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 None
Senior Vice President
Drake, Susan W. Vice President State Street Research Tax-Exempt Trust Boston, MA
Vice President (until 2/96)
Duggan, Peter J. None
Senior Vice
President
Even, Karen None
Vice President
Federoff, Alex G. None
Vice President
Fee, Richard E. CIGNA Retirement and Hartford, CT
Vice President Investment Services
Feliciano, Rosalina None
Vice President
Gardner, Michael D. Partner Prism Group Seattle, WA
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
C-18
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Granger, Allison 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. None
Senior Vice President
Heineke, George R. None
Vice President
Jackson, Jr., Trustee Certain trusts of related and
F. Gardner non-related individuals
Senior Vice President Trustee and Chairman Vincent Memorial Hospital Boston, MA
of the Board
Jamieson, Frederick H. Vice President and Asst. Treasurer State Street Research Investment Services, Inc. Boston, MA
Senior Vice President Vice President and Asst. Treasurer SSRM Holdings, Inc. Boston, MA
Vice President and Controller MetLife Securities, Inc. New York, NY
Senior Vice President GFM International Investors Limited London, England
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
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.
Director and President K&G Enterprises Washington, D.C.
Kasper, M. Katherine None
Vice President
C-19
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Kluiber, Rudolph K. Vice President State Street Research Capital Trust Boston, MA
Vice President
Langholm, Knut Director State Street Research SICAV Luxembourg
Vice President
Leary, Eileen M. None
Vice President
Maisonneuve, Virginie Portfolio Manager Batterymarch Financial Management Boston, MA
Vice President (until 6/97)
Vice President GFM International Investors, Ltd. London, England
McNamara, III, Francis J. Director and Executive GFM International Investors
Executive Vice Vice President Limited London, England
President, Executive Vice President, State Street Research Investment Services, Inc. Boston, MA
Secretary and Clerk and General Counsel
General Counsel Secretary and General Counsel State Street Research Master Investment Trust Boston, MA
(Senior Vice President, Secretary and General Counsel State Street Research Capital Trust Boston, MA
Secretary and General Secretary and General Counsel State Street Research Exchange Trust Boston, MA
Counsel until 7/96) 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 Portfolios, Inc. Boston, MA
Secretary and General Counsel State Street Research Tax-Exempt Trust Boston, MA
Secretary and General Counsel SSRM Holdings, Inc. Boston, MA
C-20
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Maus, Gerard P. Executive Vice President GFM International Investors
Director, Executive and Director Limited London, England
Vice President, Treasurer State Street Research Equity Trust Boston, MA
Treasurer, Chief Treasurer State Street Research Financial Trust Boston, MA
Financial Officer and Treasurer State Street Research Income Trust Boston, MA
Chief Administrative Treasurer State Street Research Money Market Trust Boston, MA
Officer Treasurer State Street Research Tax-Exempt Trust Boston, MA
Treasurer State Street Research Capital Trust Boston, MA
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 President, State Street Research Investment Services, Inc. Boston, MA
Treasurer and Chief
Financial Officer
Director Metric Holdings, Inc. San Francisco, CA
Director Certain wholly-owned subsidiaries
of Metric Holdings, Inc.
Treasurer and Chief Financial SSRM Holdings, Inc. Boston, MA
Officer
Treasurer (until 1/97) MetLife Securities, Inc. New York, NY
Director State Street Research SICAV Luxembourg
Milder, Judith J. None
Senior Vice President
Miles, Deborah C. Vice President Scudder, Stevens & Clark Boston, MA
Vice President (until 9/97) L.L. Bean, Inc. Freeport, ME
Employee
Miller, Joan D. Senior Vice President State Street Research Investment Services, Inc. Boston, MA
Senior Vice President
(Vice President
until 7/96)
Moore, Jr., Thomas P. Vice President State Street Research Capital Trust Boston, MA
Senior Vice (until 11/96)
President 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
Vice President State Street Research Energy, Inc. Boston, MA
Director Hibernia Savings Bank Quincy, MA
Governor on the Association for Investment Management
Board of Governors and Research Charlottesville, VA
Morey, Andrew
Vice President None
Mulligan, JoAnne C. Vice President State Street Research Money Market Trust Boston, MA
Senior Vice President
(Vice President
until 7/96)
Orr, Stephen C. Member Technology Analysts of Boston Boston, MA
Vice President Member Electro-Science Analysts (of NYC) New York, NY
C-21
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Paddon, Steven W. Employee Metropolitan Life Insurance Company New York, NY
Vice President (until 10/96)
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
Poritzky, Dean E. Portfolio Manager Fidelity Investments 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 Senior Vice President GFM International Investors, Limited London, England
Senior Vice President
(Vice President
until 7/96)
Rawlins, Jeffrey A. None
Senior Vice President
(Vice President
until 7/96)
Rice III, Daniel Joseph Vice President State Street Research Equity Trust Boston, MA
Senior Vice President
Richards, Scott None
Vice President
Romich, Douglas A. Vice President GFM International Investors Limited London, England
Vice President Assistant Treasurer State Street Research Equity Trust Boston, MA
Assistant Treasurer State Street Research Financial Trust Boston, MA
Assistant Treasurer State Street Research Income Trust Boston, MA
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
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
Saperstone, Paul None
Vice President
C-22
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Schrage, Michael None
Vice President
Schultz, David C. Director and Treasurer Mafraq Hospital Association Mafraq, Jordan
Executive Vice Member Association of Investment
President Management Sales Executives Atlanta, GA
Member, Investment Committee Lexington Christian Academy Lexington, MA
Shaver, Jr. C. Troy President, Chief Executive Officer State Street Research Investment Services, Inc. Boston, MA
Executive Vice and Executive Vice President
President President and Chief Executive John Hancock Funds, Inc. Boston, MA
Officer (until 1/96)
Shean, William G. None
Vice President
Shively, Thomas A. Vice President State Street Research Financial Trust Boston, MA
Director and Vice President State Street Research Money Market Trust Boston, MA
Executive Vice Vice President State Street Research Tax-Exempt Trust
President Director State Street Research Investment Services, Inc Boston, MA
Vice President State Street Research Securities Trust Boston, MA
Shoemaker, Richard D. Senior Vice President GFM International Investors Limited London, England
Senior Vice President
Stambaugh, Kenneth None
Vice President
(Assistant Vice
President until 9/97)
Strelow, Dan R. None
Senior Vice President
C-23
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
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, GFM International Investors
Chairman, President, CEO and Director Limited London, England
Chief Executive Chairman, President, Chief State Street Research Capital Trust Boston, MA
Officer and Executive Officer and Trustee
Director Chairman, President, Chief State Street Research Exchange Trust Boston, MA
Executive Officer and Trustee
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 and Director MetLife Securities, Inc. New York, NY
(until 1/97)
President, Chief Executive SSRM Holdings, Inc. Boston, MA
Officer and Director
Director CML Group, Inc. Boston, MA
Director Colgate University Hamilton, NY
Director State Street Research SICAV Luxembourg
C-24
<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
Weiss, James M. Vice President State Street Research Equity Trust Boston, MA
Senior Vice President Vice President State Street Research Exchange Trust Boston, MA
Vice President State Street Research Growth Trust Boston, MA
Vice President State Street Research Master Investment Trust Boston, MA
Vice President State Street Research Capital Trust Boston, MA
Vice President State Street Research Securities Trust Boston, MA
President and Chief Investment IDS Equity Advisors Minneapolis, MN
Officer (until 12/95)
Westvold, Vice President State Street Research Securities Trust Boston, MA
Elizabeth McCombs
Senior Vice President
(Vice President
until 7/96)
Wilkins, Kevin Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President Vice President Fidelity Investments Boston, MA
(until 7/97)
Various positions Fidelity Investments Boston, MA
(until 10/96)
Wilson, John T. Vice President State Street Research Equity Trust Boston, MA
Vice President Vice President State Street Research Master Investment Trust Boston, MA
Vice President Phoenix Investment Counsel, Inc. Hartford, CT
(until 6/96)
Wing, Darman A. Senior Vice President and State Street Research Investment Services, Inc. Boston, MA
Vice President, Asst. Clerk
Assistant Secretary Assistant Secretary State Street Research Capital Trust Boston, MA
and Assistant Assistant Secretary State Street Research Exchange Trust Boston, MA
General Counsel Assistant Secretary State Street Research Growth Trust Boston, MA
Assistant Secretary State Street Research Master Investment Trust Boston, MA
Assistant Secretary State Street Research Securities Trust Boston, MA
Assistant Secretary State Street Research Equity Trust Boston, MA
Assistant Secretary State Street Research Financial Trust Boston, MA
Assistant Secretary State Street Research Income Trust Boston, MA
Assistant Secretary State Street Research Money Market Trust Boston, MA
Assistant Secretary State Street Research Tax-Exempt Trust Boston, MA
Assistant Secretary SSRM Holdings, Inc. Boston, MA
Woodbury, Robert S. Employee Metropolitan Life Insurance Company New York, NY
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
C-25
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Wu, Norman N. Partner Atlantic-Acton Realty Framingham, MA
Senior Vice President Director Bond Analysts Society of Boston Boston, MA
</TABLE>
C-26
<PAGE>
Item 29. Principal Underwriters
(a) State Street Research Investment Services, Inc. serves as principal
underwriter for 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 Growth Trust, State Street
Research Master Investment Trust, State Street Research Securities Trust and
State Street Research Portfolios, Inc.
(b) Directors and Officers of State Street Research Investment Services,
Inc. are as follows:
(1) (2) (3)
Positions
Name and Principal and Offices Positions and Offices
Business Address with Underwriter with Registrant
------------------ ---------------- ---------------------
Ralph F. Verni Chairman of the Board, Chairman of the Board,
One Financial Center and Director President, Chief Executive
Boston, MA 02111 Officer and Trustee
Peter C. Bennett Director None
One Financial Center
Boston, MA 02111
Gerard P. Maus Executive Vice Treasurer
One Financial Center President, Treasurer,
Boston, MA 02111 Chief Financial Officer
and Director
Thomas A. Shively Director Vice President
One Financial Center
Boston, MA 02111
C. Troy Shaver, Jr. President and None
One Financial Center Chief Executive
Boston, MA 02111 Officer
Francis J. McNamara, III Executive Vice Secretary
One Financial Center President, General
Boston, MA 02111 Counsel and Clerk
Peter Borghi Senior Vice President None
One Financial Center
Boston, MA 02111
C-27
<PAGE>
(1) (2) (3)
Positions
Name and Principal and Offices Positions and Offices
Business Address with Underwriter with Registrant
------------------ ---------------- ---------------------
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
Gregory R. McMahan Senior Vice President None
One Financial Center
Boston, MA 02111
Francis J. McNamara, III Executive Vice President Secretary
One Financial Center General Counsel
Boston, MA 02111 and Clerk
Joan D. Miller Senior Vice President None
One Financial Center
Boston, MA 02111
Darman A. Wing Senior Vice President, Assistant Secretary
One Financial Center Assistant General Counsel
Boston, MA 02111 and Assistant Clerk
Donald Doherty Vice President None
One Financial Center
Boston, MA 02111
Robert M. Gunville Vice President None
One Financial Center
Boston, MA 02111
Frederick H. Jamieson Vice President and None
One Financial Center Assistant Treasurer
Boston, MA 02111
Susan V. Martin Vice President None
One Financial Center
Boston, MA 02111
Deborah C. Miles Vice President None
One Financial Center
Boston, MA 02111
Amy L. Simmons Vice President Assistant Secretary
One Financial Center
Boston, MA 02111
Kevin Wilkins Vice President None
One Financial Center
Boston, MA 02111
C-28
<PAGE>
Item 30. Location of Accounts and Records
Gerard P. Maus
State Street Research & Management Company
One Financial Center
Boston, MA 02111
Item 31. Management Services
Inapplicable.
Item 32. Undertakings
(a) Inapplicable.
(b) Deleted.
(c) Deleted.
(d) Deleted.
(e) The Registrant undertakes to hold a special meeting of shareholders of
the Trust for the purpose of voting upon the question of removal of any trustee
or trustees when requested in writing to do so by the record holders of not less
than 10 per centum of the outstanding shares of the Trust and, in connection
with such meeting, to comply with the provisions of Section 16(c) of the
Investment Company Act of 1940 relating to shareholder communications.
(f) The Registrant has elected to include the information required by Item
5A of Form N-1A in its annual report to shareholders. The Registrant undertakes
to furnish each person to whom a prospectus is delivered with a copy of the
applicable fund's latest annual report to shareholders upon request and without
charge.
(g) Deleted.
C-29
<PAGE>
NOTICE
A copy of the First Amended and Restated Master Trust Agreement, as
further amended ("Master Trust Agreement") of the Registrant is on file with the
Secretary of State of the Commonwealth of Massachusetts and notice is hereby
given that the obligations of the Registrant hereunder, and the authorization,
execution and delivery of this Registration Statement and Amendment, shall not
be binding upon any of the Trustees, shareholders, nominees, officers, agents or
employees of the Registrant as individuals or personally, but shall bind only
the property of the series of the Registrant, as provided in the Master Trust
Agreement. Each series of the Registrant shall be solely and exclusively
responsible for all of its direct or indirect debts, liabilities, and
obligations, and no other series shall be responsible for the same.
C-30
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it has duly caused
this Post-Effective Amendment No. 15 to its Registration Statement on Form N-1A
to be signed on its behalf by the undersigned, thereto duly authorized, in the
City of Boston and The Commonwealth of Massachusetts on the 2nd day of December,
1997.
STATE STREET RESEARCH CAPITAL TRUST
By: *
-------------------------------------
Ralph F. Verni
Chief Executive Officer and President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed on the
above date by the following persons in the capacities indicated:
* Trustee, Chairman of the Board
- ---------------------------------- and Chief Executive Officer
Ralph F. Verni (principal executive officer)
* Treasurer (principal financial
- ---------------------------------- and accounting officer)
Gerard P. Maus
*
- ---------------------------------- Trustee
Steve A. Garban
*
- ---------------------------------- Trustee
Malcolm T. Hopkins
*
- ---------------------------------- Trustee
Edward M. Lamont
* Trustee
- ----------------------------------
Robert A. Lawrence
* Trustee
- ----------------------------------
Dean O. Morton
* Trustee
- ----------------------------------
Thomas L. Phillips
*
- ---------------------------------- Trustee
Toby Rosenblatt
* Trustee
- ----------------------------------
Michael S. Scott Morton
* Trustee
- ----------------------------------
Jeptha H. Wade
*By: /s/ Francis J. McNamara, III
- ----------------------------------
Francis J. McNamara, III,
Attorney-in-Fact under Powers of
Attorney filed herein.
<PAGE>
1933 Act Registration No. 2-86271
1940 Act File No. 811-3838
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. ___ [ ]
Post-Effective Amendment No. 15 [X]
and/or
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 21 [X]
--------------------
STATE STREET RESEARCH CAPITAL TRUST
(Exact Name of Registrant as Specified in Articles of Organization)
--------------------
EXHIBITS
==============================================================================
<PAGE>
INDEX TO EXHIBITS
(1)(d) Amendment No. 5 to First Amended and Restated Master Trust
Agreement
(2)(a) By-Laws of the Registrant*
(2)(b) Amendment No. 1 to By-Laws, effective September 30, 1992*
(5)(a) Investment Advisory Contract with respect to State Street Capital
Fund*
(6)(a) Distribution Agreement with State Street Research Investment
Services, Inc.*
(6)(c) Form of Bank and Bank-Affiliated Broker-Dealer Agreement*
(8)(a) Custodian Contract*
(8)(c) Letter Agreement with respect to the Custodian Contract relating
to State Street Small Capitalization Growth Fund*
(9) Agreement and Plan of Reorganization and Liquidation*
(10)(a) Consent and Opinion of counsel on legality of shares being issued
with respect to State Street Capital Fund*
(10)(b) Consent and Opinion of counsel on legality of shares being issued
with respect to State Street Small Capitalization Growth Fund*
(10)(c) Consent and Opinion of counsel on legality of shares being issued
with respect to MetLife - State Street Research Small
Capitalization Value Fund*
(11) Consent of Coopers & Lybrand L.L.P.
(13)(a) Subscription and Investment Letters -- State Street Small
Capitalization Growth Fund*
(14)(c) State Street Research SIMPLE IRA: Application, Terms &
Conditions and Disclosure Statement
<PAGE>
(15)(a) Plan of Distribution Pursuant to Rule 12b-1 with respect to State
Street Research Capital Fund*
(15)(b) Letter Agreement with respect to Plan of Distribution Pursuant to
Rule 12b-1 relating to State Street Research Small Capitalization
Growth Fund*
(16)(a) Calculation of Performance Data with respect to State Street
Research Capital Fund*
(16)(b) Calculation of Performance Data with respect to State Street
Research Small Capitalization Growth Fund*
(18)(a) Powers of Attorney
(18)(b) Certificate of Board Resolution Respecting Powers of Attorney
(19) Application Forms
(27) Financial Data Schedules
- --------------
*Restated in electronic format.
Exhibit (1d)
STATE STREET RESEARCH CAPITAL TRUST
Amendment No. 5 to First Amended and
Restated Master Trust Agreement
INSTRUMENT OF AMENDMENT
Pursuant to Article IV, Sections 4.1 and 4.2 and Article VII, Section
7.3 of the First Amended and Restated Master Trust Agreement of the State Street
Research Capital Trust (the "Trust") dated February 5, 1993 ("Master Trust
Agreement"), as heretofore amended, the Master Trust Agreement is hereby amended
to change the name of one of the series of shares under such Trust, currently a
Sub-Trust designated as "State Street Research Small Capitalization Growth Fund"
to "State Street Research Emerging Growth Fund."
This Amendment shall be effective as of February 1, 1997.
IN WITNESS WHEREOF, the undersigned officer of the Trust hereby adopts
the foregoing on behalf of the Trust pursuant to authorization by the Trustees
of the Trust.
/s/ Francis J. McNamara, III
------------------------------
Francis J. McNamara, III
Secretary
BY-LAWS
OF
STATE STREET CAPITAL TRUST
ARTICLE I
Agreement and Declaration
of Trust; Principal Office
1.1 Agreement and Declaration of Trust. These By-Laws shall be subject
to the Agreement and Declaration of Trust (also referred to as the Master Trust
Agreement), as from time to time in effect (the "Declaration of Trust"), of
State Street Capital Trust, the Massachusetts business trust established by the
Declaration of Trust (the "Trust").
1.2 Principal Office of the Trust. The principal office of the Trust
shall be located in 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 of Trustees, the President or the Treasurer or by two
or more Trustees, sufficient notice thereof being given to each Trustee by the
Secretary or an Assistant Secretary or by the officer 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 at least forty-eight hours or by telegram at
least twenty-four hours before the meeting addressed to the Trustee at his usual
or last known business or residence address or to give notice to him 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 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
the commencement thereof the lack of notice to him. Neither notice of a meeting
nor a waiver of a notice need specify the purposes of the meeting.
-1-
<PAGE>
2.4 Quorum. At any meeting of the Trustees one-half 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.
2.5 Participation by Telephone. One or more of the Trustees or of any
committee of the Trustees may participate in a meeting thereof by means of a
conference telephone or similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time. 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, including a
Chairman of the Board of Trustees, one or more Vice Presidents, one or more
Assistant Treasurers and one or more Assistant Secretaries, 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. The Chairman of the Board of Trustees shall be a Trustee and may, but
need not be, a shareholder of the Trust; and any other officer may, but need not
be, a Trustee or shareholder of the Trust. Any two or more offices may be held
by the same person.
3.2 Election. The President, the Treasurer and the Secretary shall be
elected annually by the Trustees at a meeting held within the first four months
of the Trust's fiscal year. The meeting at which the officers are elected shall
be known as the annual meeting of Trustees. Other officers, if any, may be
elected or appointed by the Trustees at said meeting or at any other time.
Vacancies in any office may be filled at any time.
3.3 Tenure. The President, the Treasurer and the Secretary shall hold
office until the next annual meeting of the Trustees and until their respective
successors are chosen and qualified, or in each case until he sooner dies,
resigns, is removed or becomes disqualified. Each other officer shall hold
office and each agent shall retain authority at the pleasure of the Trustees.
3.4 Powers. Subject to the other provisions of these 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 as if the Trust were organized as a Massachusetts
business
-2-
<PAGE>
corporation and such other duties and powers as the Trustees may from time to
time designate.
3.5 Chairman of the Board of Trustees. The Chairman of the Board of
Trustees, if any, shall preside at all meetings of the shareholders and of the
Trustees unless otherwise provided by the Trustees, and shall perform such other
duties and shall have such other powers as the Trustees may determine from time
to time.
3.6 President. The President shall be the chief executive officer of the
Trust. In the absence of the Chairman of the Board of Trustees, the President
shall preside at meetings of the shareholders and of the Trustees unless
otherwise provided by the Trustees.
3.7 Vice President. The Vice President, or if there be more than one
Vice President, the Vice Presidents in the order determined by the Trustees (or
if there be no such determination, then in the order of their election), shall
in the absence of the President or in the event of his inability or refusal to
act, perform the duties of the President, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the President. The Vice
Presidents shall perform such other duties and have such other powers as the
Board of Trustees may from time to time prescribe.
3.8 Treasurer. The Treasurer shall be the chief financial and accounting
officer of the Trust, and shall, subject to the provisions of the Declaration of
Trust and to any arrangement made by the Trustees with a custodian, investment
adviser or manager, or transfer, shareholder servicing or similar agent, be in
charge of the valuable papers, books of account and accounting records of the
Trust, and shall have such other duties and powers as may be designated from
time to time by the Trustees or by the President.
3.9 Assistant Treasurer. The Assistant Treasurer, or if there shall be
more than one, the Assistant Treasurers in the order determined by the Trustees
(or if there be no such determination, then in the order of their election),
shall, in the absence of the Treasurer or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the Treasurer and
shall perform such other duties and have such other powers as the Board of
Trustees may from time to time prescribe.
3.10 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 is absent, a temporary secretary chosen
at such meeting, shall record the proceedings thereof in the aforesaid books.
-3-
<PAGE>
3.11 Assistant Secretary. The Assistant Secretary, or if there be more
than one, the Assistant Secretaries in the order determined by the Trustees (or
if there be no determination, then in the order of their election), shall, in
the absence of the Secretary or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the Secretary and shall perform
such other duties and have such other powers as the Board of Trustees may from
time to time prescribe.
3.12 Resignation and Removals. Any Trustee or officer may resign at any
time by written instrument signed by him and delivered to the Chairman of the
Board of Trustees, the President or the Secretary or to a meeting of the
Trustees. Such resignation shall be effective upon receipt unless specified to
be effective at some other time. The Trustees may remove any officer elected by
them with or without cause. Except to the extent expressly provided in a written
agreement with the Trust, no Trustee or officer resigning and no officer removed
shall have any right to any compensation for any period following his
resignation or removal, or any right to damages on account of such removal.
ARTICLE 4
Committees
4.1 General. The Trustees, by vote of a majority of the Trustees then in
office, may elect from their number an Executive Committee or other committees
and may delegate thereto some or all of their powers except those which by law,
by the Declaration of Trust, or by these By-Laws may not be delegated. Except as
the Trustees may otherwise determine, any such committee may make rules for the
conduct of its business, but unless otherwise provided by the Trustees or in
such rules, its business shall be conducted so far as possible in the same
manner as is provided by these By-Laws for the Trustees themselves. All members
of such committees shall hold such offices at the pleasure of the Trustees. The
Trustees may abolish any such committee at any time. Any committee to which the
Trustees delegate any of their powers or duties shall keep records of its
meetings and shall report its action to the Trustees. The Trustees shall have
power to rescind any action of any committee, but no such rescission shall have
retroactive effect.
ARTICLE 5
Reports
5.1 General. The Trustees and officers shall render reports at the time
and in the manner required by the Declaration of Trust or any applicable law.
Officers and committees shall
-4-
<PAGE>
render such additional reports as they may deem desirable or as may from time to
time be required by the Trustees.
ARTICLE 6
Fiscal Year
6.1 General. The fiscal year of the Trust shall be fixed by resolution
of the Trustees.
ARTICLE 7
Seal
7.1 General. The seal of the Trust shall consist of a flat-faced die
with the word "Massachusetts", together with the name of the Trust and the year
of its organization cut or engraved thereon, but, unless otherwise required by
the Trustees, the seal shall not be necessary to be placed on, and its absence
shall not impair the validity of, any document, instrument or other paper
executed and delivered by or on behalf of the Trust.
ARTICLE 8
Execution of Papers
8.1 General. All deeds, leases, contracts, notes and other obligations
made by the Trustees may be signed by the President, any Vice President, the
Treasurer or Assistant Treasurer, Secretary or Assistant Secretary, or any agent
of the Trust, and need not bear the seal of the Trust.
ARTICLE 9
Issuance of Share
Certificates
9.1 Share Certificates. In lieu of issuing certificates for shares, the
Trustees or the transfer agent may either issue receipts therefor or may keep
accounts upon the books of the Trust for the record holders of such shares, who
shall in either case be deemed, for all purposes hereunder, to be the holders of
certificates for such shares as if they had accepted such certificates and shall
be held to have expressly assented and agreed to the terms hereof.
The Trustees may at any time authorize the issuance of share
certificates either in limited cases or to all shareholders. In that event, a
shareholder may receive a certificate stating the number of shares owned by him,
in such form as shall be prescribed from time to time by the Trustees. Such
certificate
-5-
<PAGE>
shall be signed by the President or a Vice President and by the Treasurer or
Assistant Treasurer. Such signatures may be facsimiles if the certificate is
signed by a transfer agent, or by a registrar, other than a Trustee, officer or
employee of the Trust. In case any officer who has signed or whose facsimile
signature has been placed on such certificate shall cease to be such officer
before such certificate is issued, it may be issued by the Trust with the same
effect as if he were such officer at the time of its issue.
9.2 Loss of Certificates. In case of the alleged loss or destruction or
the mutilation of a share certificate, a duplicate certificate may be issued in
place thereof, upon such terms as the Trustees shall prescribe.
9.3 Issuance of New Certificate to Pledgee. The Trustees may, in their
discretion, institute a policy of enabling a pledgee of shares transferred as
collateral security to obtain a new certificate if the instrument of transfer
substantially describes the debt or duty that is intended to be secured thereby.
Such new certificate shall express on its face that it is held as collateral
security, and the name of the pledgor shall be stated thereon, who alone shall
be liable as a shareholder, and entitled to vote thereon.
9.4 Discontinuance of Issuance of Certificates. The Trustees may at any
time discontinue the issuance of share certificates and may, by written notice
to each shareholder, require the surrender of share certificates to the Trust
for cancellation. Such surrender and cancellation shall not affect the ownership
of shares in the Trust.
ARTICLE 10
Transactions By Certain Persons
10.1 Long and Short Positions. No Director or officer of the Trust and
neither the investment adviser nor any distributor (should a distributor be
appointed pursuant to the Master Trust Agreement) for the Trust nor any partner,
officer or Director of the investment adviser or such distributor shall take a
long or short position in the securities issued by the Trust, except that this
provision shall not prevent:
(a) Such distributor from purchasing from the Trust shares if such
purchases are limited (except for reasonable allowances for clerical errors,
delays and errors of transmission and cancellation of orders) to purchases for
the purpose of filling purchase orders received by such distributor, and
provided that orders to purchase from the Trust are entered with the Trust upon
receipt by such distributor of such purchase orders.
-6-
<PAGE>
(b) Such distributor from maintaining a market for shares of the Trust
as agent for the Trust.
(c) The purchase at any time from the Trust or from such distributor of
shares issued by the Trust by any partner, officer or Director of the Trust, of
its investment adviser or of such distributor at the price available to the
public at the moment of such purchase, or, to the extent that such person is a
shareholder, at the price available to shareholders of the Trust generally at
the moment of such purchase.
10.2 Dealings with Affiliates. No officer, Director or agent of the
Trust shall deal for or on behalf of the Trust with himself as principal or
agent, or with any partnership, association or corporation in which he has a
material financial interest, provided that the foregoing provision shall not
prevent:
(a) Officers and Directors of the Trust from buying, holding or selling
shares in the Trust or from being partners, officers or Directors of or
financially interested in the investment adviser or distributor, if any, of the
Trust;
(b) Purchases of investments for the portfolio of the Trust or sales of
investments owned by the Trust through a securities dealer who is, or one or
more of whose partners, stockholders, officers or Directors is, an officer or
Director of the Trust, if such transactions are handled in the capacity of
broker only and commissions charged to the Trust do not exceed customary
brokerage charges for such services;
(c) Employment of legal counsel, registrar, transfer agent, dividend
disbursing agent or custodian who is, or has a partner, stockholder, officer or
director who is, an officer or director of the Trust, if only customary fees are
charged for services to the Trust;
(d) Sharing statistical, research and management expenses, including
office hire and services, with any other company in which an officer or Director
of the Trust is an officer or director or financially interested;
(e) Transactions for which an exemption has been obtained pursuant to
Section 17(a) of the Investment Company Act of 1940.
10.3 Notice of Ownership. The Secretary of the Trust shall request each
partner, officer and Director of the Trust and of its investment adviser to
notify the Trust at least quarter annually of the indentity of all issuers whose
securities are held by the Trust of which such partner, officer or Director owns
as much as one-half of one per cent (1/2 of 1%) of the outstanding shares or
securities, or both (taken at market value).
-7-
<PAGE>
10.4 Loans. The Trust shall make no loans to any officer, Director or
employee of the Trust or to the investment adviser or distributor, if any, of
the Trust or to their respective officers, directors, partners or employees.
ARTICLE 11
Amendments to the By-Laws
11.1 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 one or more writings signed by such a majority.
The foregoing By-Laws were adopted on November 8, 1988.
/s/ Charles L. Smith, Jr.
----------------------
Charles L. Smith, Jr.
State Street Capital Trust
Amendment No. 1 to the By-Laws
That the first sentence of Section 3.6 of Article III of the By-Laws of
the State Street Capital Trust is hereby amended to read as follows:
"Unless otherwise determined by the Trustees, the President shall be the
Chief Executive Officer of the Trust."
Effective as of: /s/ Constantine Hutchins, Jr.
September 30, 1992 -------------------------
Constantine Hutchins, Jr.
Secretary
INVESTMENT ADVISORY CONTRACT
Contract entered into the 1st day of February, 1989 between STATE
STREET CAPITAL TRUST, a Massachusetts business trust (the "Trust"), and STATE
STREET RESEARCH & MANAGEMENT COMPANY, a Delaware Corporation, having its
principal place of business in Boston, Massachusetts (the "Adviser")
WITNESSETH:
That in consideration of the mutual covenants herein contained and the
performance herein required, the Trust and the Adviser hereby mutually agree as
follows:
1. APPOINTMENT OF ADVISER. The Trust hereby appoints and employs the
Adviser to act as investment adviser for the State Street Capital Fund ("Fund")
series of the Trust for the term, with the duties, and subject to the
conditions, as provided in this Contract, and the Adviser hereby accepts such
appointment and employment.
2. DUTIES OF ADVISER. The Adviser shall furnish to the Trust such
management, investment advisory, statistical and research facilities and
services as may be required from time to time by the Trust in operating the
Fund.
3. ALLOCATION OF EXPENSES.
(a) The Adviser shall pay all major expenses in connection with the
initial public offering of the shares of beneficial interest of the Trust
including, without implied limitation, costs of registering and/or qualifying
for sale the shares of the Trust under Federal and State law, costs of
qualifying the Trust as broker or dealer, if necessary, under state law, counsel
fees and accountants fees. Notwithstanding the foregoing, the Adviser shall not
be required to pay the following expenses in connection with said offering:
taxes payable in connection with the issue of the Trust's shares, if any, and
the cost of share certificates.
(b) In addition to the expenses described in subparagraph (a) of this
paragraph 3 the Adviser, at its own expense, shall furnish suitable office space
and facilities, including all necessary equipment and clerical personnel, for
managing the affairs and investments of the Fund in the offices maintained by
the Adviser in Boston, Massachusetts or in such other place as may be agreed on
from time to time. The Adviser shall also pay the reasonable salaries and fees
of the officers of the Trust and all salaries, expenses and costs connected with
investment research and statistical work and the operation of the business of
the Adviser.
(c) The Fund shall pay all other expenses of the operation of the Fund;
including, without implied limitation, governmental
<PAGE>
fees, directors' fees, interest charges, taxes, membership dues in the
Investment Company Institute, fees of independent auditors, of legal counsel and
of any transfer agent, registrar and dividend disbursing agent of the Trust,
expenses of preparing, printing and mailing share certificates, prospectuses,
shareholders' reports, notices, proxy statements and reports to governmental
officers and commissions, brokerage expenses, insurance premiums, fees and
expenses of the custodian for all services to the Fund, including safekeeping of
funds and securities, keeping of books and accounts and calculation of the net
asset value of shares of the Fund, expenses of stockholders' meetings' and
expenses relating to the issuance, registration and qualification of shares of
the Fund.
4. COMPENSATION OF THE ADVISER.
As full compensation for the services to be rendered and expenses to be
borne by the Adviser as provided in paragraphs 2, 3(a) and 3(b) hereof, the Fund
shall pay to the Adviser monthly, beginning with the effective date hereof, an
amount equal to 1/16 of 1% of the average value of the net assets of the Fund
for each month determined at the close of business on each business day during
such month on which the net asset value per share of the Fund is determined
pursuant to the provisions of the Master Trust Agreement of the Trust. Such
payment for a month shall be made by the Fund to the Adviser within ten days
following the close of such month. If the effective date of this Contract is
other than the first day of a month or if the term of this Contract shall
terminate other than on the last day of a month, then the Adviser shall be
entitled to receive as compensation a payment calculated as above provided on a
pro rata basis for the portion of the month which shall have elapsed from and
after the effective date or up to and including such termination date.
5. COVENANTS OF THE ADVISER.
(a) The Adviser covenants that it and its Directors and officers shall
comply with the provisions of Article 10 of the By-Laws of the Trust during the
term of this Contract, to the extent that such provisions are applicable to
them.
(b) The Adviser covenants that during the term of this Contract each
of its Directors and officers shall keep the Secretary of the Trust advised on a
monthly basis of the names of those issuers (the securities of which are owned
by the Fund) in which such Trustee or officer owns more than one-half of one per
cent (1/2 of 1%) of the outstanding shares or securities, or both (taken at
market value), of such issuer.
6. EFFECTIVE DATE, DURATION AND TERMINATION OF THIS CONTRACT.
(a) This Contract shall be effective as of the date the Contract is
entered, as noted above.
-2-
<PAGE>
(b) This Contract shall remain in effect (unless terminated as
hereinafter provided) until January 31, 1990 and from year to year thereafter;
provided that this Contract shall continue in effect after January 31, 1990 only
so long as
(1) such continuance is specifically approved at least annually by either
(A) the Board of Trustees of the Trust, or (B) "vote of a majority of
the outstanding voting securities" (as defined in Section 2(a)(42) of
the Investment Company Act of 1940) of the Fund, and
(2) the terms of this Contract are approved at least annually by the vote
of a majority of the Trustees of the Trust who are not parties to the
Contract or "interested persons" of any such party (as such terms are
used in Section 15(c) of the Investment Company Act of 1940), cast in
person at a meeting called for the purpose of voting on such approval.
(c) This Contract may be terminated at any time without the payment of
any penalty by vote of the Board of Trustees of the Trust or by "vote of a
majority of the outstanding voting securities" (as defined in Section 2(a)(42)
of the Investment Company Act of 1940) of the Fund, or by the Adviser, in each
case upon sixty calendar days' prior written notice to the other party to the
Contract.
(d) This Contract shall terminate automatically in the event of its
"assignment" (as defined in Section 2(a)(4) of the Investment Company Act of
1940).
7. AMENDMENTS.
This Contract may be amended at any time or from time to time by an
instrument in writing signed by a duly authorized officer of the Trust and by
the Adviser, but no amendment to this Contract shall be effective until
(1) such amendment is approved by the affirmative "vote of a majority of
the outstanding voting securities" (as defined in Section 2(a)(42) of
the Investment Company Act of 1940) of the Fund, and
(2) the terms of such amendment are approved by the vote of a majority of
the Trustees of the Trust, who are not parties to the Contract or
"interested persons" of any such party (as such terms are used in
Section 15(c) of the Investment Company Act of 1940), cast in person
at a meeting called for the purpose of voting on such approval.
8. MISCELLANEOUS PROVISIONS.
(a) For all purposes of this Contract the Adviser shall be
-3-
<PAGE>
deemed to be an independent contractor and not an agent of the Trust, and shall
have no authority to act for or represent the Trust in any way.
(b) The duties of the Adviser under this Contract shall not prevent
the Adviser from rendering similar services to other persons, firms, trusts,
corporations or other entities.
(c) The Adviser shall not be subject to liability for any act or
omission in the course of, or connected with, its performance of this Contract,
except in the case of willful misfeasance, bad faith or gross negligence on the
part of the Adviser, or the reckless disregard by the Adviser of its obligations
and duties under this Contract.
(d) Notices under this Contract 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 Contract for this purpose shall be One Financial Center, Boston,
Massachusetts 02111.
(e) It is expressly agreed that the obligations of the Trust
hereunder, and the authorization, execution and delivery of this document, 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 property of the Fund, as provided in the Master Trust Agreement of the
Trust. The Master Trust Agreement of the Trust provides, and it is expressly
agreed, that the Fund of the Trust shall be solely and exclusively responsible
for the payment of any direct or indirect debts, liabilities and obligations
relating to the Fund, and that no other fund shall be responsible for the same.
State Street Capital Trust
By /s/ Charles L. Smith, Jr.
-------------------------
Charles L. Smith, Jr.
State Street Research &
Management Company
By /s/ Herbert P. Hess
--------------------------
Herbert P. Hess
-4-
DISTRIBUTION AGREEMENT
DISTRIBUTION AGREEMENT effective as of February 17, 1993, 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 Capital Trust, a
Massachusetts business trust having its principal place of business in Boston,
Massachusetts (the "Trust"), which Trust offers and 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 the State Street Research Capital
Fund and State Street Research Small Capitalization Growth Fund (the "Initial
Fund(s)") 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 Fund 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 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
<PAGE>
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 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 Master Trust Agreement of the Trust,
as amended (the "Master Trust Agreement"), 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.
-2-
<PAGE>
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 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 the same is put in use to
the extent required by applicable law, and not to use the same until so filed
and cleared.
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, 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.
-3-
<PAGE>
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 qualify 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, and to
renew and extend any such qualification; provided, however, that the Trust shall
not be required to qualify shares or to maintain the qualification of shares in
any state, territory, dependency, district or country where it shall deem such
qualification 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 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 Master Trust Agreement (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.
-4-
<PAGE>
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;
(ii) the cost of all registration or qualification 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, it will bear the expense of printing
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 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 agents or employees or to others through its agents or employees. The
Distributor assumes full responsibility for its agents and
-5-
<PAGE>
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 l(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 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 (60)
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.
-6-
<PAGE>
(c) Approval, Amendment or Termination by 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 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 or any other 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 is alleged to arise out of or is based upon
a violation of any of its covenants
-7-
<PAGE>
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 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 thereunder.
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 Capital Trust"
means and refers to the Trustees from time to time serving under the Master
Trust Agreement of the Trust dated November 8, 1988 as the same may subsequently
have been, or subsequently may be, amended. It is expressly agreed that the
-8-
<PAGE>
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 Master Trust Agreement of the 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 its Master Trust Agreement. The Master
Trust Agreement of the 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.
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.
By: /s/ Donald E. Webber
--------------------
Donald E. Webber
President
State Street Capital Trust
By: /s/ Gerard P. Maus
--------------------
Gerard P. Maus
Treasurer
-9-
BANK AND BANK AFFILIATED BROKER-DEALER AGREEMENT
(FULLY DISCLOSED BASIS)
Dated as of: ___________________________
To: ______________________________________________
(Exact legal name of bank or bank affiliate)
______________________________________________
(Address)
______________________________________________
______________________________________________
(Attn)
We have been appointed to serve as an agent and a principal underwriter
as defined in the Investment Company Act of 1940 (the "1940 Act") for the
purpose of selling and distributing shares (the "Shares") of each of the
portfolio series, as specified from time to time, of certain investment
companies, including, but not limited to, the MetLife-State Street trusts, the
State Street trusts and MetLife Portfolios, Inc. Hereinafter the specified
portfolio series shall be denoted individually as "Fund" and collectively as
"Funds," and the investment companies shall be denoted individually as
"Investment Company" and collectively as "Investment Companies" solely for
purposes of this agreement. We are hereby inviting you, subject to the terms and
conditions set forth below, to make available to your customers Shares of the
Funds.
1. Acceptance of Orders.
(a) The customers in question are for all purposes your customers
and not our customers. We shall execute transactions for each of your customers
only upon your
<PAGE>
authorization, it being understood in all cases that (i) you are acting as the
agent for the customer; (ii) the transactions are subject to the federal and
state securities laws without recourse against you by the customer; (iii) as
between you and the customer, the customer will have beneficial ownership of the
securities; (iv) each transaction is initiated solely upon the order of the
customer; (v) each transaction is for the account of the customer and not for
your account; and (vi) you shall not have any authority in any transactions to
act as our agent or agent of the Funds.
(b) Orders received from you will be accepted by us and the
Investment Companies only at the public offering price applicable to each order.
The public offering price shall be the net asset value per Share plus any sales
charge payable upon the purchase of Shares of such Fund or class thereof as
specified in the then current prospectus applicable to such Shares, as amended
and in effect from time to time (the "Prospectus"). The public offering price
may reflect scheduled variations in, or the elimination of the sales charge on
sales of the Shares either generally to the public or in connection with special
purchase plans, as described in the Prospectus and related Statement of
Additional Information. You agree that you will apply any scheduled variation
in, or elimination of, the sales charge uniformly to all offerees in the class
specified in the Prospectus. Upon acceptance of an order we shall confirm the
order directly to the customer on a fully disclosed basis in writing and a copy
of each confirmation shall be sent simultaneously to you. The procedures
relating to the handling of orders shall be subject to instructions which we
shall provide from time to time to you. We and the Investment Companies reserve
the right to reject any purchase request in our sole discretion.
2. Agency Commission. Any compensation received by you with respect to
the sale of shares of a Fund shall be deemed to be charged by you to your
customer as an agency commission. The schedule of sales charges, commissions and
dealer concessions described in the applicable Prospectus and related Statement
of Additional Information shall apply and the amount of the agency commission
shall equal the applicable amount payable as compensation to a dealer in
connection with the sale of shares of a Fund. You agree that you will not
combine customer orders to reach breakpoints in commissions for any purpose
unless authorized by the Prospectus or in writing. You agree that you will apply
any scheduled variation, or elimination of, the sales charge uniformly to all
offerees in the class specified in the
2
<PAGE>
Prospectus. All compensation amounts are subject to change without notice by us.
3. Rule l2b-1 Plans.
(a) As consideration for your providing services in our
promotion of the sale of Shares of certain Funds or classes thereof which have a
sales charge and which have adopted Distribution Plans pursuant to Rule 12b-1
under the 1940 Act, and for providing personal services to, and/or the
maintenance of the accounts of, your customers who invest in and own such Shares
of such Funds or classes thereof, we shall pay you such fee as is described in
the applicable Prospectus and otherwise established by us from time to time, on
Shares which are owned of record by your firm as nominee for your customers or
which are owned by those customers of your firm whose records, as maintained by
such Fund or its agent, designate your firm as the customer's dealer of record.
The fees payable hereunder shall be computed and accrued daily and for each
month shall be based on the average daily net asset value of the relevant Shares
which remain outstanding during such month. No such fee will be paid to you with
respect to Shares redeemed or repurchased by such Fund within seven business
days after the date of our confirmation of such purchase. No such fee will be
paid to you with respect to any of your customers if the amount of such fee
based upon the value of such customer's Shares will be less than $1.00.
(b) The provisions of this Paragraph 3 may be terminated with
respect to any Fund or class thereof in accordance with the provisions of Rule
12b-1 under the 1940 Act or the rules of the National Association of Securities
Dealers, Inc. (the "NASD") and thereafter no such fee will be paid to you.
(c) Consistent with NASD policies as amended or interpreted
from time to time (i) you waive payment of amounts due from us which are funded
by fees we receive under such Distribution Plans until we are in receipt of the
fees on the relevant shares of a Fund, and (ii) our liability for amounts
payable to you is limited solely to the proceeds of the fees receivable to us on
the relevant shares.
4. Redemption and Repurchase of Shares. If any Shares with a sales
charge are sold through you hereunder and are redeemed by such Fund or
repurchased by us as agent for such Fund within seven business days after
confirmation of the original purchase, it is agreed that you shall forfeit your
right to the entire agency commission and any other related
3
<PAGE>
commission received by you on such Shares. We will notify you of any such
repurchase or redemption within ten business days from the date thereof and you
shall forthwith refund to us the entire agency commission and other commission,
if any, received by you on such sale. We agree, in the event of any such
repurchase or redemption, to refund to such Fund our share of the sales charge
retained by us, if any, and upon receipt from you of the refund of the agency
commission allowed to you, to pay such refund forthwith to such Fund.
If you purchase Shares from any customer in connection with repurchase
arrangements offered by an Investment Company, you agree to pay such customer
not less than the applicable repurchase price as established by the Prospectus.
If you act as agent for your customer in selling Shares to a Fund, you agree not
to charge your customer more than a fair commission for handling the
transaction. Any order placed by you for the repurchase of Shares of a Fund is
subject to the timely receipt by the Fund's transfer agent of all required
documents in good order. If such documents are not received within a reasonable
time after the order is placed, the order is subject to cancellation, in which
case you agree to be responsible for any loss resulting to the Fund or to us
from such cancellation.
5. Payment for Shares.
(a) Payment for Shares sold through you shall be made on or
before the settlement date specified in the applicable confirmation, at the
office of our clearing agent, and by check payable to the order of such Fund or,
if applicable, by Federal Funds wire for credit to such Fund in accordance with
the procedures and conditions described in the Prospectus. Each Fund reserves
the right to delay issuance or transfer of Shares until such check has cleared.
If such payment is not received by us, we reserve the right, without notice,
forthwith to cancel the sale. Unless other instructions are received by us on or
before the settlement date, orders accepted by us may be placed in an Open
Account in your name. If such payment or instructions are not timely received by
us, we may hold you responsible for any expense or loss, including loss of
profit, suffered by us or by such Fund resulting from your failure to make
payment as aforesaid.
(b) You will also act as agent in all purchases by a
shareholder for whom, on the records of the Fund or its Shareholders' Servicing
and Transfer Agent as defined in the Prospectus, you are the designated dealer
of record of Shares where payments are sent directly by such shareholders to the
4
<PAGE>
Agent, and you authorize and appoint the Agent to execute and confirm such
purchases to such shareholder on your behalf.
6. Manner of Offering.
(a) No person is authorized to make any representations
concerning Shares except those contained in the then current applicable
Prospectuses and in sales literature and other materials issued by us
supplemental to such Prospectuses. Shares of Funds shall only be offered by
means of the then current applicable Prospectus and you shall be obligated to
deliver such Prospectus to your customers in accordance with all applicable
federal and state securities laws. All offerings of Shares by you shall be
subject to the conditions set forth in the applicable Prospectus (including the
condition relating to minimum purchases) and to the terms and conditions herein
set forth. We will furnish additional copies of the Prospectuses and such sales
literature and other material issued by us in reasonable quantities upon
request. You will provide all customers with the applicable Prospectus prior to
or at the time such customer purchases Shares and will forward promptly to us
any customer request for a copy of the applicable Statement of Additional
Information. Sales and exchanges of Shares may only be made in those states and
jurisdictions where the Shares are registered or qualified for sale to the
public. We agree to advise you currently of the identity of those states and
jurisdictions in which the Shares are registered or qualified for sale, and you
agree to indemnify us and/or the Funds for any claim, liability, expense or loss
in any way arising out of a sale of Shares in any state or jurisdiction in which
such Shares are not so registered or qualified.
(b) You agree to conform to any compliance or offering
standards that we may establish from time to time, including without limitation
standards as to when classes of Shares may appropriately be sold to particular
investors.
(c) We recognize that you may be subject to the provisions of
the Glass-Steagall Act and other laws governing, among other things, the conduct
of activities by federal or state chartered or supervised banks and affiliated
organizations. BECAUSE ONLY YOU WILL HAVE A DIRECT RELATIONSHIP WITH YOUR
CUSTOMER, YOU COVENANT AND AGREE TO COMPLY WITH ALL LAWS AND REGULATIONS
INCLUDING THOSE OF THE REGULATORY AUTHORITIES DIRECTLY APPLICABLE TO YOU AND ANY
OTHER FEDERAL OR STATE REGULATORY BODY HAVING JURISDICTION OVER YOU OR YOUR
CUSTOMERS TO THE EXTENT APPLICABLE TO SECURITIES PURCHASES HEREUNDER FOR THE
ACCOUNT OF YOUR CUSTOMER.
5
<PAGE>
(d) We and the Investment Companies shall have the right to
accept or reject orders for the purchase of Shares of any Fund or class thereof.
It is understood that for the purposes hereof no Share shall be considered to
have been sold by you and no compensation will be payable to you with respect to
any order for Shares which is rejected by us or an Investment Company. Any
consideration which you may receive in connection with a rejected purchase order
is to be returned promptly by you. Confirmations of all accepted purchase orders
will be transmitted by the applicable Investment Company or us to investors, or,
if so directed, to any duly appointed transfer or shareholder servicing agent of
the Fund or class of Shares thereof.
7. Your Status.
Nothing herein shall make you a partner with us or render our
relationship an association. You are responsible for your own conduct, for the
employment, control and conduct of your employees and agents and for injury to
such employees or agents or to others through such employees or agents. You
assume full responsibility for your employees and agents under applicable laws
and agree to pay all employer taxes relating thereto.
8. No Liability.
As distributor of the Shares, we shall have full authority to take such
action as we may deem advisable in respect of all matters pertaining to the
distribution of such Shares. We shall not be under any liability to you, except
for lack of good faith and for obligations expressly assumed by us in this
Agreement; provided, however, that nothing in this sentence shall be deemed to
relieve any of us from any liability imposed by the Securities Act of 1933, as
amended.
9. Term of Contract; Amendments; Termination.
This Agreement shall become effective on the date hereof. We and each
Fund reserve the right, in our discretion upon notice to you, to amend, modify
or terminate this Agreement at any time, to change the sales charges,
commissions, concessions and other fees described in the applicable Prospectus
or to suspend sales or withdraw the offering of Shares of a Fund or class of
Shares thereof entirely. You agree that any order to purchase Shares placed by
you after notice of any amendment to this Agreement has
6
<PAGE>
been sent to you shall constitute your agreement to such amendment.
10. Miscellaneous.
This Agreement supersedes any and all prior agreements between us.
References to a Selected Dealer Agreement, dealer agreement or sales agreement
contained in a Prospectus, new account Application, Statement of Additional
Information or related documents with respect to Shares shall be deemed to
include this Agreement and references to dealer(s) or securities dealer(s) shall
be deemed to include you. All communications to us should be sent to the above
address. Any notice to you shall be duly given if mailed or telefacsmiled to you
at the address specified by you above. This Agreement shall be effective when
accepted by you below and shall be construed under the laws of the Commonwealth
of Massachusetts.
11. Rank or Rank Affiliate.
Check applicable box:
[ ] (a) You represent and warrant that you are a member of the NASD or
in the alternative, that you are a foreign dealer not eligible for membership in
the NASD. You and we agree to abide by the Rules and Regulations of the NASD
including Rule 26 of its Rules of Fair Practice, and all applicable federal,
state, and foreign laws, rules and regulations.
[ ] (b) [Note: This box relates to "banks." Before checking this box,
please be aware that certain financial institutions such as savings and loan
associations and credit unions are not deemed to be a "bank" under the Exchange
Act of 1934, as amended (the "Exchange Act") and may need to register as a
broker/dealer with the Securities and Exchange Commission.] You represent and
warrant to us that (i) you are a "bank" as such term is defined in Section
3(a)(6) of the Exchange Act; (ii) you are a duly organized and validly existing
"bank" in good standing under the laws of the jurisdiction in which you are
organized; (iii) all authorization (if any) required for your lawful execution
of this Agreement and your performance hereunder have been obtained; and (iv)
this Agreement will constitute a valid and binding agreement, enforceable
against you in accordance with its terms. You agree to give written notice to us
promptly in the event that you cease to be a "bank" as such term is defined in
Section 3(a)(6) of the Exchange Act. Upon such
7
<PAGE>
written notice, this Agreement shall automatically terminate. You also agree to
abide by all of the Rules of Fair Practice of the NASD applicable to the sale of
investment company shares to your customers.
The following provision, as marked, applies to this Agreement.
[ ] This document constitutes an amendment to and restatement of the
Agreement currently in effect between you and us.
[ ] Please confirm your agreement hereto by signing and returning the
enclosed counterpart of this Agreement at once to: State Street Research
Investment Services, Inc., One Financial Center, Boston, Massachusetts 02111,
Attention: President. Upon receipt thereof, this Agreement and such signed
duplicate copy will evidence the agreement between us.
State Street Research
Investment Services, Inc.
(Distributor)
By: ________________________________
We have checked box ll(a) or ll b) above and accept this Agreement:
*____________________________________________*
(Exact legal name of bank or bank affiliate)
By: ________________________________
8
STATE STREET RESEARCH CAPITAL TRUST
One Financial Center
Boston, Massachusetts
02111-2690
February 1, 1995
State Street Research
Investment Services, Inc.
One Financial Center
Boston, Massachusetts 02111-2690
Gentlemen:
This letter is to confirm to you that State Street Research Capital
Trust (the "Trust"), has created a new series of shares to be known as State
Street Research Small Capitalization Value Fund (the "Fund"), which is
authorized to be issued in four classes (Class A shares, Class B shares, Class C
shares and Class D shares), and that pursuant to the Distribution Agreement
between the Trust and you dated as of February 17, 1993 (the "Agreement"), you
will serve as distributor and principal underwriter of the Fund (which shall be
deemed a "Fund" under the Agreement) with respect to the sale of its shares and
each class thereof. Shares of each class of the Fund will be sold at the "net
asset value per share" of the Fund plus any applicable sales charge in
accordance with the then current prospectus and statement of additional
information of the Fund, as from time to time amended.
Please indicate your acceptance of the above in accordance with the
terms of the Agreement by signing this letter as indicated below.
The term "State Street Research Capital Trust" means and refers to the
Trustees from time to time serving under the First Amended and Restated Master
Trust Agreement dated February 5, 1993 ("Master Trust Agreement") as the same
may subsequently thereto have been, or subsequently hereto 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 Master Trust Agreement 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,
<PAGE>
but shall bind only the trust property of the Trust as provided in its Master
Trust Agreement. The Master Trust Agreement 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.
STATE STREET RESEARCH CAPITAL TRUST
By: /s/ Ralph F. Verni
------------------------
Ralph F. Verni
ACCEPTED AND AGREED TO:
STATE STREET RESEARCH
INVESTMENT SERVICES, INC.
By: /s/ Gerard P. Maus
----------------------
Gerard P. Maus
CUSTODIAN CONTRACT
Between
STATE STREET CAPITAL TRUST
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
1. Employment of Custodian and Property to be Held by It.....................1
2. Duties of the Custodian with Respect to Property
of the Fund Held by the Custodian in the United States....................3
2.1 Holding Securities..............................................3
2.2 Delivery of Securities..........................................3
2.3 Registration of Securities......................................8
2.4 Bank Accounts...................................................9
2.5 Availability of Federal Funds..................................10
2.6 Collection of Income...........................................10
2.7 Payment of Fund Monies.........................................ll
2.8 Liability for Payment in Advance of
Receipt of Securities Purchased................................14
2.9 Appointment of Agents..........................................14
2.10 Deposit of Fund Assets in Securities System....................15
2.10A Fund Assets Held in the Custodian's
Direct Paper System............................................18
2.11 Segregated Account.............................................20
2.12 Ownership Certificates for Tax Purposes........................21
2.13 Proxies........................................................21
2.14 Communications Relating to Portfolio Securities................22
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside of the United States...............................22
3.1 Appointment of Foreign Sub-Custodians..........................22
3.2 Assets to be Held..............................................23
3.3 Foreign Securities Depositories................................23
3.4 Segregation of Securities......................................24
3.5 Agreements with Foreign Banking Institutions...................24
3.6 Access of Independent Accountants of the Fund..................25
3.7 Reports by Custodian...........................................25
3.8 Transactions in Foreign Custody Account........................26
3.9 Liability of Foreign Sub-Custodians............................27
3.10 Liability of Custodian.........................................27
3.11 Reimbursement for Advances.....................................28
3.12 Monitoring Responsibilities....................................29
3.13 Branches of U.S. Banks.........................................30
4. Payments for Sales or Repurchase or Redemptions of Shares of the Fund....30
5. Proper Instructions......................................................31
6. Actions Permitted Without Express Authority..............................32
7. Evidence of Authority....................................................33
8. Duties of Custodian With Respect to the Books of
Account and Calculation of Net Asset Value and
Net Income...............................................................33
<PAGE>
9. Records ................................................................34
10. Opinion of Fund's Independent Accountants...............................34
11. Reports to Fund by Independent Public Accountants.......................35
12. Compensation of Custodian...............................................35
13. Responsibility of Custodian.............................................35
14. Effective Period, Termination and Amendment.............................38
15. Successor Custodian.....................................................39
16. Interpretive and Additional Provisions..................................41
17. Additional Funds........................................................41
18. Massachusetts Law to Apply..............................................42
19. Prior Contracts.........................................................42
<PAGE>
CUSTODIAN CONTRACT
This Contract between State Street Capital Trust, a business trust
organized and existing under the laws of Massachusetts, having its principal
place of business at One Financial Center, Boston, Massachusetts 02111
hereinafter called the "Fund", and State Street Bank and Trust Company, a
Massachusetts trust company, having its principal place of business at 225
Franklin Street, Boston, Massachusetts, 02110, hereinafter called the
"Custodian",
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund intends to initially offer shares in one series, the
State Street Capital Fund (such series together with all other series
subsequently established by the Fund and made subject to this Contract in
accordance with paragraph 17, being herein referred to as the "Portfolio(s)");
NOW THEREFOR, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of the assets of
the Portfolios of the Fund, including securities which the Fund, on behalf of
the applicable Portfolio desires to be held in places within the United States
("domestic
<PAGE>
securities") and securities it desires to be held outside the United States
("foreign securities") pursuant to the provisions of the Declaration of Trust.
The Fund on behalf of the Portfolio(s) agrees to deliver to the Custodian all
securities and cash of the Portfolios, and all payments of income, payments of
principal or capital distributions received by it with respect to all securities
owned by the Portfolio(s) from time to time, and the cash consideration received
by it for such new or treasury shares of beneficial interest of the Fund
representing interests in the Portfolios, ("Shares") as may be issued or sold
from time to time. The Custodian shall not be responsible for any property of a
Portfolio held or received by the Portfolio and not delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article
5), the Custodian shall on behalf of the applicable Portfolio(s) from time to
time employ one or more sub-custodians, located in the United States but only in
accordance with an applicable vote by the Board of Trustees of the Fund on
behalf of the applicable Portfolio(s), and provided that the Custodian shall
have no more or less responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian. The Custodian may employ as sub-custodian
for the Fund's foreign securities on behalf of the applicable Portfolio(s) the
foreign banking institutions and foreign securities depositories designated in
Schedule A hereto but only in accordance with the provisions of Article 3.
-2-
<PAGE>
2. Duties of the Custodian with Respect to Property of the Fund Held By the
Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and physically segregate for
the account of each Portfolio all non-cash property, to be held by it in
the United States including all domestic securities owned by such
Portfolio, other than (a) securities which are maintained pursuant to
Section 2.10 in a clearing agency which acts as a securities depository or
in a book-entry system authorized by the U. S. Department of the Treasury,
collectively referred to herein as "Securities System" and (b) commercial
paper of an issuer for which State Street Bank and Trust Company acts as
issuing and paying agent ("Direct Paper") which is deposited and/or
maintained in the Direct Paper System of the Custodian pursuant to Section
2.10A.
2.2 Delivery of Securities. The Custodian shall release and deliver domestic
securities owned by a Portfolio held by the Custodian or in a Securities
System account of the Custodian or in the Custodian's Direct Paper book
entry system account ("Direct Paper System Account") only upon receipt of
Proper Instructions from the Fund on behalf of the applicable Portfolio,
which may be continuing instructions when deemed appropriate by the
parties, act only in the following cases:
1) Upon sale of such securities for the account of the Portfolio and
receipt of payment therefor;
-3-
<PAGE>
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Portfolio;
3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other similar
offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are called,
redeemed, retired or otherwise become payable; provided that, in any
such case, the cash or other consideration is to be delivered to the
Custodian;
6) To the issuer thereof, or its agent, for transfer into the name of
the Portfolio or into the name of any nominee or nominees of the
Custodian or into the name or nominee name of any agent appointed
pursuant to Section 2.9 or into the name or nominee name of any
sub-custodian appointed pursuant to Article 1; or for exchange for a
different number of bonds, certificates or other evidence
representing the same aggregate face amount or number of units;
provided that, in any such case, the new securities are to be
delivered to the Custodian;
-4-
<PAGE>
7) Upon the sale of such securities for the account of the Portfolio,
to the broker or its clearing agent, against a receipt, for
examination in accordance with "street delivery" custom; provided
that in any such case, the Custodian shall have no responsibility or
liability for any loss arising from the delivery of such securities
prior to receiving payment for such securities except as may arise
from the Custodian's own negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of
the securities of the issuer of such securities, or pursuant to
provisions for conversion contained in such securities, or pursuant
to any deposit agreement; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the surrender
thereof is the exercise of such warrants, rights or similar
securities or the surrender of interim receipts or temporary
securities for
-5-
<PAGE>
definitive securities; provided that, in any such case, the new
securities and cash, If any, are to be delivered to the Custodian;
10) For delivery In connection with any loans of securities made by the
Portfolio, but only against receipt of adequate collateral as agreed
upon from time to time by the Custodian and the Fund on behalf of
the Portfolio, which may be in the form of cash or obligations
issued by the United States government, its agencies or
instrumentalities, except that in connection with any loans for
which collateral is to be credited to the Custodian's account in the
book-entry system authorized by the U.S. Department of the Treasury,
the Custodian will not be held liable or responsible for the
delivery of securities owned by the Portfolio prior to the receipt
of such collateral;
11) For delivery as security in connection with any borrowings by the
Fund on behalf of the Portfolio requiring a pledge of assets by the
Fund on behalf of the Portfolio, but only against receipt of amounts
borrowed;
12) For delivery in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian and a
-6-
<PAGE>
broker-dealer registered under the Securities Exchange Act of 1934
(the "Exchange Act") and a member of The National Association of
Securities Dealers, Inc. ("NASD"), relating to compliance with the
rules of The Options Clearing Corporation and of any registered
national securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in connection
with transactions by the Portfolio of the Fund;
13) For delivery in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian, and a
Futures Commission Merchant registered under the Commodity Exchange
Act, relating to compliance with the rules of the Commodity Futures
Trading Commission and/or any Contract Market, or any similar
organization or organizations, regarding account deposits in
connection with transactions by the Portfolio of the Fund;
14) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for the Fund, for delivery to such Transfer Agent or to the
holders of shares in connection with distributions in kind, as may
be described
-7-
<PAGE>
from time to time in the currently effective prospectus and
statement of additional information of the Fund, related to the
Portfolio ("Prospectus"), in satisfaction of requests by holders of
Shares for repurchase or redemption; and
15) For any other proper corporate purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
applicable Portfolio, a certified copy of a resolution of the Board
of Trustees or of the Executive Committee signed by an officer of
the Fund and certified by the Secretary or an Assistant Secretary,
specifying the securities of the Portfolio to be delivered, setting
forth the purpose for which such delivery is to be made, declaring
such purpose to be a proper corporate purpose, and naming the person
or persons to whom delivery of such securities shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, unless the Fund has authorized in
writing the appointment of a nominee to
-8-
<PAGE>
be used in common with other registered investment companies having the
same investment adviser as the Portfolio, or in the name or nominee name of
any agent appointed pursuant to Section 2.9 or in the name or nominee name
of any sub-custodian appointed pursuant to Article 1. All securities
accepted by the Custodian on behalf of the Portfolio under the terms of
this Contract shall be in "street name" or other good delivery form.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio of
the Fund, subject only to draft or order by the Custodian acting pursuant
to the terms of this Contract, and shall hold in such account or accounts,
subject to the provisions hereof, all cash received by it from or for the
account of the Portfolio, other than cash maintained by the Portfolio in a
bank account established and used in accordance with Rule 17f-3 under the
Investment Company Act of 1940. Funds held by the Custodian for a Portfolio
may be deposited by it to its credit as Custodian in the Banking Department
of the Custodian or in such other banks or trust companies as it may in its
discretion deem necessary or desirable; provided, however, that every such
bank or trust company shall be qualified to act as a custodian under the
Investment Company Act of 1940 and that each such bank or trust company and
the funds to be deposited with each such bank or trust company shall on
behalf of
-9-
<PAGE>
each applicable Portfolio be approved by vote of a majority of the Board of
Trustees of the Fund. Such funds shall be deposited by the Custodian in its
capacity as Custodian and shall be withdrawable by the Custodian only in
that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund on
behalf of each applicable Portfolio and the Custodian, the Custodian shall,
upon the receipt of Proper Instructions from the Fund on behalf of a
Portfolio, make federal funds available to such Portfolio as of specified
times agreed upon from time to time by the Fund and the Custodian in the
amount of checks received in payment for Shares of such Portfolio which are
deposited into the Portfolio's account.
2.6 Collection of Income. The Custodian shall collect on a timely basis all
income and other payments with respect to registered domestic securities
held hereunder to which each Portfolio shall be entitled either by law or
pursuant to custom in the securities business, and shall collect on a
timely basis all income and other payments with respect to bearer domestic
securities if, on the date of payment by the issuer, such securities are
held by the Custodian or its agent thereof and shall credit such income, as
collected, to such Portfolio's custodian account. Without limiting the
generality of the foregoing, the Custodian shall detach and present for
payment all coupons and other income items requiring
-10-
<PAGE>
presentation as and when they become due and shall collect interest when
due on securities held hereunder. Income due each Portfolio on securities
loaned pursuant to the provisions of Section 2.2 (10) shall be the
responsibility of the Fund. The Custodian will have no duty or
responsibility in connection therewith, other than to provide the Fund with
such information or data as may be necessary to assist the Fund in
arranging for the timely delivery to the Custodian of the income to which
the Portfolio is properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the Fund
on behalf of the applicable Portfolio, which may be continuing instructions
when deemed appropriate by the parties, the Custodian shall pay out monies
of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures contracts
or options on futures contracts for the account of the Portfolio but
only (a) against the delivery of such securities or evidence of
title to such options, futures contracts or options on futures
contracts to the Custodian (or any bank, banking firm or trust
company doing business in the United States or abroad which is
qualified under the Investment Company Act of 1940, as amended, to
act as a custodian and has been designated by the Custodian as
-11-
<PAGE>
its agent for this purpose) registered in the name of the Portfolio
or in the name of a nominee of the Custodian referred to in Section
2.3 hereof or in proper form for transfer; (b) in the case of a
purchase effected through a Securities System, in accordance with
the conditions set forth in Section 2.10 hereof; (c) in the case of
a purchase involving the Direct Paper System, in accordance with the
conditions set forth in Section 2.10A; (d) in the case of repurchase
agreements entered into between the Fund on behalf of the Portfolio
and the Custodian, or another bank, or a broker-dealer which is a
member of NASD, (i) against delivery of the securities either in
certificate form or through an entry crediting the Custodian's
account at the Federal Reserve Bank with such securities or (ii)
against delivery of the receipt evidencing purchase by the Portfolio
of securities owned by the Custodian along with written evidence of
the agreement by the Custodian to repurchase such securities from
the Portfolio or (e) for transfer to a time deposit account of the
Fund in any bank, whether domestic or foreign; such transfer
-12-
<PAGE>
may be effected prior to receipt of a confirmation from a broker
and/or the applicable bank pursuant to Proper Instructions from the
Fund as defined in Article 5;
2) In connection with conversion, exchange or surrender of securities
owned by the Portfolio as set forth in Section 2.2 hereof;
3) For the redemption or repurchase of Shares issued by the Portfolio
as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments for
the account of the Portfolio: interest, taxes, management,
accounting, transfer agent and legal fees, and operating expenses of
the Fund whether or not such expenses are to be in whole or part
capitalized or treated as deferred expenses;
5) For the payment of any dividends on Shares of the Portfolio declared
pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, but only upon receipt of, in addition
to Proper
-13-
<PAGE>
Instructions from the Fund on behalf of the Portfolio, a certified
copy of a resolution of the Board of Trustees or of the Executive
Committee of the Fund signed by an officer of the Fund and certified
by its Secretary or an Assistant Secretary, specifying the amount of
such payment, setting forth the purpose for which such payment is to
be made, declaring such purpose to be a proper purpose, and naming
the person or persons to whom such payment is to be made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of domestic securities for the
account of a Portfolio is made by the Custodian in advance of
receipt of the securities purchased in the absence of specific
written instructions from the Fund on behalf of such Portfolio to so
pay in advance, the Custodian shall be absolutely liable to the Fund
for such securities to the same extent as if the securities had been
received by the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any timeremove) any other bank or
trust company which is itself qualified under the Investment Company
Act of 1940, as amended, to act as a custodian, as its agent to
carry out
-14-
<PAGE>
such of the provisions of this Article 2 as the Custodian may from time to
time direct; provided, however, that the appointment of any agent shall
not relieve the Custodian of its responsibilities or liabilities hereunder.
2.10 Deposit of Fund Assets in Securities Systems. The Custodian may deposit
and/or maintain securities owned by a Portfolio in a clearing agency
registered with the Securities and Exchange Commission under Section 17A of
the Securities Exchange Act of 1934, which acts as a securities depository,
or in the book-entry system authorized by the U.S. Department of the
Treasury and certain federal agencies, collectively referred to herein as
"Securities System" in accordance with applicable Federal Reserve Board and
Securities and Exchange Commission rules and regulations, if any, and
subject to the following provisions:
1) The Custodian may keep securities of the Portfolio in a Securities
System provided that such securities are represented in an account
("Account") of the Custodian in the Securities System which shall not
include any assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for customers;
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a Securities System shall
-15-
<PAGE>
identify by book-entry those securities belonging to the Portfolio;
3) The Custodian shall pay for securities purchased for the account of
the Portfolio upon (i) receipt of advice from the Securities System
that such securities have been transferred to the Account, and (ii)
the making of an entry on the records of the Custodian to reflect such
payment and transfer for the account of the Portfolio. The Custodian
shall transfer securities sold for the account of the Portfolio upon
(i) receipt of advice from the Securities System that payment for such
securities has been transferred to the Account, and (ii) the making of
an entry on the records of the Custodian to reflect such transfer and
payment for the account of the Portfolio. Copies of all advices from
the Securities System of transfers of securities for the account of
the Portfolio shall identify the Portfolio, be maintained for the
Portfolio by the Custodian and be provided to the Fund at its request.
Upon request, the Custodian shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to or from the account of the
Portfolio in the form
-16-
<PAGE>
of a written advice or notice and shall furnish to the Fund on behalf
of the Portfolio copies of daily transaction sheets reflecting each
day's transactions in the Securities System for the account of the
Portfolio.
4) The Custodian shall provide the Fund for the Portfolio with any report
obtained by the Custodian on the Securities System's accounting
system, internal accounting control and procedures for safeguarding
securities deposited in the Securities System;
5) The Custodian shall have received from the Fund on behalf of the
Portfolio the initial or annual certificate, as the case may be,
required by Article 14 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the Portfolio
for any loss or damage to the Portfolio resulting from use of the
Securities System by reason of any negligence, misfeasance or
misconduct of the Custodian or any of its agents or of any of its or
their employees or from failure of the Custodian or any such agent to
enforce effectively such rights as it may have
-17-
<PAGE>
against the Securities System; at the election of the Fund, it shall
be entitled to be subrogated to the rights of the Custodian with
respect to any claim against the Securities System or any other person
which the Custodian may have as a consequence of any such loss or
damage if and to the extent that the Portfolio has not been made whole
for any such loss or damage.
2.10A Fund Assets Held in the Custodian's Direct Paper System. The Custodian may
deposit and/or maintain securities owned by a Portfolio in the Direct
Paper System of the Custodian subject to the following provisions:
1) No transaction relating to securities in the Direct Paper System will
be effected in the absence of Proper Instructions from the Fund on
behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the Direct Paper
System only if such securities are represented in an account
("Account") of the Custodian in the Direct Paper System which shall
not include any assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are
-18-
<PAGE>
maintained in the Direct Paper System shall identify by book-entry
those securities belonging to the Portfolio;
4) The Custodian shall pay for securities purchased for the account of
the Portfolio upon the making of an entry on the records of the
Custodian to reflect such payment and transfer of securities to the
account of the Portfolio. The Custodian shall transfer securities sold
for the account of the Portfolio upon the making of an entry on the
records of the Custodian to reflect such transfer and receipt of
payment for the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the Portfolio
confirmation of each transfer to or from the account of the portfolio,
to the form of a written advice or notice, of Direct Paper on the next
business day following such transfer and shall furnish to the Fund on
behalf of the Portfolio copies of daily transaction sheets reflecting
each day's transaction in the Securities System for the account of the
Portfolio;
6) The Custodian shall provide the Fund on behalf of the Portfolio with
any report on its system of internal accounting control as
-19-
<PAGE>
the Fund may reasonably request from time to time.
2.11 Segregated Account. The Custodian shall upon receipt of Proper Instructions
from the Fund on behalf of each applicable Portfolio establish and maintain
a segregated account or accounts for and on behalf of each such Portfolio,
into which account or accounts may be transferred cash and/or securities,
including securities maintained in an account by the Custodian pursuant to
Section 2.10 hereof, (i) in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian and a
broker-dealer registered under the Exchange Act and a member of the NASD
(or any futures commission merchant registered under the Commodity Exchange
Act), relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered contract market), or
of any similar organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Portfolio, (ii) for
purposes of segregating cash or government securities in connection with
options purchased, sold or written by the Portfolio or commodity futures
contracts or options thereon purchased or sold by the Portfolio, (iii) for
the purposes of compliance by the Portfolio with the procedures required by
Investment Company Act Release No.
-20-
<PAGE>
10666, or any subsequent release or releases of the Securities and Exchange
Commission relating to the maintenance of segregated accounts by registered
investment companies and (iv) for other proper corporate purposes, but
only, in the case of clause (iv), upon receipt of, in addition to Proper
Instructions from the Fund on behalf of the applicable Portfolio, a
certified copy of a resolution of the Board of Trustees or of the Executive
Committee signed by an officer of the Fund and certified by the Secretary
or an Assistant Secretary, setting forth the purpose or purposes of such
segregated account and declaring such purposes to be proper corporate
purposes.
2.12 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and state
tax purposes in connection with receipt of income or other payments with
respect to domestic securities of each Portfolio held by it and in
connection with transfers of securities.
2.13 Proxies. The Custodian shall, with respect to the domestic securities held
hereunder, cause to be promptly executed by the registered holder of such
securities, if the securities are registered otherwise than in the name of
the Portfolio or a nominee of the Portfolio, all proxies, without
indication of the manner in which such proxies are to be voted, and shall
promptly deliver to the Portfolio such proxies, all proxy soliciting
materials and all notices relating to such securities.
-21-
<PAGE>
2.14 Communications Relating to Portfolio Securities. The Custodian shall
transmit promptly to the Fund for each Portfolio all written information
(including, without limitation, pendency of calls and maturities of
domestic securities and expirations of rights in connection therewith and
notices of exercise of call and put options written by the Fund on behalf
of the Portfolio and the maturity of futures contracts purchased or sold by
the Portfolio) received by the Custodian from issuers of the securities
being held for the Portfolio. With respect to tender or exchange offers,
the Custodian shall transmit promptly to the Portfolio all written
information received by the Custodian from issuers of the securities whose
tender or exchange is sought and from the party (or his agents) making the
tender or exchange offer. If the Portfolio desires to take action with
respect to any tender offer, exchange offer or any other similar
transaction, the Portfolio shall notify the Custodian at least three
business days prior to the date on which the Custodian is to take such
action.
3. Duties of the Custodian with Respect to Property of the Fund Held Outside
of the United States
3.1 Appointment of Foreign Sub-Custodians.
The Fund hereby authorizes and instructs the Custodian to employ as
sub-custodians for the Portfolio's securities and other assets maintained
outside the United States the foreign banking institutions and foreign
securities
-22-
<PAGE>
depositories designated on Schedule A hereto ("foreign sub-custodians").
Upon receipt of "Proper Instructions", as defined in Section 5 of this
Contract, together with a certified resolution of the Fund's Board of
Trustees, the Custodian and the Fund may agree to amend Schedule A hereto
from time to time to designate additional foreign banking institutions and
foreign securities depositories to act as sub-custodian. Upon receipt of
Proper Instructions, the Fund may instruct the Custodian to cease the
employment of any one or more such sub-custodians for maintaining custody
of the Portfolio's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(l) of Rule 17f-5 under
the Investment Company Act of 1940, and (b) cash and cash equivalents in
such amounts as the Custodian or the Fund may determine to be reasonably
necessary to effect the Portfolio's foreign securities transactions.
3.3 Foreign Securities Depositories. Except as may otherwise be agreed upon in
writing by the Custodians and the Fund, assets of the Portfolios shall be
maintained in foreign securities depositories only through arrangements
implemented by the foreign banking institutions serving as sub-custodians
pursuant to the terms hereof. Where possible, such arrangements shall
include entry into
-23-
<PAGE>
agreements containing the provisions set forth in Section 3.5 hereof.
3.4 Segregation of Securities
The Custodian shall identify on its books as belonging to each applicable
Portfolio of the Fund, the foreign securities of such Portfolios held by
each foreign sub-custodian. Each agreement pursuant to which the Custodian
employs a foreign banking institution shall require that such institution
establish a custody account for the Custodian on behalf of the Fund for
each applicable Portfolio of the Fund and physically segregate in each
account, securities and other assets of the Portfolios, and, in the event
that such institution deposits the securities of one or more of the
Portfolios in a foreign securities depository, that it shall identify on
its books as belonging to the Custodian, as agent for each applicable
Portfolio, the securities so deposited.
3.5 Agreements with Foreign Banking Institutions. Each agreement with a foreign
banking institution shall be substantially in the form set forth in Exhibit
1 hereto and shall provide that: (a) the assets of each Portfolio will not
be subject to any right, charge, security interest, lien or claim of any
kind in favor of the foreign banking institution or its creditors or agent,
except a claim of payment for their safe custody or administration; (b)
beneficial ownership for the assets
-24-
<PAGE>
of each Portfolio will be freely transferable without the payment of money
or value other than for custody or administration; (c) adequate records
wi11 be maintained identifying the assets as belonging to each applicable
Portfolio; (d) officers of or auditors employed by, or other
representatives of the Custodian, including to the extent permitted under
applicable law the independent public accountants for the Fund, will be
given access to the books and records of the foreign banking institution
relating to its actions under its agreement with the Custodian; and (e)
assets of the Portfolios held by the foreign sub-custodian will be subject
only to the instructions of the Custodian or its agents.
3.6 Access of Independent Accountants of the Fund. Upon request of the Fund,
the Custodian will use its best efforts to arrange for the independent
accountants of the Fund to be afforded access to the books and records of
any foreign banking institution employed as a foreign sub-custodian insofar
as such books and records relate to the performance of such foreign banking
institution under its agreement with the Custodian.
3.7 Reports by Custodian. The Custodian will supply to the Fund from time to
time, as mutually agreed upon, statements in respect of the securities and
other assets of the Portfolio(s) held by foreign sub-custodians, including
but not 1imited to an identification of entities having possession of the
Portfolio(s) securities
-25-
<PAGE>
and other assets and advices or notifications of any transfers of
securities to or from each custodial account maintained by a foreign
banking institution for the Custodian on behalf of each applicable
Portfolio indicating, as to securities acquired for a Portfolio, the
identity of the entity having physical possession of such securities.
3.8 Transactions in Foreign Custody Account.
(a) Except as otherwise provided in paragraph (b) of this Section 3.8, the
provision of Sections 2.2 and 2.7 of this Contract shall apply, mutatis
mutandis to the foreign securities of the Fund held outside the United
States by foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of each
applicable Portfolio and delivery of securities maintained for the account
of each applicable Portfolio may be effected in accordance with the
customary established securities trading or securities processing practices
and procedures in the jurisdiction or market in which the transaction
occurs, including, without limitation, delivering securities to the
purchaser thereof or to a dealer therefor (or an agent for such purchaser
or dealer) against a receipt with the expectation of receiving later
payment for such securities from such purchaser or dealer.
(c) Securities maintained in the custody of a foreign
-26-
<PAGE>
sub-custodian may be maintained in the name of such entity's nominee to the
same extent as set forth in Section 2.3 of this Contract, and the Fund
agrees to hold any such nominee harmless from any liability as a holder of
record of such securities.
3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which the
Custodian employs a foreign banking institution as a foreign sub-custodian
shall require the institution to exercise reasonable care in the
performance of its duties and to indemnify, and hold harmless, the
Custodian and each Fund from and against any loss, damage, cost, expense,
liability or claim arising out of or in connection with the institution's
performance of such obligations. At the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with respect to
any claims against a foreign banking institution as a consequence of any
such loss, damage, cost, expense, liability or claim if and to the extent
that the Fund has not been made whole for any such loss, damage, cost,
expense, liability or claim.
3.10 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set forth
with respect to sub-custodians generally in this Contract and, regardless
of whether assets are maintained in the custody of a foreign banking
institution, a foreign securities depository or a branch of a U.S. bank as
-27-
<PAGE>
contemplated by paragraph 3.13 hereof, the Custodian shall not be liable
for any loss, damage, cost, expense, liability or claim resulting from
nationalization, expropriation, currency restrictions, or acts of war or
terrorism or any loss where the sub-custodian has otherwise exercised
reasonable care. Notwithstanding the foregoing provisions of this
paragraph 3.10, in delegating custody duties to State Street London Ltd.,
the Custodian shall not be relieved of any responsibility to the Fund for
any loss due to such delegation, except such loss as may result from (a)
political risk (including, but not limited to, exchange control
restrictions, confiscation, expropriation, nationalization, insurrection,
civil strife or armed hostilities) or (b) other losses (excluding a
bankruptcy or insolvency of State Street London Ltd. not caused by
political risk) due to Acts of God, nuclear incident or other losses under
circumstances where the Custodian and State Street London Ltd. have
exercised reasonable care.
3.11 Reimbursement for Advances. If the Fund requires the Custodian to advance
cash or securities for any purpose for the benefit of a Portfolio including
the purchase or sale of foreign exchange or of contracts for foreign
exchange, or in the event that the Custodian or its nominee shall incur or
be assessed any taxes, charges, expenses, assessments, claims or
liabilities in connection with the performance of this Contract, except
-28-
<PAGE>
such as may arise from its or its nominee's own negligent action, negligent
failure to act or willful misconduct, any property at any time held for the
account of the applicable Portfolio shall be security therefor and should
the Fund fail to repay the Custodian promptly, the Custodian shall be
entitled to utilize available cash and to dispose of such Portfolios assets
to the extent necessary to obtain reimbursement.
3.12 Monitoring Responsibilities. The Custodian shall furnish annually to the
Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be similar
in kind and scope to that furnished to the Fund in connection with the
initial approval of this Contract. In addition, the Custodian will promptly
inform the Fund in the event that the Custodian learns of a material
adverse change in the financial condition of a foreign sub-custodian or any
material loss of the assets of the Fund or in the case of any foreign
sub-custodian not the subject of an exemptive order from the Securities and
Exchange Commission is notified by such foreign sub-custodian that there
appears to be a substantial likelihood that its shareholders' equity will
decline below $200 million (U.S. dollars or the equivalent thereof) or that
its shareholders' equity has declined below $200 million (in each case
computed in accordance with generally accepted U.S. accounting principles).
-29-
<PAGE>
3.13 Branches of U.S. Banks.
(a) Except as otherwise set forth in this Contract, the provisions hereof
shall not apply where the custody of the Portfolios assets are maintained
in a foreign branch of a banking institution which is a "bank" as defined
by Section 2(a)(5) of the Investment Company Act of 1940 meeting the
qualification set forth in Section 26(a) of said Act. The appointment of
any such branch as a sub-custodian shall be governed by paragraph 1 of this
Contract.
(b) Cash held for each Portfolio of the Fund in the United Kingdom shall be
maintained in an interest bearing account established for the Fund with the
Custodian's London branch, which account shall be subject to the direction
of the Custodian, State Street London Ltd. or both.
4. Payments for Sales or Repurchases or Redemptions of Shares of the Fund. The
Custodian shall receive from the distributor for the Shares or from the
Transfer Agent of the Fund and deposit into the account of the appropriate
Portfolio such payments as are received for Shares of that Portfolio issued
or sold from time to time by the Fund. The Custodian will provide timely
notification to the Fund on behalf of each such Portfolio and the Transfer
Agent of any receipt by it of payments for Shares of such Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and any
-30-
<PAGE>
applicable votes of the Board of Trustees of the Fund pursuant thereto, the
Custodian shall, upon receipt of instructions from the Transfer Agent, make
funds available for payment to holders of Shares who have delivered to the
Transfer Agent a request for redemption or repurchase of their Shares. In
connection with the redemption or repurchase of Shares of a Portfolio, the
Custodian is authorized upon receipt of instructions from the Transfer
Agent to wire funds to or through a commercial bank designated by the
redeeming shareholders. In connection with the redemption or repurchase of
Shares of the Fund, the Custodian shall honor checks drawn on the Custodian
by a holder of Shares, which checks have been furnished by the Fund to the
holder of Shares, when presented to the Custodian in accordance with such
procedures and controls as are mutually agreed upon from time to time
between the Fund and the Custodian.
5. Proper Instructions. Proper Instructions as used throughout this Contract
means a writing signed or initialled by one or more person or persons as
the Board of Trustees shall have from time to time authorized. Each such
writing shall set forth the specific transaction or type of transaction
involved, including a specific statement of the purpose for which such
action is requested. Oral instructions will be considered Proper
Instructions if the Custodian reasonably believes them to have been given
by a person authorized to give such instructions with respect to the
transaction involved. The Fund shall cause all oral instructions to be
confirmed in writing. Upon receipt of a certificate of the Secretary or an
Assistant Secretary as to the
-31-
<PAGE>
authorization by the Board of Trustees of the Fund accompanied by a
detailed description of procedures approved by the Board of Trustees,
Proper Instructions may include communications effected directly between
electro-mechanical or electronic devices provided that the Board of
Trustees and the Custodian are satisfied that such procedures afford
adequate safeguards for the Portfolios' assets. For purposes of this
Section, Proper Instructions shall include instructions received by the
Custodian pursuant to any three-party agreement which requires a segregated
asset account in accordance with Section 2.11.
6. Actions Permitted without Express Authority. The Custodian may in its
discretion, without express authority from the Fund on behalf of each
applicable Portfolio:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this
Contract, provided that all such payments shall be accounted for to the
Fund on behalf of the Portfolio;
2) surrender securities in temporary form for securities in definitive
form;
3) endorse for collection, in the name of the Portfolio, checks, drafts
and other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase, transfer and other
dealings with the securities and property of the Portfolio except as
otherwise directed by the Board of Trustees of the Fund.
-32-
<PAGE>
7. Evidence of Authority. The Custodian shall be protected in acting upon any
instructions, notice, request, consent, certificate or other instrument or
paper believed by it to be genuine and to have been properly executed by or
on behalf of the Fund. The Custodian may receive and accept a certified
copy of a vote of the Board of Trustees of the Fund as conclusive evidence
(a) of the authority of any person to act in accordance with such vote or
(b) of any determination or of any action by the Board of Trustees pursuant
to the Declaration of Trust as described in such vote, and such vote may be
considered as in full force and effect until receipt by the Custodian of
written notice to the contrary.
8. Duties of Custodian with Respect to the Books of Account and Calculation of
Net Asset Value and Net Income.
The Custodian shall cooperate with and supply necessary Information to the
entity or entities appointed by the Board of Trustees of the Fund to keep
the books of account of each Portfolio and/or compute the net asset value
per share of the outstanding shares of each Portfolio or, if directed in
writing to do so by the Fund on behalf of the Portfolio, shall itself keep
such books of account and/or compute such net asset value per share. If so
directed, the Custodian shall also calculate daily the net income of the
Portfolio as described in the Fund's currently effective prospectus related
to such Portfolio and shall advise the Fund and the Transfer Agent daily of
the total amounts of such net income and, if instructed in writing by an
officer of the Fund to do so, shall advise the Transfer Agent
-33-
<PAGE>
periodically of the division of such net income among its various
components. The calculations of the net asset value per share and the daily
income of each Portfolio shall be made at the time or times described from
time to time in the Fund's currently effective prospectus related to such
Portfolio.
9. Records
The Custodian shall with respect to each Portfolio create and maintain all
records relating to its activities and obligations under this Contract in
such manner as will meet the obligations of the Fund under the Investment
Company Act of 1940, with particular attention to Section 31 thereof and
Rules 31a-1 and 31a-2 thereunder, applicable federal and state tax laws and
any other law or administrative rules or procedures which may be applicable
to the Fund. All such records shall be the property of the Fund and shall
at all times during the regular business hours of the Custodian be open for
inspection by duly authorized officers, employees or agents of the Fund and
employees and agents of the Securities and Exchange Commission. The
Custodian shall, at the Fund's request, supply the Fund with a tabulation
of securities owned by each Portfolio and held by the Custodian and shall,
when requested to do so by the Fund and for such compensation as shall be
agreed upon between the Fund and the Custodian, include certificate numbers
in such tabulations.
10. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund on behalf of
each applicable Portfolio may from time to time request, to obtain from
year to year favorable opinions from the
-34-
<PAGE>
Fund's independent accountants with respect to its activities hereunder in
connection with the preparation of the Fund's Form N-1A, and Form N-SAR or other
annual reports to the Securities and Exchange Commission and with respect to any
other requirements of such Commission.
11. Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund, on behalf of each of the Portfolios
at such times as the Fund may reasonably require, with reports by
independent public accountants on the accounting system, internal
accounting control and procedures for safeguarding securities, futures
contracts and options on futures contracts, including securities deposited
and/or maintained in a Securities System, relating to the services provided
by the Custodian under this Contract; such reports, shall be of sufficient
scope and in sufficient detail, as may reasonably be required by the Fund
to provide reasonable assurance that any material inadequacies would be
disclosed by such examination, and, if there are no such inadequacies, the
reports shall so state.
12. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its services
and expenses as Custodian, as agreed upon from time to time between the
Fund on behalf of each applicable Portfolio and the Custodian.
13. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable care,
the Custodian shall not be responsible for
-35-
<PAGE>
the title, validity or genuineness of any property or evidence of title
thereto received by it or delivered by it pursuant to this Contract and
shall be held harmless in acting upon any notice, request, consent,
certificate or other instrument reasonably believed by it to be genuine and
to be signed by the proper party or parties, including any futures
commission merchant acting pursuant to the terms of a three-party futures
or options agreement. The Custodian shall be held to the exercise of
reasonable care in carrying out the provisions of this Contract, but shall
be kept indemnified by and shall be without liability to the Fund for any
action taken or omitted by it in good faith without negligence. It shall be
entitled to rely on and may act upon advice of counsel (who may be counsel
for the Fund) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice. Notwithstanding the
foregoing, the responsibility of the Custodian with respect to redemptions
effected by check shall be in accordance with a separate Agreement entered
into between the Custodian and the Fund.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 to
the same extent as set forth in Article 1 hereof with respect to
sub-custodians located in the United States (except as specifically
provided in Article 3.10) and, regardless of whether assets are maintained
in the custody of a foreign banking institution, a foreign securities
depository or a branch of a U.S. bank as contemplated by paragraph 3.11
-36-
<PAGE>
hereof, the Custodian shall not be liable for any loss, damage, coat,
expense, liability or claim resulting from, or caused by, the direction of
or authorization by the Fund to maintain custody or any securities or cash
of the Fund in a foreign country including, but not limited to, losses
resulting from nationalization, expropriation, currency restrictions, or
acts of war or terrorism.
If the Fund on behalf of a Portfolio requires the Custodian to take any
action with respect to securities, which action involves the payment of
money or which action may, in the opinion of the Custodian, result in the
Custodian or its nominee assigned to the Fund or the Portfolio being liable
for the payment of money or incurring liability of some other form, the
Fund on behalf of the Portfolio, as a prerequisite to requiring the
Custodian to take such action, shall provide indemnity to the Custodian in
an amount and form satisfactory to it.
If the Fund requires the Custodian to advance cash or securities for any
purpose for the benefit of a Portfolio including the purchase or sale of
foreign exchange or of contracts for foreign exchange or in the event that
the Custodian or its nominee shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in connection with the
performance of this Contract, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of the applicable
Portfolio shall be security therefor and should the Fund fail to repay the
Custodian promptly, the
-37-
<PAGE>
Custodian shall be entitled to utilize available cash and to dispose of
such Portfolio's assets to the extent necessary to obtain reimbursement.
14. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution, shall continue in
full force and effect until terminated as hereinafter provided, may be
amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not
sooner than thirty (30) days after the date of such delivery or mailing;
provided, however that the Custodian shall not with respect to a Portfolio
act under Section 2.10 hereof in the absence of receipt of an initial
certificate of the Secretary or an Assistant Secretary that the Board of
Trustees of the Fund has approved the initial use of a particular
Securities System by such Portfolio and the receipt of an annual
certificate of the Secretary or an Assistant Secretary that the Board of
Trustees has reviewed the use by such Portfolio of such Securities System,
as required in each case by Rule 17f-4 under the Investment Company Act of
1940, as amended and that the Custodian shall not with respect to a
Portfolio act under Section 2.10A hereof in the absence of receipt of an
initial certificate of the Secretary or an Assistant Secretary that the
Board of Trustees has approved the initial use of the Direct Paper System
by such Portfolio and the receipt of an annual certificate of the Secretary
or an Assistant Secretary that the Board of Trustees has reviewed the
-38-
<PAGE>
use by such Portfolio of the Direct Paper System; provided further,
however, that the Fund shall not amend or terminate this Contract in
contravention of any applicable federal or state regulations, or any
provision of the Declaration of Trust, and further provided, that the Fund
on behalf of one or more of the Portfolios may at any time by action of its
Board of Trustees (i) substitute another bank or trust company for the
Custodian by giving notice as described above to the Custodian, or (ii)
immediately terminate this Contract in the event of the appointment of a
conservator or receiver for the Custodian by the Comptroller of the
Currency or upon the happening of a like event at the direction of an
appropriate regulatory agency or court of competent jurisdiction.
Upon termination of the Contract, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of
the date of such termination and shall likewise reimburse the Custodian for
its costs, expenses and disbursements.
15. Successor Custodian
If a successor custodian for the Fund, of one or more of the Portfolios
shall be appointed by the Board of Trustees of the Fund, the Custodian
shall, upon termination, deliver to such successor custodian at the office
of the Custodian, duly endorsed and in the form for transfer, all
securities of each applicable Portfolio then held by it hereunder and shall
transfer to an account of the successor custodian all of the securities of
each such Portfolio held in a Securities System.
-39-
<PAGE>
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Board of
Trustees of the Fund, deliver at the office of the Custodian and transfer
such securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy, of a vote of the Board of Trustees shall have been
delivered to the Custodian on or before the date when such termination
shall become effective, then the Custodian shall have the right to deliver
to a bank or trust company, which is a "bank" as defined in the Investment
Company Act of 1940, doing business in Boston, Massachusetts, of its own
selection, having an aggregate capital, surplus, and undivided profits, as
shown by its last published report, of not less than $25,000,000, all
securities, funds and other properties held by the Custodian on behalf of
each applicable Portfolio and all instruments held by the Custodian
relative thereto and all other property held by it under this Contract on
behalf of each applicable Portfolio and to transfer to an account of such
successor custodian all of the securities of each such Portfolio held in
any Securities System. Thereafter, such bank or trust company shall be the
successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to
or of the Board of
-40-
<PAGE>
Trustees to appoint a successor custodian, the Custodian shall be entitled
to fair compensation for its services during such period as the Custodian
retains possession of such securities, funds and other properties and the
provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
16. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and the
Fund on behalf of each of the Portfolios, may from time to time agree on
such provisions interpretive of or in addition to the provisions of this
Contract as may in their joint opinion be consistent with the general tenor
of this Contract. Any such interpretive or additional provisions shall be
in a writing signed by both parties and shall be annexed hereto, provided
that no such interpretive or additional provisions shall contravene any
applicable federal or state regulations or any provision of the Declaration
of Trust of the Fund. No interpretive or additional provisions made as
provided in the preceding sentence shall be deemed to be an amendment of
this Contract.
17. Additional Funds
In the event that the Fund establishes one or more series of Shares in
addition to State Street Capital Fund with respect to which it desires to
have the Custodian render services as custodian under the terms hereof, it
shall so notify the Custodian in writing, and if the Custodian agrees in
writing to provide such services, such series of Shares shall become a
Portfolio hereunder.
-41-
<PAGE>
18. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
19. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Fund on behalf of each of the Portfolios and the
Custodian relating to the custody of the Fund's assets.
20. Disclaimer
It is expressly agreed that the obligations of the Fund hereunder, and the
authorization, execution and delivery of this document, shall not be
binding upon any of the Trustees, shareholders, nominees, officers, agents
or employees of the Fund as individuals or personally, but shall bind only
the property of the Portfolio, as provided in the Master Trust Agreement of
the Fund. The Master Trust Agreement of the Fund provides, and it is
expressly agreed, that the Portfolio of the Fund shall be solely and
exclusively responsible for the payment of any direct or indirect debts,
liabilities and obligations relating to the Portfolio, and that no other
portfolio shall be responsible for the same.
-42-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this
instrument to be executed in its name and behalf by its duly authorized
representative and its seal to be hereunder affixed as of the 27th day of
January, 1989.
ATTEST STATE STREET CAPITAL TRUST
/s/ Constantine Hutchins, Jr. By /s/ Charles A. Austin, III
------------------------- -----------------------------
Constantine Hutchins, Jr. Charles A. Austin, III
ATTEST STATE STREET BANK AND TRUST COMPANY
/s/ K.M. Kubit By /s/ W. J Hayes
------------------------- -----------------------------
Assistant Secretary Vice President
-43-
<PAGE>
Schedule A
The following foreign banking institutions and foreign securities
depositories have been approved by the Board of Trustees of State Street Capital
Trust for use as sub-custodians for the Fund's securities and other assets:
ANZ Banking Group Ltd. (Australia)
Girozentrale Und Bank Der Osterreichischen
(Austria)
Banque Bruxelles Lambert (Belgium)
Canada Trust Company (Canada)
Den Danske Bank (Denmark)
Kansallis-Osake-Pankki (Finland)
Credit Commercial De France (France)
Berliner Handels Und Frankfurter Bank
(Germany)
Standard Chartered Bank (Hong Kong)
Credito Italiano (Italy)
Sumitomo Trust Banking Company Limited
(Japan)
Citibank Mexico (Mexico)
Bank Mees & Hope, N.V. (Netherlands)
Westpac Banking Corp. (New Zealand)
Christiania Bank og Kreditkasse (Norway)
DBS Bank Ltd. (Singapore)
Barclays National Bank Ltd. (South Africa)
Banco Hispano Americano (Spain)
Skandinaviska Enskilda Banken (Sweden)
Union Bank of Switzerland (Switzerland)
State Street London Limited (United Kingdom)
State Street Bank and Trust Company
(United States)
Certified:
/s/ Constantine Hutchins, Jr.
-------------------------
Fund's Authorized Officer
Date: 1/25/89
-44-
STATE STREET CAPITAL TRUST
One Financial Center
Boston, MA 02111
Date: August 10, 1992
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Gentlemen:
This letter is to confirm to you that State Street Capital Trust (the
"Trust") has created a new series of shares to be known as State Street Small
Capitalization Growth Fund (the "Fund"), and that pursuant to paragraph 17 of
the Custodian Contract dated as of February 1, 1989 between the Trust and you,
as amended (the "Agreement"), the Trust desires to retain you to act as
Custodian of the assets of the Fund as set forth in the Custodian Contract.
Please indicate your acceptance of the above in accordance with the
terms of the Agreement by signing this letter as indicated below.
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 Master Trust Agreement
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 Master Trust Agreement. The Master Trust Agreement 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.
STATE STREET CAPITAL TRUST
By: /s/ Constantine Hutchins, Jr.
-------------------------
Constantine Hutchins, Jr.
ACCEPTED AND AGREED TO:
STATE STREET BANK AND
TRUST COMPANY
By: ____________________
STATE STREET RESEARCH CAPITAL TRUST
One Financial Center
Boston, Massachusetts 02111-2690
February 1, 1995
State Street Bank and
Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Gentlemen:
This letter is to confirm to you that State Street Research Capital
Trust (the "Trust") has created a new series of shares to be known as State
Street Research Small Capitalization Value Fund (the "Fund"), and that pursuant
to paragraph 12 of the Custodian Contract dated as of January 27, 1989 between
the Trust and you (the "Agreement"), the Trust desires to retain you to act as
Custodian of the assets of the Fund as set forth in the Custodian Contract.
Please indicate your acceptance of the above in accordance with the
terms of the Agreement by signing this letter as indicated below.
The term "State Street Research Capital Trust" means and refers to the
Trustees from time to time serving under the First Amended and Restated Master
Trust Agreement dated February 5, 1993 ("Master Trust Agreement") as the same
may subsequently thereto have been, or subsequently hereto 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 Master Trust Agreement 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 Master Trust Agreement. The Master Trust Agreement of the Trust provides,
and it is expressly agreed, that each fund of the
<PAGE>
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.
STATE STREET RESEARCH CAPITAL TRUST
By:/s/ Gerard P. Maus
---------------------
Gerard P. Maus
ACCEPTED AND AGREED TO:
STATE STREET BANK AND
TRUST COMPANY
By: /s/ Timothy Pandro
----------------------
Timothy Pandro
AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION
AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION dated as of
November 8, 1988 (the "Agreement") between STATE STREET CAPITAL FUND, INC., a
Massachusetts corporation (the "Fund"), and STATE STREET CAPITAL TRUST, a
Massachusetts business trust (the "Trust"), both with principal offices at One
Financial Center, Boston, Massachusetts.
WHEREAS the Fund is a diversified, open-end management investment
company registered under the Investment Company Act of 1940, as amended;
WHEREAS the Fund has authorized capital stock consisting of 50,000,000
shares of common stock, $1.00 par value; and
WHEREAS the Trust was organized pursuant to an Agreement and Declaration
of Trust (the "Master Trust Agreement") dated November 8, 1988 and is presently
authorized to issue an unlimited number of shares of beneficial interest, $.001
par value.
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties hereto agree as follows:
1. Plan of Reorganization. The Fund shall, prior to the Effective Time
of the Reorganization, transfer all of its business and assets, and assign all
its liabilities, to the Trust, and the Trust, through a Sub-Trust, shall acquire
all such business and assets, and shall assume all such liabilities of the Fund
then existing, whether absolute, accrued, contingent or otherwise, including
without limitation all liabilities of the Fund to stockholders who elect to
dissent from the transaction contemplated hereby and perfect their appraisal
rights under Massachusetts law and all fees and expenses in connection with the
transaction contemplated hereby in exchange for delivery to the Fund by the
Trust of a number of shares of the Trust (both full and fractional) equivalent
to the number of shares of the Fund outstanding immediately prior to the
Effective Time of the Reorganization. All debts, liabilities, obligations and
duties of the Fund, to the extent that they exist at or after the Effective Time
of the Reorganization, shall after the Effective Time of the Reorganization
attach to the Sub-Trust and may be enforced against the Sub-Trust to the same
extent as if the same had been incurred by the Sub-Trust.
2. Liquidation and Dissolution of the Fund. At the Effective Time of the
Reorganization, the Fund will liquidate and the shares of the Trust (both full
and fractional) received by the Fund will be distributed to the stockholders of
the Fund (other than those stockholders who have objected to the Reorganization
so as to be eligible to perfect statutory appraisal rights) in exchange for
their shares of the Fund, each
<PAGE>
stockholder to receive a number of shares of the Trust equal to the number of
shares of the Fund held by him, provided that a stockholder who has objected to
the Reorganization so as to be eligible to perfect statutory appraisal rights
shall have no rights with respect to Trust shares until such time as he has
waived or otherwise relinquished such statutory appraisal rights. Such
liquidation and distribution will be accompanied by the establishment of an open
account on the share records of the Trust in the name of each stockholder of the
Fund and representing the respective pro rata number of shares of the Trust due
such stockholder. Certificates for shares of the Fund issued prior to the
Reorganization shall represent outstanding shares of the Trust after the
Effective Time of the Reorganization. As soon as practicable after the Effective
Time of the Reorganization, the Fund shall file Articles of Dissolution for
recording with the Secretary of State of the Commonwealth of Massachusetts, and
shall take, in accordance with the Massachusetts Business Corporation Law, all
other steps as shall be necessary and proper to effect a complete dissolution of
the Fund.
3. Issued Share. Prior to the Effective Time of the Reorganization and
after the Fund has taken the actions authorized by stockholders of the Fund
pursuant to Section 4(c) hereof, the single share of the Trust heretofore held
by the Fund shall be redeemed and cancelled by the Trust.
4. Conditions Precedent. The obligations of the Fund and the Trust to
effectuate the Plan of Reorganization and Liquidation hereunder shall be subject
to the satisfaction of each of the following conditions:
(a) Each party shall have received an opinion of Mintz, Levin, Cohn,
Ferris, Glovsky and Popeo, P.C. that the Trust is duly formed and validly
existing under the laws of the Commonwealth of Massachusetts and that the shares
of the Trust to be issued pursuant to the terms of this Agreement have been duly
authorized, and, when issued and delivered as provided in this Agreement, will
have been validly issued, fully paid and nonassessable.
(b) Each party shall receive an opinion of Mintz, Levin, Cohn,
Ferris, Glovsky and Popeo, P.C. to the effect that the reorganization
contemplated by this Agreement qualifies as a "reorganization" under Section
368(a)(1) of the Internal Revenue Code of 1954, as amended (the "Code").
(c) A vote approving this Agreement and the Reorganization
contemplated hereby shall have been adopted by at least two-thirds of the
outstanding shares of common stock of the Fund entitled to vote at an annual or
special meeting, such a vote by the stockholders of the Fund at such meeting to
be deemed to authorize the Fund to vote, and the Fund shall have voted, as the
sole stockholder of the Trust to:
2
<PAGE>
(1) elect Trustees of the Trust;
(2) approve an Investment Advisory Contract (the "Advisory
Contract") between the Trust and State Street Research & Management Company;
(3) approve the selection of Coopers & Lybrand as independent
accountants of the Trust; and
(4) to adopt all other existing contractual agreements of the
Fund for the Trust.
(d) The Board of Trustees of the Trust shall have taken the following
actions at a meeting duly called for such purposes:
(1) approval of the Advisory Contract;
(2) selection of Coopers & Lybrand as independent accountants
of the Trust;
(3) authorization of the issuance by the Trust, prior to the
Effective Time of the Reorganization, of one share of the Trust to the Fund in
consideration of the payment of $1.00 for the purpose of enabling the Fund to
vote on the matters referred to in paragraph (c) in this Section 4;
(4) submission of the matters referred to in paragraph (c) of
this Section 4 to the Fund as the sole stockholder of the Trust; and
(5) authorization of the issuance by the Trust of shares of
the Trust at the Effective Time of the Reorganization in exchange for the assets
of the Fund pursuant to the terms and provisions of this Agreement.
At any time prior to the Effective Time of the Reorganization, any of
the foregoing conditions may be waived by the Board of Directors of the Fund if,
in the judgment of such Board, such waiver shall not have a material adverse
effect on the benefits intended under this Agreement to the stockholders of the
Fund.
5. Effective Time of the Reorganization. The exchange of the Fund's
business and assets for shares of the Trust shall be effective as of the opening
of business on February 1, 1989, or at such other time and date as fixed by the
mutual consent of the parties (the "Effective Time of the Reorganization").
6. Amendment. This Agreement may be amended at any time by action of the
Board of Directors of the Fund or the Trustees of the Trust, notwithstanding
approval thereof by the stockholders of the Fund, provided that no amendment
shall have a material adverse effect on the interests of the stockholders of the
Fund.
3
<PAGE>
7. Termination. This Agreement and the transactions contemplated hereby
may be terminated and abandoned by resolution of the Board of Directors of the
Fund at any time prior to the Effective Time of the Reorganization, if
circumstances should develop that, in the opinion of the Board, make proceeding
with the Agreement inadvisable.
8. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the Commonwealth of Massachusetts.
9. Further Assurances. The Fund and the Trust shall take such further
action as may be necessary or desirable and proper to consummate the transaction
contemplated hereby.
10. Limitation of Liability. The Term "State Street Capital Trust" means
and refers to the Trustees from time to time serving under the Master Trust
Agreement of the Trust dated November 8, 1988, as the same may be subsequently
thereto, or subsequently hereto, amended. It is expressly agreed that the
obligations of the Trust hereunder shall not be binding upon any of the
Trustees, shareholders, nominees, officers, agents or employees of the Trust,
personally, but bind only the assets and property of the Sub-Trust, as provided
in the Master Trust Agreement of the Trust.
STATE STREET CAPITAL FUND, INC.
By: /s/ Constantine Hutchins, Jr.
------------------------------------
Constantine Hutchins, Jr., Clerk
STATE STREET CAPITAL TRUST
By: /s/ Charles L. Smith, Jr.
------------------------------------
Charles L. Smith, Jr., Trustee
4
[Letterhead: Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
One Financial Center
Boston, Massachusetts 02111]
November 24, 1992
State Street Capital Trust
One Financial Center
Boston, Massachusetts 02111
Dear Sir:
We are furnishing this opinion and consent to the use of our name with a
view to your filing the same or duplicates thereof with the Securities and
Exchange Commission, Washington, D.C., as Exhibit 10 to Post-Effective Amendment
No. 7 to your Registration Statement on Form N-1A, which Consists of
Post-Effective Amendment No. 7 to your Registration Statement under the
Securities Act Of 1933, as amended, (No. 2-86271) and Amendment No. 13 to your
Registration Statement under the Investment Company Act of 1940, as amended,
(No. 811-3838) filed by you with said Commission and with which this opinion or
duplicates thereof are to be filed. Said Registration Statement relates in part
to the public offering of an indefinite number of shares of beneficial interest
in Sate Street Capital Fund ("Shares"), a series of State Street Capital Trust.
We have examined all such records, papers and documents as we believe
necessary in order to enable us to render the opinion set forth below.
On the basis of the foregoing we are of the opinion that:
1. State Street Capital Trust (the "Trust") was duly formed and is a
lawfully existing Massachusetts Business Trust under the laws of the
Commonwealth of Massachusetts.
2. The Trust has authorized an unlimited number of shares of beneficial
interest.
3. The Shares have been duly authorized and, when the Shares are issued
and delivered in the manner, and the Trust has received therefor the
consideration, described in said Registration Statement and in the related
Prospectus, the Shares so issued and delivered will be legally and validly
issued, fully paid and nonassessable.
Very truly yours,
/s/ Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
-------------------------------------------------------
MINTZ, LEVIN, COHN, FERRIS,
GLOVSKY AND POPEO,
P.C.
[Letterhead: Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
One Financial Center
Boston, Massachusetts 02111]
May 20, 1992
State Street Capital Trust
One Financial Center
Boston, Massachusetts 02111
Dear Sir:
We are furnishing this opinion and consent to the use of our name with a
view to our filing the same or duplicates thereof with the Securities and
Exchange Commission, Washington, D.C., as Exhibit 10(b) to Post-Effective
Amendment No. 6 to your Registration Statement on Form N-1A (No. 2-86271) filed
by you with said Commission and with which this opinion or duplicates thereof
are to be filed. Said Registration Statement relates in part to the proposed
public offering of an indefinite number of shares of beneficial interest in
State Street Small Capitalization Growth Fund ("Share"), a new series of State
Street Capital Trust.
We have examined all such records, papers and documents as we believe
necessary in order to enable us to render the opinion set forth below.
On the basis of the foregoing we are of the opinion that:
1. State Street Capital Trust (the "Trust") was duly formed and is a
lawfully existing Massachusetts Business Trust under the laws of the
Commonwealth of Massachusetts.
2. The Trust has authorized an unlimited number of shares of beneficial
interest.
<PAGE>
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
State Street Capital Trust
May 20, 1992
Page 2
3. The Shares have been duly authorized and, when the Shares are issued
and delivered in the manner, and the Trust has received therefor the
consideration, described in said Registration Statement and in the related
Prospectus, the Shares so issued and delivered will be legally and validly
issued, fully paid and nonassessable.
Very truly yours,
/s/ Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
-------------------------------------------------------
MINTZ, LEVIN, COHN, FERRIS,
GLOVSKY AND POPEO,
P.C.
[Letterhead: Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
One Financial Center
Boston, Massachusetts 02111]
November 16, 1994
State Street Capital Trust
One Financial Center
Boston, Massachusetts 02111
Dear Sir:
We are furnishing this opinion and consent to the use of our name with a
view to your filing the same or duplicates thereof with the Securities and
Exchange Commission, Washington, D.C., as Exhibit 10 to Post-Effective Amendment
No. 10 to your Registration Statement on Form N-1A, which consists of
Post-Effective Amendment No. 10 to your Registration Statement under the
Securities Act of 1933, as amended, (No. 2-86271) and Amendment No. 16 to your
Registration Statement under the Investment Company Act of 1940, as amended,
(No. 811-3838) filed by you with said Commission and with which this opinion or
duplicates thereof are to be filed. Said Registration Statement relates in part
to the public offering of an indefinite number of shares of beneficial interest
in MetLife-State Street Research Small Capitalization Value Fund ("Shares"), a
series of State Street Capital Trust.
We have examined all such records, papers and other documents as we
believe necessary in order to enable us to render the opinion set forth below.
On the basis of the foregoing we are of the opinion that:
1. State Street Capital Trust (the "Trust") was duly formed and is a
lawfully existing Massachusetts Business Trust under the law of the Commonwealth
of Massachusetts.
2. The Trust has authorized an unlimited number of shares of beneficial
interest.
<PAGE>
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
State Street Capital Trust
November 16, 1994
Page 2
3. The Shares have been duly authorized and, when the Shares are issued
and delivered in the manner, and the Trust has received therefor the
consideration described in said Registration Statement and in the related
Prospectus, the Shares so issued and delivered will be legally and validly
issued, fully paid and nonassessable.
Very truly yours,
/s/ Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
-------------------------------------------------------
MINTZ, LEVIN, COHN, FERRIS,
GLOVSKY AND POPEO,
P.C.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statements of Additional Information
constituting part of this Post-Effective Amendment No. 15 to the registration
statement (No. 2-86271) on Form N-1A (the "Registration Statement") of our
reports dated November 7, 1997 relating to the financial statements and
financial highlights of State Street Research Capital Fund, State Street
Research Emerging Growth Fund and State Street Research Aurora Fund (each a
series of State Street Research Capital Trust), which appear in such Statements
of Additional Information and to the incorporation by reference of our reports
into the Prospectuses which constitute part of this Registration Statement. We
also consent to the reference to us under the heading "Independent Accountants"
in such Statements of Additional Information and to the reference to us under
the heading "Financial Highlights" in such Prospectuses.
/s/ Coopers & Lybrand L.L.P.
- ----------------------------
Coopers & Lybrand L.L.P.
Boston, Massachusetts
December 2, 1997
SUBSCRIPTION
Date: August 5, 1992
To: The Trustees of
State Street Capital Trust
One Financial Center
Boston, Massachusetts 02111-2690
Dear Sirs:
The undersigned hereby subscribes to one share of beneficial interest
of State Street Small Capitalization Growth Fund series, having a par value of
$.001, at a price of $8.85 for such share and agrees to pay therefor upon demand
in cash the amount of $8.85.
Very truly yours,
STATE STREET RESEARCH &
MANAGEMENT COMPANY
By: /s/ William P. Rich
-------------------------
William P. Rich
President
<PAGE>
Date: August 5, 1992
State Street Capital Trust
One Financial Center
Boston, Massachusetts 02111-2690
Gentlemen:
In connection with your sale to us today of one share of beneficial
interest of State Street Small Capitalization Growth Fund (the "Share"), we
understand that: (i) the Share has not been registered under the Securities Act
of 1933, as amended (the "1933 Act"); (ii) your sale of the Share to us is made
in reliance on such sale being exempt under Section 4(2) of the 1933 Act as not
involving any public offering; and (iii) in part, your reliance on such
exemption is predicated on our representation, which we hereby confirm, that we
are acquiring the Share for investment for our own account as the sole
beneficial owner thereof, and not with a view to or in connection with any
resale or distribution of the Share or of any interest therein. We hereby agree
that we will not sell, assign or transfer the Share or any interest therein,
except upon repurchase or redemption by State Street Small Capitalization Growth
Fund, unless and until the Share has been registered under the 1933 Act or you
have received an opinion of your counsel indicating to your satisfaction that
said sale, assignment or transfer will not violate the provisions of the 1933
Act or any rules or regulations promulgated thereunder.
Very truly yours,
STATE STREET RESEARCH &
MANAGEMENT COMPANY
By: /s/ William P. Rich
-------------------------
William P. Rich
President
EXHIBIT (14)(c)
[logo] STATE STREET RESEARCH IRA
SIMPLE IRA Application
Upon completion, send this application to the address listed on the back.
(1) What type of SIMPLE IRA are you opening?
[ ] Check if this IRA will receive contributions under your employer's SIMPLE
IRA plan, and complete the following employer information:
- -------------------------------------------------(---)-------------------------
Name of employer Telephone
- -------------------------------------------------------------------------------
Address
- -------------------------------------------------------------------------------
[ ] Check if this IRA will receive a transfer or a rollover from another
SIMPLE IRA to which contributions were made by your current or former
employer under a SIMPLE IRA plan, and complete the following:
- Amount to be transferred: $___________________________
- Date of first contribution to your other SIMPLE IRA under
the employer's SIMPLE IRA plan:__________________________________.
Your employer must complete the following to verify the date.
Verification: On behalf of the employer maintaining the SIMPLE IRA plan, I
verify that the date stated above (the date of the first contribution to the
Depositor's prior SIMPLE IRA under the employer's SIMPLE IRA plan) is correct.
I acknowledge that verifying an incorrect date may result in additional
income taxes or penalties.
- -------------------------------------------------------------------------------
Name of Employer: _____________________________________________________________
By: ___________________________________________________________________________
Authorized Officer
Note: For a transfer directly from the current SIMPLE IRA custodian or
trustee, complete the Transfer of Assets/Rollover Form. For a rollover (which
is a distribution from the current SIMPLE IRA custodian or trustee to you,
followed by a contribution on that amount by you to this SIMPLE IRA),
complete the Transfer of Assets/Rollover Form and attach the check for the
amount rolled over, payable to "State Street Bank and Trust Company,
Trustee." Consult your tax advisor on IRS requirements for a valid rollover.
(2) What is your name and address?
(Please print.)
/ /
- -------------------------------------------------------------------------------
Your name Date of birth
- -------------------------------------------------------------------------------
Street address
- -------------------------------------------------------------------------------
City State ZIP
- -------------------------------------------------------------------------------
Daytime telephone number Evening telephone number
- -------------------------------------------------------------------------------
Social security number/taxpayer identification number
(3) What fund(s) have you selected?
- -------------------------------------------------------------------------------
Fund name
[ ] A [ ] B [ ] D
- -------------------------------------------------------------------------------
Percentage Share class**
- -------------------------------------------------------------------------------
Fund name
[ ] A [ ] B [ ] D
- -------------------------------------------------------------------------------
Percentage Share class**
- -------------------------------------------------------------------------------
Fund name
[ ] A [ ] B [ ] D
- -------------------------------------------------------------------------------
Percentage Share class**
[ ] $ _______________________
Total proceeds enclosed
**Investments in Money Market Fund will purchase class E shares.
If a check is enclosed, make it payable to "State Street Bank and Trust Company,
Trustee." Please add $10 for the first year's fiduciary fee; otherwise, the fee
will be deducted from your account at year end.
<PAGE>
(4) Who is your beneficiary?
Primary beneficiary
(Only one required per account. If you have more than
two, include them on a separate sheet. If two or more
are named, they will receive equal amounts unless you
specify otherwise; also if one of the named primary
beneficiaries predeceases you, that person's share will
be distributed pro-rata to the other primary beneficiaries
who survive you, unless you specify otherwise.)
- -------------------------------------------------------------------------------
Name
- -------------------------------------------------------------------------------
Address
- -------------------------------------------------------------------------------
City State ZIP
/ /
- -------------------------------------------------------------------------------
Social security number/taxpayer identification number Date of birth
- -------------------------------------------------------------------------------
Name
- -------------------------------------------------------------------------------
Address
- -------------------------------------------------------------------------------
City State ZIP
/ /
- -------------------------------------------------------------------------------
Social security number/taxpayer identification number Date of birth
Second beneficiary
(If the person(s) named as primary beneficiary fails to
survive you.)
- -------------------------------------------------------------------------------
Name
- -------------------------------------------------------------------------------
Address
- -------------------------------------------------------------------------------
City State ZIP
/ /
- -------------------------------------------------------------------------------
Social security number/taxpayer identification number Date of birth
(5) We need your signature.
I hereby establish a State Street Research SIMPLE IRA, appoint
State Street Bank and Trust Company as Trustee, direct that contributions to
my SIMPLE IRA be invested as specified by this application, and designate the
individual(s) named above, or in any signed attachment, as my
beneficiary(ies). I have received a current prospectus for the Fund(s)
indicated above and the Terms and Conditions of the State Street Research
SIMPLE IRA (which are incorporated herein by reference) and have read its
Disclosure Statement.
Under penalties of perjury, I certify that: (1) the number shown on this form
is my correct taxpayer identification number (or I am waiting for a number to
be issued to me), and (2) I am not subject to backup withholding because (a)
I am exempt from backup withholding, or (b) I have not been notified by the
Internal Revenue Service that I am subject to backup withholding as a result
of a failure to report all interest or dividends, or (c) the IRS has notified
me that I am no longer subject to backup withholding. (You must cross out
item (2) above if you have been notified by the IRS that you are currently
subject to backup withholding because of under-reporting interest or
dividends on your tax return.)
I confirm that all the information, instructions and agreements set forth
hereon shall apply to the account, and if applicable, shall also apply to any
other fund account with shares acquired upon exchange of share of the Fund.
[graphic of pencil] -----------------------------------------------------------
Signature Date
Signature Guarantee
(fill out if your Dealer does not complete section)
- -------------------------------------------------------------------------------
Name of bank or eligible guarantor
- -------------------------------------------------------------------------------
Authorized signature of bank or eligible guarantor
- -------------------------------------------------------------------------------
Street address
- -------------------------------------------------------------------------------
City State ZIP
<PAGE>
(6) Dealer information
- -------------------------------------------------------------------------------
Dealer name
- -------------------------------------------------------------------------------
Street address of home office
- -------------------------------------------------------------------------------
City State ZIP
- -------------------------------------------------------------------------------
Authorized signature of dealer
- -------------------------------------------------------------------------------
Agency/branch office number
- -------------------------------------------------------------------------------
Street address of agency/branch office servicing account
- -------------------------------------------------------------------------------
City State ZIP
- -------------------------------------------------------------------------------
Registered representative's name and number
If this application is for an account introduced through the above-named
Dealer, the Dealer further agrees to all applicable provisions in this
application and in the Prospectus. The Dealer warrants that this application
is completed in accordance with the shareholder's instructions and agrees to
indemnify the Transfer Agent, the Fund, any other eligible Funds, State
Street Research Shareholder Services, the Investment Manager or the
Distributor for any loss or liability from acting or relying upon such
instructions and information. The terms and conditions of the currently
effective Selected Dealer Agreement or sales agreement are included by
reference in this section. The dealer represents that it may lawfully sell
shares of the designated Fund(s) in the state designated as the Applicant's
address of record, and that it has a currently effective selected dealer
agreement with a Distributor authorizing the Dealer to sell shares of the
Fund and the Eligible Funds.
Telephone Exchange Privilege
Telephone Exchange By Shareholder OR DEALER
State Street Research Shareholder Services may effect exchanges for my account
according to telephone instructions FROM ME OR MY DEALER as set forth in the
Prospectus, and may register the shares of the fund to be acquired exactly the
same as my existing account. Authorizing an exchange constitutes an
acknowledgement that I have received the current prospectus of the Fund to be
acquired.
I will not hold the Transfer Agent, the Fund, any other Eligible Funds, State
Street Research Shareholder Services, the Investment Manager or the Distributor
liable for any loss, injury, damage or expense as a result of acting upon any
telephone instructions or responsible for the authenticity of any telephone
instructions. I understand that all telephone calls are tape recorded. My
liability shall be subject to the use of reasonable procedures to confirm that
instructions communicated by telephone are genuine.
The account will automatically have this privilege unless you expressly decline
it by providing your initials below.
I do not want the Telephone Exchange Privilege.
[graphic of pencil] (initial here.)__________________
State Street Bank and Trust Company, Trustee:
You are hereby authorized and appointed on behalf of the above-signed dealer to
execute the purchase transactions in accordance with the terms and conditions of
this Application, and to confirm each purchase.
Acceptance by the Trustee:
This plan shall be deemed to have been accepted by the Trustee, State Street
Bank and Trust Company, after all necessary forms, properly completed, are
received by State Street Research Shareholder Services, and delivered by
Shareholder Services to the agent for the Trustee.
Once completed, send application and check (if you are making a contribution at
this time) made payable to "State Street Bank and Trust Company, Trustee" to:
State Street Research Shareholder Services
P.O. Box 8408
Boston, MA 02266-8408
<PAGE>
Control Number: 3720-970130(0298)SSR-LD IR-567E-0197
<PAGE>
[logo] STATE STREET RESEARCH IRA
SIMPLE IRA Terms & Conditions
These Terms and Conditions are in the form promulgated by the Internal Revenue
Service in Form 5305-S for use in establishing a simple individual retirement
trust account.
ARTICLE I.
The Trustee will accept cash contributions made on behalf of the Participant by
the Participant's employer under the terms of a SIMPLE plan described in section
408(p). In addition, the Trustee will accept transfers or rollovers from other
SIMPLE IRAs of the Participant. No other contributions will be accepted by the
Trustee.
ARTICLE II.
The Participant's interest in the balance in the custodial account is
nonforfeitable.
ARTICLE III.
1. No part of the custodial funds may be invested in life insurance contracts,
nor may the assets of the custodial account be commingled with other property
except in a common trust fund or common investment fund (within the meaning of
section 408(a)(5)).
2. No part of the custodial funds may be invested in collectibles (within the
meaning of section 408(m)) except as otherwise permitted by section 408(m)(3)
which provides an exception for certain gold and silver coins and coins issued
under the laws of any state.
ARTICLE IV.
1. Notwithstanding any provision of this agreement to the contrary, the
distribution of the Participant's interest in the custodial account shall be
made in accordance with the following requirements and shall otherwise comply
with section 408(a)(6) and Proposed Regulations section 1.408-8, including the
incidental death benefit provisions of Proposed Regulations section
1.401(a)(9)-2, the provisions of which are herein incorporated by reference.
2. Unless otherwise elected by the time distributions are required to begin to
the Participant under paragraph 3, or to the surviving spouse under paragraph 4,
other than in the case of life annuity, life expectancies shall be recalculated
annually. Such election shall be irrevocable as to the Participant and the
surviving spouse and shall apply to all subsequent years. The life expectancy of
a nonspouse beneficiary may not be recalculated.
3. The Participant's entire interest in the custodial account must be, or begin
to be, distributed by the Participant's required beginning date (April 1
following the calendar year end in which the Participant reaches age 70-1/2).
By that date, the Participant may elect, in a manner acceptable to the Trustee,
to have the balance in the custodial account distributed in:
(a) A single sum payment
(b) An annuity contract that provides equal or substantially equal monthly,
quarterly, or annual payments over the life of the Participant.
(c) An annuity contract that provides equal or substantially equal monthly,
quarterly, or annual payments over the joint and last survivor lives of the
Participant and his or her designated beneficiary.
(d) Equal or substantially equal annual payments over a specified period
that may not be longer than the Participant's life expectancy.
(e) Equal or substantially equal annual payments over a specified period
that may not be longer than the joint life and last survivor expectancy of
the Participant and his or her designated beneficiary.
4. If the Participant dies before his or her entire interest is distributed to
him or her, the entire remaining interest will be distributed as follows:
(a) If the Participant dies on or after distribution of his or her interest
has begun, distribution must continue to be made in accordance with
paragraph 3.
(b) If the Participant dies before distribution of his or her interest has
begun, the entire remaining interest will, at the election of the
Participant or, if the Participant has not so elected, at the election of
the beneficiary or beneficiaries, either
(i) Be distributed by the December 31 of the year containing the fifth
anniversary of the Participant's death, or
(ii) Be distributed in equal or substantially equal payments over the
life or life expectancy of the designated beneficiary or beneficiaries
starting by December 31 of the year following the year of the
Participant's death. If, however, the beneficiary is the Participant's
surviving spouse, then this distribution is not required to begin
before December 31 of the year in which the Participant would have
turned age 70-1/2.
(c) Except where distribution in the form of an annuity meeting the
requirements of section 408(b)(3) and its related regulations has
irrevocably commenced, distributions are treated as having begun on the
Participant's required beginning date, even though payments may actually
have been made before that date.
(d) If the Participant dies before his or her entire interest has been
distributed and if the beneficiary is other than the surviving spouse, no
additional cash contributions or rollover contributions may be accepted in
the account.
5. In the case of distribution over life expectancy in equal or substantially
equal annual payments, to determine the minimum annual payment for each year,
divide the Participant's entire interest in the custodial account as of the
close of business on December 31 of the preceding year by the life expectancy of
the Participant (or the joint life and last survivor expectancy of the
Participant and the Participant's designed beneficiary, or the life expectancy
of the designated beneficiary, whichever applies). In the case of distributions
under paragraph 3, determine the initial life expectancy (or joint life and last
survivor expectancy) using the attained ages of the Participant and designated
beneficiary as of their birthdays in the year the Participant reaches age
70-1/2. In the case of a distribution in accordance with paragraph 4(b)(ii),
determine life expectancy using the attained age of the designated beneficiary
as of the beneficiary's birthday in the year distributions are required to
commence.
6. The owner of two or more individual retirement accounts may use the
"alternative method" described in Notice 88-38, 1988-1 C. B. 524, to satisfy the
minimum distribution requirements described above. This method permits an
individual to satisfy these requirements by taking from one individual
retirement account the amount required to satisfy the requirement for another.
ARTICLE V.
1. The Participant agrees to provide the Trustee with information necessary for
the Trustee to prepare any reports required under section 408(i) and Regulations
sections 1.408-5 and 1.408-6.
2. The Trustee agrees to submit reports to the Internal Revenue Service and the
Participant as prescribed by the Internal Revenue Service.
3. The Trustee also agrees to provide the Participant's employer the summary
description described in section 408(1)(2) unless this SIMPLE IRA is a transfer
SIMPLE IRA.
-1-
<PAGE>
ARTICLE VI.
Notwithstanding any other articles which may be added or incorporated, the
provisions of Articles I through III and this sentence will be controlling. Any
additional articles that are not consistent with section 408(a) and 408(p) and
related regulations will be invalid.
ARTICLE VII.
This agreement will be amended from time to time to comply with the provisions
of the Code and related regulations. Other amendments may be made with the
consent of the persons whose signatures appear below. article VIII.
1. The amount of each contribution credited to the Participant's individual
retirement trust account shall (except to the extent applied to pay fees or
other charges under section 7 below) be applied to purchase full and fractional
shares of beneficial interest of one or more classes in one or more mutual funds
(hereinafter collectively the "Funds" or individually a "Fund"), as designated
from time to time by State Street Research Investment Services, Inc. ("SSRIS")
as available for investment under this agreement (provided always that such
shares may legally be offered for sale in the state of the Participant's
residence), in accordance with instructions of the Participant given under
Section 3 below. The Trustee (or any party appointed to act as agent for the
Trustee under section 16 of this Article VIII-the "Agent"; whenever an Agent is
acting for the Trustee, references to the Trustee will be deemed to include the
Agent) may retain the Participant's initial deposit for a period of up to ten
days after receipt thereof without liability for any loss of interest, earnings
or appreciation, and may invest such initial deposit at the end of such period
if the Participant has not revoked his account. If and to the extent permitted
by IRS regulations or rulings pertaining to SIMPLE IRA accounts under Code
Section 408(p), the Participant may revoke the account by following such
procedures as may be specified in applicable regulations or rulings (if any),
with such time limits as are provided in such regulations or rulings. Upon
revocation, the amount of the Participant's initial deposit will be returned to
him as provided in such regulations or rulings.
2. All dividends and capital gain distributions received on the shares of a
particular class of any Fund held in the Participant's account shall be retained
in the account and (unless received in additional shares of such class) shall be
reinvested in full and fractional shares of such class of such Fund.
3. For each contribution, the Participant shall designate the portion that will
be invested in each Fund. A contribution may be invested entirely in one Fund,
or may be invested in two or more Funds. However, investment designations will
be subject to any minimum initial or additional investment rules applicable to a
Fund. In addition, the Participant shall designate which class of shares of each
such Fund the Participant's contribution shall be invested in.
The Participant shall make such designation on the State Street Research
Simple Individual Retirement Account Application or other written notice
acceptable to the Trustee.
4. Subject to the minimum initial or additional investment, minimum balance
and other exchange rules applicable to a Fund, the Participant may at any time
direct the Trustee to exchange all or a specified portion of the shares of a
Fund in the Participant's account for shares and fractional shares of one or
more other Funds.
The Participant shall give such directions by written, telephonic,
electronic or other notice acceptable to the Trustee and the Trustee will
process such directions as soon as practicable after receipt thereof.
If any investment designation or direction relating to investments under
these Terms and Conditions is, in the opinion of the Trustee (or SSRIS or the
Agent), ambiguous or incomplete, the Trustee may refrain from carrying out such
designation or other investment direction until the designation or other
investment direction has been clarified or completed to the Trustee's
satisfaction, and neither the Trustee, SSRIS, the Agent nor any Fund (nor any of
their affiliates) will have any liability for loss of interest, earnings or
investment gains or appreciation during such period.
5. The Participant by written notice to the Trustee, may designate one or more
beneficiaries to receive the balance (if any) remaining in the Participant's
account after his death and the time and manner of payment of such balance
(subject to the applicable requirements of the preceding Articles of these Terms
and Conditions). A designation may be on a form provided by the Trustee or on a
written instrument acceptable to the Trustee executed by the Participant and
filed with the Trustee. The Participant may revoke or change such designation in
like manner, at any time and from time to time. No designation will be effective
until received by the Trustee. Any designation filed with the Trustee (whether
or not such designation fully disposes of the Participant's account) will revoke
all other designations previously filed with the Trustee. If no such designation
is in effect upon the Participant's death, or if such designation is in effect
but does not fully dispose of the Participant's account, the balance in the
account shall be paid in a single sum, as soon as is practicable, to the
Participant's estate.
Subject to the applicable requirements of the preceding Articles of these
Terms and Conditions, the Participant may designate a form of payment to the
beneficiary by filing an instrument so specifying with the Trustee. In the
absence of such written instructions from the Participant, the Trustee will pay
the beneficiary in such form as the beneficiary selects.
Except as provided in the first sentence of the preceding paragraph,
following the Participant's death, each beneficiary (or the representative of
the Participant's estate) will exercise the powers and responsibilities of the
Participant hereunder with respect to the portion of the Participant's account
passing to such beneficiary (or estate).
6. The Trustee shall forward to the Participant any notices, prospectuses,
reports to shareholders, financial statements, proxies and proxy soliciting
materials, relating to the Fund shares in the Participant's account. The Trustee
shall vote any such shares held in the account in accordance with the timely
written instructions of the Participant if received. If no timely written
instructions are received from the Participant, the Trustee may vote such shares
in such manner as it deems appropriate (including "present" or in accordance
with the recommendations of SSRIS).
7. The Trustee's fee for performing its duties hereunder shall be such
reasonable amounts as shall be agreed to from time to time by the Trustee and
SSRIS. Such fee, any taxes of any kind and any liabilities with respect to the
account, and any and all expenses reasonably incurred by the Trustee shall, if
not paid by the Participant, be paid from the Participant's account.
8. The Trustee shall make distributions from the account at such times and in
such manner as the Participant directs in writing, subject (except where
otherwise specifically provided in this Article VIII) to the applicable
requirements of the preceding Articles of these Terms and Conditions.
The recalculation of life expectancy of the Participant and/or the
Participant's spouse in connection with distributions from the account before
the Participant's death will be made only at the written election of the
Participant. The recalculation of life expectancy of the surviving spouse in
connection with distributions from the account after the Participant's death
will be made only at the written election of the surviving spouse. By
establishing the account, the Participant (for himself and his surviving spouse,
if any) determines not to recalculate life expectancies unless the Participant
(or surviving spouse) specifically elects the recalculation of life expectancies
approach in accordance with the following sentence. Any such election may be
made in such form as the Participant (or surviving spouse) provides for
(including instructions to such effect to the Trustee or the calculation of
minimum distribution amounts in accordance with a method that provides for
recalculation of life expectancy and instructions to the Trustee to make
distributions in accordance with such method).
9. It shall be the sole responsibility of the Participant (or the Participant's
employer) to determine the time and amount of salary
-2-
<PAGE>
reduction or other contributions to the account and the time, amount and manner
of payment of distributions from the account (and to instruct the Trustee or the
Agent accordingly), and the federal and state tax treatment of any contributions
to or distributions from the account. SSRIS, the Agent, the Trustee and the
Funds shall be fully protected in following the direction of the Participant
with respect to the time, amount and manner of payment of such distributions, or
in not acting in the absence of such direction. If the Participant (or
beneficiary) does not direct the Trustee to make distributions from the account
by the time that such distributions are required to commence in accordance with
the preceding Articles of these Terms and Conditions, the Trustee (and SSRIS and
the Agent) will assume that the Participant (or beneficiary) is meeting the
minimum distribution requirements from another individual retirement arrangement
maintained by the Participant (or beneficiary) and will be fully protected in so
doing. SSRIS, the Agent, the Trustee and the Funds shall not be liable for any
taxes, penalties, liabilities or other costs to the Participant or any other
person resulting from contributions to or distributions from the Participant's
account.
10. SSRIS, the Agent, the Trustee and the Funds shall not be responsible for any
loss or diminution in the value of the Participant's account arising out of the
Participant's establishment of a State Street Research SIMPLE Individual
Retirement Account or arising out of any investment instructions of the
Participant, whether relating to the portion of contributions invested in one or
more of the Funds, the selection of a particular class of shares of a particular
Fund, or the exchange of shares of one Fund for shares of one or more other
Funds. SSRIS, the Agent, the Trustee and the Funds shall not render any
investment advice to the Participant (or beneficiary) and will have no duty of
inquiry concerning the Participant's (or beneficiary's) investment directions
(subject to the right of the Trustee, SSRIS or the Agent to obtain clarification
or completion of any investment directions under section 4 above). The
Participant (or beneficiary) will have exclusive investment control over the
account.
11. Whenever the Participant (or beneficiary) is responsible for any direction,
notice, representation or instruction under these Terms and Conditions, SSRIS,
the Agent, the Trustee and the Funds shall be entitled to assume the propriety
and truth of any statement made by the Participant (or beneficiary), and shall
be under no duty of further inquiry with respect thereto, and shall have no
liability with respect to any action taken in reliance upon such statement.
However, the Trustee (or Agent or SSRIS) shall be entitled to receive such
information or documentation (including signature guarantees, waivers or
indemnifications) as it may reasonably request before carrying out any
direction, notice or instruction from the Participant (or beneficiary).
Participant agrees to provide information to the Trustee at such times as
may be necessary to enable the Trustee to administer the account hereunder.
Except to the extent provided by applicable law, the account will not be
subject to assignment, transfer, pledge or hypothecation, nor shall it be
liable for the debts of the Participant (or beneficiary) or subject to
seizure, attachment, execution or other legal process. However, the Trustee
(or Agent or SSRIS) may carry out the requirements of any apparently valid
order of a governmental authority (including a court) relating to the
Participant's account and will have no liability for so doing.
12. These Term and Conditions shall terminate upon the complete distribution of
the account to the Participant or his beneficiaries or to a successor individual
retirement account. The Trustee shall have the right to terminate this account
upon 60 days notice to the Participant, or to his beneficiaries if he is then
dead. In such event, upon expiration of such 60 day period, the Trustee shall
transfer the amount in the account into such successor individual retirement
accounts as the Participant (or his beneficiaries) shall designate, or, in the
absence of such designation, to the Participant, or if he is then dead, to the
beneficiaries or the Participant's estate as their interests shall appear.
13. The Trustee may resign at any time upon 60 days' notice in writing to SSRIS
and may be removed by SSRIS at any time upon 60 days' notice in writing to the
Trustee. Upon such resignation or removal, SSRIS shall appoint a successor
trustee which satisfies the requirements of Section 408 of the Internal Revenue
code.
14. Upon receipt by the Trustee of written notice of appointment of a successor
trustee or custodian and of written acceptance of such appointment by the
successor, the Trustee shall transfer to such successor the assets of the
account and copies of all records pertaining thereto. The Trustee may reserve
such sum of money as it deems advisable for payment of its fees, taxes, costs,
expenses or liabilities with respect to the account, with the balance (if any)
of such reserve remaining after the payment of such items to be paid over to the
successor. The successor shall hold the assets paid over to it under terms that
satisfy the requirements of Section 408 of the Internal Revenue Code.
15. If, within 60 days after the Trustee's resignation or removal, SSRIS has not
appointed a successor trustee which has accepted such appointment, the Trustee
shall appoint such a successor unless it elects to terminate the Agreement under
section 12 of this Article VIII.
16. The Trustee may employ or designate one or more parties to serve as agents
or contractors to perform any or all of its duties hereunder.
17. Any notice sent to the Participant or to his beneficiaries or estate, if he
is then dead, shall be effective if sent by first class mail to him or them at
his or their last addresses of record as provided to the Trustee.
18. Any distributions from the account may be mailed, first-class postage
prepaid to the last known address of the person who is to receive such
distribution, as shown on the Trustee's records, and such distribution shall, to
the extent of the amount thereof, completely discharge the Trustee's liability
of such payment.
19. Any purchase or redemption of shares of any class of a Fund for or from the
Participant's account will be affected at the public offering price or net asset
value of such Fund (as described in the then effective prospectus for such Fund)
next established after the Fund's transfer agent receives the contribution or
other directions.
Any purchase, exchange, transfer or redemption of shares of any class of
a Fund for or from the Participant's account will be subject to any sales
charge, distribution fee or redemption charge, or other fee or charge
applicable to shares of such class, as described in the then effective
prospectus for such Fund. In addition, shares of any class of a Fund will be
subject to any service fee, charge or other annual maintenance or servicing
fees or charges applicable to shares of such class as described in the then
effective prospectus for such Fund (unless the imposition of such fee or
charge is prohibited under applicable regulations or rulings).
20. SSRIS may amend these Terms and Conditions from time to time, and shall give
written notice of any material amendment to the Participant within a reasonable
time after the amendment is adopted or becomes effective, whichever is later.
The Participant hereby expressly delegates authority to SSRIS to amend these
Terms and Conditions and consents to any such amendments.
21. The Terms and Conditions shall be construed, administered and enforced
according to the laws of Massachusetts. The Participant agrees that any legal
proceedings relating to the Participant's account must be brought in a court
(including a federal district court) located in Massachusetts.
22. The term "Trustee" refers to the person serving as the Trustee of the SIMPLE
Individual Retirement Account established hereby, and the term "Participant"
refers to the person for whose benefit such Account was established.
23. Articles I through VII of these Terms and Conditions are in the form
promulgated by the Internal Revenue Service. It is anticipated that if and when
the Internal Revenue Service promulgates changes to Form 5305-S, SSRIS will
adopt such changes as an amendment to these Terms and Conditions. Pending the
adoption of any amendment necessary or desirable to conform these Terms and
Conditions to the requirements of any amendments to the Internal
-3-
<PAGE>
Revenue Code or regulations or rulings thereunder, the Trustee (and SSRIS and
the Agent) may operate the Participant's account in accordance with such
requirements to the extent deemed necessary to preserve the tax benefits of the
account.
24. The Participant acknowledges that he or she has received and read the
current prospectus for each Fund in which his or her account is invested and the
State Street Research SIMPLE Individual Retirement Account Disclosure Statement.
(References are to the Internal Revenue Code.)
(a) SSRIS, the Agent, the Trustee and the Funds will have no responsibility
for compliance with the requirements of Code Section 408(p) and any other
applicable requirements (including, if applicable, whether any transferee
individual retirement account or annuity which the participant designates
to receive a transfer from his account hereunder meets the requirements to
be a SIMPLE IRA or whether any penalty taxes may be payable in connection
therewith), which matters shall be the sole responsibility of the
Depositor.
(b) This Agreement is intended to establish a valid SIMPLE Individual
Retirement Account operating in conjunction with a SIMPLE IRA plan operated
by the Participant's employer, and to meet all applicable requirements of
Code Section 408(p) (and other applicable legal requirements for SIMPLE
IRAs). This Agreement will be interpreted and the custodial account
hereunder administered in a manner that carries out such intent. In
addition, if future regulations or rulings provide guidance concerning the
requirements for a valid SIMPLE IRA, this Agreement will be interpreted and
the custodial account hereunder will be administered in a manner that
complies with such regulations or rulings pending the adoption of any
required amendment to this Agreement.
Control Number: 3735-970215(0398)SSR-LD IR-593E-0297
-4-
<PAGE>
[logo] STATE STREET RESEARCH IRA
SIMPLE IRA Disclosure Statement
The following information is provided to you in accordance with the requirements
of the Internal Revenue Code (the "Code") and Treasury regulations and should be
reviewed in conjunction with the State Street Research SIMPLE IRA Terms and
Conditions (the "Terms and Conditions"), SIMPLE IRA Application (the
"Application") and the current prospectus for each fund in which your account is
invested. The provisions of the Terms and Conditions, Application and prospectus
govern in any instance where the Disclosure Statement is incomplete or appears
to conflict. This Disclosure Statement reflects the provisions of the Internal
Revenue Code in effect on January 1, 1997. This Disclosure Statement provides a
nontechnical summary of the law. Please consult with your tax advisor for more
complete information and refer to IRS Publication 590.
The information in this Disclosure Statement relates to SIMPLE Individual
Retirement Accounts. SIMPLE IRAs operate as part of an employer SIMPLE IRA plan
maintained by your employer. Other IRAs, which are not part of an employer
SIMPLE IRA plan, are available and may be established using a different
Application. This Disclosure Statement does not describe such regular IRAs. For
more information on regular IRAs, contact State Street Research at the address
below to request forms and descriptive information.
Right to Revoke
To the extent provided by IRS rules for SIMPLE IRAs, you have the right to
revoke your IRA after signing the Application if you act within the time limits
provided under the IRS rules. You may revoke your IRA by mail or by delivery of
written notice to:
State Street Research
P.O. Box 8408
Boston, MA02266
Your notice will be considered mailed on the date of postmark, or the date
of certification or registration if it is sent by certified or registered mail.
If you revoke your IRA, you are entitled to a return of the amount
contributed. If you have any questions concerning your right of revocation,
please call 800-562-0032 during regular business hours.
Statutory Requirements of an IRA
An IRA is a trust or custodial account established for the exclusive benefit of
you and your beneficiaries. Current law requires that your SIMPLE IRA agreement
be in writing and meet the following requirements:
1. Contributions to your SIMPLE IRA must be in cash, and, for any taxable year,
cannot exceed the limits described below, unless the contribution is a rollover
or transfer to the account.
2. The custodian or trustee must be a bank, savings and loan association, credit
union or other institution or person approved by the Internal Revenue Service to
administer your IRA in accordance with current tax laws.
3. None of your IRA assets may be commingled with the assets of other people
except in a common trust fund or common investment fund.
4. No portion of your IRA may be invested in life insurance contracts or in
collectibles (within the meaning of Internal Revenue Code Section 408[m]). A
collectible is defined as a work of art, rug or antique, metal or gem, stamp or
coin, alcoholic beverage, or any other tangible personal property specified by
the Internal Revenue Service. Specially minted U.S. gold and silver bullions and
certain state issued coins are permissible IRA investments.
5. You are required to take minimum distributions from your IRA at certain times
in accordance with Proposed Regulations Section 1.408-8.
A. During Your Life
You are required to begin making withdrawals from your SIMPLE IRA for the
year in which you reach age 70-1/2 and each year thereafter. Generally, you must
withdraw an amount at least equal to the minimum distribution by December 31 of
each year. However, you may delay your first required withdrawal until the April
1 following the year in which you reached age 70-1/2. (This means that if you
wait to make your withdrawal for the 70-1/2 year until April 1 of the following
year, your total withdrawal in that year must equal the minimum distributions
for two years - one representing the minimum distribution for your 70-1/2 year
and a second withdrawal by December 31 representing the minimum distribution for
that year.)
The minimum distribution for any taxable year is equal to the amount
obtained by dividing the account balance at the end of the prior year (less any
required distributions taken between January 1 and April 1 of the year following
the year you attain age 70-1/2) by the joint life expectancy of you and your
designated beneficiary. If you have not designated a beneficiary for your IRA by
your required beginning date, your single life expectancy will be used. Your
single or joint life expectancy is determined by using the IRS unisex life
expectancy tables. You can find these tables in
1
<PAGE>
Treasury Regulations Section 1.72-9. See Article IV in your Terms and Conditions
for a more detailed explanation of how to calculate the minimum distribution.
If you name someone other than your spouse as your beneficiary, and your
beneficiary is more than ten years younger than you, your required minimum
distribution must satisfy the minimum incidental benefit rule (MDIB) described
in IRS regulations. The MDIB rule generally requires that your required minimum
distributions be calculated as if your beneficiary were exactly ten years
younger than you.
The minimum distribution required must be calculated separately for each
IRA you own, but the amounts so determined may be totalled and taken from any
one of your IRAs (SIMPLE IRAs and regular IRAs).
B. After Your Death
If you die on or after your required beginning date, distributions must be made
to your beneficiary or beneficiaries as least as rapidly as under the method
being used to determine minimum distributions as of the date of your death. If
your beneficiary is your spouse, your beneficiary can elect to treat your
SIMPLE IRA as his or her own IRA.
If you die before your required beginning date, the entire amount remaining
in your account must, in general, be distributed by December 31 of the year
containing the fifth anniversary of your death. If your beneficiary is a natural
person, he or she may instead choose to receive the remaining balance in your
account over his or her lifetime or over a period not exceeding his or her life
expectancy. Such payments must begin no later than the end of the year following
the year of your death. If your designated beneficiary is your spouse,
distribution need not commence until December 31 of the year you would have
attained 70-1/2, if later than the December 31st of the year following the year
of your death. See Article IV in the Terms and Conditions for a more detailed
explanation of how to calculate the minimum distributions.
Employer Information Requirements
The rules for SIMPLE IRA plans require your employer to give you a "Summary
Description" of the features of the employer's SIMPLE IRA plan. This requirement
to provide a Summary Description may be satisfied by your employer's giving you
a copy of IRS Form 5304-SIMPLE or Form 5305-SIMPLE, as filled out by the
employer to establish its SIMPLE IRA plan. As completed by the employer, this
form will include information such as eligibility requirements applicable to the
employer's SIMPLE IRA plan. Alternatively, your employer may satisfy the Summary
Description requirement by giving the same information in a different format.
In addition, your employer must give you a notice stating how much the
employer will contribute for a year to the SIMPLE IRA plan accounts of
participating employees.
Eligibility
A. Employer Eligibility
Only small employers (those with 100 or fewer employees in the previous
calendar year who received $5,000 or more in compensation from the
employer) may maintain SIMPLE IRA plans. There are other rules as well.
Your employer will determine if it is eligible to have a SIMPLE IRA plan.
B. Employee Eligibility
All employees must participate in the employer's SIMPLE IRA plan unless
specifically excluded. The employer may decide to exclude any of the
following:
-employees who did not receive $5,000 or more in compensation from the
employer in at least two prior calendar years (not necessarily
consecutive);
-employees who are not reasonably expected to receive $5,000 or more in
compensation from the employer for the current calendar year;
-employees in a collective bargaining unit, provided that there was good
faith bargaining over the issue of retirement benefits;
-employees who are non-resident aliens and receive no U.S. source income
from the employer.
The summary description of the employer's SIMPLE IRA plan should indicate
whether any of these groups of employees will be excluded from the
employer's SIMPLE IRA plan.
Contributions
Only two kinds of contributions are permitted: (i) employee contributions
elected by the employee in a salary reduction agreement with the employer and
(ii) employer contributions, which may be either matching or nonmatching
contributions.
Employee Contribution Limits
An eligible employee may elect to have a percentage of compensation contributed
by the employer to the employee's SIMPLE IRA. The maximum contribution amount is
$6,000 for a calendar year. The $6,000 limit is indexed for future
cost-of-living increases.
You elect the desired percentage of compensation to contribute by entering
into a salary reduction agreement with your employer. Your employer will have a
form for you to use. Salary reductions may be made only from compensation you
earn after signing the salary reduction agreement.
2
<PAGE>
Your employer must transfer your salary reduction contributions to your SIMPLE
IRA as soon as the employer can reasonably do so. However, this may not be later
than the 30th day of the month following the month when you would have received
the compensation except for the salary reduction.
Employer Contribution Requirements
For each calendar year that it maintains a SIMPLE IRA plan, your employer must
make contributions on behalf of participants. The employer may elect either
matching or nonmatching contributions for a particular calendar year.
If the employer elects matching contributions, you must elect salary
reduction contributions from your own compensation in order to receive a
matching contribution to your account by your employer. Your employer will match
your contributions, dollar for dollar, up to a cap of from 1% to 3% of your
compensation for the calendar year. Your employer decides the cap (subject to
certain IRS requirements--these requirements restrict how frequently an employer
may choose a matching contributions cap of less than 3%).
If your employer decides to make nonmatching contributions, it must
contribute 2% of your compensation for the calendar year (provided that you
receive $5,000 or more in compensation from the employer for the calendar year).
For this purpose only, compensation is subject to an IRS limit. The limit for
1997 is $160,000 (this amount is indexed for future cost-of-living changes).
Each calendar year, your employer must give you a notice specifying whether
it will make nonmatching or matching contributions (and specifying the matching
cap) for that calendar year. Employer nonmatching or matching contributions must
be transferred to the SIMPLE IRA accounts of eligible employees no later than
the due date (including any extension) for the employer to file its federal
income tax return for the year.
Rollovers and Transfers
Amounts in your SIMPLE IRA may be rolled over or transferred to another IRA of
yours, or your SIMPLE IRA may receive rollover or transfer contributions from
another SIMPLE IRA, provided all the applicable rollover rules are followed. A
"transfer" is a payment from one IRA trustee or custodian directly to another
IRA trustee or custodian, without passing through the hands of the participant.
A "rollover" is a distribution to the participant from one IRA trustee or
custodian, followed by the participant's depositing the amount received (all or
part of it) with another trustee or custodian within the time allowed by law.
The rollover rules are generally summarized below. If you have any questions
regarding these rules, please contact your tax advisor.
1. Rollovers from or to other IRA
You may make a transfer or rollover contribution to your State Street
Research SIMPLE IRA of amounts held in another SIMPLE IRA. Transfers or
rollovers to this SIMPLE IRA may come only from another SIMPLE IRA, not from a
regular IRA. There are no limits on the amount of the transfer or rollover
contributions made from one SIMPLE IRA to another SIMPLE IRA. A proper IRA to
IRA rollover is completed if all or part of the distribution is rolled over
within 60 days after the distribution is received. No more than one distribution
per year from an IRA may be rolled over into another IRA. The
one-rollover-per-year rule does not apply to transfers from one IRA trustee or
custodian directly to another; these may be made more often than once per year.
You may also transfer amounts held in this State Street Research SIMPLE IRA
account to another IRA with a different trustee or custodian, or you may make a
withdrawal from this IRA and within 60 days make a rollover of the amount
withdrawn to another IRA. However, during the first two years after your
participation in your employer's SIMPLE IRA plan begins, you may transfer or
roll over only to another SIMPLE IRA (not a regular IRA).
2. Transfers to Change Investments
The rules governing transfers to change investments depend on whether your
employer has established its SIMPLE IRA plan with a "designated financial
institution" or not. Normally, SIMPLE IRA plans established by employers through
State Street Research will not have a designated financial institution. However,
if your employer has established its SIMPLE IRA plan with another sponsor, the
designated financial institution rules may apply. The summary description (or
other information) about your employer's SIMPLE IRA plan should indicate whether
the plan uses a designated financial institution or not.
Under the designated financial institution rules, all employee and employer
contributions are initially paid to that institution. However, you may elect to
have contributions to your SIMPLE IRA account with the designated financial
institution transferred to another SIMPLE IRA you have established, for example
with State Street Research, where the contributions will be invested in
accordance with your directions. If you make this election during the 60-day
period when you elect your salary reduction contributions to the plan for a
calendar year, then contributions for that calendar year are required to be
transferred without a transfer fee or other cost or penalty. While held by the
designated financial institution pending transfer to your other SIMPLE IRA,
contributions, the contributions for you may be invested in a specified
investment, such as a money market fund or a deposit account, and you will have
no choice of investments. Other transfer may be made to another SIMPLE IRA or
3
<PAGE>
regular IRA, but they will be subject to normal custodian or trustee fees and
any redemption or other charges imposed by the investment fund in which
contributions are invested. More information on this subject should appear in
the summary description of your employer's SIMPLE IRA plan.
Your employer may decide to operate its SIMPLE IRA plan without a
designated financial institution. Normally, SIMPLE IRA plans established through
State Street Research will not have a designated financial institution. Each
eligible employee is required to establish a SIMPLE IRA with a financial
institution of his or her choice. Contributions on your behalf will be sent to
your SIMPLE IRA account, wherever you have set it up, and invested according to
your instructions.
Taxation of Withdrawals
Withdrawals by you (or your beneficiary) from your SIMPLE IRA will be includable
as income in the taxable year in which received.
Federal Tax Penalties
A. Early Withdrawal Penalty
If you make a withdrawal from your SIMPLE IRA prior to attaining age 59 1\2, an
additional penalty tax will be imposed on the amount of the distribution, unless
an exception to the penalty is available. The penalty tax will be 25% of the
amount withdrawn for withdrawals you make during the first two years after the
date of the first contribution to your SIMPLE IRA account. For withdrawals after
the first two years, the penalty is 10% of the amount withdrawn. Certain
exceptions to the imposition of this penalty are available. The penalty will not
be imposed if the distribution was made on account of death, disability, or was
a qualifying rollover or a direct transfer. The additional penalty tax may not
apply if the distribution is made in a series of substantially equal periodic
payments, at least annually, based on your life expectancy or the joint life
expectancy of you and your beneficiary. Finally, an exception to the penalty tax
is available if the withdrawal does not exceed either (i) the amount of your
deductible medical expenses for the year of the withdrawal (consult your tax
advisor on the deductibility or medical expenses; generally, medical expenses
paid during a year are deductible to the extent they exceed 7 1\2% of your
adjusted gross income for the year), or (ii) the amount you paid for health
insurance covering yourself, your spouse or dependents (this health insurance
exception applies only if you are unemployed and receive federal or state
unemployment benefit payments for at least 12 weeks, and is available for
withdrawals during the year in which you receive such unemployment compensation
benefits or in the following year, but not to withdrawals made after you have
been reemployed for 60 days).
B. Excess Accumulation Penalty
If you do not receive your required minimum distribution for the year you attain
age 70-1\2 and by the end of each subsequent year, you will be subject to a 50%
excise tax on the amount of the required minimum distribution which should have
been taken but was not. If the distribution you actually receive falls short of
the required minimum distribution, the 50% excise tax will be imposed on the
amount by which the distribution falls short. The IRS has authority to waive or
reduce the 50% penalty tax upon proof that the failure to receive the required
minimum distribution was due to reasonable cause and that reasonable steps are
being taken to remedy the failure.
C. Excess Distribution Penalty
There is a 15% excise tax assessed against annual distributions from tax-favored
retirement plans, including IRAs (regular and SIMPLE IRAs), which exceed
$160,000 (for 1997; this amount is indexed for future cost-of-living increases).
To determine whether you have distributions in excess of the limit, you must
aggregate the amounts of all distributions received by you during the calendar
year, including IRAs. If you had account balances or accrued benefits equal to
at least $562,500 as of August 1, 1986, you may have a portion of the excess
distributions exempted from the 15% additional tax if you made a timely
grandfather election on your tax return. If the penalty tax on both excess
distributions and premature distributions apply to the same distribution, the
penalty tax on excess distributions is reduced by the penalty tax on the
premature distributions. Under a recent amendment to the tax law, the 15% excise
tax for annual distributions above $160,000 will not apply to withdrawals during
calendar years 1997, 1998 and 1999. A related 15% excise tax on your estate for
certain excess accumulations remaining in all of your tax-favored retirement
plans at your death continues to apply during these three years. Please consult
your tax advisor for more complete information on penalty taxes, including
advice on whether you should consider making withdrawals from your SIMPLE IRA
during the three-year period when the 15% excess distribution penalty does not
apply.
D. Excess Retirement Accumulation Penalty
Your estate will have to pay additional federal estate tax if you die with an
excess retirement accumulation. The increased estate tax will be equal to 15% of
the excess retirement accumulation. An excess retirement accumulation exists if,
at the time of your death, the value of all your interests in tax-favored
retirement plans, including IRAs, exceeds the present value of an annuity with
annual payments of $160,000 (for 1997; this amount is indexed for future
cost-of-living increases) payable over your life expectancy immediately before
your death.
4
<PAGE>
Other Tax Considerations
A. Federal Tax Withholding
Federal income tax will be withheld on amounts withdrawn by you from your IRA
unless you elect not to have withholding. Generally, tax will be withheld at a
10% rate. The mandatory 20% federal income tax withholding rule that applies to
most distributions from qualified profit sharing or pension plans that are not
directly rolled over to another plan or IRA do not apply to withdrawals from
your simple IRA account. Depending on your state of residence, state income tax
withholding may also apply.
B. Special Tax Treatment
Capital gains treatment and the favorable 5- or 10-year forward averaging tax
treatment, available for certain lump sum distributions from qualified profit
sharing or pension plans, do not apply to IRA distributions.
C. Prohibited Transactions
If you or your beneficiary engage in a prohibited transaction with your IRA, as
described in IRC Section 4975, your IRA will lose its tax-exempt status and you
must include the value of your account in your gross income for that taxable
year. If you pledge any portion of your IRA as collateral for a loan, the amount
so pledged will be treated as a distribution to you and will be included in your
gross income for that year. If you are under age 59-1/2 at the time such a
transaction occurs, you may be subject to the 25% or 10% penalty tax on
premature distributions.
D. Reporting for Tax Purposes
Additional reporting is required in the event that special taxes or penalties
described herein are due. You must file Form 5329 with the IRS for each taxable
year in which a premature distribution takes place, less than the required
minimum distribution amount is distributed from your IRA, or excess
distributions are made.
IRS Approval and Information
The agreement used to establish this IRA (IRS Form 5305-S) has been approved by
the Internal Revenue Service. The Internal Revenue Service approval is a
determination only to its form. It is not an endorsement of the plan in
operation or of the investments offered. This Disclosure Statement provides only
a summary of the laws governing SIMPLE IRAs. Please note that SIMPLE IRA plans
are governed by new provisions of the tax laws and the IRS has not yet issued
regulations or other definitive rulings on SIMPLE IRA plan requirements. While
the information in this Disclosure Statement is accurate as of the date of its
publication, you should consult with your tax advisor or the IRS for latest
developments. You should consult your personal tax advisor or IRS Publication
590, Individual Retirement Arrangements, for more detailed information. This
publication is available from your local IRS office or by calling
1-800-TAX-FORMS.
5
<PAGE>
[logo] STATE STREET RESEARCH
(c) 1997 State Street Research Investment Services, Inc. Boston, MA 02111
Control Number: 3759-970220(0398)SSR-LD IR-600E-0297
STATE STREET CAPITAL TRUST
PLAN OF DISTRIBUTION
PURSUANT TO RULE 12b-1
WHEREAS, STATE STREET CAPITAL TRUST, an unincorporated association of
the type commonly known as a business trust organized under the laws of the
Commonwealth of Massachusetts (the "Trust"), engages in business as an open-end
management investment company and is registered as such under the Investment
Company Act of 1940, as amended (the "Act");
WHEREAS, the Trust is authorized (i) to issue shares of beneficial
interest (the "Shares") in separate series, with the Shares of each such series
representing the interests in a separate portfolio of securities and other
assets, and (ii) to divide the Shares within each such series into two or more
classes;
WHEREAS, the Trust has established a portfolio series, the State Street
Research Capital Fund (the "Initial Series" - such series, together with all
other series subsequently established by the Trust, being referred to herein
individually as a "Series" and collectively as the "Series");
WHEREAS, the Trust may be deemed a distributor of the Shares within the
meaning of Rule 12b-1 under the Act, and desires to adopt a Plan of Distribution
and has adopted a related Distribution Agreement with State Street Research
Investment Services, Inc., the Trust's principal underwriter (the "Distributor")
pursuant to such Rule (respectively, the "Plan" and the "Agreement");
WHEREAS, the Board of Trustees as a whole, and the Trustees who are not
interested persons of the Trust (as defined in the Act) and who have no direct
or indirect financial interest in the operation of this Plan or the Agreement
and any agreements relating to it (the "Qualified Trustees"), having determined,
in the exercise of their reasonable business judgment and in light of their
fiduciary duties under state law and under Section 36(a) and (b) of the Act,
that there is a reasonable likelihood that this Plan and the Agreement will
benefit the Initial Series and its shareholders, have accordingly approved this
Plan and the Agreement by votes cast in person at a meeting called for the
purpose of voting on this Plan and the Agreement and any agreements related
thereto; and
<PAGE>
NOW, THEREFORE, the Trust hereby adopts this Plan in accordance with
Rule 12b-1 under the Act, on the following terms and conditions:
SECTION 1. DISTRIBUTION ACTIVITIES
Subject to the supervision of the Board of Trustees, the Trust may
engage, directly or indirectly, in financing any activities primarily intended
to result in the sale of Shares, including, but not limited to, the following:
(1) payment of commissions and/or reimbursement to underwriters, securities
dealers and others engaged in the sale of Shares, including payments to the
Distributor to be used to pay commissions and/or reimbursement to securities
dealers and others (including affiliates of the Distributor) engaged in the
distribution and marketing of Shares or furnishing assistance to investors on an
ongoing basis, (2) reimbursement of direct out-of-pocket expenditures incurred
by the Distributor in connection with the distribution and marketing of Shares,
including expenses relating to the formulation and implementation of marketing
strategies and promotional activities such as direct mail promotions and
television, radio, newspaper, magazine and other mass media advertising, the
preparation, printing and distribution of sales literature, the preparation,
printing and distribution of Prospectuses of the Trust and reports for
recipients other than existing shareholders of the Trust, and obtaining such
information, analyses and reports with respect to marketing and promotional
activities and investor accounts as the Trust may, from time to time, deem
advisable, and (3) reimbursement of expenses incurred by the Distributor in
connection with the servicing of shareholder accounts, including payments to
securities dealers and others in consideration of the provision of personal
service to investors and/or the maintenance of shareholder accounts and expenses
associated with the provision of personal service by the Distributor directly to
investors. In addition, the Plan shall be deemed to authorize the Distributor
and State Street Research & Management Company (the "Adviser") to make payments
out of general profits, revenues and other sources to underwriters, securities
dealers and others in connection with sales as described in the Prospectus of
the Trust as from time to time amended and in effect (for purposes hereof,
references to the Prospectus of the Trust shall be deemed to include all
Prospectuses of the Trust), to the extent, if any, that such payments may be
deemed to be within the scope of Rule 12b-1 under the Act.
2
<PAGE>
The Trust and the Series are authorized to engage in the activities
listed above, and in other activities primarily intended to result in the sale
of Shares, either directly or through other persons with which the Trust has
entered into agreements pursuant to the Plan.
SECTION 2. MAXIMUM EXPENDITURES
The expenditures to be made by the Initial Series pursuant to this Plan
and the basis upon which payment of such expenditures will be made shall be
determined by the Initial Series, but in no event may such expenditures exceed
the following: (i) with respect to Class A Shares of the Initial Fund, an annual
rate of .25% of the average daily value of net assets represented by such Class
A shares, (ii) with respect to Class B Shares and Class D Shares of the Initial
Fund, an annual rate of .75% of the average daily value of the net assets
represented by such Class B or Class D shares (as the case may be) to finance
sales or promotion expenses and an annual rate of .25% of the average daily
value of the net assets represented by such Class B or Class D shares (as the
case may be) to make payments for personal service and/or the maintenance of
shareholder accounts, and (iii) with respect to any Series subsequently
established by the Trust, the annual rate as agreed upon and specified in an
addendum hereto; plus such amounts as the Distributor and Adviser may expend
from general revenues, profits and other sources from time to time in accordance
with the last sentence of Section 1 and the second paragraph of Section 3. The
expenditures to be made pursuant to this Plan shall commence with respect to
each class of Shares of a Series as of the date on which this Plan becomes
effective with respect to each such class.
SECTION 3. PAYMENTS
Pursuant to this Plan, the Trust shall make periodic payments to the
Distributor at the annual rate provided for in Section 2 with respect to each
Series, or class of Shares thereof. The Distributor shall in turn remit to and
allocate among selected dealers (including those that are affiliates of the
Distributor) who have entered into selected dealer agreements with the
Distributor, in consideration of and as reimbursement for expenses incurred in
the provision of distribution and marketing services and furnishing assistance
to investors on an ongoing basis, such amounts as are required pursuant to such
selected dealer agreements and as indicated in
3
<PAGE>
the Prospectus of the Trust. Any amounts received by the Distributor and not so
allocated may be applied by the Distributor as reimbursement for expenses
incurred in connection with the distribution and marketing of Shares of each
class and the servicing of investor accounts as contemplated by Section 1(2)
hereof. The distribution and servicing expenses of a particular class will be
borne solely by that class and no Series will use fees charged to one class
within a Series to support the marketing or servicing relating to any other
class of Shares within that Series or any other Series. Any amounts received by
the Distributor hereunder and not applied as provided herein shall be returned
to the applicable class or Series of the Trust.
The Distributor and the Adviser may also make payments to authorized
securities dealers as specified in the Prospectus of the Trust as from time to
time amended and in effect, from its general profits, revenues and other
sources. Amounts received by the Distributor from any Fund in respect of any
class of Shares shall not be used to pay any commission expenses related to the
sale of any other class of Shares of such Series.
Notwithstanding anything to the contrary herein, the aggregate of all
payments to the Distributor to finance sales or promotion expenses with respect
to the Class B or the Class D shares pursuant to this Section 3 together with
any contingent deferred sales charges received by the Distributor in connection
with the redemption of shares of the respective class shall not exceed the
amount expended by the Distributor to finance sales or promotion expenses of
such class.
SECTION 4. TERM AND TERMINATION
(a) Initial Series. This Plan shall become effective with
respect to each class of the Initial Series as of the later of (i) the date on
which a Registration Statement with respect to such class of Shares becomes
effective under the Securities Act of 1933, as amended, or (ii) the date on
which such class of the Initial Series commences offering its Shares to the
public and shall continue in effect with respect to each Initial Series (subject
to Section 4(c) hereof) until one year from the date of such effectiveness,
unless the continuation of this Plan shall have been approved with respect to
the Initial Series in accordance with the provisions of Section 4(c) hereof.
(b) Additional Series. This Plan shall become effective with
respect to each additional Series other than the Initial Series established by
the Trust upon commencement of the initial public offering thereof (provided
that the Plan has previously been approved for continuation by votes of a
majority of both (i) the Board of Trustees of the Trust and
4
<PAGE>
(ii) the Qualified Trustees, cast in person at a meeting held before the initial
public offering of such additional Series and called for the purpose of voting
on such approval), and shall continue in effect with respect to each such
additional Series (subject to Section 4(c) hereof) for one year thereafter,
unless the continuation of this Plan shall have been approved with respect to
such additional Series in accordance with the provisions of Section 4(c) hereof.
The Distributor and the Trust on behalf of each such additional Series shall
each sign an addendum hereto agreeing to be bound hereby and setting forth such
specific and different terms as the parties may agree upon, including, without
implied limitation, the amount and purpose of payments to be made hereunder.
(c) Continuation. This Plan and the Agreement shall continue in
effect with respect to each Series subsequent to the initial term specified in
Section 4(a) and (b) for so long as such continuance is specifically approved at
least annually by votes of a majority of both (i) the Board of Trustees of the
Trust and (ii) the Qualified Trustees, cast in person at a meeting called for
the purpose of voting on this Plan, subject to any shareholder approval
requirements existing under applicable law.
(d) Termination. (i) This Plan may be terminated at any time
with respect to the Trust or any Series, as the case may be, by vote of a
majority of the Qualified Trustees, or by vote of a majority of the outstanding
voting securities of the Trust or that Series, as the case may be. The Plan may
remain in effect with respect to a Series even if it has been terminated in
accordance with this Section 4(e) with respect to one or more other Series of
the Trust.
(ii) The Agreement may be terminated at any time, without
penalty, with respect to the Trust or any Series, as the case may be, by vote of
a majority of the Qualified Trustees or by vote of a majority of the outstanding
voting securities of the Trust or that Series, as the case may be, on sixty
days' written notice to the Distributor. In addition, the Agreement provides for
automatic termination in the event of its assignment.
SECTION 5. AMENDMENTS
This Plan may not be amended to increase materially the amount of
distribution expenditures provided for in Section 2 hereof unless such amendment
is approved by a vote of a majority of the outstanding voting securities of each
Series or class thereof with respect to which a material increase in the amount
of distribution expenditures is proposed, and no
5
<PAGE>
material amendment to the Plan shall be made unless approved in the manner
provided for annual renewal in Section 4(c) hereof. Otherwise, this Plan may be
amended with respect to the Trust or a Series or class thereof by vote of a
majority of the Qualified Trustees or the outstanding voting securities of the
Trust or that Series, as the case may be.
SECTION 6. INDEPENDENT TRUSTEES
While this Plan is in effect with respect to any Series, the selection
and nomination of Trustees who are not interested persons (as defined in the
Act) of the Trust shall be committed to the discretion of the Trustees who are
not interested persons.
SECTION 7. QUARTERLY REPORTS
The Treasurer of the Trust and the Treasurer of the Distributor shall
provide to the Trustees of the Trust and the Trustees shall review, at least
quarterly, a written report of the amounts expended for distribution pursuant to
this Plan and the purposes for which such expenditures were made.
SECTION 8. RECORDKEEPING
The Trust shall preserve copies of this Plan, the Agreement and any
related agreements and all reports made pursuant to Section 7 hereof, for a
period of not less than six years from the date of this Plan and the Agreement,
the agreements or such reports, as the case may be, the first two years in an
easily accessible place.
SECTION 9. LIMITATION OF LIABILITY
The term "State Street Capital Trust" means and refers to the Trustees
from time to time serving under the Master Trust Agreement of the Trust dated
February 5, 1993 as the same may subsequently thereto have been, or subsequently
hereto be, amended. It is expressly agreed that the obligations of the Trust
hereunder shall not be binding upon any of the Trustees, shareholders, nominees,
officers, agents or employees of the Trust, personally, but bind only the trust
property of the Trust, as provided in the Master Trust Agreement of the Trust.
The execution and delivery of this Plan and the Plan have been authorized by the
Trustees and shareholder of the Trust and signed by an authorized officer of the
Trust, acting as such, and neither such authorization by such Trustees and
shareholder
6
<PAGE>
nor such execution and delivery by such officer shall be deemed to have been
made by any of them individually or to impose any liability on any of them
personally, but shall bind only the trust property of the Trust as provided in
its Master Trust Agreement. The Master Trust Agreement of the Trust further
provides, and it is expressly agreed, that each Series of the Trust shall be
solely and exclusively responsible for the payment of its debts, liabilities and
obligations and that no other Series shall be responsible or liable for the
same.
IN WITNESS WHEREOF, the Trust and the Distributor have executed this
Plan of Distribution on the day and year set forth below in Boston,
Massachusetts.
ATTEST: STATE STREET CAPITAL TRUST
/s/ Constantine Hutchins, Jr. By: /s/ Gerard P. Maus
- --------------------------------- ---------------------------
STATE STREET RESEARCH
ATTEST: INVESTMENT SERVICES, INC.
/s/ Constantine Hutchins, Jr. By: /s/ Donald E. [UNREADABLE]
- --------------------------------- ---------------------------
Date: February 17, 1993
STATE STREET CAPITAL TRUST
One Financial Center
Boston, MA 02111
.
June 28, 1993
State Street Research Investment
Services, Inc.
One Financial Center
Boston, MA 02111
Gentlemen:
This letter is to confirm to you that the Plan of Distribution
Pursuant to Rule 12b-1 dated as of February 17, 1993 (the "Plan") adopted by
State Street Capital Trust (the "Trust") shall apply to State Street Research
Small Capitalization Growth Fund (the "Fund") as a "Series" thereunder and under
the terms set forth in the then current prospectus and statement of additional
information of the Fund, as from time to time amended. Fees payable under the
Plan shall only apply to Fund shares which are designated as Class A, B or D
shares as and when so described in any such effective prospectus and statement
of additional information.
Please indicate your acceptance of the above in accordance with the
terms of the Plan by signing this letter as indicated below.
The term "State Street Capital Trust" means and refers to the Trustees
from time to time serving under the First Amended and Restated Master Trust
Agreement ("Master Trust Agreement") of the Trust dated February 5, 1993 as the
same may subsequently thereto have been, or subsequently hereto 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 Master Trust Agreement of the
Trust. This Agreement has 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 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 Master Trust Agreement. The Master
Trust Agreement of the Trust provides, and it is expressly agreed, that each
Fund of the Trust shall be solely and
<PAGE>
exclusively responsible for the payment of its debts, liabilities and
obligations, and that no other fund shall be responsible for the same.
STATE STREET CAPITAL TRUST
By: /s/ Gerard P. Maus
-------------------------
ACCEPTED AND AGREED TO:
STATE STREET RESEARCH
INVESTMENT SERVICES, INC.
By: [Unreadable]
STATE STREET CAPITAL FUND
Standard Total Return Computation
Original Amt. Invested $1,000.00
Commission at 0.0% $0.00
Net Amount to Fund $1,000.00
Purchase price $3.84
Shares acquired 260.417
Beginning Monthly Reinvest Shares New
Month Shares Income Dividend Price Purchased Shares
11/30/87 260.417 0.0000 0.00 $3.84 0.000 260.417
12/31/87 260.417 0.0000 0.00 $4.19 0.000 260.417
01/31/88 260.417 0.0000 0.00 $4.36 0.000 260.417
02/29/88 260.417 0.0000 0.00 $4.64 0.000 260.417
03/31/88 260.417 0.0000 0.00 $4.65 0.000 260.417
04/30/88 260.417 0.0000 0.00 $4.77 0.000 260.417
05/31/88 260.417 0.0000 0.00 $4.73 0.000 260.417
06/30/88 260.417 0.0000 0.00 $5.10 0.000 260.417
Month-end Monthly ITD
NAV ERV Performance Performance
$3.84 $1,000.00 0.00 0.00
$4.19 $1,091.15 9.11 9.11
$4.36 $1,135.42 4.06 13.54
$4.64 $1,208.33 6.42 20.83
$4.65 $1,210.94 0.22 21.09
$4.77 $1,242.19 2.58 24.22
$4.73 $1,231.77 -0.84 23.18
$5.10 $1,328.13 7.82 32.81
For the period from November 10, 1987 through June 30, 1988:
n
P(1 + T) = ERV
233/365
1000(1 + T) = 1,328.13
T = 55.98%
<PAGE>
STATE STREET CAPITAL FUND
Nonstandard Total Return Computation
Original Amt. Invested $1,000.00
Commission at 0.0% $0.00
Net Amount to Fund $1,000.00
Purchase price $4.19
Shares acquired 238.663
Beginning Monthly Reinvest Shares New
Month Shares Income Dividend Price Purchased Shares
01/31/88 238.663 0.0000 0.00 $4.36 0.000 238.663
02/29/88 238.663 0.0000 0.00 $4.64 0.000 238.663
03/31/88 238.663 0.0000 0.00 $4.65 0.000 238.663
04/30/88 238.663 0.0000 0.00 $4.77 0.000 238.663
05/31/88 238.663 0.0000 0.00 $4.73 0.000 238.663
06/30/88 238.663 0.0000 0.00 $5.10 0.000 238.663
Month-end Monthly ITD
NAV ERV Performance Performance
$4.36 $1,040.57 4.06 4.06
$4.64 $1,107.40 6.42 10.74
$4.65 $1,109.79 0.22 10.98
$4.77 $1,138.42 2.58 13.84
$4.73 $1,128.88 -0.84 12.89
$5.10 $1,217.18 7.82 21.72
No annualization is made. Computation for the six months
ended June 30, 1988:
n
P(1 + T) = ERV
n
1000(1 + T) = 1,217.18
T = 21.72%
State Street Research Small Capitalization Growth Fund
Standard Total Return Computations-Since Inception
Original Amt. Invested $1,000.00
Commission at 0.0% $0.00
Net Amount to Fund $1,000.00
Purchase price $9.55
Shares acquired 104.712
Beginning Monthly Reinvest Shares New
Month Shares Income Dividend Price Purchased Shares
10/31/93 104.712 0.0000 0.00 $10.01 0.000 104.712
11/30/93 104.712 0.0000 0.00 $9.11 0.000 104.712
12/31/93 104.712 0.0000 0.00 $9.43 0.000 104.712
01/15/94 104.712 0.0000 0.00 $9.52 0.000 104.712
Month-end Monthly Aggregate
NAV ERV Performance Performance
$10.01 $1,048.17 4.82 4.82
$9.11 $953.93 -8.99 -4.61
$9.43 $987.43 3.51 -1.26
$9.51 $955.81 0.85 -0.42
(1) Calculate average annual return of the Fund for the period October 4, 1993
through January 15, 1994:
104/365
1000(1 + T) = 995.81
T = -1.46%
<PAGE>
State Street Research Small Capitalization Growth Fund
Nonstandard Total Return Computation
Original Amt. Invested $1,000.00
Commission at 0.0% $0.00
Net Amount to Fund $1,000.00
Purchase price $9.11
Shares acquired 109.769
Beginning Monthly Reinvest Shares New
Month Shares Income Dividend Price Purchased Shares
12/31/93 109.769 0.0000 0.00 $9.43 0.000 109.769
Month-end Monthly ITD
NAV ERV Performance Performance
$9.43 $1,035.13 3.51 3.51
No annualization is made. Computation for the one month ended December 31, 1993
POWER OF ATTORNEY
We, the undersigned State Street Research Capital Trust ("Trust"), a
Massachusetts business trust, its trustees, its principal executive officer and
its principal financial and accounting officer, hereby severally constitute and
appoint Francis J. McNamara, III and Darman A. Wing, as our true and lawful
attorneys, with full power to each of them alone to sign for us, in our names
and in the capacities indicated below, any Registration Statements and any and
all amendments thereto of the Trust filed with the Securities and Exchange
Commission and generally to do all such things in our names and in the indicated
capacities as are required to enable the Trust to comply with provisions of the
Securities Act of 1933, as amended, and/or the Investment Company Act of 1940,
as amended, and all requirements and regulations of the Securities and Exchange
Commission, hereby ratifying and confirming our signatures as they have been and
may be signed by our said attorneys to said Registration Statements, and any and
all amendments thereto.
IN WITNESS WHEREOF, we have hereunto set our hands, on this 2nd day of
December, 1997.
SIGNATURES
STATE STREET RESEARCH CAPITAL TRUST
By: /s/ Ralph F. Verni
-----------------------------
Ralph F. Verni, Chief Executive
Officer and President
/s/ Ralph F. Verni /s/ Dean O. Morton
---------------------------------- ----------------------------------
Ralph F. Verni, Trustee and principal Dean O. Morton, Trustee
executive officer
/s/ Gerard P. Maus /s/ Thomas L. Phillips
---------------------------------- ----------------------------------
Gerard P. Maus, Principal financial Thomas L. Phillips, Trustee
and accounting officer
/s/ Steven A. Garban /s/ Toby Rosenblatt
---------------------------------- ----------------------------------
Steven A. Garban, Trustee Toby Rosenblatt, Trustee
/s/ Malcolm T. Hopkins /s/ Michael S. Scott Morton
---------------------------------- ----------------------------------
Malcolm T. Hopkins, Trustee Michael S. Scott Morton, Trustee
/s/ Edward M. Lamont /s/ Jeptha H. Wade
---------------------------------- ----------------------------------
Edward M. Lamont, Trustee Jeptha H. Wade, Trustee
/s/ Robert A. Lawrence
----------------------------------
Robert A. Lawrence, Trustee
STATE STREET RESEARCH CAPITAL TRUST
Certificate of Resolution
I, the undersigned Amy L. Simmons, hereby certify that I am Assistant
Secretary of State Street Research Capital Trust (the "Trust"), a Massachusetts
business trust duly authorized and validly existing under Massachusetts law, and
that the following is a true, correct and complete statement of a vote duly
adopted by the Trustees of said Trust on February 5, 1997:
"VOTED: That Francis J. McNamara III and Darman A. Wing be, and each hereby is,
authorized and empowered, for and on behalf of the Investment Company,
its principal financial and accounting officer, and in their name, to
execute, and file a Power of Attorney relating to, the Investment
Company's Registration Statements under the Investment Company Act of
1940 and/or the Securities Act of 1933, including any N-14 Registration
Statement, and amendments thereto, the execution and delivery of such
Power of Attorney, Registration Statements and amendments thereto, to
constitute conclusive proof of such authorization."
I further certify that said vote has not been amended or revoked and
that the same is now in full force and effect.
IN WITNESS WHEREOF, I have hereunto set my hand this 2nd day of
December, 1997.
/s/ Amy L. Simmons
-------------------------------
Amy L. Simmons
Assistant Secretary
STATE STREET RESEARCH FUNDS
NEW ACCOUNT APPLICATION
1 Your Account
- --------------------------------------------------------------------------------
* Use a pen. (graphic of a pen)
* Please print in CAPITAL LETTERS.
* Fill in one section only.
Individual Retirement Accounts require a different application. To obtain an
IRA application, call 1-800-562-0032. (graphic of a telephone)
Individual / Joint Account
_____________________________________________________________
- -------------------------------------------------------------
Name [first, middle initial, last]
[ ][ ][ ]-[ ][ ]-[ ][ ][ ][ ]
Social Security number
[ ][ ]/[ ][ ]/[ ][ ]
Date of birth [month / day / year]
- -------------------------------------------------------------
Name of joint owner, if any [first, middle initial, last]
[ ][ ][ ]-[ ][ ]-[ ][ ][ ][ ]
Joint owner's Social Security number
[ ][ ]/[ ][ ]/[ ][ ]
Joint owner's date of birth [month / day / year]
Joint owners will be joint tenants with rights of survivorship unless you
check a different option:
O Tenants in common O Tenants by entirety O Community property
Gift / Transfer to a Minor [UGMA/UTMA]
_____________________________________________________________
- -------------------------------------------------------------
Name of one custodian [first, middle initial, last]
- -------------------------------------------------------------
As custodian for [name of minor; first, middle initial, last]
Under the [ ][ ] Uniform Gifts / Transfers to Minors Act
[minor's state of residence]
[ ][ ][ ]-[ ][ ]-[ ][ ][ ][ ]
Minor's Social Security number
[ ][ ]/[ ][ ]/[ ][ ]
Minor's date of birth [month / day / year]
Trust Account
________________________________________________________________
- -------------------------------------------------------------
Name of trustee [first, middle initial, last]
- -------------------------------------------------------------
Name of co-trustee, if any [first, middle initial, last]
- -------------------------------------------------------------
As trustees of [name of trust]
- -------------------------------------------------------------
For the benefit of [trust beneficiary]
[ ][ ]-[ ][ ][ ][ ][ ][ ][ ]
Trust's federal tax identification number
[ ][ ]/[ ][ ]/[ ][ ]
Date of trust agreement [month / day / year]
Business / Other Account
______________________________________________________________
- -------------------------------------------------------------
Name of entity
[ ][ ][ ][ ][ ][ ][ ][ ][ ]
Federal tax identification number or Social Security number
Type of entity: O Corporation
O Partnership
O Estate
O Unincorporated association
O Guardian
O I / We have included a corporate resolution, as is required to open this
account.
For all other types of accounts, call 1-800-562-0032 for different
applications.
2 Your Address
- --------------------------------------------------------------------------------
- ---------------------------------------------------------------
Street address / P.O. Box
- ---------------------------------------------------------------
City
[ ][ ] [ ][ ][ ][ ][ ]-[ ][ ][ ][ ]
State Zip
[ ][ ][ ]-[ ][ ][ ]-[ ][ ][ ][ ]
Daytime phone number
[ ][ ][ ]-[ ][ ][ ]-[ ][ ][ ][ ]
Evening phone number
Check one:
O U.S. citizen or resident alien
O Non-resident alien * Country:
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
<PAGE>
3 Your Investment
- --------------------------------------------------------------------------------
* Choose one share class and distribution option per fund.
* Generally the minimum investment is $2,500 per account
($1,000 using Investamatic); please refer to prospectus.
This investment is being made:
O by mail - make check payable to "State Street Research Funds"
O by Federal Funds Wire; the control number is:
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
O through a dealer; the wire order confirmation number is:
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
<TABLE>
<CAPTION>
Fund Name Amount You are Investing Share Class All Distributions
- -----------------------------------------------------------------------------------------------------------------------------------
A B C In Cash Reinvested
<S> <C> <C> <C> <C> <C> <C>
O Aurora $ [ ],[ ][ ][ ],[ ][ ][ ].[ ][ ] O O O O O
($25,000 minimum)
O Capital $ [ ],[ ][ ][ ],[ ][ ][ ].[ ][ ] O O O O O
O Emerging Growth $ [ ],[ ][ ][ ],[ ][ ][ ].[ ][ ] O O O O O
O Equity Income $ [ ],[ ][ ][ ],[ ][ ][ ].[ ][ ] O O O O O
O Equity Investment $ [ ],[ ][ ][ ],[ ][ ][ ].[ ][ ] O O O O O
O Global Resources $ [ ],[ ][ ][ ],[ ][ ][ ].[ ][ ] O O O O O
O Government Income $ [ ],[ ][ ][ ],[ ][ ][ ].[ ][ ] O O O O O
O Growth $ [ ],[ ][ ][ ],[ ][ ][ ].[ ][ ] O O O O O
O High Income $ [ ],[ ][ ][ ],[ ][ ][ ].[ ][ ] O O O O O
O International Equity $ [ ],[ ][ ][ ],[ ][ ][ ].[ ][ ] O O O O O
O Investment Trust $ [ ],[ ][ ][ ],[ ][ ][ ].[ ][ ] O O O O O
O Managed Assets $ [ ],[ ][ ][ ],[ ][ ][ ].[ ][ ] O O O O O
O Money Market $ [ ],[ ][ ][ ],[ ][ ][ ].[ ][ ] Class E only O O
O New York Tax-Free $ [ ],[ ][ ][ ],[ ][ ][ ].[ ][ ] O O O O O
O Strategic Income $ [ ],[ ][ ][ ],[ ][ ][ ].[ ][ ] O O O O O
O Tax-Exempt $ [ ],[ ][ ][ ],[ ][ ][ ].[ ][ ] O O O O O
O Other: $ [ ],[ ][ ][ ],[ ][ ][ ].[ ][ ] O O O O O
</TABLE>
4 Options for Reducing Sales Charges
- --------------------------------------------------------------------------------
I wish to apply for reduced Class A sales charges through:
O Right of Accumulation
________________________________________________
When calculating my sales charges for this investment, please include the
assets in the following accounts owned by me, my family members or other
designated persons:
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Account number
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Account number
O Letter of Intent
________________________________________________
I plan to invest, without obligation, a total of at least the following
amount in eligible funds over the next 13 months:
O $100,000 O $250,000 O $500,000 O $1 Million
O Please include investments made within the past 90 days in these accounts:
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Account number
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Account number
<PAGE>
5 Telephone Exchanges / Redemptions
- --------------------------------------------------------------------------------
* NOTE: You automatically receive these privileges unless you
decline them. (graphic of a telephone)
* Available only for shares on deposit.
* See terms and conditions in current prospectus(es).
Telephone Exchange Privilege
____________________________________________________
Allows you or your dealer to request exchanges into other State Street
Research funds (and assumes you have read the relevant prospectuses).
O I DO NOT want this privilege on my account.
Initial here
Telephone Redemption Privilege
_____________________________________________________
Allows you (but not your dealer) to phone requests to sell shares, with the
proceeds sent to the address of record.
O I DO NOT want this privilege on my account.
Initial here
6 Transfers To / From Your Bank
- --------------------------------------------------------------------------------
* Convenient services to help you buy or sell fund shares.
* Be sure to attach a deposit slip or voided, unsigned check
depending on the service(s) you are requesting.
I would like to request one or more of the following service(s):
O Investamatic
________________________________________________________
Makes periodic investments in the State Street Research fund of your
choice. I authorize automatic withdrawals from the bank account
specified at right. I request these withdrawals on the: O 5th or O 20th
or O 5th and 20th of a month. I would like these withdrawals to occur O
every month or O every quarter, and that they be invested as follows:
$[ ][ ][ ],[ ][ ][ ].[ ][ ]
Investment amount ($50 minimum) Fund
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Account number (if existing account)
$[ ][ ][ ],[ ][ ][ ].[ ][ ]
Investment amount ($50 minimum) Fund
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Account number (if existing account)
O EZ Trader
_________________________________________________________
Allows you to move money between your fund account and bank account by
calling State Street Research. NOTE: Your bank must be a member of the
Automated Clearing House system.
O Wire Redemption Capability
__________________________________________________________
Lets you designate a bank account to receive proceeds by wire when you
sell State Street Research shares.
- ------------------------------------------------------------------------------
Please establish the service(s) between my fund account and my:
O Checking account [voided check attached]
O NOW / money market / savings account [deposit slip attached]
- ---------------------------------------------------
Bank name
- ---------------------------------------------------
Bank address
- ---------------------------------------------------
City
[ ][ ] [ ][ ][ ][ ][ ]-[ ][ ][ ][ ]
State Zip
[ ][ ][ ][ ][ ][ ][ ][ ][ ]
Bank routing number
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Bank account number
- ---------------------------------------------------------------
Name of one bank accountholder, exactly as on bank statements
- ---------------------------------------------------------------
Name of second bank accountholder, if any
- ---------------------------------------------------------------
Signature of one bank accountholder, exactly as on bank statements
- ---------------------------------------------------------------
Signature of of second bank accountholder, if any
7 Your Signature
- --------------------------------------------------------------------------------
* All owners listed in Section 1 need to sign this application.
* Please note that the certification at right and the provision of your
federal tax identification number are the only portions of this
application for which the IRS requires your consent.
I acknowledge that I:
* have received current prospectus(es) for all funds in which I am
investing.
* accept the terms of investment described in the prospectus(es) and
this application.
* understand that these same terms will also apply to all shares obtained
by exchange.
* accept responsibility for unauthorized telephone instructions unless the
fund's agents are negligent or unless I declined the privileges in Section
5.
I certify, under penalties of perjury, that:
* (1) the number shown on this form is my correct taxpayer identification
number (or I am waiting for a number to be issued to me), and (2) I am not
subject to backup withholding because (a) I am exempt from backup
withholding, or (b) I have not been notified by the Internal Revenue Service
that I am subject to backup withholding as a result of a failure to report
all interest or dividends, or (c) the IRS has notified me that I am no
longer subject to backup withholding.
- ---------------------------------------------------------------
Your signature exactly as your name appears in Section 1
- ---------------------------------------------------------------
Signature of joint owner (if any) exactly as name appears in Section 1
Date: [ ][ ]/[ ][ ]/[ ][ ]
[month / day / year]
<PAGE>
8 Signature Guarantee
- --------------------------------------------------------------------------------
* The undersigned guarantees the owner's signature and
legal capacity.
* If you are investing directly, have Section A completed; if not,
have your dealer fill out Section B.
A - For Direct Investments
_________________________________________________
- -----------------------------------------------------
Name of bank or other guarantor
- -----------------------------------------------------
Street address
- -----------------------------------------------------
City
[ ][ ] [ ][ ][ ][ ][ ]-[ ][ ][ ][ ]
State Zip
* The above institution guarantees all signatures on this application and
on related investment checks and instructions.
- --------------------------------------------------------------
Signature of bank's or guarantor's authorized representative
Date: [ ][ ]/[ ][ ]/[ ][ ]
[month / day / year]
B - For Investments Through a Dealer
_______________________________________________________
- -----------------------------------------------------
Dealer name
- -----------------------------------------------------
Home office address
- -----------------------------------------------------
City
[ ][ ] [ ][ ][ ][ ][ ]-[ ][ ][ ][ ]
State Zip
- -----------------------------------------------------
Branch office address
- -----------------------------------------------------
City
[ ][ ] [ ][ ][ ][ ][ ]-[ ][ ][ ][ ]
State Zip
[ ][ ][ ]-[ ][ ][ ]-[ ][ ][ ][ ]
Branch office telephone number
The dealer represents that:
* it agrees to the terms of the current prospectus(es), application and
current dealer agreement, which is included by reference.
* it has given the owner(s) all relevant prospectus(es).
* it has completed this application according to instructions from the
owner(s).
* it will indemnify the fund, its advisor, distributor or other agents from
any losses resulting from these instructions.
* it guarantees all signatures on this application and on related
investment checks and instructions.
[ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ][ ]
Registered Representative
[ ][ ][ ][ ][ ][ ][ ][ ]
Registered Representative number
- -----------------------------------------------------
Signature of authorized officer of dealer
Date: [ ][ ]/[ ][ ]/[ ][ ]
[month / day / year]
Additional Services
________________________________________________________
Use the Additional Services Application enclosed with this application to
take advantage of a range of optional services, including:
Checkwriting - available on certain funds.
Dividend Allocation Plan - lets you invest dividends from one State Street
Research fund into another.
Direct Plan - lets you set up regular exchanges from one State Street
Research fund into others.
Systematic Withdrawal Plan - lets you set up regular sales of shares.
Automatic Bank Connection - forwards distributions or Systematic Withdrawal
Plan proceeds directly to your bank account.
(State Street Research logo)
Mail this application, along with any other required documents to: State Street
Research Funds, P.O. Box 8408, Boston, MA 02266-8408.
Questions? Call 1-800-562-0032.
<PAGE>
[STATE STREET RESEARCH LOGO] [METLIFE SECURITIES LOGO]
MUTUAL FUND ACCOUNT APPLICATION
Mail this application to MetLife Securities, Inc., P.O. Box 30421, Tampa, FL
33630
[ ] New Application [ ] Change-Account #____________________________
Type of Account (PLEASE PRINT FULL NAME(S) CONSISTENT WITH YOUR SIGNATURE(S) IN
SECTION 6.)
<TABLE>
<S> <C> <C>
[ ] Individual-complete (a) only [ ] Joint Tenant-complete (a & b) only [ ] Gift to a Minor-complete (c) only
[ ] Trust(1)-complete (d) only [ ] Corporation(1)-complete (e) only [ ] Partnership/Other Entity-complete (e) only
</TABLE>
Note: If the investment is to be used for an Individual Retirement Account
(IRA), a separate IRA application must be used.
(1)Call 1-800-638-8378 for additional forms.
Do you have any other mutual fund accounts with State Street Research?
[ ] Yes [ ] No
Individual or Joint Tenant
a _____________________________________________________________-______-_________
Name of Investor Social Security Number
b ______________________________________________________________________________
Name(s) of Joint Tenant(s)
Gift to a Minor
c _____________________________________ as custodian for _____________ under the
Name of Custodian (one only) Name of Minor (one only)
___________________________ "Uniform Gifts to Minors Act" _____-______-_________
Minor's State of Residence Minor's Social Security Number
Trust Account
d ______________________________________________________________________________
Trustee(s) Name(s)
_______________________________________________________________-______-_________
Name and Date of Trust Agreement Tax Identification
Number
Corporation, Partnership or Other Entity (Please include corporate resolution.)
e ______________________________________________________________________________
Name of Corporation or Other Entity
________________________________________________________________________________
Type of Business (specify corporation, Tax Identification Number
partnership, estate, guardian, etc.)
2 Your Mailing Address (PLEASE PRINT.)
( )
________________________________________________________________________________
Street Address Home Telephone Number
( )
________________________________________________________________________________
City State ZIP Business Telephone
Number
Residency [ ] U.S. (State _______________) [ ] Other(2) __________________
Specify Country
(2)Call 1-800-638-8378 for additional forms.
3 Fund Selection(s) and Distribution Option(s) (Choose only one distribution
option per Fund; see Fund prospectus for minimum initial investment
requirements.)
[ ] By Mail-Make check payable to "State Street Research"
[ ] By Federal Funds Wire
<TABLE>
<CAPTION>
Fund Name Class Designation(3) Amount Distribution Option
- ---------------------------------------------------------------------------------------------------------------------
Dividends & Dividends in Dividends & Dividend
Capital Gains Cash; Capital Capital Gains Allocation
A B(4) Reinvested Gains Reinvested(5) in Cash Plan (DAP)(6)
<S> <C> <C> <C> <C> <C> <C>
_________________ [ ] [ ] $_____ [ ] [ ] [ ] [ ]
_________________ [ ] [ ] $_____ [ ] [ ] [ ] [ ]
_________________ [ ] [ ] $_____ [ ] [ ] [ ] [ ]
_________________ [ ] [ ] $_____ [ ] [ ] [ ] [ ]
</TABLE>
(3)All Money Market Fund investments will purchase Class E shares. Be sure to
designate Class A or B shares for Money Market Fund DAP allocations.
(4)For purchase of Class B shares of more than $250,000, I hereby acknowledge
that I am aware of the reduced front-end sales charges available to me for the
purchase of Class A shares, and have chosen to purchase Class B shares. I am
aware that Class B shares have higher asset-based charges than Class A shares
for the first eight years.
(5)Does not apply to Money Market Fund.
(6)Dividend Allocation Plan: The Transfer Agent is authorized to invest all
dividends and distributions from________________________________________________
Fund Name
in the following Eligible Fund:_________________________________________________
Fund Name (Fund must meet Account
minimum investment requirements) Number (if
existing
account)
Authorization of Dividend Allocation Plan constitutes an acknowledgment that the
shareholder has received the current prospectus of the Fund to be acquired.
Except for Money Market Fund Class E, DAP must be allocated to same class
designation.
<PAGE>
4 Reduced Sales Charges (Applies to Class A shares only)
[ ] Right of Accumulation (ROA): I apply for Right of Accumulation reduced sales
charges subject to the Transfer Agent's confirmation of the following holdings
of certain designated persons, e.g. family members, in the Eligible Funds:
________________________________________________________________________________
Name on Account Account Number
________________________________________________________________________________
Name on Account Account Number
[ ] Letter of Intent (LOI): Although I am not obligated to purchase and the
Funds are not obligated to sell, I intend to invest over a 13-month period
beginning _______________, 19__ (purchase date not more than 90 days prior to
this letter) at least an aggregate of
[ ] $100,000 [ ] $250,000 [ ] $500,000 [ ] $1,000,000 of Eligible Funds.
5 Optional Shareholder Services
Your Bank Account (You must complete this section if you request Section A, B, C
or D below.)
Type of Bank Account: [ ] Checking [ ] NOW or Money Market
________________________________________________________________________________
Account Title (print exactly as it Bank Routing Number
appears on bank records)
________________________________________________________________________________
Bank Account Number Bank Name
________________________________________________________________________________
Bank Address City State ZIP
________________________________________________________________________________
Depositor's Signature(s) (exactly as it Date
appears on bank records)
________________________________________________________________________________
Depositor's Address City State ZIP
YOU MUST ATTACH A BLANK CHECK MARKED "VOID."
A Telephone Redemption and Exchange Privileges (Service available only for
shares held on deposit with Transfer Agent)
None of the Transfer Agent, the Fund, any other Eligible Funds, State Street
Research Shareholder Services, the Investment Manager or the Distributor will be
liable for any loss, injury, damage or expense as a result of acting upon, and
will not be responsible for the authenticity of, any telephone instructions. I
understand that all telephone calls are tape recorded. My liability shall be
subject to the use of reasonable procedures to confirm that instructions
communicated by telephone are genuine.
Telephone Exchange By Shareholder OR DEALER
The Transfer Agent may effect exchanges for my account according to telephone
instructions FROM ME OR MY DEALER as set forth in the Prospectus, and may
register the shares of the fund to be acquired exactly the same as my existing
account. Authorizing an exchange constitutes an acknowledgment that the
shareholder has received the current prospectus of the fund to be acquired. The
account will automatically have this privilege unless it is expressly declined
by providing your initials in the space below.
I DO NOT WANT THE TELEPHONE EXCHANGE PRIVILEGE. _____ (Initial here.)
Telephone Redemption By Shareholder Only
1. Proceeds to Shareholder's Address of Record. The Transfer Agent may effect
redemptions of shares from my account according to telephone instructions from
me, as set forth in the Prospectus, and send the proceeds to my address of
record. The account will automatically have this privilege unless it is
expressly declined by providing your initials in the space below.
I DO NOT WANT THE TELEPHONE REDEMPTION PRIVILEGE (to address of record).
_____ (Initial here.)
2. Proceeds to Bank Designated by Shareholder. The Telephone Redemption
Privilege (to bank designated by shareholder) is not provided automatically;
please check the box below if you want this Privilege for the account. ATTACH A
BLANK CHECK MARKED "VOID" AND FILL OUT "YOUR BANK ACCOUNT" SECTION.
The Transfer Agent may effect redemptions of shares from my account according to
telephone instructions from me, as set forth in the Prospectus, and send the
proceeds to the bank named in "Your Bank Account." [ ] (Check here.)
<PAGE>
B Investamatic Check Program (YOU MUST ATTACH A BLANK CHECK MARKED "VOID.")
I hereby request and authorize the bank named in "Your Bank Account" section to
pay and charge checks drawn on, or debits against, my account initiated by and
payable to the order of the mutual fund transfer agent designated by the
Distributor. I agree that the named Bank's rights in respect to each such check
or debit shall be the same as if it were a check drawn on or debit against my
account authorized personally by me. This authority is to remain in effect until
revoked by me in writing, and until the named Bank actually receives such
notice, I agree that the named Bank shall be fully protected in honoring any
such check or debit authorization. I further agree that if any check or debit
authorization be dishonored, whether with or without cause and whether
intentionally or inadvertently, the named Bank shall be under no liability
whatsoever, unless the nonpayment is because of insufficient funds. I understand
that this Program may be revoked by the Transfer Agent or the Distributor
without prior notice if any check is not paid upon presentation, and that this
Program may be discontinued by the Distributor, the Transfer Agent or me upon
thirty (30) business days' notice prior to the due date of any deposit.
$
________________________________________________________________________________
Fund Name Class Designation Amount ($50 minimum) Account Number
$
________________________________________________________________________________
Fund Name Class Designation Amount ($50 minimum) Account Number
_____________________________________
Total Amount of Investment: $______ Account Registration (exactly as it
appears on Fund records)
[ ] Monthly Investment Date: [ ] 5th or [ ] 20th If you do not choose a date,
[ ] Quarterly Investment Date: [ ] 5th or [ ] 20th the 5th will be chosen
automatically.
C Automatic Bank Connection (ABC) Not available for retirement plan accounts.
YOU MUST ATTACH A BLANK CHECK MARKED "VOID."
[ ] I authorize the Transfer Agent to liquidate $______________ (minimum-$50)
from my fund account beginning the month of to provide [ ] monthly,
[ ] quarterly, [ ] semiannual or [ ] annual payments. I would like the following
payment to be deposited directly into the bank account named in "Your Bank
Account" section. (Choose only one.)
[ ] Income dividends only [ ] Income dividends and capital gains
[ ] Systematic Withdrawal Plan payments (see below)
________________________________________________________________________________
Fund Name Class Designation
________________________________________________________________________________
Fund Name Class Designation
I hereby authorize the Fund and the Transfer Agent to effect the deposit of the
above indicated items by initiating credit entries to my account at the bank
named in "Your Bank Account" section. The named Bank shall not be responsible
for the correctness of the items, and the Transfer Agent is authorized to
correct and adjust any incorrect items to my bank account. This authorization
may be terminated at any time by written notification to the Fund, the Transfer
Agent and the Bank.
D Systematic Withdrawal Plan (SWP) Not available for retirement plan accounts.
See the prospectus for minimum account size and maximum withdrawal amounts.
YOU MUST ATTACH A BLANK CHECK MARKED "VOID."
[ ] I authorize the Transfer Agent to liquidate shares in and withdraw cash
(minimum-$50) from my fund account beginning the month of ____________________
to provide [ ] monthly, [ ] quarterly, [ ] semiannual or [ ] annual Systematic
Withdrawal Plan (SWP) payments in the amount of $_________________ to [ ] me
[ ] the bank named in "Your Bank Account" section, or [ ] the following payee.
(Note: If you authorize a SWP, you may not receive dividend or capital gain
distributions in cash.)
________________________________________________________________________________
Name of Payee
________________________________________________________________________________
Street Address City State ZIP
________________________________________________________________________________
Fund Name Class Designation
________________________________________________________________________________
Fund Name Class Designation
E Checkwriting Privilege
(Available for Class A shares and Money Market
Fund Class E shares only)
[ ] I request the checkwriting feature and have
completed the signature card below.
_______________________________________________
Account Number (if existing account)
_______________________________________________
Account Number (if existing account)
Signature Card Complete and sign this card and return it with your application
and investment. Do not detach.
Check applicable Fund(s) TO: State Street Bank and Trust Company ("Bank")
[ ] Money Market, Class E ________________________________________________
[ ] High Income Name (please print)
[ ] Tax-Exempt ________________________________________________
[ ] Government Income Name (please print)
[ ] NY Tax-Free ________________________________________________
[ ] Strategic Income Address City State ZIP
________________________________________________
Signature (exactly as it appears in the
Application, including any capacity)
________________________________________________
Signature (exactly as it appears in the
Application, including any capacity)
________________________________________________
Indicate the number of signatures required
______-_________________________________________
Tax Identification Number
Corporate and other accounts must include appropriate resolution forms. In
signing this signature card, the signator(s) signifies his/her or their
agreement to be subject to the rules and regulations of State Street Bank and
Trust Company pertaining thereto, as amended from time to time, and subject to
the conditions printed on the reverse side.
<PAGE>
MetLife Securities, Inc. Customer Profile
1
________________________________________________________________________________
Client's Name (or minor if U.G.M.A.) Age Social Security Number
________________________________________________________________________________
Joint Tenant Name (if any, or Age Social Security Number
custodian if U.G.M.A.)
Occupation ______________________ State of Residence ______________________
Name/Address of Employer _______________________________________________________
Is client an associated person of a broker/dealer? [ ] Yes [ ] No
If yes, furnish name and address _______________________________________________
2 Client's Estimated Annual Income (Not including income from this investment)
(N/A for UGMA, Trust, Partnership or Corp.)
[ ] $0-9,999 [ ] $20-39,999 [ ] $60-79,999 [ ] $100,000-199,999
[ ] $10-19,999 [ ] $40-59,999 [ ] $80-99,999 [ ] $200,000+
3 Savings and Investments (Exclusive of personal residence, home furnishings,
personal automobiles, and the amount of this investment) (N/A for UGMA, Trust,
Partnership or Corp.)
[ ] $0-9,999 [ ] $20-39,999 [ ] $60-79,999 [ ] $100,000-199,999 [ ] $400,000+
[ ] $10-19,999 [ ] $40-59,999 [ ] $80-99,999 [ ] $200,000-399,999
4 Net Worth (Assets minus liabilities exclusive of assets and liabilities
relating to personal residence, home furnishings and automobiles) (N/A for
UGMA, Trust, Partnership or Corp.)
[ ] $0-9,999 [ ] $20-39,999 [ ] $60-79,999 [ ] $100,000-199,999 [ ] $400,000+
[ ] $10-19,999 [ ] $40-59,999 [ ] $80-99,999 [ ] $200,000-399,999
<TABLE>
<CAPTION>
5 Main Investment Objective (select one) Secondary Investment Objective (optional)
<S> <C> <C> <C> <C> <C>
[ ] Aggressive Growth [ ] Growth & Income [ ] Tax Advantages [ ] Aggressive Growth [ ] Growth & Income [ ] Tax Advantages
[ ] Growth [ ] Current Income [ ] Growth [ ] Current Income
</TABLE>
<TABLE>
<CAPTION>
6 Source of Funds for This Investment
<S> <C> <C>
[ ] CD (Certificate of Deposit) [ ] Savings [ ] Money Market Fund
[ ] Surrender Life/Annuity Contract [ ] Rollover/Transfer of Pension Assets [ ] Another MetLife Policy, Account or Contract
[ ] Discretionary Income [ ] Loan [ ] Other ___________________________________
</TABLE>
7 This account was: [ ] Solicited [ ] Unsolicited
8 Tax Status of These Funds: [ ] Qualified [ ] Non-Qualified
9 Prior Investment Experience: Stocks ___ yrs. Bonds ___ yrs.
(complete all that apply) Mutual Funds ___ yrs. Margin ___ yrs.
Limited Partnerships ___ yrs. Options ___ yrs.
Other __________________ None ___
Investor Receipt and Arbitration Agreement
1. Arbitration
(i) Arbitration is final and binding on the parties.
(ii) The parties are waiving their right to seek remedies in court, including
the right to jury trial.
(iii) Pre-arbitration discovery is generally more limited than and different
from court proceedings.
(iv) The arbitrators' award is not required to include factual findings or
legal reasoning and any party's right to appeal or to seek modification of
rulings by the arbitrators is strictly limited.
(v) The panel of arbitrators will typically include a minority of arbitrators
who were or are affiliated with the securities industry.
(vi) No person shall bring a putative or certified class action to
arbitration, nor seek to enforce any pre-dispute arbitration agreement
against any person who has initiated in court a putative class action; or who
is a member of a putative class who has not opted out of the class with
respect to any claims encompassed by the putative class action until: (i) the
class certification is denied; or (ii) the class is decertified; or (iii) the
customer is excluded from the class by the court. Such forbearance to enforce
an agreement to arbitrate shall not constitute a waiver of any rights under
this agreement except to the extent stated herein.
2. MetLife Securities, Inc. (hereinafter "MSI") and the purchaser of the
shares, who is the signatory below (hereinafter the "Customer"), agree that
any controversy between MSI, its employees, directors, agents, officers or
affiliates and the Customer arising out of or relating to any transactions
between such parties shall be determined by arbitration. Any arbitration
pursuant to this agreement shall be conducted before, and under the rules of,
the National Association of Securities Dealers, Inc. Judgment upon the award
of the arbitrators may be entered in any federal or state court having
jurisdiction.
3. This agreement and any arbitration hereunder shall be governed and
construed in accordance with the laws of the State of New York, United States
of America, including New York procedural and substantive arbitration laws
and rules, without giving effect to conflicts of law principles.
The predispute arbitration agreement located immediately above is accepted and
agreed to. I have also received the current prospectus of the fund and have
given a check in the amount of $___________________ on this, the ____________
day of ________________ 19__
_______________________________________ ________________________________________
Customer Signature (exactly as your Registered Representative's Signature
name appears in Section 1)
/s/ Elaine S. Stevenson
_______________________________________ ________________________________________
Customer Signature MetLife Securities, Inc.; by:
Elaine S. Stevenson, President
_______________________________________ ________________________________________
Capacity
<PAGE>
6 Your Signature (All registered shareholders must sign.)
The undersigned confirms that all the information, instructions and agreements
set forth hereon shall apply to the account, and if applicable, shall also apply
to any other fund account with shares acquired upon exchange of shares of the
Fund.
Under penalties of perjury, I certify that (1) the number shown on this form is
my correct taxpayer identification number (or I am waiting for a number to be
issued to me), and (2) I am not subject to backup withholding because (a) I am
exempt from backup withholding, or (b) I have not been notified by the Internal
Revenue Service that I am subject to backup withholding as a result of a failure
to report all interest or dividends, or (c) the IRS has notified me that I am no
longer subject to backup withholding.
Certification instructions: You must cross out item (2) above if you have been
notified by the IRS that you are currently subject to backup withholding because
of underreporting interest or dividends on your tax return.
1. Arbitration
(i) Arbitration is final and binding on the parties.
(ii) The parties are waiving their right to seek remedies in court, including
the right to jury trial.
(iii) Pre-arbitration discovery is generally more limited than and different
from court proceedings.
(iv) The arbitrators' award is not required to include factual findings or
legal reasoning and any party's right to appeal or to seek modification of
rulings by the arbitrators is strictly limited.
(v) The panel of arbitrators will typically include a minority of arbitrators
who were or are affiliated with the securities industry.
(vi) No person shall bring a putative or certified class action to
arbitration, nor seek to enforce any pre-dispute arbitration agreement
against any person who has initiated in court a putative class action; or who
is a member of a putative class who has not opted out of the class with
respect to any claims encompassed by the putative class action until (i) the
class certification is denied; or (ii) the class is decertified; or (iii) the
customer is excluded from the class by the court. Such forbearance to enforce
an agreement to arbitrate shall not constitute a waiver of any rights under
this agreement except to the extent stated herein.
2. MetLife Securities, Inc. (hereinafter "MSI") and the purchaser of the shares,
who is the signatory below (hereinafter the "Customer"), agree that any
controversy between MSI, its employees, directors, agents, officers or
affiliates and the Customer arising out of or relating to any transactions
between such parties shall be determined by arbitration. Any arbitration
pursuant to this agreement shall be conducted before, and under the rules of,
the National Association of Securities Dealers, Inc. Judgment upon the award of
the arbitrators may be entered in any federal or state court having
jurisdiction.
3. This agreement and any arbitration hereunder shall be governed and construed
in accordance with the laws of the State of New York, United States of America,
including New York procedural and substantive arbitration laws and rules,
without giving effect to conflicts of law principles.
The predispute arbitration agreement located immediately above is accepted and
agreed to. I have also received the current prospectus of the fund and have
given a check in the amount of $_________________ on this, the ______________
day of ___________________________ 19__
The Internal Revenue Service does not require your consent to any provision of
this document other than the certification required to avoid backup withholding.
_______________________________________ ________________________________________
Customer Signature (exactly as your Registered Representative's Signature
name appears in Section 1)
/s/ Elaine S. Stevenson
_______________________________________ ________________________________________
Customer Signature MetLife Securities, Inc.;
by: Elaine S. Stevenson, President
_______________________________________
Capacity
7 Dealer Information and Signature Guarantee (For Dealer use only)
The Dealer agrees to all applicable provisions in this application and in the
Prospectus, guarantees the signature and legal capacity of the shareholder, and
represents that it has provided a current Prospectus to the Applicant and that
the application is properly executed by a person authorized by the Dealer to
guarantee signatures. The Dealer warrants that this application is completed in
accordance with the shareholder's instructions and information and agrees to
indemnify the Fund, any other Eligible Funds, the Investment Manager, the
Distributor, State Street Research Shareholder Services and the Transfer Agent
for any loss or liability from acting or relying upon such instructions and
information. Signature(s) Guaranteed By
MetLife Securities, Inc.
_______________________________________ ________________________________________
Dealer Name Branch Office Number
P.O. Box 30421
_______________________________________ ________________________________________
Address of Home Office Address of Branch Office
Servicing Account
Tampa, FL 33630
_______________________________________ ________________________________________
City State ZIP City State ZIP
_______________________________________ ________________________________________
Authorized Signature of Dealer Registered Representative's
- Tampa, FL Name and Number
_______________________________________
Signature Guarantee
The payment of monies is authorized by the signature(s) on the reverse side.
If the shareholder's account with the Fund is joint, all checks drawn upon this
account must include the signatures of all persons named in the account, unless
the persons signing this card have indicated on the reverse side of this card
that the Bank is authorized to accept any one signature. Each person guarantees
the genuineness of the other's signature. Checks may not be for less than $500
or such other minimum or maximum amounts as may from time to time be established
by the Fund.
The Bank is hereby appointed agent by the person(s) signing this card (the
"Depositor(s)") and, as agent, is authorized and directed to present checks
drawn on this checking account to the Fund or its redemption agent as requests
to redeem shares of the Fund registered in the name of the Depositor(s) in the
amounts of such checks and to deposit the proceeds of such redemptions in this
checking account. The Bank shall be liable only for its own negligence.
Depositor(s) hereby authorize(s) the Fund or its redemption agent to honor
redemption requests presented in the above manner by the Bank. The Fund and its
redemption agent will not be liable for any loss, expense or cost arising out of
check redemptions. If shares of the Fund are purchased by check, redemption
proceeds will ordinarily be withheld until the Fund is reasonably assured that
payment has been collected on the check. The Bank has the right not to honor
checks in amounts exceeding the value of the depositor(s) shareholder account at
the time the check is presented for payment.
The Bank reserves the right to change, modify or terminate this checking account
at any time upon notification mailed to the address of record of the
Depositor(s).
The terms and conditions of the Distributor's currently effective Selected
Dealer Agreement are included by reference in this section. The Dealer
represents that it has a currently effective Selected Dealer Agreement with the
Distributor authorizing the Dealer to sell shares of the Fund and the Eligible
Funds, and that it may lawfully sell shares of the designated Fund(s) in the
state designated as the Applicant's address of record.
- -------------------------------
DO NOT COMPLETE
MSI - Tampa
Dealer #__________ ST _____
Rep #______________________
Rep Name __________________
- -------------------------------
CONTROL NUMBER: 3672-970214(0398)SSR-LD
ML-598E-297
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000727101
<NAME> STATE STREET RESEARCH CAPITAL TRUST
<SERIES>
<NUMBER> 011
<NAME> STATE STREET RESEARCH CAPITAL FUND CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 996,824,517
<INVESTMENTS-AT-VALUE> 1,346,161,859
<RECEIVABLES> 4,955,453
<ASSETS-OTHER> 72,295
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,351,189,607
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,991,967
<TOTAL-LIABILITIES> 7,991,967
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 985,348,642
<SHARES-COMMON-STOCK> 31,944,062
<SHARES-COMMON-PRIOR> 8,300,931
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8,511,656
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 349,337,342
<NET-ASSETS> 1,343,197,640
<DIVIDEND-INCOME> 3,023,118
<INTEREST-INCOME> 1,999,857
<OTHER-INCOME> 0
<EXPENSES-NET> 13,589,981
<NET-INVESTMENT-INCOME> (8,567,006)
<REALIZED-GAINS-CURRENT> 11,938,430
<APPREC-INCREASE-CURRENT> 91,743,820
<NET-CHANGE-FROM-OPS> 95,115,244
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 30,010,713
<NUMBER-OF-SHARES-REDEEMED> (6,367,582)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 616,897,906
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (2,079,183)
<GROSS-ADVISORY-FEES> 5,786,403
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 13,589,981
<AVERAGE-NET-ASSETS> 771,520,400
<PER-SHARE-NAV-BEGIN> 13.76
<PER-SHARE-NII> (0.08)
<PER-SHARE-GAIN-APPREC> 1.06
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.74
<EXPENSE-RATIO> 1.21
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000727101
<NAME> STATE STREET RESEARCH CAPITAL TRUST
<SERIES>
<NUMBER> 012
<NAME> STATE STREET RESEARCH CAPITAL FUND CLASS B
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 996,824,517
<INVESTMENTS-AT-VALUE> 1,346,161,859
<RECEIVABLES> 4,955,453
<ASSETS-OTHER> 72,295
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,351,189,607
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,991,967
<TOTAL-LIABILITIES> 7,991,967
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 985,348,642
<SHARES-COMMON-STOCK> 39,506,904
<SHARES-COMMON-PRIOR> 28,872,901
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8,511,656
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 349,337,342
<NET-ASSETS> 1,343,197,640
<DIVIDEND-INCOME> 3,023,118
<INTEREST-INCOME> 1,999,857
<OTHER-INCOME> 0
<EXPENSES-NET> 13,589,981
<NET-INVESTMENT-INCOME> (8,567,006)
<REALIZED-GAINS-CURRENT> 11,938,430
<APPREC-INCREASE-CURRENT> 91,743,820
<NET-CHANGE-FROM-OPS> 95,115,244
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 20,975,801
<NUMBER-OF-SHARES-REDEEMED> (10,341,798)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 616,897,906
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (2,079,183)
<GROSS-ADVISORY-FEES> 5,786,403
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 13,589,981
<AVERAGE-NET-ASSETS> 771,520,400
<PER-SHARE-NAV-BEGIN> 13.40
<PER-SHARE-NII> (0.17)
<PER-SHARE-GAIN-APPREC> 1.01
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.24
<EXPENSE-RATIO> 1.98
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000727101
<NAME> STATE STREET RESEARCH CAPITAL TRUST
<SERIES>
<NUMBER> 013
<NAME> STATE STREET RESEARCH CAPITAL FUND CLASS C
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 996,824,517
<INVESTMENTS-AT-VALUE> 1,346,161,859
<RECEIVABLES> 4,955,453
<ASSETS-OTHER> 72,295
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,351,189,607
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,991,967
<TOTAL-LIABILITIES> 7,991,967
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 985,348,642
<SHARES-COMMON-STOCK> 12,682,096
<SHARES-COMMON-PRIOR> 2,499,112
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8,511,656
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 349,337,342
<NET-ASSETS> 1,343,197,640
<DIVIDEND-INCOME> 3,023,118
<INTEREST-INCOME> 1,999,857
<OTHER-INCOME> 0
<EXPENSES-NET> 13,589,981
<NET-INVESTMENT-INCOME> (8,567,006)
<REALIZED-GAINS-CURRENT> 11,938,430
<APPREC-INCREASE-CURRENT> 91,743,820
<NET-CHANGE-FROM-OPS> 95,115,244
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11,310,523
<NUMBER-OF-SHARES-REDEEMED> (1,127,539)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 616,897,906
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (2,079,183)
<GROSS-ADVISORY-FEES> 5,786,403
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 13,589,981
<AVERAGE-NET-ASSETS> 771,520,400
<PER-SHARE-NAV-BEGIN> 13.94
<PER-SHARE-NII> (0.05)
<PER-SHARE-GAIN-APPREC> 1.07
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.96
<EXPENSE-RATIO> 0.96
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000727101
<NAME> STATE STREET RESEARCH CAPITAL TRUST
<SERIES>
<NUMBER> 014
<NAME> STATE STREET RESEARCH CAPITAL FUND CLASS D
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 996,824,517
<INVESTMENTS-AT-VALUE> 1,346,161,859
<RECEIVABLES> 4,955,453
<ASSETS-OTHER> 72,295
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,351,189,607
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,991,967
<TOTAL-LIABILITIES> 7,991,967
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 985,348,642
<SHARES-COMMON-STOCK> 8,418,494
<SHARES-COMMON-PRIOR> 14,180,375
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8,511,656
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 349,337,342
<NET-ASSETS> 1,343,197,640
<DIVIDEND-INCOME> 3,023,118
<INTEREST-INCOME> 1,999,857
<OTHER-INCOME> 0
<EXPENSES-NET> 13,589,981
<NET-INVESTMENT-INCOME> (8,567,006)
<REALIZED-GAINS-CURRENT> 11,938,430
<APPREC-INCREASE-CURRENT> 91,743,820
<NET-CHANGE-FROM-OPS> 95,115,244
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,363,801
<NUMBER-OF-SHARES-REDEEMED> (9,125,682)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 616,897,906
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (2,079,183)
<GROSS-ADVISORY-FEES> 5,786,403
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 13,589,981
<AVERAGE-NET-ASSETS> 771,520,400
<PER-SHARE-NAV-BEGIN> 13.42
<PER-SHARE-NII> (0.17)
<PER-SHARE-GAIN-APPREC> 1.01
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.26
<EXPENSE-RATIO> 1.98
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000727101
<NAME> STATE STREET RESEARCH CAPITAL TRUST
<SERIES>
<NUMBER> 021
<NAME> STATE STREET RESEARCH EMERGING GROWTH FUND CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 67,200,529
<INVESTMENTS-AT-VALUE> 88,831,602
<RECEIVABLES> 3,115,982
<ASSETS-OTHER> 24,033
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 91,971,617
<PAYABLE-FOR-SECURITIES> 2,260,501
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 285,952
<TOTAL-LIABILITIES> 2,546,453
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 54,200,917
<SHARES-COMMON-STOCK> 2,218,121
<SHARES-COMMON-PRIOR> 1,747,342
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 13,593,174
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 21,631,073
<NET-ASSETS> 89,425,164
<DIVIDEND-INCOME> 132,030
<INTEREST-INCOME> 302,291
<OTHER-INCOME> 0
<EXPENSES-NET> 1,049,359
<NET-INVESTMENT-INCOME> (615,038)
<REALIZED-GAINS-CURRENT> 14,594,498
<APPREC-INCREASE-CURRENT> 12,653,977
<NET-CHANGE-FROM-OPS> 26,633,437
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (1,462,798)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 736,606
<NUMBER-OF-SHARES-REDEEMED> (399,385)
<SHARES-REINVESTED> 133,558
<NET-CHANGE-IN-ASSETS> 28,165,353
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 4,184,442
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 461,544
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,235,177
<AVERAGE-NET-ASSETS> 61,539,200
<PER-SHARE-NAV-BEGIN> 11.33
<PER-SHARE-NII> (0.08)
<PER-SHARE-GAIN-APPREC> 5.13
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.85)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.53
<EXPENSE-RATIO> 1.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000727101
<NAME> STATE STREET RESEARCH CAPITAL TRUST
<SERIES>
<NUMBER> 022
<NAME> STATE STREET RESEARCH EMERGING GROWTH FUND CLASS B
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 67,200,529
<INVESTMENTS-AT-VALUE> 88,831,602
<RECEIVABLES> 3,115,982
<ASSETS-OTHER> 24,033
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 91,971,617
<PAYABLE-FOR-SECURITIES> 2,260,501
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 285,952
<TOTAL-LIABILITIES> 2,546,453
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 54,200,917
<SHARES-COMMON-STOCK> 2,684,484
<SHARES-COMMON-PRIOR> 2,129,754
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 13,593,174
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 21,631,073
<NET-ASSETS> 89,425,164
<DIVIDEND-INCOME> 132,030
<INTEREST-INCOME> 302,291
<OTHER-INCOME> 0
<EXPENSES-NET> 1,049,359
<NET-INVESTMENT-INCOME> (615,038)
<REALIZED-GAINS-CURRENT> 14,594,498
<APPREC-INCREASE-CURRENT> 12,653,977
<NET-CHANGE-FROM-OPS> 26,633,437
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (1,761,067)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 916,437
<NUMBER-OF-SHARES-REDEEMED> (519,013)
<SHARES-REINVESTED> 157,306
<NET-CHANGE-IN-ASSETS> 28,165,353
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 4,184,442
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 461,544
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,235,177
<AVERAGE-NET-ASSETS> 61,539,200
<PER-SHARE-NAV-BEGIN> 11.11
<PER-SHARE-NII> (0.16)
<PER-SHARE-GAIN-APPREC> 4.99
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.85)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.09
<EXPENSE-RATIO> 2.10
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000727101
<NAME> STATE STREET RESEARCH CAPITAL TRUST
<SERIES>
<NUMBER> 023
<NAME> STATE STREET RESEARCH EMERGING GROWTH FUND CLASS C
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 67,200,529
<INVESTMENTS-AT-VALUE> 88,831,602
<RECEIVABLES> 3,115,982
<ASSETS-OTHER> 24,033
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 91,971,617
<PAYABLE-FOR-SECURITIES> 2,260,501
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 285,952
<TOTAL-LIABILITIES> 2,546,453
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 54,200,917
<SHARES-COMMON-STOCK> 445,503
<SHARES-COMMON-PRIOR> 1,163,690
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 13,593,174
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 21,631,073
<NET-ASSETS> 89,425,164
<DIVIDEND-INCOME> 132,030
<INTEREST-INCOME> 302,291
<OTHER-INCOME> 0
<EXPENSES-NET> 1,049,359
<NET-INVESTMENT-INCOME> (615,038)
<REALIZED-GAINS-CURRENT> 14,594,498
<APPREC-INCREASE-CURRENT> 12,653,977
<NET-CHANGE-FROM-OPS> 26,633,437
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (1,026,873)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 315,695
<NUMBER-OF-SHARES-REDEEMED> (1,129,494)
<SHARES-REINVESTED> 95,612
<NET-CHANGE-IN-ASSETS> 28,165,353
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 4,184,442
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 461,544
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,235,177
<AVERAGE-NET-ASSETS> 61,539,200
<PER-SHARE-NAV-BEGIN> 11.44
<PER-SHARE-NII> (0.04)
<PER-SHARE-GAIN-APPREC> 5.18
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.85)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.73
<EXPENSE-RATIO> 1.10
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000727101
<NAME> STATE STREET RESEARCH CAPITAL TRUST
<SERIES>
<NUMBER> 024
<NAME> STATE STREET RESEARCH EMERGING GROWTH FUND CLASS D
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 67,200,529
<INVESTMENTS-AT-VALUE> 88,831,602
<RECEIVABLES> 3,115,982
<ASSETS-OTHER> 24,033
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 91,971,617
<PAYABLE-FOR-SECURITIES> 2,260,501
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 285,952
<TOTAL-LIABILITIES> 2,546,453
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 54,200,917
<SHARES-COMMON-STOCK> 494,177
<SHARES-COMMON-PRIOR> 405,535
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 13,593,174
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 21,631,073
<NET-ASSETS> 89,425,164
<DIVIDEND-INCOME> 132,030
<INTEREST-INCOME> 302,291
<OTHER-INCOME> 0
<EXPENSES-NET> 1,049,359
<NET-INVESTMENT-INCOME> (615,038)
<REALIZED-GAINS-CURRENT> 14,594,498
<APPREC-INCREASE-CURRENT> 12,653,977
<NET-CHANGE-FROM-OPS> 26,633,437
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (320,673)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 146,268
<NUMBER-OF-SHARES-REDEEMED> (86,639)
<SHARES-REINVESTED> 29,013
<NET-CHANGE-IN-ASSETS> 28,165,353
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 4,184,442
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 461,544
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,235,177
<AVERAGE-NET-ASSETS> 61,539,200
<PER-SHARE-NAV-BEGIN> 11.10
<PER-SHARE-NII> (0.16)
<PER-SHARE-GAIN-APPREC> 5.01
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.85)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.10
<EXPENSE-RATIO> 2.10
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000727101
<NAME> STATE STREET RESEARCH CAPITAL TRUST
<SERIES>
<NUMBER> 031
<NAME> STATE STREET RESEARCH AURORA FUND CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 426,434,469
<INVESTMENTS-AT-VALUE> 485,724,612
<RECEIVABLES> 11,171,846
<ASSETS-OTHER> 118,490
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 497,014,948
<PAYABLE-FOR-SECURITIES> 20,687,805
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 872,531
<TOTAL-LIABILITIES> 21,560,336
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 412,007,666
<SHARES-COMMON-STOCK> 7,621,324
<SHARES-COMMON-PRIOR> 73,305
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,156,803
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 59,290,143
<NET-ASSETS> 475,454,612
<DIVIDEND-INCOME> 212,366
<INTEREST-INCOME> 1,052,808
<OTHER-INCOME> 0
<EXPENSES-NET> 1,498,550
<NET-INVESTMENT-INCOME> (233,376)
<REALIZED-GAINS-CURRENT> 4,589,402
<APPREC-INCREASE-CURRENT> 57,978,769
<NET-CHANGE-FROM-OPS> 62,334,795
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (275,192)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,718,462
<NUMBER-OF-SHARES-REDEEMED> (191,210)
<SHARES-REINVESTED> 20,767
<NET-CHANGE-IN-ASSETS> 466,262,970
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,928,878
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 726,266
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,633,939
<AVERAGE-NET-ASSETS> 85,443,059
<PER-SHARE-NAV-BEGIN> 15.14
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 9.02
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (3.48)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 20.71
<EXPENSE-RATIO> 1.34
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000727101
<NAME> STATE STREET RESEARCH CAPITAL TRUST
<SERIES>
<NUMBER> 032
<NAME> STATE STREET RESEARCH AURORA FUND CLASS B
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 426,434,469
<INVESTMENTS-AT-VALUE> 485,724,612
<RECEIVABLES> 11,171,846
<ASSETS-OTHER> 118,490
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 497,014,948
<PAYABLE-FOR-SECURITIES> 20,687,805
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 872,531
<TOTAL-LIABILITIES> 21,560,336
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 412,007,666
<SHARES-COMMON-STOCK> 11,606,420
<SHARES-COMMON-PRIOR> 10,991
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,156,803
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 59,290,143
<NET-ASSETS> 475,454,612
<DIVIDEND-INCOME> 212,366
<INTEREST-INCOME> 1,052,808
<OTHER-INCOME> 0
<EXPENSES-NET> 1,498,550
<NET-INVESTMENT-INCOME> (233,376)
<REALIZED-GAINS-CURRENT> 4,589,402
<APPREC-INCREASE-CURRENT> 57,978,769
<NET-CHANGE-FROM-OPS> 62,334,795
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (38,226)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11,670,966
<NUMBER-OF-SHARES-REDEEMED> (78,457)
<SHARES-REINVESTED> 2,920
<NET-CHANGE-IN-ASSETS> 466,262,970
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,928,878
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 726,266
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,633,939
<AVERAGE-NET-ASSETS> 85,443,059
<PER-SHARE-NAV-BEGIN> 15.02
<PER-SHARE-NII> (0.09)
<PER-SHARE-GAIN-APPREC> 8.88
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (3.48)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 20.33
<EXPENSE-RATIO> 2.08
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000727101
<NAME> STATE STREET RESEARCH CAPITAL TRUST
<SERIES>
<NUMBER> 033
<NAME> STATE STREET RESEARCH AURORA FUND CLASS C
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 426,434,469
<INVESTMENTS-AT-VALUE> 485,724,612
<RECEIVABLES> 11,171,846
<ASSETS-OTHER> 118,490
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 497,014,948
<PAYABLE-FOR-SECURITIES> 20,687,805
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 872,531
<TOTAL-LIABILITIES> 21,560,336
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 412,007,666
<SHARES-COMMON-STOCK> 697,968
<SHARES-COMMON-PRIOR> 510,530
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,156,803
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 59,290,143
<NET-ASSETS> 475,454,612
<DIVIDEND-INCOME> 212,366
<INTEREST-INCOME> 1,052,808
<OTHER-INCOME> 0
<EXPENSES-NET> 1,498,550
<NET-INVESTMENT-INCOME> (233,376)
<REALIZED-GAINS-CURRENT> 4,589,402
<APPREC-INCREASE-CURRENT> 57,978,769
<NET-CHANGE-FROM-OPS> 62,334,795
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (1,776,578)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 68,257
<NUMBER-OF-SHARES-REDEEMED> (14,394)
<SHARES-REINVESTED> 133,575
<NET-CHANGE-IN-ASSETS> 466,262,970
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,928,878
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 726,266
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,633,939
<AVERAGE-NET-ASSETS> 85,443,059
<PER-SHARE-NAV-BEGIN> 15.18
<PER-SHARE-NII> (0.00)
<PER-SHARE-GAIN-APPREC> 9.13
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (3.48)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 20.83
<EXPENSE-RATIO> 1.16
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000727101
<NAME> STATE STREET RESEARCH CAPITAL TRUST
<SERIES>
<NUMBER> 034
<NAME> STATE STREET RESEARCH AURORA FUND CLASS D
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 426,434,469
<INVESTMENTS-AT-VALUE> 485,724,612
<RECEIVABLES> 11,171,846
<ASSETS-OTHER> 118,490
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 497,014,948
<PAYABLE-FOR-SECURITIES> 20,687,805
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 872,531
<TOTAL-LIABILITIES> 21,560,336
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 412,007,666
<SHARES-COMMON-STOCK> 3,302,603
<SHARES-COMMON-PRIOR> 10,991
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,156,803
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 59,290,143
<NET-ASSETS> 475,454,612
<DIVIDEND-INCOME> 212,366
<INTEREST-INCOME> 1,052,808
<OTHER-INCOME> 0
<EXPENSES-NET> 1,498,550
<NET-INVESTMENT-INCOME> (233,376)
<REALIZED-GAINS-CURRENT> 4,589,402
<APPREC-INCREASE-CURRENT> 57,978,769
<NET-CHANGE-FROM-OPS> 62,334,795
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (38,226)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,388,937
<NUMBER-OF-SHARES-REDEEMED> (100,246)
<SHARES-REINVESTED> 2,921
<NET-CHANGE-IN-ASSETS> 466,262,970
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,928,878
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 726,266
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,633,939
<AVERAGE-NET-ASSETS> 85,443,059
<PER-SHARE-NAV-BEGIN> 15.02
<PER-SHARE-NII> (0.09)
<PER-SHARE-GAIN-APPREC> 8.87
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (3.48)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 20.32
<EXPENSE-RATIO> 2.09
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
