<PAGE>
OMB Number
3235-0307
Expires 04/30/03
Estimated average
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As filed with the Securities and Exchange Commission on January 12, 2001
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. 20 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 26 [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 Research & Management Company
One Financial Center
Boston, Massachusetts 02111
Geoffrey R.T. Kenyon, Esq.
Goodwin, Procter & Hoar LLP
Exchange Place, Boston, Massachusetts 02109
It is proposed that this filing will become effective under Rule 485:
[ ] Immediately upon filing pursuant to paragraph (b),
[X] February 1, 2001 pursuant to paragraph (b),
[ ] 60 days after filing pursuant to paragraph (a)(1),
[ ] On __________________ 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>
The Prospectus and Statement of Additional Information of State Street
Research Mid-Cap Growth Fund, State Street Research Emerging Growth Fund and
State Street Research Aurora Fund series of State Street Research Capital Trust
(the "Registrant") are included herein.
<PAGE>
[LOGO - Tip of State Street Research Building]
STATE STREET RESEARCH
MID-CAP GROWTH FUND
THIS PROSPECTUS HAS INFORMATION YOU SHOULD KNOW BEFORE YOU INVEST. PLEASE READ
IT CAREFULLY AND KEEP IT WITH YOUR INVESTMENT RECORDS.
AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THIS PROSPECTUS WILL ALSO BE AVAILABLE IN SPANISH IN MARCH BY CALLING THE
STATE STREET RESEARCH SERVICE CENTER AT 1-888-638-3193.
[GRAPHIC - Tip of State Street Research Building]
A STOCK FUND WITH A GROWTH APPROACH TO MID-CAP INVESTING.
PROSPECTUS
February 1, 2001
<PAGE>
CONTENTS
---------------------------------------------------------------------
1 THE FUND
------------------
1 Goal and Strategies
2 Principal Risks
4 Volatility and Performance
6 Investor Expenses
8 Investment Management
9 YOUR INVESTMENT
-------------------------
9 Opening an Account
9 Choosing a Share Class
10 Sales Charges
13 Dealer Compensation
14 Buying and Selling Shares
18 Account Policies
20 Distributions and Taxes
21 Investor Services
22 OTHER INFORMATION
-------------------------
22 Other Securities and Risks
24 Financial Highlights
27 Board of Trustees
BACK COVER For Additional Information
<PAGE>
THE FUND 1
--------------------------------------------------------------------------------
[GRAPHIC: CHESS PIECE] GOAL AND STRATEGIES
FUNDAMENTAL GOAL The fund seeks to provide long-term growth of capital.
PRINCIPAL STRATEGIES Under normal market conditions, the fund invests at least
65% of total assets in stocks of companies with medium market capitalizations
and the potential for earnings growth.
The fund generally expects that most investments will be in stocks of
companies that are of comparable size to companies in the Russell
Midcap(-TM-) Growth Index, or a similar index. The fund may continue to hold
or buy additional stock in a company that has moved outside this range if the
stock remains attractive.
The fund's investments may include common and preferred stocks, convertible
securities and warrants.
In choosing among mid-cap stocks, the fund takes a growth approach, searching
for those companies whose earnings appear to be growing at a faster rate than
the average company. The fund generally attempts to identify the industries that
over the long term will grow faster than the economy as a whole. It looks for
companies within those industries that appear to have the potential to sustain
earnings growth, or companies within industries experiencing increasing demand.
The fund reserves the right to invest up to 35% of total assets in other
securities. These may include other types
[GRAPHIC: MAGNIFYING CLASS] WHO MAY WANT TO INVEST State Street Research
Mid-Cap Growth Fund is designed for investors who seek one or more of the
following:
- an aggressive stock fund for a long-term goal
- a fund to complement a portfolio of more conservative investments
- a mid-cap fund that emphasizes growth stocks over value stocks
The fund is NOT appropriate for investors who:
- want to avoid high volatility or possible losses
- are making short-term investments
- are investing emergency reserve money
- are seeking regular income
<PAGE>
2 THE FUND continued
--------------------------------------------------------------------------------
of stocks, as well as U.S. government securities and corporate 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 22.
[GRAPHIC: STOP SIGN] PRINCIPAL RISKS
Because the fund invests primarily in stocks, its major risks are those of stock
investing, including sudden and unpredictable drops in value and the potential
for periods of lackluster performance.
As a general rule, growth stocks often are more sensitive to market movements
than other types of stocks, because their market prices tend to reflect future
expectations. At times when it appears that these expectations may not be met,
growth stock prices typically fall.
In addition, there are particular risks associated with investing in companies
of a given size and investment style. Mid-cap companies entail greater risk and
are usually more volatile than the shares of larger companies. Growth stocks can
be volatile for several reasons. Since they usually reinvest a high proportion
of earnings in their own businesses, they may lack the dividends associated with
value stocks that can cushion their decline in a falling market. Also, since
investors buy these stocks because of their expected superior earnings growth,
earnings disappointments often result in sharp price declines. The fund's
mid-cap growth emphasis means that it may underperform certain other stock funds
(those emphasizing large-cap value stocks, for example) during periods when
mid-cap growth stocks are out of favor. The success of the fund's investment
strategy depends largely on the portfolio manager's skill in assessing the
potential of the stocks the fund 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
<PAGE>
3
-------
increase the fund's brokerage costs and may increase your tax liability if there
are capital gains.
Because the fund may invest in U.S. companies with some international business,
and also may invest in foreign companies, it is subject to the risks associated
with international investing.
The fund's shares will rise and fall in value and there is a risk that you
could lose money by investing in the fund. Also, the fund cannot be certain
that it will achieve its goal. Finally, fund shares are not bank deposits and
are not guaranteed, endorsed or insured by a financial institution,
government entity or the FDIC.
INFORMATION ON OTHER SECURITIES AND RISKS APPEARS ON PAGE 22.
A "SNAPSHOT" OF THE FUND'S INVESTMENTS MAY BE FOUND IN THE CURRENT ANNUAL OR
SEMIANNUAL REPORT (SEE BACK COVER).
[GRAPIC: MAGNIFYING GLASS] WHY MID-CAP
GROWTH
INVESTING?
Mid-cap stocks may be able to provide the potential for greater appreciation
than stocks of larger companies while providing less risk than stocks of smaller
companies. Mid-cap stocks tend to be more volatile than large-cap stocks but
less so than small-cap stocks.
Mid-cap companies are typically more nimble than large-cap companies in adapting
to changing needs in the market. Mid-cap companies also tend to have more
resources than smaller companies. They are usually mature enough to have the
organizational structures and management needed to expand their operations. In
addition, they generally have sufficient financial resources and access to
capital to finance their growth.
A fund that uses a growth-oriented strategy seeks to invest in stocks of
companies that are growing faster than the economy as a whole. Often these
companies are in expanding industries and are aiming for strong growth. These
companies tend to reinvest their earnings rather than pay dividends. Growth
funds are therefore appropriate for investors who have a long-term investment
horizon.
<PAGE>
4 VOLATILITY AND PERFORMANCE
--------------------------------------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------------------------------------------
YEAR-BY-YEAR TOTAL RETURN (CLASS A) 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
75.72 6.26 31.53 0.21 31.86 7.56 6.25 14.01 32.00 (7.90)
</TABLE>
BEST QUARTER : fourth quarter 1999, up 33.93%
WORST QUARTER: third quarter 1998, down 22.10%
<TABLE>
<CAPTION>
As of December 31, 2000
------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (AT MAXIMUM APPLICABLE SALES CHARGE) 1 YEAR 5 YEARS 10 YEARS
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A (%) (13.20) 8.34 17.09
Class B(1) (%)(a) (10.69) 8.66 17.14
Class B (%) (10.64) 8.64 17.13
Class C (%) (8.84) 8.85 17.17
Class S (%) (7.57) 9.92 18.06
Russell Midcap(-TM-)Growth Index (%) (11.79) 17.77 18.10
S&P 500 Index (%) (9.10) 18.33 17.44
Lipper Mid-Cap Growth Funds Index (%) (16.13) 15.73 18.97
</TABLE>
[SIDEBAR]
(a) PERFORMANCE FOR CLASS B(1) REFLECTS CLASS B PERFORMANCE THROUGH DECEMBER 31,
1998. CLASS B(1) WAS INTRODUCED ON JANUARY 1, 1999.
<PAGE>
5
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[GRAPHIC: Magnifying Glass on pad of paper] UNDERSTANDING
VOLATILITY AND
PERFORMANCE
The chart and table on the opposite page are designed to show two aspects of the
fund's track record:
- YEAR-BY-YEAR TOTAL RETURN 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. If sales charges had been included, returns would
have been less than shown.
- 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.
Also included are three independent measures of performance. Two are
unmanaged stock indices: the S&P 500 (officially, the "S&P 500 Composite
Stock Price Index"), which includes 500 domestic stocks, and the Russell
Midcap(-TM-) Growth Index, which contains only those stocks within the
Russell Midcap(-TM-) Index (a mid-size company index) that show above-average
growth. The Lipper Mid-Cap Growth 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 are good indicators of general stock market performance
and 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 Midcap(-TM-) Growth Index, your
returns would always be lower, because these indices don't include brokerage
and administrative expenses.
Keep in mind that past performance is no guarantee of future results.
<PAGE>
6 INVESTOR EXPENSES
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class descriptions begin on page 9
---------------------------------------------------------
SHAREHOLDER FEES (% of offering price) CLASS A CLASS B(1) CLASS B CLASS C CLASS S
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MAXIMUM FRONT-END SALES CHARGE (LOAD) 5.75 0.00 0.00 0.00 0.00
MAXIMUM DEFERRED SALES CHARGE (LOAD) 0.00(a) 5.00 5.00 1.00 0.00
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (% of average net assets) CLASS A CLASS B(1) CLASS B CLASS C CLASS S
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MANAGEMENT FEE 0.72 0.72 0.72 0.72 0.72
SERVICE/DISTRIBUTION (12b-1) FEES 0.30(b) 1.00 1.00 1.00 0.00
OTHER EXPENSES 0.39 0.39 0.39 0.39 0.39
---- ---- ---- ---- ----
TOTAL ANNUAL FUND OPERATING EXPENSES* 1.41 2.11 2.11 2.11 1.11
==== ==== ==== ==== ====
*BECAUSE SOME OF THE FUND'S EXPENSES
HAVE BEEN REDUCED THROUGH EXPENSE
OFFSET ARRANGEMENTS, ACTUAL TOTAL
OPERATING EXPENSES FOR THE PRIOR YEAR
WOULD HAVE BEEN: 1.40 2.10 2.13(C) 2.10 1.10
<CAPTION>
EXAMPLE YEAR CLASS A CLASS B(1) CLASS B CLASS C CLASS S
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 $710 $714/$214 $714/$214 $314/$214 $113
3 $996 $961/$661 $961/$661 $661 $353
5 $1,302 $1,334/$1,134 $1,334/$1,134 $1,134 $612
10 $2,169 $2,263 $2,263 $2,441 $1,352
</TABLE>
(a) EXCEPT FOR INVESTMENTS OF $1 MILLION OR MORE; SEE PAGE 10.
(b) REFLECTS FEE SCHEDULE THAT BECAME EFFECTIVE MAY 1, 2000, AS IF IT HAD BEEN
IN PLACE DURING THE FUND'S ENTIRE PREVIOUS FISCAL YEAR. THE TRUSTEES MAY
INCREASE THE CURRENT SERVICE/DISTRIBUTION FEES SHOWN FOR CLASS A SHARES AT
ANY TIME PROVIDED THAT THE FEES DO NOT EXCEED A MAXIMUM OF 0.40%.
(c) REFLECTS WAIVER OF A PORTION OF THE 12b-1 FEES AS IF THE WAIVER HAD BEEN IN
PLACE DURING THE FUND'S PREVIOUS FISCAL YEAR. THE FUND EXPECTS THE WAIVER
TO CONTINUE THROUGH THE CURRENT FISCAL YEAR, ALTHOUGH THERE IS NO GUARANTEE
THAT IT WILL.
<PAGE>
7
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[GRAPHIC: MAGNIFYING GLASS] UNDERSTANDING INVESTOR
EXPENSES
The information on the opposite page is designed to give you an idea of what you
should expect to pay in expenses as an investor in the fund. The information is
based on the fund's most recent fiscal year and current results may be
different.
- SHAREHOLDER FEES are costs that are charged to you directly. These fees are
not charged on reinvestments or exchanges.
- ANNUAL FUND OPERATING EXPENSES are deducted from the fund's assets every year,
and are thus paid indirectly by all fund investors.
- The EXAMPLE is designed to allow you to compare the costs of this fund with
those of other funds. It assumes that you invested $10,000 over the years
indicated, reinvested all distributions, earned a hypothetical 5% annual return
and paid the maximum applicable sales charges. For Class B(1) and Class B
shares, it also assumes the automatic conversion to Class A shares after eight
years.
Where two numbers are shown separated by a slash, the first one assumes you sold
all your shares at the end of the period, while the second assumes you stayed in
the fund. Where there is only one number, the costs would be the same either
way.
The figures in the example assume full annual expenses, and would be lower if
they reflected the various expense reductions that may have been taken.
Investors should keep in mind that the example is for comparison purposes only.
The fund's actual performance and expenses may be higher or lower.
<PAGE>
8 THE FUND continued
--------------------------------------------------------------------------------
[GRAPHIC: THINKER] INVESTMENT
MANAGEMENT
The fund's investment manager is State Street Research & Management Company, One
Financial Center, Boston, Massachusetts 02111. The firm traces its heritage back
to 1924 and the founding of one of America's first mutual funds. Today the firm
has approximately $___ billion in assets under management (as of December 31,
2000), including more than $___ billion in mutual funds.
The investment manager is responsible for the fund's investment and business
activities, and receives the management fee as compensation. The management fee
is 0.75% of the first $500 million of average net assets, annually, 0.70% of the
next $500 million, and 0.65% of any amount over $1 billion. The investment
manager is a subsidiary of Metropolitan Life Insurance Company.
Catherine Dudley has been responsible for the fund's day-to-day portfolio
management since October 1999. A senior vice president, she joined the firm in
1998. During the past five years she has also served as a senior portfolio
manager at Chancellor Capital Management.
<PAGE>
YOUR INVESTMENT 9
--------------------------------------------------------------------------------
[GRAPHIC: KEY] 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.
[GRAPHIC: CHECKLIST] CHOOSING A SHARE CLASS
The fund generally offers four share classes, each with its own sales charge and
expense structure: Class A, Class B(1), Class C and Class S. The fund also
offers Class B shares, but only to current Class B shareholders through
reinvestment of dividends and distributions or through exchanges from existing
Class B accounts of the State Street Research funds.
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 may want to consider Class B(1) shares (if
investing for at least six years) or Class C shares (if investing for less than
six 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.
<PAGE>
10 YOUR INVESTMENT continued
--------------------------------------------------------------------------------
CLASS A -- FRONT LOAD
- Initial sales charge of 5.75% or less
- Lower sales charges for larger investments; see sales charge schedule at
right
- Lower annual expenses than Class B(1) or Class C shares because of lower
service/distribution (12b-1) fee of up to 0.40%
CLASS B(1) -- BACK LOAD
- No initial sales charge
- Deferred sales charge of 5% or less on shares you sell within six years
- Annual service/distribution (12b-1) fee of 1.00%
- Automatic conversion to Class A shares after eight years, reducing future
annual expenses
CLASS B -- BACK LOAD
- Available only to current Class B shareholders; see page 11 for details
CLASS C -- LEVEL LOAD
- No initial sales charge
- Deferred sales charge of 1%, paid if you sell shares within one year of
purchase
- Lower deferred sales charge than Class B(1) shares
- Annual service/distribution (12b-1) fee of 1.00%
- No conversion to Class A shares after eight years, so annual expenses do
not decrease
CLASS S -- SPECIAL PROGRAMS
- Available only through certain retirement accounts, advisory accounts of
the investment manager and other special programs, including programs
through financial professionals with recordkeeping and other services;
these programs usually involve special conditions and separate fees
(consult your financial professional or your program materials)
- No sales charges of any kind
- No service/distribution (12b-1) fees; annual expenses are lower than other
share classes
SALES CHARGES
CLASS A -- FRONT LOAD
<TABLE>
<CAPTION>
WHEN YOU INVEST THIS % IS WHICH EQUALS
THIS AMOUNT DEDUCTED THIS % OF
FOR SALES YOUR NET
CHARGES INVESTMENT
-----------------------------------------------------------------
<S> <C> <C>
Up to $50,000 5.75 6.10
$50,000 to $100,000 4.50 4.71
$100,000 to $250,000 3.50 3.63
$250,000 to $500,000 2.50 2.56
$500,000 to $1 million 2.00 2.04
$1 million or more see below
</TABLE>
With Class A shares, you pay a sales charge 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 application), you can purchase Class A shares
without any sales charge. However, you may be charged a "contingent deferred
sales charge" (CDSC) of up to 1% if you sell any shares within
<PAGE>
11
-------
one year of purchasing them. See "Other CDSC Policies" on page 12.
Class A shares are also offered with low or no sales charges through various
wrap-fee programs and other sponsored arrangements (consult your financial
professional or your program materials).
CLASS B(1) -- BACK LOAD
<TABLE>
<CAPTION>
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
----------------------------------------------------------------------
<S> <C>
First year 5.00
Second year 4.00
Third year 3.00
Fourth year 3.00
Fifth year 2.00
Sixth year 1.00
Seventh or eighth year None
</TABLE>
With Class B(1) 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 six years or less, as described in the table above. See "Other
CDSC Policies" on page 12.
Class B(1) shares automatically convert to Class A shares after eight years;
Class A shares have lower annual expenses.
CLASS B -- BACK LOAD
Class B shares are available only to current shareholders through reinvestment
of dividends and distributions or through exchanges from existing Class B
accounts of the State Street Research funds. Other investments made by current
Class B shareholders will be in Class B(1) shares.
With Class B shares, you are charged a "contingent deferred sales charge" (CDSC)
when you sell shares you have held for five years or less. The CDSC is a
percentage of net asset value at the time of purchase (or of sale, if lower) and
is deducted from your proceeds. When you sell shares in the first year after you
bought them, the CDSC is 5.00%; second year, 4.00%; third year, 3.00%; fourth
year, 3.00%; fifth year, 2.00%; sixth year or later, none. See "Other CDSC
Policies" on page 12.
Class B shares automatically convert to Class A shares after eight years.
CLASS C -- LEVEL LOAD
<TABLE>
<CAPTION>
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
----------------------------------------------------------------------
<S> <C>
First year 1.00
Second year or later None
</TABLE>
With Class C shares, you pay no sales charge when you invest, but you are
<PAGE>
12 YOUR INVESTMENT continued
--------------------------------------------------------------------------------
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. See "Other CDSC
Policies" below.
Class C shares currently have the same annual expenses as Class B(1) shares, but
never convert to Class A shares.
CLASS S -- SPECIAL PROGRAMS
Class S shares have no sales charges.
OTHER CDSC POLICIES
The CDSC will be based on the net asset value of the shares at the time of
purchase (or sale, if lower). 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 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 participant initiated distributions from
State Street Research prototype retirement plans. In other cases, the CDSC is
waived on shares sold for mandatory retirement distributions or for
distributions because of disability or death. Consult your financial
professional or the State Street Research Service Center for more
information.
[GRAPHIC: MAGNIFYNG GLASS] UNDERSTANDING
SERVICE/DISTRIBUTION FEES
As noted in the descriptions on pages 9 to 12 all share classes except Class S
have an annual service/distribution fee, also called a 12b-1 fee.
Under its current 12b-1 plans, the fund may pay certain service and distribution
fees for these classes out of fund assets. Because 12b-1 fees are an ongoing
expense, they will increase the cost of your investment and, over time, could
potentially cost you more than if you had paid other types of sales charges. For
that reason, you should consider the effects of 12b-1 fees as well as sales
loads when choosing a share class.
Some of the 12b-1 fees are used to compensate those financial professionals who
sell fund shares and provide ongoing service to shareholders. The table on page
13 shows how these professionals' compensation is calculated.
The fund may continue to pay 12b-1 fees even if the fund is subsequently closed
to new investors.
<PAGE>
13
---------
[GRAPHIC:CHECK] DEALER COMPENSATION
Financial professionals who sell shares of State Street Research funds and
perform services for fund investors may receive sales commissions, annual
fees and other compensation. These are paid by the fund's distributor, using
money from sales charges, service/distribution (12b-1) fees and its other
resources.
Brokers and agents may charge a transaction fee on orders of fund shares
placed directly through them. The distributor may pay its affiliate MetLife
Securities, Inc. additional compensation of up to 0.25% of certain sales or
assets.
<TABLE>
<CAPTION>
DEALER COMMISSIONS (%) CLASS A CLASS B(1) CLASS B CLASS C CLASS S
<S> <C> <C> <C> <C> <C>
Sales commission see below 4.00 4.00 1.00 0.00
Investments up to $50,000 5.00 -- -- -- --
$50,000 to $100,000 4.00 -- -- -- --
$100,000 to $250,000 3.00 -- -- -- --
$250,000 to $500,000 2.00 -- -- -- --
$500,000 to $1 million 1.75 -- -- -- --
First $1 to 3 million 1.00(a) -- -- -- --
Next $2 million 0.75(a) -- -- -- --
Next $2 million 0.50(a) -- -- -- --
Next $1 and above 0.25(a) -- -- -- --
Annual fee 0.25 0.25 0.25 1.00 0.00
</TABLE>
[SIDENOTE]
(a) IF YOUR FINANCIAL PROFESSIONAL DECLINES THIS COMMISSION,
THE ONE-YEAR CDSC ON YOUR INVESTMENT IS WAIVED.
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 the sale of shares of the State Street Research
funds by the broker.
<PAGE>
14 BUYING AND SELLING SHARES
--------------------------------------------------------------------------------
[GRAPHIC: CASH REGISTER] 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:
- $1,000 for accounts that use the Investamatic program(a)
- $2,000 for Individual Retirement Accounts(a)
- $2,500 for all other accounts
MINIMUM ADDITIONAL INVESTMENTS:
- $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 in good order by State Street Research
before the close of regular trading on the New York Stock Exchange (usually 4:00
p.m. eastern time) will be executed the same day, at that day's closing share
price. Orders received thereafter 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. If the New York Stock Exchange closes before 4:00 p.m. eastern time,
you may be unable to make a same-day wire investment. Your bank may charge a fee
for wiring money.
[SIDENOTE]
(a) EXCEPT $500 FOR INDIVIDUAL RETIREMENT ACCOUNTS DURING SPECIAL PROMOTIONAL
PERIODS.
<PAGE>
INSTRUCTIONS FOR BUYING SHARES 15
-------------------------------------------------------------------------------
[GRAPHIC: BRIEFCASE] THROUGH A
PROFESSIONAL OR
PROGRAM
BY MAIL [GRAPHIC: MAILBOX]
[GRAPHIC: CAPITAL BUILDING] BY FEDERAL
FUNDS WIRE
BY ELECTRONIC [GRAPHIC: PLUG]
FUNDS TRANSFER
(ACH)
[GRAPHIC:CALENDAR] BY INVESTAMATIC
BY EXCHANGE [GRAPHIC: ARROWS GOING IN OPPOSITE DIRECTIONS]
TO OPEN AN ACCOUNT
Consult your financial professional or your program materials.
Make your check payable to "State Street Research Funds." Forward the check and
your application to State Street Research.
Call to obtain an account number, and forward your application to State Street
Research. Wire funds using the instructions at right.
Verify that your bank is a member of the ACH (Automated Clearing House) system.
Forward your application to State Street Research. Please be sure to include the
appropriate bank information. Call State Street Research to request a purchase.
Forward your application, with all appropriate sections completed, to State
Street Research, along with a check for your initial investment payable to
"State Street Research Funds."
Read the prospectus for the fund into which you are exchanging. Call State
Street Research or visit our Web site.
TO ADD TO AN ACCOUNT
Consult your financial professional or your program materials.
Fill out an investment slip or indicate the fund name and account number on your
check. Make your check payable to "State Street Research Funds." Forward the
check and slip to State Street Research.
Call State Street Research to obtain a control number. Instruct your bank to
wire funds to:
- State Street Bank and Trust Company, Boston, MA
- ABA: 011000028
- BNF: fund name and share class you want to buy
- AC: 99029761
- OBI: your name AND your account number
- Control: the number given to you by State Street Research
Call State Street Research to verify that the necessary bank information is on
file for your account. If it is, you may request a transfer by telephone or
Internet. If not, please ask State Street Research to provide you with an EZ
Trader application.
Call State Street Research to verify that Investamatic is in place on your
account, or to request a form to add it. Investments are automatic once
Investamatic is in place.
Read the prospectus for the fund into which you are exchanging. Call State
Street Research or visit our Web site.
STATE STREET RESEARCH SERVICE CENTER PO Box 8408, Boston, MA 02266-8408
INTERNET www.statestreetresearch.com
CALL TOLL-FREE: 1-87-SSR-FUNDS (1-877-773-8637) (business days 8:00 a.m. -
6:00 p.m., eastern time)
<PAGE>
16 YOUR INVESTMENT continued
--------------------------------------------------------------------------------
[GRAPHIC: CASH REGISTER] POLICIES FOR
SELLING SHARES
CIRCUMSTANCES THAT REQUIRE WRITTEN REQUESTS Please submit instructions in
writing when any of the following apply:
- you are selling more than $100,000 worth of shares
- the name or address on the account has changed within the last 30 days
- you want the proceeds to go to a name or address not on the account
registration
- you are transferring shares to an account with a different registration or
share class
- 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 the close of regular trading on the New York Stock Exchange (usually 4:00
p.m. eastern time) will be executed the same day, at that day's closing share
price. Requests received thereafter 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>
INSTRUCTIONS FOR SELLING SHARES 17
-------------------------------------------------------------------------------
[GRAPHIC:BRIEFCASE] THROUGH A
PROFESSIONAL OR
PROGRAM
BY MAIL [GRAPHIC:MAILBOX]
[GRAPHIC:CAPITAL BUILDING] BY FEDERAL
FUNDS WIRE
BY ELECTRONIC [GRAPHIC:PLUG]
FUNDS TRANSFER
(ACH)
[GRAPHIC: COMPUTER] BY INTERNET
BY TELEPHONE [GRAPHIC:TELEPHONE]
BY EXCHANGE [GRAPHIC: ARROWS GOING IN OPPOSITE DIRECTIONS]
BY SYSTEMATIC
WITHDRAWAL PLAN [GRAPHIC:CALENDAR]
TO SELL SOME OR ALL OF YOUR SHARES
Consult your financial professional or your program materials.
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).
Check with State Street Research to make sure that a wire redemption privilege,
including a bank designation, is in place on your account. Once this is
established, you may place your request to sell shares with State Street
Research. Proceeds will be wired to your pre-designated bank account. (See "Wire
Transactions" on facing page.)
Check with State Street Research to make sure that the EZ Trader feature,
including a bank designation, is in place on your account. Once this is
established, you may place your request to sell shares with State Street
Research by telephone or Internet. Proceeds will be sent to your pre-designated
bank account.
Visit our Web site. Certain limitations may apply.
As long as the transaction does not require a written request (see facing page),
you or your financial professional can sell shares by calling State Street
Research. A check will be mailed to your address of record on the following
business day.
Read the prospectus for the fund into which you are exchanging. Call State
Street Research or visit our Web site.
See plan information on page 21.
STATE STREET RESEARCH SERVICE CENTER PO Box 8408, Boston, MA 02266-8408
INTERNET www.statestreetresearch.com
CALL TOLL-FREE: 1-87-SSR-FUNDS (1-877-773-8637) (business days 8:00 a.m. -
6:00 p.m., eastern time)
<PAGE>
18 YOUR INVESTMENT continued
--------------------------------------------------------------------------------
[GRAPHIC:POLICIES] ACCOUNT POLICIES
TELEPHONE AND INTERNET REQUESTS When you open an account you automatically
receive telephone privileges, allowing you to place requests for your account by
telephone. Your financial professional can also use these privileges to request
exchanges or redemptions on your account. For your protection, all telephone
calls are recorded.
You may also use our Web site for submitting certain requests over the
Internet.
As long as State Street Research takes certain measures to authenticate requests
over the telephone or Internet for 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. Similarly, you may choose not to use the Internet for your account.
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 of your
current shares. Any contingent deferred sales charges will continue to be
calculated from the date of your initial investment.
You must hold Class A shares of any fund for at least 30 days before you may
exchange them at net asset value for Class A shares of a different fund with a
higher applicable sales charge.
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 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
<PAGE>
19
-------
the proceeds to you at the address of record or, depending on the circumstances,
may deduct an annual maintenance fee (currently $18).
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 (but not later than 4:00 p.m. eastern time). NAV is calculated by
dividing the fund's net assets by the number of its shares outstanding.
In calculating its NAV, the fund uses the last reported sale price or quo-
tation for portfolio securities. However, in cases where these are unavailable,
or when the investment manager believes that subsequent events have rendered
them unreliable, the fund may use fair-value estimates instead.
Because foreign securities markets are sometimes open on different days from
U.S. markets, there may be instances when the value of the fund's portfolio
changes on days when you cannot buy or sell fund shares.
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.
ADDITIONAL POLICIES Please note that the fund maintains additional policies and
reserves certain rights, including:
- Requirements for initial or additional investments, reinvestments,
periodic investment plans, retirement and employee benefit plans, sponsored
arrangements and other similar programs may be changed from time to time
without further notice or supplement to this prospectus
- All orders to purchase shares are subject to acceptance by the fund
- 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
- The fund may delay sending you redemption proceeds for up to seven days, or
longer if permitted by the SEC
- The fund reserves the right to redeem in kind
- To permit investors to obtain the current price, dealers are responsible
for transmitting all orders to the State Street Research Service Center
promptly
<PAGE>
20 YOUR INVESTMENT continued
--------------------------------------------------------------------------------
[GRAPHIC: MAGNIFYING GLASS] TAX CONSIDERATIONS
Unless your investment is in a tax-deferred account, you may want to avoid:
- investing a large amount in the fund close to the end of its fiscal year or
a calendar year (if the fund makes a distribution, you will receive some of
your investment back as a taxable distribution)
- 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 in the current year)
[GRAPHIC: "UNCLE SAM"] DISTRIBUTIONS AND TAXES
INCOME AND CAPITAL GAINS DISTRIBUTIONS The fund typically distributes any net
income and net capital gains to shareholders in December, after the end of the
fund's fiscal year, which is September 30.
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.
TAX EFFECTS OF DISTRIBUTIONS AND TRANSACTIONS In general, any dividends and
short-term capital gains distributions you receive from the fund are taxable as
ordinary income. Distributions of long-term capital gains are generally taxable
as capital gains -- in most cases, at a different rate from that which applies
to ordinary income.
The tax you pay on a given capital gains distribution generally depends on
how long the fund has held the portfolio securities it sold. It does not
depend on how long you have owned your fund shares or whether you reinvest
your distributions.
Every year, the fund will send you information detailing the amount of ordinary
income and capital gains distributed to you for the previous year.
<PAGE>
21
-------
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.
[GRAPHIC:HANDS] 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.
SYSTEMATIC WITHDRAWAL PLAN 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 12% of your fund assets a year (minimum $50 per
withdrawal) without incurring any contingent deferred sales charges. Certain
terms and minimums apply.
EZ TRADER This service allows you to purchase or sell fund shares over the
telephone or over the Internet through the ACH (Automated Clearing House)
system.
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 Plan payments directly to your bank account.
RETIREMENT PLANS State Street Research also offers a full range of prototype
retirement plans for individuals, sole proprietors, partnerships, corporations
and employees.
CALL 1-87-SSR-FUNDS (1-877-773-8637) FOR INFORMATION ON ANY OF THE SERVICES
DESCRIBED ABOVE.
<PAGE>
22 OTHER INFORMATION
--------------------------------------------------------------------------------
[GRAPHIC: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 1. Below are brief
descriptions of other securities and practices, along with their associated
risks.
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 or
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.
INTERNATIONAL EXPOSURE Many U.S. companies in which the fund may invest generate
significant revenues and earnings from abroad. As a result, these companies and
the prices of their securities may be affected by weaknesses in global and
regional economies and the relative value of foreign currencies to the U.S.
dollar. These factors, taken as a whole, could adversely affect the price of
fund shares.
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.
In addition, foreign securities may be more difficult to resell and the markets
for them less efficient than for comparable U.S. securities. Even where a
foreign security increases in price in its local currency, the appreciation may
be diluted by the negative effect of exchange rates when the security's value is
converted to U.S. dollars. Foreign withholding taxes also may apply and errors
and delays may occur in the settlement process for foreign securities.
DERIVATIVES Derivatives, a category that includes options and futures, are
financial
<PAGE>
23
-------
instruments whose value derives from one or more securities, indices or
currencies. The fund may use certain derivatives for hedging (attempting to
offset a potential loss in one position by establishing an interest in an
opposite position). This includes the use of currency-based derivatives for
hedging its positions in foreign securities. The fund may also use certain
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 some 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 or fees by lending
portfolio securities to qualified institutions. By reinvesting any cash
collateral it receives in these transactions, the fund could realize additional
gains or losses. If the borrower fails to return the securities and the invested
collateral has declined in value, 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.
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 any time from a few days to over a year.
DEFENSIVE INVESTING During unusual market conditions, the fund may place up to
100% of total assets in cash or high-quality, short-term debt securities. To
the extent the fund does this, it is not pursuing its goal.
<PAGE>
24 FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
THESE HIGHLIGHTS ARE INTENDED TO HELP YOU UNDERSTAND THE FUND'S PERFORMANCE OVER
THE PAST FIVE YEARS. THE INFORMATION IN THESE TABLES HAS BEEN AUDITED BY
PRICEWATERHOUSECOOPERS LLP, THE FUND'S INDEPENDENT ACCOUNTANTS. THEIR REPORT AND
THE FUND'S FINANCIAL STATEMENTS ARE INCLUDED IN THE FUND'S ANNUAL REPORT, WHICH
IS AVAILABLE UPON REQUEST. TOTAL RETURN FIGURES ASSUME REINVESTMENT OF ALL
DISTRIBUTIONS.
<TABLE>
<CAPTION>
CLASS A CLASS B(1)
-----------------------------------------------------------------------------------------
Years ended September 30 Years ended September 30
PER SHARE DATA 1996(a) 1997(a) 1998(a) 1999(a) 2000(a) 1999(a)(c) 2000(a)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 13.53 13.76 14.74 11.95 13.64 13.17 12.90
----- ----- ----- ----- ----- ----- -----
Net investment loss ($) (0.05) (0.08) (0.12) (0.14) (0.15) (0.17) (0.26)
Net realized and unrealized
gain (loss) on investments ($) 1.30 1.06 (2.54) 3.15 7.44 (0.10) 7.02
----- ----- ----- ----- ----- ----- -----
TOTAL FROM INVESTMENT OPERATIONS ($) 1.25 0.98 (2.66) 3.01 7.29 (0.27) 6.76
----- ----- ----- ----- ----- ----- -----
Distributions from capital gains ($) (1.02) -- (0.13) (1.32) (0.83) -- (0.83)
----- ----- ----- ----- ----- ----- -----
TOTAL DISTRIBUTIONS ($) (1.02) -- (0.13) (1.32) (0.83) -- (0.83)
----- ----- ----- ----- ----- ----- -----
NET ASSET VALUE, END OF YEAR ($) 13.76 14.74 11.95 13.64 20.10 12.90 18.83
===== ===== ===== ===== ===== ===== =====
Total return (%)(b) 10.12 7.12 (18.14) 26.75 54.91 (2.05)(d) 53.90
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net assets at end of year ($ thousands) 114,247 470,977 319,014 321,667 450,521 8,730 37,063
Expense ratio (%) 1.26 1.21 1.39 1.40 1.38 2.15(e) 2.11
Expense ratio after
expense reductions (%) 1.26 1.21 1.39 1.38 1.37 2.13(e) 2.10
Ratio of net investment loss to
average net assets (%) (0.39) (0.60) (0.88) (1.03) (0.85) (1.81)(e) (1.52)
Portfolio turnover rate (%) 215.07 230.66 86.34 68.03 171.87 68.03 171.87
</TABLE>
<PAGE>
25
-------
<TABLE>
<CAPTION>
CLASS B CLASS C
------------------------------------------------------------------------------------------
Years ended September 30 Years ended September 30
PER SHARE DATA 1996(a) 1997(a) 1998(a) 1999(a) 2000(a) 1996(a) 1997(a) 1998(a) 1999(a) 2000(a)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 13.29 13.40 14.24 11.45 12.90 13.31 13.42 14.26 11.47 12.93
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net investment loss ($) (0.14) (0.17) (0.22) (0.22) (0.26) (0.14) (0.17) (0.22) (0.22) (0.27)
Net realized and unrealized
gain (loss) on investments ($) 1.27 1.01 (2.44) 2.99 7.01 1.27 1.01 (2.44) 3.00 7.04
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
TOTAL FROM INVESTMENT OPERATIONS ($) 1.13 0.84 (2.66) 2.77 6.75 1.13 0.84 (2.66) 2.78 6.77
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Distributions from capital gains($) (1.02) -- (0.13) (1.32) (0.83) (1.02) -- (0.13) (1.32) (0.83)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
TOTAL DISTRIBUTIONS ($) (1.02) -- (0.13) (1.32) (0.83) (1.02) -- (0.13) (1.32) (0.83)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
NET ASSET VALUE, END OF YEAR ($) 13.40 14.24 11.45 12.90 18.82 13.42 14.26 11.47 12.93 18.87
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total return (%)(b) 9.33 6.27 (18.78) 25.74 53.83 9.23 6.26 (18.76) 25.77 53.86
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net assets at end of year ($ thousands) 386,899 562,392 365,547 318,695 411,584 190,319 120,051 55,208 41,235 51,721
Expense ratio (%) 2.01 1.98 2.13 2.15 2.11 2.01 1.98 2.13 2.15 2.11
Expense ratio after expense reductions (%) 2.01 1.98 2.13 2.13 2.10 2.01 1.98 2.13 2.13 2.10
Ratio of net investment loss to
average net assets (%) (1.13) (1.32) (1.63) (1.77) (1.58) (1.13) (1.30) (1.63) (1.77) (1.58)
Portfolio turnover rate (%) 215.07 230.66 86.34 68.03 171.87 215.07 230.66 86.34 68.03 171.87
</TABLE>
(a) PER-SHARE FIGURES HAVE BEEN CALCULATED USING THE AVERAGE SHARES METHOD.
(b) DOES NOT REFLECT ANY FRONT-END OR CONTINGENT DEFERRED SALES CHARGES.
(c) JANUARY 1, 1999 (COMMENCEMENT OF SHARE CLASS) TO SEPTEMBER 30, 1999.
(d) NOT ANNUALIZED.
(e) ANNUALIZED.
<PAGE>
26 FINANCIAL HIGHLIGHTS continued
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS S
----------------------------------------------
Years ended September 30
PER SHARE DATA 1996(a) 1997(a) 1998(a) 1999(a) 2000(a)
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 13.66 13.94 14.96 12.16 13.94
----- ----- ----- ----- -----
Net investment loss ($) (0.01) (0.05) (0.09) (0.10) (0.11)
Net realized and unrealized
gain (loss) on investments ($) 1.31 1.07 (2.58) 3.20 7.62
----- ----- ----- ----- -----
TOTAL FROM INVESTMENT OPERATIONS ($) 1.30 1.02 (2.67) 3.10 7.51
----- ----- ----- ----- -----
Distributions from capital gains ($) (1.02) -- (0.13) (1.32) (0.83)
----- ----- ----- ----- -----
TOTAL DISTRIBUTIONS ($) (1.02) -- (0.13) (1.32) (0.83)
----- ----- ----- ----- -----
NET ASSET VALUE, END OF YEAR ($) 13.94 14.96 12.16 13.94 20.62
===== ===== ===== ===== =====
Total return (%)(b) 10.41 7.32 (17.94) 27.06 55.32
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net assets at end of year ($ thousands) 34,835 189,778 113,118 90,751 121,727
Expense ratio (%) 1.01 0.96 1.14 1.15 1.11
Expense ratio after
expense reductions (%) 1.01 0.96 1.14 1.13 1.10
Ratio of net investment loss to
average net assets (%) (0.08) (0.37) (0.63) (0.77) (0.58)
Portfolio turnover rate (%) 215.07 230.66 86.34 68.03 171.87
</TABLE>
[SIDENOTE]
(a) PER-SHARE FIGURES HAVE BEEN CALCULATED USING THE
AVERAGE SHARES METHOD.
(b) DOES NOT REFLECT ANY FRONT-END OR CONTINGENT
DEFERRED SALES CHARGES.
<PAGE>
BOARD OF TRUSTEES 27
--------------------------------------------------------------------------------
[GRAPHIC: COLUMNS] The Board of Trustees is responsible for the operation of
the fund. They establish the fund's major policies, review investments, and
provide guidance to the investment manager and others who provide services to
the fund. The Trustees have diverse backgrounds and substantial experience in
business and other areas.
RICHARD S. DAVIS
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER,
State Street Research & Management
Company
BRUCE R. BOND
FORMER CHAIRMAN OF THE BOARD,
CHIEF EXECUTIVE OFFICER
AND PRESIDENT,
PictureTel Corporation
STEVE A. GARBAN
FORMER SENIOR VICE PRESIDENT FOR FINANCE
AND OPERATIONS AND TREASURER,
The Pennsylvania State University
DEAN O. MORTON
FORMER EXECUTIVE VICE PRESIDENT,
CHIEF OPERATING OFFICER AND DIRECTOR,
Hewlett-Packard Company
SUSAN M. PHILLIPS
DEAN, School of Business and Public
Management, George Washington
University, FORMER MEMBER OF THE BOARD
OF GOVERNORS of the Federal Reserve System
and CHAIRMAN AND COMMISSIONER of the
Commodity Futures Trading Commission
TOBY ROSENBLATT
PRESIDENT, Founders Investments Ltd.
PRESIDENT, The Glen Ellen Company
MICHAEL S. SCOTT MORTON
JAY W. FORRESTER PROFESSOR OF
MANAGEMENT, Sloan School of
Management, Massachusetts
Institute of Technology
<PAGE>
28 NOTES
--------------------------------------------------------------------------------
<PAGE>
NOTES 29
--------------------------------------------------------------------------------
<PAGE>
FOR ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
IF YOU HAVE HAVE QUESTIONS ABOUT THE FUND OR WOULD LIKE TO REQUEST A FREE COPY
OF THE CURRENT ANNUAL/SEMIANNUAL REPORT OR SAI, CONTACT STATE STREET RESEARCH OR
YOUR FINANCIAL PROFESSIONAL.
[LOGO] STATE STREET RESEARCH
Service Center
P.O. Box 8408, Boston, MA 02266
Telephone: 1-87-SSR-FUNDS (1-877-773-8637)
Internet: www.statestreetresearch.com
YOU CAN ALSO OBTAIN INFORMATION ABOUT THE FUND, INCLUDING THE SAI AND CERTAIN
OTHER FUND DOCUMENTS, SEC'S EDGAR DATABASE ON THE INTERNET AT www.sec.gov, BY
ELECTRONIC REQUEST AT [email protected], IN PERSON AT THE SEC'S PUBLIC
REFERENCE ROOM IN WASHINGTON, DC (TELEPHONE 1-202-942-8090) OR BY MAIL BY
SENDING YOUR REQUEST, ALONG WITH A DUPLICATING FEE, TO THE SEC'S PUBLIC
REFERENCE SECTION, WASHINGTON, DC 20549-0102.
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 on the fund's financial statements.
<TABLE>
<CAPTION>
TICKER SYMBOLS
-----------------------------------------
<S> <C>
Class A SCFAX
Class B(1) (proposed) SCFPX
Class B SCFBX
Class C SCFDX
Class S SCFCX
</TABLE>
STATEMENT OF ADDITIONAL INFORMATION (SAI)
A supplement to the prospectus, the SAI contains further information about the
fund and its investment limitations and policies. 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).
PROSPECTUS MG-2956-1100
---------------------------
SEC File Number: 811-3838 Control Number: (exp0202)SSR-LD
<PAGE>
[LOGO - Tip of State Street Research Building]
STATE STREET RESEARCH
EMERGING GROWTH FUND
THIS PROSPECTUS HAS INFORMATION YOU SHOULD KNOW BEFORE YOU INVEST. PLEASE READ
IT CAREFULLY AND KEEP IT WITH YOUR INVESTMENT RECORDS.
AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS WILL ALSO BE AVAILABLE IN SPANISH AND CHINESE IN MARCH BY
CALLING THE STATE STREET RESEARCH SERVICE CENTER AT 1-888-638-3193.
[GRAPHIC - Tip of State Street Research Building]
AN AGGRESSIVE GROWTH FUND FOCUSING ON SMALL EMERGING GROWTH COMPANIES.
PROSPECTUS
February 1, 2001
<PAGE>
CONTENTS
--------------------------------------------------------------------------------
1 THE FUND
-----------------------
1 Goals and Strategies
2 Principal Risks
4 Volatility and Performance
6 Investor Expenses
8 Investment Management
9 YOUR INVESTMENT
-----------------------------
9 Opening an Account
9 Choosing a Share Class
10 Sales Charges
13 Dealer Compensation
14 Buying and Selling Shares
18 Account Policies
20 Distributions and Taxes
21 Investor Services
22 OTHER INFORMATION
-------------------------------
22 Other Securities and Risks
24 Financial Highlights
27 Board of Trustees
BACK COVER For Additional Information
<PAGE>
THE FUND 1
--------------------------------------------------------------------------------
[GRAPHIC: CHESS PIECE] GOAL AND STRATEGIES
FUNDAMENTAL GOAL The fund seeks to provide growth of capital.
PRINCIPAL STRATEGIES 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-Registered Trademark- 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.
[GRAPHIC: MAGNIFYING GLASS] WHO MAY WANT TO INVEST
State Street Research Emerging Growth Fund is designed for investors who seek
one or more of the following:
- an aggressive stock fund for a long-term goal
- a fund to complement a portfolio of more conservative investments
- a small company fund that emphasizes growth stocks over value stocks
The fund is NOT appropriate for investors who:
- want to avoid high volatility or possible losses
- are making short-term investments
- are investing emergency reserve money
- are seeking regular income
<PAGE>
2 THE FUND continued
--------------------------------------------------------------------------------
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 22.
[GRAPHIC: SIGN] PRINCIPAL 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 company 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 portfolio manager's skill in assessing the potential of the stocks the
fund 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 if there are capital gains.
<PAGE>
3
-----------
Because the fund may invest in U.S. companies with some international business,
and also may invest in foreign companies, it is subject to the risks associated
with international investing.
The fund's shares will rise and fall in value and there is a risk that you could
lose money by investing in the fund. Also, the fund cannot be certain that it
will achieve its goal. Finally, fund shares are not bank deposits and are not
guaranteed, endorsed or insured by any financial institution, government entity
or the FDIC.
INFORMATION ON OTHER SECURITIES AND RISKS APPEARS ON PAGE 22.
A "SNAPSHOT" OF THE FUND'S INVESTMENTS MAY BE FOUND IN THE CURRENT ANNUAL OR
SEMIANNUAL REPORT (SEE BACK COVER).
[GRAPHIC: MAGNIFYING GLASS] SMALL EMERGING GROWTH COMPANIES
Over the long term, small emerging growth company 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.
<PAGE>
4 VOLATILITY AND PERFORMANCE
--------------------------------------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
Years ended December 31
--------------------------------------------------------------
YEAR-BY-YEAR TOTAL RETURN (CLASS A) 1994 1995 1996 1997 1998 1999 2000
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
(14.32) 16.34 25.44 29.60 (3.59) 52.19 (15.02)
</TABLE>
BEST QUARTER: fourth quarter 1999, up 47.87%
WORST QUARTER: third quarter 1998, down 25.86%
<TABLE>
<CAPTION>
As of December 31, 2000
------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (AT MAXIMUM APPLICABLE SALES CHARGE) 1 YEAR 5 YEARS SINCE INCEPTION*
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A (%) (19.91) 13.82 9.10
Class B(1)(a) (18.91) 14.12 9.25
Class B (%) (19.02) 14.11 9.24
Class C (%) (16.26) 14.36 9.25
Class S (%) (14.68) 15.48 10.32
Russell 2000 Growth Index (%) (22.43) 7.14 8.88
S&P 500 Index (%) (9.10) 18.33 17.94
Lipper Small-Cap Growth Funds Index (%) (8.25) 14.21 14.39
</TABLE>
(a) PERFORMANCE FOR CLASS B(1) REFLECTS CLASS B PERFORMANCE THROUGH DECEMBER 31,
1998. CLASS B(1) WAS INTRODUCED ON JANUARY 1, 1999.
*Since inception (10/4/93)
<PAGE>
5
-----------
[GRAPHIC: MAGNIFYING GLASS] UNDERSTANDING VOLATILITY AND PERFORMANCE
The chart and table on the opposite page are designed to show two aspects of the
fund's track record:
- YEAR-BY-YEAR TOTAL RETURN 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. If sales charges had been included, returns would have been less than
shown.
- 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.
Also included are three independent measures of performance. Two are unmanaged
stock indices: the S&P 500 (officially, the "S&P 500 Composite Stock Price
Index"), which includes 500 domestic stocks, and the Russell
2000-Registered Trademark- Growth Index, which contains only those stocks within
the complete Russell 2000-Registered Trademark- Index (a small company index)
that show above average growth. The Lipper Small Cap Growth 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-Registered Trademark- Growth, your returns would always be lower, because
these indices don't include brokerage and administrative expenses.
Also, the returns in both the chart and the table would have been lower if the
distributor and its affiliates had not voluntarily reduced a portion of the
fund's expenses.
Favorable investments in initial public offerings ("IPOs") have had a
significant impact on the fund's performance in some periods. This impact may
not be sustainable because of the unavailability of IPOs as market conditions
change or allocations to the fund are reduced in the future. As the assets of
the fund increase, the positive effect of IPOs on the fund's performance is
likely to decline.
Keep in mind that past performance is no guarantee of future results.
<PAGE>
6 INVESTOR EXPENSES
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class descriptions begin on page 9
-----------------------------------------------------
SHAREHOLDER FEES (% of offering price) CLASS A CLASS B(1) CLASS B CLASS C CLASS S
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Maximum front-end sales charge (load) 5.75 0.00 0.00 0.00 0.00
Maximum deferred sales charge (load) 0.00(a) 5.00 5.00 1.00 0.00
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (% of average net assets) CLASS A CLASS B(1) CLASS B CLASS C CLASS S
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Management fee 0.75 0.75 0.75 0.75 0.75
Service/distribution (12b-1) fees 0.30(b) 1.00 1.00 1.00 0.00
Other expenses 0.58 0.58 0.58 0.58 0.58
------ ------ ------ ------ ------
TOTAL ANNUAL FUND OPERATING EXPENSES* 1.63 2.33 2.33 2.33 1.33
====== ====== ====== ====== ======
*BECAUSE SOME OF THE FUND'S EXPENSES HAVE
BEEN SUBSIDIZED OR REDUCED THROUGH EXPENSE
OFFSET ARRANGEMENTS, ACTUAL TOTAL OPERATING
EXPENSES FOR THE PRIOR YEAR WERE: 1.40 2.10 2.10 2.10 1.10
THE FUND EXPECTS THE EXPENSE SUBSIDY TO
CONTINUE THROUGH THE CURRENT FISCAL YEAR,
ALTHOUGH THERE IS NO GUARANTEE THAT IT WILL.
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE YEAR CLASS A CLASS B(1) CLASS B CLASS C CLASS S
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 $731 $736/$236 $736/$236 $336/$236 $135
3 $1,060 $1,027/$727 $1,027/$727 $727 $421
5 $1,411 $1,445/$1,245 $1,445/$1,245 $1,245 $729
10 $2,397 $2,491 $2,491 $2,666 $1,601
</TABLE>
(a) EXCEPT FOR INVESTMENTS OF $1 MILLION OR MORE; SEE PAGE 10.
(b) REFLECTS FEE SCHEDULE THAT BECAME EFFECTIVE MAY 1, 2000 AS IF IT HAD BEEN IN
PLACE DURING THE FUND'S ENTIRE PREVIOUS FISCAL YEAR. THE TRUSTEES MAY
INCREASE THE CURRENT SERVICE/DISTRIBUTION FEES SHOWN FOR CLASS A SHARES AT
ANY TIME PROVIDED THAT THE FEES DO NOT EXCEED A MAXIMUM OF 0.40%.
<PAGE>
7
-----------
[GRAPHIC: MAGNIFYING GLASS] UNDERSTANDING INVESTOR EXPENSES
The information on the opposite page is designed to give you an idea of what you
should expect to pay in expenses as an investor in the fund. The information is
based on the fund's most recent fiscal year and current results may be
different.
- SHAREHOLDER FEES are costs that are charged to you directly. These fees are
not charged on reinvestments or exchanges.
- ANNUAL FUND OPERATING EXPENSES are deducted from the fund's assets every year,
and are thus paid indirectly by all fund investors.
- The EXAMPLE is designed to allow you to compare the costs of this fund with
those of other funds. It assumes that you invested $10,000 over the years
indicated, reinvested all distributions, earned a hypothetical 5% annual
return and paid the maximum applicable sales charges. For Class B(1) and
Class B shares, it also assumes the automatic conversion to Class A shares
after eight years.
Where two numbers are shown separated by a slash, the first one assumes you sold
all your shares at the end of the period, while the second assumes you stayed in
the fund. Where there is only one number, the costs would be the same either
way.
The figures in the example assume full annual expenses, and would be lower if
they reflected the various expense reductions that may have been taken.
Investors should keep in mind that the example is for comparison purposes only.
The fund's actual performance and expenses may be higher or lower.
<PAGE>
8 THE FUND continued
--------------------------------------------------------------------------------
[GRAPHIC: THINKER] INVESTMENT MANAGEMENT
The fund's investment manager is State Street Research & Management Company, One
Financial Center, Boston, Massachusetts 02111. The firm traces its heritage back
to 1924 and the founding of one of America's first mutual funds. Today the firm
has approximately $__ billion in assets under management (as of December 31,
2000), including more than $__ billion in mutual funds.
The investment manager is responsible for the fund's investment and business
activities, and receives the management fee (0.75% of average net assets,
annually) as compensation. The investment manager is a subsidiary of
Metropolitan Life Insurance Company.
Tucker Walsh has been solely responsible for the fund's day-to-day portfolio
management since May, 2000. Previously he served as the fund's co-portfolio
manager beginning in October 1999. Mr. Walsh is a vice president who joined
the firm in 1997. During the past five years he has also served as an equity
analyst at Chilton Investment Partners and Cowen Asset Management. He has
worked as an investment professional since 1991.
<PAGE>
YOUR INVESTMENT 9
--------------------------------------------------------------------------------
[GRAPHIC: KEY] 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.
[GRAPHIC: CHECKLIST] CHOOSING A SHARE CLASS
The fund generally offers four share classes, each with its own sales charge and
expense structure: Class A, Class B(1), Class C and Class S. The fund also
offers Class B shares, but only to current Class B shareholders through
reinvestment of dividends and distributions or through exchanges from existing
Class B accounts of the State Street Research funds.
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 may want to consider Class B(1) shares (if
investing for at least six years) or Class C shares (if investing for less than
six years). If you are investing through a special program, such as a large
employer-sponsored retirement plan or certain programs available through
financial professionals, 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.
<PAGE>
10 YOUR INVESTMENT continued
--------------------------------------------------------------------------------
CLASS A -- FRONT LOAD
- Initial sales charge of 5.75% or less
- Lower sales charges for larger investments; see sales charge schedule at right
- Lower annual expenses than Class B(1) or Class C shares because of lower
service/distribution (12b-1) fee of up to 0.40%
CLASS B(1) -- BACK LOAD
- No initial sales charge
- Deferred sales charge of 5% or less on shares you sell within six years
- Annual service/distribution (12b-1) fee of 1.00%
- Automatic conversion to Class A shares after eight years, reducing future
annual expenses
CLASS B -- BACK LOAD
- Available only to current Class B shareholders; see page 11 for details
CLASS C -- LEVEL LOAD
- No initial sales charge
- Deferred sales charge of 1%, paid if you sell shares within one year of
purchase
- Lower deferred sales charge than Class B(1) shares
- Annual service/distribution (12b-1) fee of 1.00%
- No conversion to Class A shares after eight years, so annual expenses do not
decrease
CLASS S-- SPECIAL PROGRAMS
- Available only through certain retirement accounts, advisory accounts of the
investment manager and other special programs, including programs through
financial professionals with recordkeeping and other services; these programs
usually involve special conditions and separate fees (consult your financial
professional or your program materials)
- No sales charges of any kind
- No service/distribution (12b-1) fees; annual expenses are lower than other
share classes
SALES CHARGES
CLASS A -- FRONT LOAD
<TABLE>
<CAPTION>
WHEN YOU INVEST THIS % IS WHICH EQUALS
THIS AMOUNT DEDUCTED THIS % OF
FOR SALES YOUR NET
CHARGES INVESTMENT
-----------------------------------------------------------
<S> <C> <C>
Up to $50,000 5.75 6.10
$50,000 to $100,000 4.50 4.71
$100,000 to $250,000 3.50 3.63
$250,000 to $500,000 2.50 2.56
$500,000 to $1 million 2.00 2.04
$1 million or more see below
</TABLE>
With Class A shares, you pay a sales charge 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 application), you can purchase Class A shares
without any sales charge. However, you may be charged a "contingent deferred
sales charge" (CDSC) of up to 1% if you sell any shares within one year of
purchasing them. See "Other CDSC Policies" on page 12.
<PAGE>
11
-----------
Class A shares are also offered with low or no sales charges through various
wrap-fee programs and other sponsored arrangements (consult your financial
professional or your program materials).
CLASS B(1) -- BACK LOAD
<TABLE>
<CAPTION>
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
---------------------------------------------------------------
<S> <C>
First year 5.00
Second year 4.00
Third year 3.00
Fourth year 3.00
Fifth year 2.00
Sixth year 1.00
Seventh or eighth year None
</TABLE>
With Class B(1) 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 six years or less, as described in the table above. See "Other
CDSC Policies" on page 12.
Class B(1) shares automatically convert to Class A shares after eight years;
Class A shares have lower annual expenses.
CLASS B -- BACK LOAD
Class B shares are available only to current shareholders through reinvestment
of dividends and distributions or through exchanges from existing Class B
accounts of the State Street Research funds. Other investments made by current
Class B shareholders will be in Class B(1) shares.
With Class B shares, you are charged a "contingent deferred sales charge" (CDSC)
when you sell shares you have held for five years or less. The CDSC is a
percentage of net asset value at the time of purchase (or of sale, if lower) and
is deducted from your proceeds. When you sell shares in the first year after you
bought them, the CDSC is 5.00%; second year, 4.00%; third year, 3.00%; fourth
year, 3.00%; fifth year, 2.00%; sixth year or later, none. See "Other CDSC
Policies" on page 12.
Class B shares automatically convert to Class A shares after eight years.
CLASS C -- LEVEL LOAD
<TABLE>
<CAPTION>
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
---------------------------------------------------------------
<S> <C>
First year 1.00
Second year or later None
</TABLE>
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
<PAGE>
12 YOUR INVESTMENT continued
--------------------------------------------------------------------------------
you have held for one year or less, as described in the table above. See "Other
CDSC Policies" below.
Class C shares currently have the same annual expenses as Class B(1) shares but
never convert to Class A shares.
CLASS S -- SPECIAL PROGRAMS
Class S shares have no sales charges.
OTHER CDSC POLICIES
The CDSC will be based on the net asset value of the shares at the time of
purchase (or sale, if lower). 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 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 participant initiated distributions from
State Street Research prototype retirement plans. In other cases, the CDSC is
waived on shares sold for mandatory retirement distributions or for
distributions because of disability or death. Consult your financial
professional or the State Street Research Service Center for more information.
[GRAPHIC: MAGNIFYING GLASS] UNDERSTANDING SERVICE/DISTRIBUTION FEES
As noted in the descriptions on pages 10 to 12, all share classes except Class S
have an annual service/distribution fee, also called a 12b-1 fee.
Under its current 12b-1 plans, the fund may pay certain service and distribution
fees for these classes out of fund assets. Because 12b-1 fees are an ongoing
expense, they will increase the cost of your investment and, over time, could
potentially cost you more than if you had paid other types of sales charges. For
that reason, you should consider the effects of 12b-1 fees as well as sales
loads when choosing a share class.
Some of the 12b-1 fees are used to compensate those financial professionals who
sell fund shares and provide ongoing service to shareholders. The table on the
next page shows how these professionals' compensation is calculated.
The fund may continue to pay 12b-1 fees even if the fund is subsequently closed
to new investors.
<PAGE>
13
-----------
[GRAPHIC: CHECK] DEALER COMPENSATION
Financial professionals who sell shares of State Street Research funds and
perform services for fund investors may receive sales commissions, annual fees
and other compensation. These are paid by the fund's distributor, using money
from sales charges, service/distribution (12b-1) fees and its other resources.
Brokers and agents may charge a transaction fee on orders of fund shares placed
directly through them. The distributor may pay its affiliate MetLife Securities,
Inc. additional compensation of up to 0.25% of certain sales or assets.
<TABLE>
<CAPTION>
DEALER COMMISSIONS (%) CLASS A CLASS B(1) CLASS B CLASS C CLASS S
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales commission see below 4.00 4.00 1.00 0.00
Investments up to $50,000 5.00 -- -- -- --
$50,000 to $100,000 4.00 -- -- -- --
$100,000 to $250,000 3.00 -- -- -- --
$250,000 to $500,000 2.00 -- -- -- --
$500,000 to $1 million 1.75 -- -- -- --
First $1 to 3 million 1.00(a) -- -- -- --
Next $2 million 0.75(a) -- -- -- --
Next $2 million 0.50(a) -- -- -- --
Next $1 and above 0.25(a) -- -- -- --
Annual fee 0.25 0.25 0.25 1.00 0.00
</TABLE>
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 the sale of shares of the State Street Research
funds by the broker.
(a) IF YOUR FINANCIAL PROFESSIONAL DECLINES THIS COMMISSION, THE ONE-YEAR CDSC
ON YOUR INVESTMENT IS WAIVED.
<PAGE>
14 BUYING AND SELLING SHARES
--------------------------------------------------------------------------------
[GRAPHIC: CASH REGISTER] 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:
- $1,000 for accounts that use the Investamatic program(a)
- $2,000 for Individual Retirement Accounts(a)
- $2,500 for all other accounts
MINIMUM ADDITIONAL INVESTMENTS:
- $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 in good order by State Street Research
before the close of regular trading on the New York Stock Exchange (usually 4:00
p.m. eastern time) will be executed the same day, at that day's closing share
price. Orders received thereafter 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. If the New York Stock Exchange closes before 4:00 p.m. eastern time,
you may be unable to make a same-day wire investment. Your bank may charge a
fee for wiring money.
(a) EXCEPT $500 FOR INDIVIDUAL RETIREMENT ACCOUNTS DURING SPECIAL PROMOTIONAL
PERIODS.
<PAGE>
INSTRUCTIONS FOR BUYING SHARES 15
--------------------------------------------------------------------------------
[GRAPHIC: BRIEFCASE] THROUGH A PROFESSIONAL OR PROGRAM
BY MAIL [GRAPHIC: MAILBOX]
[GRAPHIC: CAPITAL BUILDING] BY FEDERAL FUNDS WIRE
BY ELECTRONIC FUNDS TRANSFER (ACH) [GRAPHIC: PLUG]
[GRAPHIC: CALENDAR] BY INVESTAMATIC
BY EXCHANGE [GRAPHIC: ARROWS GOING IN OPPOSITE DIRECTIONS]
TO OPEN AN ACCOUNT
Consult your financial professional or your program materials.
Make your check payable to "State Street Research Funds." Forward the check and
your application to State Street Research.
Call to obtain an account number and forward your application to State Street
Research. Wire funds using the instructions at right.
Verify that your bank is a member of the ACH (Automated Clearing House) system.
Forward your application to State Street Research. Please be sure to include the
appropriate bank information. Call State Street Research to request a purchase.
Forward your application, with all appropriate sections completed, to State
Street Research, along with a check for your initial investment payable to
"State Street Research Funds."
Read the prospectus for the fund into which you are exchanging. Call State
Street Research or visit our Web site.
TO ADD TO AN ACCOUNT
Consult your financial professional or your program materials.
Fill out an investment slip, or indicate the fund name and account number on
your check. Make your check payable to "State Street Research Funds." Forward
the check and slip to State Street Research.
Call State Street Research to obtain a control number. Instruct your bank to
wire funds to:
- State Street Bank and Trust Company, Boston, MA
- ABA: 011000028
- BNF: fund name and share class you want to buy
- AC: 99029761
- OBI: your name and your account number
- Control: the number given to you by State Street Research
Call State Street Research to verify that the necessary bank information is on
file for your account. If it is, you may request a transfer by telephone or
Internet. If not, please ask State Street Research to provide you with an EZ
Trader application.
Call State Street Research to verify that Investamatic is in place on your
account, or to request a form to add it. Investments are automatic once
Investamatic is in place.
Read the prospectus for the fund into which you are exchanging. Call State
Street Research or visit our Web site.
STATE STREET RESEARCH SERVICE CENTER PO Box 8408, Boston, MA 02266-8408
INTERNET www.statestreetresearch.com
CALL TOLL-FREE: 1-87-SSR-FUNDS (1-877-773-8637) (business days
8:00 a.m. - 6:00 p.m., eastern time)
<PAGE>
16 YOUR INVESTMENT continued
--------------------------------------------------------------------------------
[GRAPHIC: CASH REGISTER] POLICIES FOR SELLING SHARES
CIRCUMSTANCES THAT REQUIRE WRITTEN REQUESTS Please submit instructions in
writing when any of the following apply:
- you are selling more than $100,000 worth of shares
- the name or address on the account has changed within the last 30 days
- you want the proceeds to go to a name or address not on the account
registration
- you are transferring shares to an account with a different registration or
share class
- 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 the close of regular trading on the New York Stock Exchange (usually 4:00
p.m. eastern time) will be executed the same day, at that day's closing share
price. Requests received thereafter 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>
17 INSTRUCTIONS FOR SELLING SHARES
--------------------------------------------------------------------------------
[GRAPHIC: BRIEFCASE] THROUGH A PROFESSIONAL OR PROGRAM
BY MAIL [GRAPHIC: MAILBOX]
[GRAPHIC: CAPITAL BUILDING] BY FEDERAL FUNDS WIRE
BY ELECTRONIC FUNDS TRANSFER (ACH) [GRAPHIC: PLUG]
[GRAPHIC: COMPUTER] BY INTERNET
BY TELEPHONE [GRAPHIC: TELEPHONE]
[GRAPHIC: ARROWS GOING IN OPPOSITE DIRECTIONS] BY EXCHANGE
BY SYSTEMATIC WITHDRAWAL PLAN [GRAPHIC: CALENDAR]
TO SELL SOME OR ALL OF YOUR SHARES
Consult your financial professional or your program materials.
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).
Check with State Street Research to make sure that a wire redemption privilege,
including a bank designation, is in place on your account. Once this is
established, you may place your request to sell shares with State Street
Research. Proceeds will be sent to your pre-designated bank account (see "Wire
Transactions" on facing page).
Check with State Street Research to make sure that the EZ Trader feature,
including a bank designation, is in place on your account. Once this is
established, you may place your request to sell shares with State Street
Research by telephone or Internet. Proceeds will be sent to your pre-designated
bank account.
Visit our Web site. Certain limitations may apply.
As long as the transaction does not require a written request (see facing page),
you or your financial professional can sell shares by calling State Street
Research. A check will be mailed to your address of record on the following
business day.
Read the prospectus for the fund into which you are exchanging. Call State
Street Research or visit our Web site.
See plan information on page 21.
STATE STREET RESEARCH SERVICE CENTER PO Box 8408, Boston, MA 02266-8408
INTERNET www.statestreetresearch.com
CALL TOLL-FREE: 1-87-SSR-FUNDS (1-877-773-8637) (business days
8:00 a.m. - 6:00 p.m., eastern time)
<PAGE>
18 YOUR INVESTMENT continued
--------------------------------------------------------------------------------
[GRAPHIC: POLICIES]
ACCOUNT POLICIES
TELEPHONE AND INTERNET REQUESTS When you open an account you automatically
receive telephone privileges, allowing you to place requests for your account by
telephone. Your financial professional can also use these privileges to request
exchanges or redemptions on your account. For your protection, all telephone
calls are recorded.
You may also use our Web site for submitting certain requests over the Internet.
As long as State Street Research takes certain measures to authenticate requests
over the telephone or Internet for 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.
Similarly, you may choose not to use the Internet for your account. 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 of your
current shares. Any contingent deferred sales charges will continue to be
calculated from the date of your initial investment.
You must hold Class A shares of any fund for at least 30 days before you may
exchange them at net asset value for Class A shares of a different fund with a
higher applicable sales charge.
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 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, depending on the
<PAGE>
19
-----------
circumstances, may deduct an annual maintenance fee (currently $18).
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 (but not later than 4:00 p.m. eastern time). NAV is calculated by
dividing the fund's net assets by the number of its shares outstanding.
In calculating its NAV, the fund uses the last reported sale price or quotation
for portfolio securities. However, in cases where these are unavailable, or when
the investment manager believes that subsequent events have rendered them
unreliable, the fund may use fair-value estimates instead.
Because foreign securities markets are sometimes open on different days from
U.S. markets, there may be instances when the value of the fund's portfolio
changes on days when you cannot buy or sell shares.
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.
ADDITIONAL POLICIES Please note that the fund maintains additional policies and
reserves certain rights, including:
- Requirements for initial or additional investments, reinvestments, periodic
investment plans, retirement and employee benefit plans, sponsored
arrangements and other similar programs may be changed from time to time
without further notice or supplement to this prospectus
- All orders to purchase shares are subject to acceptance by the fund
- 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
- The fund may delay sending you redemption proceeds for up to seven days, or
longer if permitted by the SEC
- The fund reserves the right to redeem in kind
- To permit investors to obtain the current price, dealers are responsible for
transmitting all orders to the State Street Research Service Center promptly
<PAGE>
20 YOUR INVESTMENT continued
--------------------------------------------------------------------------------
[GRAPHIC: MAGNIFYING GLASS] TAX CONSIDERATIONS
Unless your investment is in a tax-deferred account, you may want to avoid:
- investing a large amount in the fund close to the end of its fiscal year or a
calendar year (if the fund makes a distribution, you will receive some of your
investment back as a taxable distribution)
- 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 in the current year)
[GRAPHIC: "UNCLE SAM"] DISTRIBUTIONS AND TAXES
INCOME AND CAPITAL GAINS DISTRIBUTIONS The fund typically distributes any net
income and net capital gains to shareholders in December, after the end of the
fund's fiscal year, which is September 30.
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.
TAX EFFECTS OF DISTRIBUTIONS AND TRANSACTIONS In general, any dividends and
short-term capital gains distributions you receive from the fund are taxable as
ordinary income. Distributions of long-term capital gains are generally taxable
as capital gains -- in most cases, at a different rate from those that apply to
ordinary income.
The tax you pay on a given capital gains distribution generally depends on how
long the fund has held the portfolio securities it sold. It does not depend on
how long you have owned your fund shares or whether you reinvest your
distributions.
Every year, the fund will send you information detailing the amount of ordinary
income and capital gains distributed to you for the previous year.
<PAGE>
21
-----------
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.
[GRAPHIC: HANDS] 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.
SYSTEMATIC WITHDRAWAL PLAN 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 12% of your fund assets a year (minimum $50 per
withdrawal) without incurring any contingent deferred sales charges. Certain
terms and minimums apply.
EZ TRADER This service allows you to purchase or sell fund shares over the
telephone or over the Internet through the ACH (Automated Clearing House)system.
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 Plan payments directly to your bank account.
RETIREMENT PLANS State Street Research also offers a full range of prototype
retirement plans for individuals, sole proprietors, partnerships, corporations
and employees.
CALL 1-87-SSR-FUNDS (1-877-773-8637) FOR INFORMATION ON ANY OF THE SERVICES
DESCRIBED ABOVE.
<PAGE>
22 OTHER INFORMATION
--------------------------------------------------------------------------------
[GRAPHIC: SECURITIES] 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 1. Below are brief
descriptions of other securities and practices, along with their associated
risks.
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 or
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.
INTERNATIONAL EXPOSURE Many U.S. companies in which the fund may invest
generate significant revenues and earnings from abroad. As a result, these
companies and the prices of their securities may be affected by weaknesses in
global and regional economies and the relative value of foreign currencies to
the U.S. dollar. These factors, taken as a whole, could adversely affect the
price of fund shares.
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.
In addition, foreign securities may be more difficult to resell and the markets
for them less efficient than for comparable U.S. securities. Even where a
foreign security increases in price in its local currency, the appreciation may
be diluted by the negative effect of exchange rates when the security's value is
converted to U.S. dollars. Foreign withholding taxes also may apply and errors
and delays may occur in the settlement process for foreign securities.
DERIVATIVES Derivatives, a category that includes options and futures, are
financial instruments whose value derives from one or more securities,
<PAGE>
23
-----------
indices or currencies. The fund may use certain derivatives for hedging
(attempting to offset a potential loss in one position by establishing an
interest in an opposite position). This includes the use of currency-based
derivatives for hedging its positions in foreign securities. The fund may also
use certain 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 some 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 or fees by lending
portfolio securities to qualified institutions. By reinvesting any cash
collateral it receives in these transactions, the fund could realize additional
gains or losses. If the borrower fails to return the securities and the invested
collateral has declined in value, 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.
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 any time from a few days to over a year.
DEFENSIVE INVESTING During unusual market conditions, the fund may place up to
100% of total assets in cash or high-quality, short-term debt securities. To the
extent that the fund does this, it is not pursuing its goal.
INITIAL PUBLIC OFFERINGS Investments in initial public offerings ("IPOs") can
have a significant positive impact on the fund's performance. The positive
effect of investments in IPOs may not be sustainable because of a number of
factors. The fund may not be able to buy shares in some IPOs, or may be able to
buy only a small number of shares. Also, the fund may not be able to buy the
shares at the commencement of the offering, and the general availability and
performance of IPOs are dependent on market psychology and economic conditions.
Also, the relative performance impact of IPOs is likely to decline as the fund
grows.
<PAGE>
24 FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
THESE HIGHLIGHTS ARE INTENDED TO HELP YOU UNDERSTAND THE FUND'S PERFORMANCE OVER
THE PAST FIVE YEARS. THE INFORMATION IN THESE TABLES HAS BEEN AUDITED BY
PRICEWATERHOUSECOOPERS LLP, THE FUND'S INDEPENDENT ACCOUNTANTS. THEIR REPORT AND
THE FUND'S FINANCIAL STATEMENTS ARE INCLUDED IN THE FUND'S ANNUAL REPORT, WHICH
IS AVAILABLE UPON REQUEST. TOTAL RETURN FIGURES ASSUME REINVESTMENT OF ALL
DISTRIBUTIONS.
<TABLE>
<CAPTION>
CLASS A CLASS B(1)
--------------------------------------------------------------------------
Years ended September 30 Years ended September 30
PER SHARE DATA 1996(a) 1997(a) 1998(a) 1999(a) 2000(a) 1999(a)(c) 2000(a)
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 9.69 11.33 15.53 8.86 11.01 10.22 10.46
------- ------- ------- ------- ------- ------- -------
Net investment loss ($)* (0.09) (0.08) (0.05) (0.08) (0.14) (0.12) (0.24)
Net realized and unrealized gain (loss) on
investments, foreign currency and forward
contracts ($) 1.73 5.13 (4.01) 2.60 5.21 0.36 4.95
------- ------- ------- ------- ------- ------- -------
TOTAL FROM INVESTMENT OPERATIONS ($) 1.64 5.05 (4.06) 2.52 5.07 0.24 4.71
------- ------- ------- ------- ------- ------- -------
Distributions from capital gains ($) -- (0.85) (2.61) (0.37) -- -- --
------- ------- ------- ------- ------- ------- -------
TOTAL DISTRIBUTIONS ($) -- (0.85) (2.61) (0.37) -- -- --
------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF YEAR ($) 11.33 15.53 8.86 11.01 16.08 10.46 15.17
======= ======= ======= ======= ======= ======= =======
Total return (%)(b) 16.92 48.00 (29.97) 29.10 46.05 2.35(d) 45.03
RATIOS/SUPPLEMENTAL DATA
------------------------------------------------------------------------------------------------------------------------
Net assets at end of year ($ thousands) 19,791 34,446 30,858 31,384 53,600 3,767 16,554
Expense ratio (%) 1.35 1.35 1.35 1.37 1.38 2.12(e) 2.11
Expense ratio after expense reductions (%)* 1.35 1.35 1.35 1.35 1.37 2.10(e) 2.10
Ratio of net investment loss
to average net assets (%)* (0.96) (0.64) (0.45) (0.75) (0.90) (1.59)(e) (1.59)
Portfolio turnover rate (%) 155.85 273.33 98.30 93.38 218.99 93.38 218.99
*REFLECTS VOLUNTARY REDUCTION OF
EXPENSES PER SHARE OF THESE AMOUNTS ($) 0.04 0.04 0.02 0.05 0.04 0.05 0.03
</TABLE>
<PAGE>
25
-----------
<TABLE>
<CAPTION>
CLASS B CLASS C
----------------------------------------------------------------------------------------
Years ended September 30 Years ended September 30
PER SHARE DATA 1996(a) 1997(a) 1998(a) 1999(a) 2000(a) 1996(a) 1997(a) 1998(a) 1999(a) 2000(a)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 9.58 11.11 15.09 8.48 10.46 9.58 11.10 15.10 8.49 10.46
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net investment loss ($)* (0.17) (0.16) (0.14) (0.15) (0.24) (0.16) (0.16) (0.14) (0.15) (0.24)
Net realized and unrealized gain (loss)
on investments ($) 1.70 4.99 (3.86) 2.50 4.94 1.68 5.01 (3.86) 2.49 4.95
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL FROM INVESTMENT OPERATIONS ($) 1.53 4.83 (4.00) 2.35 4.70 1.52 4.85 (4.00) 2.34 4.71
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Distributions from capital gains ($) -- (0.85) (2.61) (0.37) -- -- (0.85) (2.61) (0.37) --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL DISTRIBUTIONS ($) -- (0.85) (2.61) (0.37) -- -- (0.85) (2.61) (0.37) --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF YEAR ($) 11.11 15.09 8.48 10.46 15.16 11.10 15.10 8.49 10.46 15.17
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Total return (%)(b) 15.97 46.91 (30.56) 28.37 44.93 15.87 47.15 (30.52) 28.21 45.03
RATIOS/SUPPLEMENTAL DATA
------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year ($ thousands) 23,656 40,512 46,315 44,377 65,496 4,503 7,460 7,012 6,545 9,082
Expense ratio (%) 2.10 2.10 2.10 2.12 2.11 2.10 2.10 2.10 2.12 2.11
Expense ratio after expense reductions(%)* 2.10 2.10 2.10 2.10 2.10 2.10 2.10 2.10 2.10 2.10
Ratio of net investment loss
to average net assets (%)* (1.71) (1.40) (1.20) (1.50) (1.64) (1.71) (1.41) (1.20) (1.50) (1.63)
Portfolio turnover rate (%) 155.85 273.33 98.30 93.38 218.99 155.85 273.33 98.30 93.38 218.99
*REFLECTS VOLUNTARY REDUCTION OF
EXPENSES PER SHARE OF THESE AMOUNTS ($) 0.04 0.03 0.02 0.05 0.03 0.04 0.03 0.02 0.05 0.03
</TABLE>
(a) PER-SHARE FIGURES HAVE BEEN CALCULATED USING THE AVERAGE SHARES METHOD.
(b) DOES NOT REFLECT ANY FRONT-END OR CONTINGENT DEFERRED SALES CHARGES. TOTAL
RETURN WOULD BE LOWER IF THE DISTRIBUTOR AND ITS AFFILIATES HAD NOT
VOLUNTARILY REDUCED THE FUND'S EXPENSES.
(c) JANUARY 1, 1999 (COMMENCEMENT OF SHARE CLASS) TO SEPTEMBER 30, 1999.
(d) NOT ANNUALIZED.
(e) ANNUALIZED.
<PAGE>
26 FINANCIAL HIGHLIGHTS continued
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS S
-----------------------------------------------
Years ended September 30
PER SHARE DATA 1996(a) 1997(a) 1998(a) 1999(a) 2000(a)
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 9.77 11.44 15.73 9.02 11.26
------- ------- ------- ------- -------
Net investment loss ($)* (0.07) (0.04) (0.02) (0.05) (0.10)
Net realized and unrealized gain (loss)
on investments ($) 1.74 5.18 (4.08) 2.66 5.32
------- ------- ------- ------- -------
TOTAL FROM INVESTMENT OPERATIONS ($) 1.67 5.14 (4.10) 2.61 5.22
------- ------- ------- ------- -------
Distributions from capital gains ($) -- (0.85) (2.61) (0.37) --
------- ------- ------- ------- -------
TOTAL DISTRIBUTIONS ($) -- (0.85) (2.61) (0.37) --
------- ------- ------- ------- -------
NET ASSET VALUE, END OF YEAR ($) 11.44 15.73 9.02 11.26 16.48
======= ======= ======= ======= =======
Total return (%)(b) 17.09 48.34 (29.83) 29.59 46.36
RATIOS/SUPPLEMENTAL DATA
---------------------------------------------------------------------------------------------
Net assets at end of year ($ thousands) 13,311 7,008 4,958 6,432 8,744
Expense ratio (%) 1.10 1.10 1.10 1.12 1.11
Expense ratio after expense reductions (%)* 1.10 1.10 1.10 1.10 1.10
Ratio of net investment loss
to average net assets (%)* (0.71) (0.39) (0.19) (0.51) (0.64)
Portfolio turnover rate (%) 155.85 273.33 98.30 93.38 218.99
*REFLECTS VOLUNTARY REDUCTION OF
EXPENSES PER SHARE OF THESE AMOUNTS ($) 0.04 0.03 0.02 0.05 0.04
</TABLE>
(a) PER-SHARE FIGURES HAVE BEEN CALCULATED USING THE AVERAGE SHARES METHOD.
(b) 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 REDUCED THE FUND'S EXPENSES.
<PAGE>
BOARD OF TRUSTEES 27
--------------------------------------------------------------------------------
[GRAPHIC: COLUMNS] The Board of Trustees is responsible for the operation of the
fund. They establish the Fund's major policies, review investments, and provide
guidance to the investment manager and others who provide services to the Fund.
The Trustees have diverse backgrounds and substantial experience in business and
other areas.
RICHARD S. DAVIS
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER, State Street
Research & Management Company
BRUCE R. BOND
FORMER CHAIRMAN OF THE BOARD,
CHIEF EXECUTIVE OFFICER
AND PRESIDENT,
PictureTel Corporation
STEVE A. GARBAN
FORMER SENIOR VICE PRESIDENT FOR FINANCE
AND OPERATIONS AND TREASURER,
The Pennsylvania State University
DEAN O. MORTON
FORMER EXECUTIVE VICE PRESIDENT,
CHIEF OPERATING OFFICER AND DIRECTOR,
Hewlett-Packard Company
SUSAN M. PHILLIPS
DEAN, School of Business and Public
Management, George Washington
University; FORMER MEMBER OF THE BOARD OF
GOVERNORS of the Federal Reserve System
and CHAIRMAN AND COMMISSIONER
of the Commodity Futures Trading
Commission
TOBY ROSENBLATT
PRESIDENT, Founders Investments Ltd.
PRESIDENT, The Glen Ellen Company
MICHAEL S. SCOTT MORTON
JAY W. FORRESTER PROFESSOR OF
MANAGEMENT, Sloan School of
Management, Massachusetts
Institute of Technology
<PAGE>
28 NOTES
--------------------------------------------------------------------------------
<PAGE>
NOTES 29
--------------------------------------------------------------------------------
<PAGE>
FOR ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
IF YOU HAVE QUESTIONS ABOUT THE FUND OR WOULD LIKE TO REQUEST A FREE COPY OF THE
CURRENT ANNUAL/SEMIANNUAL REPORT OR SAI, CONTACT STATE STREET RESEARCH OR YOUR
FINANCIAL PROFESSIONAL.
[GRAPHIC] STATE STREET RESEARCH
Service Center
P.O. Box 8408, Boston, MA 02266
Telephone: 1-87-SSR-FUNDS (1-877-773-8637)
Internet: www.statestreetresearch.com
YOU CAN ALSO OBTAIN INFORMATION ABOUT THE FUND, INCLUDING THE SAI AND CERTAIN
OTHER FUND DOCUMENTS, ON THE SEC'S EDGAR DATABASE ON THE INTERNET AT
WWW.SEC.GOV, BY ELECTRONIC REQUEST AT [email protected], IN PERSON AT THE SEC'S
PUBLIC REFERENCE ROOM IN WASHINGTON, DC (TELEPHONE 1-202-942-8090) OR BY MAIL BY
SENDING YOUR REQUEST, ALONG WITH A DUPLICATING FEE, TO THE SEC'S PUBLIC
REFERENCE SECTION, WASHINGTON, DC 20549-0102.
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 on the fund's financial statements.
STATEMENT OF ADDITIONAL INFORMATION (SAI) A supplement to the prospectus, the
SAI contains further information about the fund and its investment limitations
and policies. 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).
<TABLE>
<CAPTION>
TICKER SYMBOLS
--------------------------------------------
<S> <C>
Class A SCGAX
Class B(1) (proposed) SCGPX
Class B SCGBX
Class C SGCDX
Class S (proposed) SGCCX
</TABLE>
PROSPECTUS EM-2957-1100
------------------------------
SEC File Number: 811-3838 Control Number: (exp0202)SSR-LD
<PAGE>
[LOGO - Tip of State Street Research Building]
STATE STREET RESEARCH
AURORA FUND
THIS PROSPECTUS HAS INFORMATION YOU SHOULD KNOW BEFORE YOU INVEST. PLEASE READ
IT CAREFULLY AND KEEP IT WITH YOUR INVESTMENT RECORDS.
AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THIS PROSPECTUS WILL ALSO BE AVAILABLE IN SPANISH AND CHINESE IN MARCH BY
CALLING THE STATE STREET RESEARCH SERVICE CENTER AT 1-888-638-3193.
[GRAPHIC - Tip of State Street Research Building]
A STOCK FUND WITH A VALUE APPROACH TO SMALL-CAP INVESTING.
PROSPECTUS
February 1, 2001
<PAGE>
CONTENTS
1 THE FUND
-----------------
1 Goal and Strategies
2 Principal Risks
4 Volatility and Performance
6 Investor Expenses
8 Investment Management
9 YOUR INVESTMENT
------------------------
9 Opening an Account
9 Choosing a Share Class
10 Sales Charges
13 Dealer Compensation
14 Buying and Selling Shares
18 Account Policies
20 Distributions and Taxes
21 Investor Services
22 OTHER INFORMATION
--------------------------
22 Other Securities and Risks
24 Financial Highlights
27 Board of Trustees
BACK COVER For Additional Information
<PAGE>
THE FUND 1
--------------------------------------------------------------------------------
[GRAPHIC: CHESS PIECE] GOAL AND STRATEGIES
FUNDAMENTAL GOAL The fund seeks to provide high total return, consisting
principally of capital appreciation.
PRINCIPAL STRATEGIES Under normal market conditions, the fund invests at least
65% of total assets in small company value stocks.
The fund generally expects that most investments will be in stocks of companies
no larger than the largest companies in the Russell 2000-Registered Trademark-
Value Index. The fund may continue to hold or buy additional stock in a company
that has outgrown this range if the stock remains attractive. 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.
[GRAPHIC: MAGNIFYING GLASS] WHO MAY WANT TO INVEST
State Street Research Aurora Fund is designed for investors who seek one or more
of the following:
- an aggressive stock fund for a long-term goal
- a fund to complement a portfolio of more conservative investments
- a small company fund that emphasizes value stocks over growth stocks
The fund is NOT appropriate for investors who:
- want to avoid high volatility or possible losses
- are making short-term investments
- are investing emergency reserve money
- are seeking regular income
<PAGE>
2 THE FUND continued
--------------------------------------------------------------------------------
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 22.
[GRAPHIC: STOP SIGN] PRINCIPAL 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
because the circumstances causing it to be underpriced do not change. 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 portfolio manager's skill in
assessing the potential of the stocks the fund 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 if there are capital gains.
<PAGE>
3
--------
Because the fund may invest in U.S. companies with some international business,
and also may invest in foreign companies, it is subject to the risks associated
with international investing.
The fund's shares will rise and fall in value and there is a risk that you could
lose money by investing in the fund. Also, the fund cannot be certain that it
will achieve its goal. Finally, fund shares are not bank deposits and are not
guaranteed, endorsed or insured by any financial institution, government entity
or the FDIC.
INFORMATION ON OTHER SECURITIES AND RISKS APPEARS ON PAGE 22.
A "SNAPSHOT" OF THE FUND'S INVESTMENTS MAY BE FOUND IN THE CURRENT ANNUAL OR
SEMIANNUAL REPORT (SEE BACK COVER).
[GRAPHIC: MAGNIFYING GLASS] 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.
<PAGE>
4 VOLATILITY AND PERFORMANCE
--------------------------------------------------------------------------------
[CHART]
<TABLE>
<CAPTION>
Years ended December 31
----------------------------------------------
YEAR-BY-YEAR TOTAL RETURN (CLASS A) 1996 1997 1998 1999 2000
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
56.57 46.64 (15.20) 33.55 37.02
</TABLE>
BEST QUARTER: third quarter 1997, up 22.69%
WORST QUARTER: third quarter 1998, down 26.68%
<TABLE>
<CAPTION>
As of December 31, 2000
--------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (AT MAXIMUM APPLICABLE SALES CHARGE) 1 YEAR 5 YEARS SINCE INCEPTION*
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A (%) 29.14 27.41 26.82
Class B(1)(a) 31.03 27.80 27.09
Class B (%) 31.03 27.80 27.14
Class C (%) 35.10 27.95 27.14
Class S (%) 37.84 29.34 28.50
Russell 2000 Value Index (%) 22.83 12.60 14.80
S&P 500 Index (%) (9.10) 18.33 20.93
Lipper Small-Cap Value Funds Index (%) 16.10 11.31 12.75
</TABLE>
(a) PERFORMANCE FOR CLASS B(1) REFLECTS CLASS B PERFORMANCE THROUGH DECEMBER 31,
1998. CLASS B(1) WAS INTRODUCED ON JANUARY 1, 1999.
*SINCE INCEPTION (2/13/95)
<PAGE>
5
--------
[GRAPHIC: MAGNIFYING GLASS] UNDERSTANDING
VOLATILITY AND
PERFORMANCE
The chart and table on the opposite page are designed to show two aspects of the
fund's track record:
- YEAR-BY-YEAR TOTAL RETURN 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. If sales charges had been included, returns would have been less than
shown.
- 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.
Also included are three independent measures of performance. Two are unmanaged
stock indices: the S&P 500 (officially, the "S&P 500 Composite Stock Price
Index"), which includes 500 U.S. stocks, and the Russell 2000-Registered
Trademark- Value Index, which contains only those stocks within the complete
Russell 2000-Registered Trademark- Index (a small company index) that show below
average growth. The Lipper Small Cap Value 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-Registered
Trademark- Value, your returns would always be lower, because these indices
don't include brokerage and administrative expenses.
Favorable investments in initial public offerings ("IPOs") have had a
significant impact on the fund's performance in some periods. This impact may
not be sustainable because of the unavailability of IPOs as market conditions
change or allocations to the fund are reduced in the future. As the assets of
the fund increase, the positive effect of IPOs on the fund`s performance is
likely to decline.
Keep in mind that past performance is no guarantee of future results.
<PAGE>
6 INVESTOR EXPENSES
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class descriptions begin on page 9
SHAREHOLDER FEES (% of offering price) CLASS A CLASS B(1) CLASS B CLASS C CLASS S
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Maximum front-end sales charge (load) 5.75 0.00 0.00 0.00 0.00
Maximum deferred sales charge (load) 0.00(a) 5.00 5.00 1.00 0.00
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (% of average net assets) CLASS A CLASS B(1) CLASS B CLASS C CLASS S
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Management fee 0.85 0.85 0.85 0.85 0.85
Service/distribution (12b-1) fees 0.30(b) 1.00 1.00 1.00 0.00
Other expenses 0.28 0.28 0.28 0.28 0.28
Total annual fund operating expenses 1.43 2.13 2.13 2.13 1.13
<CAPTION>
EXAMPLE YEAR CLASS A CLASS B(1) CLASS B CLASS C CLASS S
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 $712 $716/$216 $716/$216 $316/$216 $115
3 $1,001 $967/$667 $967/$667 $667 $359
5 $1,312 $1,344/$1,144 $1,344/$1,144 $1,144 $622
10 $2,190 $2,284 $2,284 $2,462 $1,375
</TABLE>
(a) EXCEPT FOR INVESTMENTS OF $1 MILLION OR MORE; SEE PAGE 10.
(b) REFLECTS FEE SCHEDULE THAT BECAME EFFECTIVE MAY 1, 2000, AS IF IT HAD BEEN
IN PLACE DURING THE FUND'S ENTIRE PREVIOUS FISCAL YEAR. THE TRUSTEES MAY
INCREASE THE CURRENT SERVICE/DISTRIBUTION FEES SHOWN FOR CLASS A SHARES AT
ANY TIME PROVIDED THAT THE FEES DO NOT EXCEED A MAXIMUM OF 0.40%.
<PAGE>
7
--------
[GRAPHIC: MAGNIFYING GLASS] UNDERSTANDING
INVESTOR EXPENSES
The information on the opposite page is designed to give you an idea of what you
should expect to pay in expenses as an investor in the fund. The information is
based on the fund's most recent fiscal year and current results may be
different.
- SHAREHOLDER FEES are costs that are charged to you directly. These fees are
not charged on reinvestments or exchanges.
- ANNUAL FUND OPERATING EXPENSES are deducted from the fund's assets every year,
and are thus paid indirectly by all fund investors.
- The EXAMPLE is designed to allow you to compare the costs of this fund with
those of other funds. It assumes that you invested $10,000 over the years
indicated, reinvested all distributions, earned a hypothetical 5% annual
return and paid the maximum applicable sales charges. For ClassB(1) and
Class B shares, it also assumes the automatic conversion to Class A shares
after eight years.
When two numbers are shown separated by a slash, the first one assumes you sold
all your shares at the end of the period, while the second assumes you stayed in
the fund. Where there is only one number, the costs would be the same either
way.
The figures in the example assume full annual expenses, and would be lower if
they reflected the various expense reductions that may have been taken.
Investors should keep in mind that the example is for comparison purposes only.
The fund's actual performance and expenses may be higher or lower.
<PAGE>
8 THE FUND continued
--------------------------------------------------------------------------------
[GRAPHIC: THINKER] INVESTMENT
MANAGEMENT
The fund's investment manager is State Street Research & Management Company, One
Financial Center, Boston, Massachusetts 02111. The firm traces its heritage back
to 1924 and the founding of one of America's first mutual funds. Today the firm
has approximately $____billion in assets under management (as of December 31,
2000), including more than $____billion in mutual funds.
The investment manager is responsible for the fund's investment and business
activities, and receives the management fee (0.85% of average net assets,
annually) as compensation. The investment manager is a subsidiary of
Metropolitan Life Insurance Company.
Rudolph K. Kluiber has been responsible for the fund's day-to-day portfolio
management since its inception in February 1995. A senior vice president, he
joined the firm in 1989 and has worked as an investment professional since 1988.
<PAGE>
YOUR INVESTMENT 9
--------------------------------------------------------------------------------
[GRAPHIC: KEY] 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.
[GRAPHIC: CHECKLIST] CHOOSING A SHARE CLASS
The fund generally offers four share classes, each with its own sales charge and
expense structure: Class A, Class B(1), Class C and Class S. The fund also
offers Class B shares, but only to current Class B shareholders through
reinvestment of dividends and distributions or through exchanges from existing
Class B accounts of the State Street Research funds.
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 may want to consider Class B(1) shares (if
investing for at least six years) or Class C shares (if investing for less than
six years). If you are investing through a special program, such as a large
employer-sponsored retirement plan or certain programs available through
financial professionals, 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.
<PAGE>
10 YOUR INVESTMENT continued
--------------------------------------------------------------------------------
CLASS A -- FRONT LOAD
- Initial sales charge of 5.75% or less
- Lower sales charges for larger investments; see sales charge schedule at right
- Lower annual expenses than Class B(1) or Class C shares because of lower
service/distribution (12b-1) fee of up to 0.40%
CLASS B(1) -- BACK LOAD
- No initial sales charge
- Deferred sales charge of 5% or less on shares you sell within six years
- Annual service/distribution (12b-1) fee of 1.00%
- Automatic conversion to Class A shares after eight years, reducing future
annual expenses
CLASS B -- BACK LOAD
- Available only to current Class B shareholders; see page 11 for details
CLASS C -- LEVEL LOAD
- No initial sales charge
- Deferred sales charge of 1%, paid if you sell shares within one year of
purchase
- Lower deferred sales charge than Class B(1) shares
- Annual service/distribution (12b-1) fee of 1.00%
- No conversion to Class A shares after eight years, so annual expenses do not
decrease
CLASS S -- SPECIAL PROGRAMS
- Available only through certain retirement accounts, advisory accounts of the
investment manager and other special programs, including programs through
financial professionals with recordkeeping and other services; these programs
usually involve special conditions and separate fees (consult your financial
professional or your program materials)
- No sales charges of any kind
- No service/distribution (12b-1) fees; annual expenses are lower than other
share classes
SALES CHARGES
CLASS A -- FRONT LOAD
<TABLE>
<CAPTION>
WHEN YOU INVEST THIS % IS WHICH EQUALS
THIS AMOUNT DEDUCTED THIS % OF
FOR SALES YOUR NET
CHARGES INVESTMENT
---------------------------------------------------------------------
<S> <C> <C>
Up to $50,000 5.75 6.10
$50,000 to $100,000 4.50 4.71
$100,000 to $250,000 3.50 3.63
$250,000 to $500,000 2.50 2.56
$500,000 to $1 million 2.00 2.04
$1 million or more see below
</TABLE>
With Class A shares, you pay a sales charge 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 application), you can purchase Class A shares
without any sales charge. However, you may be charged a "contingent deferred
sales charge" (CDSC) of up to 1% if you sell any shares within one year of
purchasing them. See "Other CDSC Policies" on page 12.
<PAGE>
11
--------
Class A shares are also offered with low or no sales charges through various
wrap-fee programs and other sponsored arrangements (consult your financial
professional or your program materials).
CLASS B(1) -- BACK LOAD
<TABLE>
<CAPTION>
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
-------------------------------------------------------------
<S> <C>
First year 5.00
Second year 4.00
Third year 3.00
Fourth year 3.00
Fifth year 2.00
Sixth year 1.00
Seventh or eighth year None
</TABLE>
With Class B(1) 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 six years or less, as described in the table above. See "Other
CDSC Policies" on page 12.
Class B(1) shares automatically convert to Class A shares after eight years;
Class A shares have lower annual expenses.
CLASS B -- BACK LOAD
Class B shares are available only to current shareholders through reinvestment
of dividends and distributions or through exchanges from existing Class B
accounts of the State Street Research funds. Other investments made by current
Class B shareholders will be in Class B(1) shares.
With Class B shares, you are charged a "contingent deferred sales charge" (CDSC)
when you sell shares you have held for five years or less. The CDSC is a
percentage of net asset value at the time of purchase (or of sale, if lower) and
is deducted from your proceeds. When you sell shares in the first year after you
bought them, the CDSC is 5.00%; second year, 4.00%; third year, 3.00%; fourth
year, 3.00%; fifth year, 2.00%; sixth year or later, none. See "Other CDSC
Policies" on page 12.
Class B shares automatically convert to Class A shares after eight years.
CLASS C -- LEVEL LOAD
<TABLE>
<CAPTION>
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
-----------------------------------------------------------------
<S> <C>
First year 1.00
Second year or later None
</TABLE>
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
<PAGE>
12 YOUR INVESTMENT continued
--------------------------------------------------------------------------------
or less, as described in the table above. See "Other CDSC Policies" below.
Class C shares currently have the same annual expenses as Class B(1) shares, but
never convert to Class A shares.
CLASS S -- SPECIAL PROGRAMS
Class S shares have no sales charges.
OTHER CDSC POLICIES
The CDSC will be based on the net asset value of the shares at the time of
purchase (or sale, if lower). 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 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 participant initiated distributions from
State Street Research prototype retirement plans. In other cases, the CDSC is
waived on shares sold for mandatory retirement distributions or for
distributions because of disability or death. Consult your financial
professional or the State Street Research Service Center for more information.
[GRAPHIC: MAGNIFYING GLASS] UNDERSTANDING
SERVICE/DISTRIBUTION
FEES
As noted in the descriptions on pages 10 through 12, all share classes except
Class S have an annual service/distribution fee, also called a 12b-1 fee.
Under its current 12b-1 plans, the fund may pay certain service and distribution
fees for these classes out of fund assets. Because 12b-1 fees are an ongoing
expense, they will increase the cost of your investment and, over time, could
potentially cost you more than if you had paid other types of sales charges. For
that reason, you should consider the effects of 12b-1 fees as well as sales
loads when choosing a share class.
Some of the 12b-1 fees are used to compensate those financial professionals who
sell fund shares and provide ongoing service to shareholders. The table on page
13 shows how these professionals' compensation is calculated.
The fund may continue to pay 12b-1 fees even if the fund is subsequently closed
to new investors.
<PAGE>
13
--------
[GRAPHIC: CHECK] DEALER COMPENSATION
Financial professionals who sell shares of State Street Research funds and
perform services for fund investors may receive sales commissions, annual fees,
and other compensation. These are paid by the fund's distributor, using money
from sales charges, service/distribution (12b-1) fees and its other resources.
Brokers and agents may charge a transaction fee on orders of fund shares placed
directly through them. The distributor may pay its affiliate MetLife Securities,
Inc. additional compensation of up to 0.25% of certain sales or assets.
<TABLE>
<CAPTION>
DEALER COMMISSIONS (%) CLASS A CLASS B(1) CLASS B CLASS C CLASS S
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales commission See below 4.00 4.00 1.00 0.00
Investments up to $50,000 5.00 -- -- -- --
$50,000 to $100,000 4.00 -- -- -- --
$100,000 to $250,000 3.00 -- -- -- --
$250,000 to $500,000 2.00 -- -- -- --
$500,000 to $1 million 1.75 -- -- -- --
First $1 to 3 million 1.00(a) -- -- -- --
Next $2 million 0.75(a) -- -- -- --
Next $2 million 0.50(a) -- -- -- --
Next $1 and above 0.25(a) -- -- -- --
Annual fee 0.25 0.25 0.25 1.00 0.00
</TABLE>
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 the sale of shares of the State Street Research
funds by the broker.
(a) IF YOUR FINANCIAL PROFESSIONAL DECLINES THIS COMMISSION, THE ONE-YEAR CDSC
ON YOUR INVESTMENT IS WAIVED.
<PAGE>
14 BUYING AND SELLING SHARES
--------------------------------------------------------------------------------
[GRAPHIC: CASH REGISTER] 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:
- $1,000 for accounts that use the Investamatic program(a)
- $2,000 for Individual Retirement Accounts(a)
- $2,500 for all other accounts
MINIMUM ADDITIONAL INVESTMENTS:
- $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 in good order by State Street Research
before the close of regular trading on the New York Stock Exchange (usually 4:00
p.m. eastern time) will be executed the same day, at that day's closing share
price. Orders received thereafter 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. If the New York Stock Exchange closes before 4:00 p.m. eastern time,
you may be unable to make a same-day wire investment. Your bank may charge a fee
for wiring money.
(a) EXCEPT $500 FOR INDIVIDUAL RETIREMENT ACCOUNTS DURING SPECIAL PROMOTIONAL
PERIODS.
<PAGE>
INSTRUCTIONS FOR BUYING SHARES 15
--------------------------------------------------------------------------------
[GRAPHIC: BRIEFCASE] THROUGH A
PROFESSIONAL
OR PROGRAM
BY MAIL [GRAPHIC: MAILBOX]
[GRAPHIC: CAPITAL BUILDING] BY FEDERAL
FUNDS WIRE
BY ELECTRONIC [GRAPHIC: PLUG]
FUNDS TRANSFER
(ACH)
[GRAPHIC: CALENDAR] BY INVESTAMATIC
BY EXCHANGE [GRAPHIC: ARROWS GOING IN OPPOSITE DIRECTIONS]
TO OPEN AN ACCOUNT
Consult your financial professional or your program materials.
Make your check payable to "State Street Research Funds." Forward the check and
your application to State Street Research.
Call to obtain an account number and forward your application to State Street
Research. Wire funds using the instructions at right.
Verify that your bank is a member of the ACH (Automated Clearing House) system.
Forward your application to State Street Research. Please be sure to include the
appropriate bank information. Call State Street Research to request a purchase.
Forward your application, with all appropriate sections completed, to State
Street Research, along with a check for your initial investment payable to
"State Street Research Funds."
Read the prospectus for the fund into which you are investing. Call State Street
Research or visit our Web site.
TO ADD TO AN ACCOUNT
Consult your financial professional or your program materials.
Fill out an investment slip from an account statement, or indicate the fund name
and account number on your check. Make your check payable to "State Street
Research Funds." Forward the check and slip to State Street Research.
Call State Street Research to obtain a control number. Instruct your bank to
wire funds to:
- State Street Bank and Trust Company, Boston, MA
- ABA: 011000028
- BNF: fund name and share class you want to buy
- AC: 99029761
- OBI: your name and your account number
- Control: the number given to you by State Street Research
Call State Street Research to verify that the necessary bank information is on
file for your account. If it is, you may request a transfer by telephone or
Internet. If not, please ask State Street Research to provide you with an EZ
Trader application.
Call State Street Research to verify that Investamatic is in place on your
account, or to request a form to add it. Investments are automatic once
Investamatic is in place.
Read the prospectus for the fund into which you are investing. Call State Street
Research or visit our Web site.
STATE STREET RESEARCH SERVICE CENTER PO Box 8408, Boston, MA 02266-8408
CALL TOLL-FREE: 1-87-SSR-FUNDS (1-877-773-8637) (business days
8:00 a.m. - 6:00 p.m., eastern time)
INTERNET www.statestreetresearch.com
<PAGE>
16 YOUR INVESTMENT continued
--------------------------------------------------------------------------------
[GRAPHIC: CASH REGISTER] POLICIES FOR
SELLING SHARES
Circumstances that Require Written Requests Please submit instructions in
writing when any of the following apply:
- you are selling more than $100,000 worth of shares
- the name or address on the account has changed within the last 30 days
- you want the proceeds to go to a name or address not on the account
registration
- you are transferring shares to an account with a different registration or
share class
- 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 the close of regular trading on the New York Stock Exchange (usually 4:00
p.m. eastern time) will be executed the same day, at that day's closing share
price. Requests received thereafter 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>
INSTRUCTIONS FOR SELLING SHARES 17
--------------------------------------------------------------------------------
[GRAPHIC: BRIEFCASE] THROUGH A
PROFESSIONAL
OR PROGRAM
BY MAIL [GRAPHIC: MAILBOX]
[GRAPHIC: CAPITAL BUILDING] BY FEDERAL
FUNDS WIRE
BY ELECTRONIC [GRAPHIC: PLUG]
FUNDS TRANSFER
(ACH)
[GRAPHIC: COMPUTER] BY INTERNET
BY TELEPHONE [GRAPHIC: TELEPHONE]
[GRAPHIC: ARROWS GOING IN OPPOSITE DIRECTIONS] BY EXCHANGE
BY SYSTEMATIC [GRAPHIC: CALENDAR]
WITHDRAWAL PLAN
TO SELL SOME OR ALL OF YOUR SHARES
Consult your financial professional or your program materials.
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).
Check with State Street Research to make sure that a wire redemption privilege,
including a bank designation, is in place on your account. Once this is
established, you may place your request to sell shares with State Street
Research. Proceeds will be wired to your pre-designated bank account. (See "Wire
Transactions" on facing page.)
Check with State Street Research to make sure that the EZ Trader feature,
including a bank designation, is in place on your account. Once this is
established, you may place your request to sell shares with State Street
Research by telephone or Internet. Proceeds will be sent to your pre-designated
bank account.
Visit our Web site. Certain limitations may apply.
As long as the transaction does not require a written request (see facing page),
you or your financial professional can sell shares by calling State Street
Research. A check will be mailed to your address of record on the following
business day.
Read the prospectus for the fund into which you are exchanging. Call State
Street Research or visit our Web site.
See plan information on page 21.
STATE STREET RESEARCH SERVICE CENTER PO Box 8408, Boston, MA 02266-8408
CALL TOLL-FREE: 1-87-SSR-FUNDS (1-877-773-8637) (business days
8:00 a.m. - 6:00 p.m., eastern time)
INTERNET www.statestreetresearch.com
<PAGE>
18 YOUR INVESTMENT continued
--------------------------------------------------------------------------------
[GRAPHIC: POLICIES] ACCOUNT POLICIES
TELEPHONE AND INTERNET REQUESTS When you open an account you automatically
receive telephone privileges, allowing you to place requests for your account by
telephone. Your financial professional can also use these privileges to request
exchanges or redemptions on your account. For your protection, all telephone
calls are recorded.
You may also use our Web site for submitting certain requests over the Internet.
As long as State Street Research takes certain measures to authenticate requests
over the telephone or Internet for 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. Similarly, you may choose not to use the Internet for your account.
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 of your
current shares. Any contingent deferred sales charges will continue to be
calculated from the date of your initial investment.
You must hold Class A shares of any fund for at least 30 days before you may
exchange them at net asset value for Class A shares of a different fund with a
higher applicable sales charge.
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 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
<PAGE>
19
--------
may either sell your shares and mail the proceeds to you at the address of
record or, depending on the circumstances, may deduct an annual maintenance fee
(currently $18).
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 (but not later than 4:00 p.m. eastern time). NAV is calculated by
dividing the fund's net assets by the number of its shares outstanding.
In calculating its NAV, the fund uses the last reported sale price or quo-tation
for portfolio securities.
However, in cases where these are unavailable, or when the investment manager
believes that subsequent events have rendered them unreliable, the fund may use
fair-value estimates instead.
Because foreign securities markets are sometimes open on different days from
U.S. markets, there may be instances when the value of the fund's portfolio
changes on days when you cannot buy or sell fund shares.
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 avail- able 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.
ADDITIONAL POLICIES Please note that the fund maintains additional policies and
reserves certain rights, including:
- Requirements for initial or additional investments, reinvestments, periodic
investment plans, retirement and employee benefit plans, sponsored
arrangements and other similar programs may be changed from time to time
without further notice or supplement to this prospectus
- All orders to purchase shares are subject to acceptance by the fund
- 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
- The fund may delay sending you redemption proceeds for up to seven days, or
longer if permitted by the SEC
- The fund reserves the right to redeem in kind
- To permit investors to obtain the current price, dealers are responsible for
transmitting all orders to the State Street Research Service Center promptly
<PAGE>
20 YOUR INVESTMENT CONTINUED
--------------------------------------------------------------------------------
[GRAPHIC: MAGNIFYING GLASS] TAX CONSIDERATIONS
Unless your investment is in a tax-deferred account, you may want to avoid:
- investing a large amount in the fund close to the end of its fiscal year or a
calendar year (if the fund makes a distribution, you will receive some of your
investment back as a taxable distribution)
- 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 in the current year)
[GRAPHIC: "UNCLE SAM"] DISTRIBUTIONS AND TAXES
INCOME AND CAPITAL GAINS DISTRIBUTIONS The fund typically distributes any net
income and net capital gains to shareholders in December, after the end of the
fund's fiscal year, which is September 30.
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.
TAX EFFECTS OF DISTRIBUTIONS AND TRANSACTIONS In general, any dividends and
short-term capital gains distributions you receive from the fund are taxable as
ordinary income. Distributions of long-term capital gains are generally taxable
as capital gains -- in most cases, at a different rate from that which applies
to ordinary income.
The tax you pay on a given capital gains distribution generally depends on how
long the fund has held the portfolio securities it sold. It does not depend on
how long you have owned your fund shares or whether you reinvest your
distributions.
Every year, the fund will send you information detailing the amount of ordinary
income and capital gains distributed to you for the previous year.
<PAGE>
21
--------
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.
[GRAPHIC: HANDS] 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.
SYSTEMATIC WITHDRAWAL PLAN 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 12% of your fund assets a year (minimum $50 per
withdrawal) without incurring any contingent deferred sales charges. Certain
terms and minimums apply.
EZ TRADER This service allows you to purchase or sell fund shares over the
telephone or over the Internet through the ACH (Automated Clearing House)
system.
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 Plan payments directly to your bank account.
RETIREMENT PLANS State Street Research also offers a full range of prototype
retirement plans for individuals, sole proprietors, partnerships, corporations
and employees.
CALL 1-87-SSR-FUNDS (1-877-773-8637) FOR INFORMATION ON ANY OF THE SERVICES
DESCRIBED ABOVE.
<PAGE>
22 OTHER INFORMATION
--------------------------------------------------------------------------------
[GRAPHIC: SECURITIES] 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 1. Below are brief
descriptions of other securities and practices, along with their associated
risks.
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 or
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.
INTERNATIONAL EXPOSURE Many U.S. companies in which the fund may invest
generate significant revenues and earnings from abroad. As a result, these
companies and the prices of their securities may be affected by weaknesses in
global and regional economies and the relative value of foreign currencies to
the U.S. dollar. These factors, taken as a whole, could adversely affect the
price of fund shares.
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.
In addition, foreign securities may be more difficult to resell and the markets
for them less efficient than for comparable U.S. securities. Even where a
foreign security increases in price in its local currency, the appreciation may
be diluted by the negative effect of exchange rates when the security's value is
converted to U.S. dollars. Foreign withholding taxes also may apply and errors
and delays may occur in the settlement process for foreign securities.
DERIVATIVES Derivatives, a category that includes options and futures, are
financial instruments whose value derives from one or more securities, indices
or currencies. The fund may use certain
<PAGE>
23
--------
derivatives for hedging (attempting to offset a potential loss in one position
by establishing an interest in an opposite position). This includes the use of
currency-based derivatives for hedging its positions in foreign securities. The
fund may also use certain 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 some 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 or fees by lending
portfolio securities to qualified institutions. By reinvesting any cash
collateral it receives in these transactions, the fund could realize additional
gains or losses. If the borrower fails to return the securities and the invested
collateral has declined in value, 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. 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.
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 any time from a few days to over a year.
DEFENSIVE Investing During unusual market conditions, the fund may place up to
100% of total assets in cash or high-quality, short-term debt securities. To the
extent that the fund does this, it is not pursuing its goal.
INITIAL PUBLIC OFFERINGS Investments in initial public offerings ("IPOs") can
have a significant positive impact on the fund's performance. The positive
effect of investments in IPOs may not be sustainable because of a number of
factors. The fund may not be able to buy shares in some IPOs, or may be able to
buy only a small number of shares. Also, the fund may not be able to buy the
shares at the commencement of the offering, and the general availability and
performance of IPOs are dependent on market psychology and economic conditions.
Also, the relative performance impact of IPOs is likely to decline as the fund
grows.
<PAGE>
24 FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
THESE HIGHLIGHTS ARE INTENDED TO HELP YOU UNDERSTAND THE FUND'S PERFORMANCE
SINCE ITS INCEPTION. THE INFORMATION IN THESE TABLES HAS BEEN AUDITED BY
PRICEWATERHOUSECOOPERS LLP, THE FUND'S INDEPENDENT ACCOUNTANTS. THEIR REPORT AND
THE FUND'S FINANCIAL STATEMENTS ARE INCLUDED IN THE FUND'S ANNUAL REPORT, WHICH
IS AVAILABLE UPON REQUEST. TOTAL RETURN FIGURES ASSUME REINVESTMENT OF ALL
DISTRIBUTIONS.
<TABLE>
<CAPTION>
CLASS A CLASS B(1)
---------------------------------------------------------------------------------
Years ended September 30 Years ended September 30
------------------------------------------------- --------------------------
PER SHARE DATA 1996(a) 1997(a) 1998(a) 1999(a) 2000(a) 1999(a)(c) 2000(a)
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 11.13 15.14 20.71 15.47 19.02 16.17 18.38
------ ------ ------ ------ ------ ------ ------
Net investment income (loss) ($)* (0.06) 0.03 0.02 0.05 0.10 (0.03) (0.07)
Net realized and unrealized gain
(loss) on investments ($) 4.66 9.02 (5.03) 3.50 10.05 2.24 9.68
------ ------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS ($) 4.60 9.05 (5.01) 3.55 10.15 2.21 9.61
------ ------ ------ ------ ------ ------ ------
Dividend from net investment income ($) (0.09) -- -- -- -- -- --
Distributions from capital gains ($) (0.50) (3.48) (0.23) -- -- -- --
------ ------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS ($) (0.59) (3.48) (0.23) -- -- -- --
------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR ($) 15.14 20.71 15.47 19.02 29.17 18.38 27.99
====== ====== ====== ====== ====== ====== ======
Total return (%)(b) 43.63 72.70 (24.42) 22.88 53.45 13.61(d) 52.37
RATIOS/SUPPLEMENTAL DATA
------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year ($ thousands) 1,110 157,853 115,973 146,295 552,365 20,419 110,743
Expense ratio (%) 1.45 1.34 1.39 1.46 1.40 2.10(e) 2.13
Expense ratio after expense
reductions (%)* 1.45 1.34 1.39 1.45 1.40 2.09(e) 2.13
Ratio of net investment income
(loss) to average net assets (%)* (0.56) 0.17 0.09 0.30 0.42 (0.24)(e) (0.29)
Portfolio turnover rate (%) 124.79 25.03 67.80 65.13 76.95 65.13 76.95
*REFLECTS VOLUNTARY REDUCTION OF EXPENSES
PER SHARE OF THESE AMOUNTS ($) 0.32 0.02 -- -- -- -- --
</TABLE>
<PAGE>
25
--------
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------
Years ended September 30
----------------------------------------------------------
PER SHARE DATA 1996(a) 1997(a) 1998(a) 1999(a) 2000(a)
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 11.08 15.02 20.33 15.07 18.38
------ ------ ------ ------ ------
Net investment (loss) ($)* (0.17) (0.09) (0.13) (0.08) (0.07)
Net realized and unrealized gain
(loss) on investments ($) 4.65 8.88 (4.90) 3.39 9.68
------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS ($) 4.48 8.79 (5.03) 3.31 9.61
------ ------ ------ ------ ------
Dividend from net investment income ($) (0.04) -- -- -- --
Distributions from capital gains ($) (0.50) (3.48) (0.23) -- --
------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS ($) (0.54) (3.48) (0.23) -- --
------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR ($) 15.02 20.33 15.07 18.38 27.99
====== ====== ====== ====== ======
Total return (%)(b) 42.52 71.34 (24.98) 21.90 52.37
RATIOS/SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------------------
Net assets at end of year ($ thousands) 165 235,938 210,408 198,783 268,557
Expense ratio (%) 2.20 2.08 2.15 2.21 2.13
Expense ratio after expense reductions (%)* 2.20 2.08 2.15 2.20 2.13
Ratio of net investment (loss)
to average net assets (%)* (1.38) (0.55) (0.68) (0.46) (0.31)
Portfolio turnover rate (%) 124.79 25.03 67.80 65.13 76.95
*REFLECTS VOLUNTARY REDUCTION OF
EXPENSES PER SHARE OF THESE AMOUNTS ($) 0.32 0.01 -- -- --
<CAPTION>
CLASS C
----------------------------------------------------------
Years ended September 30
----------------------------------------------------------
PER SHARE DATA 1996(a) 1997(a) 1998(a) 1999(a) 2000(a)
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 11.08 15.02 20.32 15.06 18.38
------ ------ ------ ------ ------
Net investment (loss) ($)* (0.17) (0.09) (0.13) (0.08) (0.07)
Net realized and unrealized gain
(loss) on investments ($) 4.65 8.87 (4.90) 3.40 9.68
------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS ($) 4.48 8.78 (5.03) 3.32 9.61
------ ------ ------ ------ ------
Dividend from net investment income ($) (0.04) -- -- -- --
Distributions from capital gains ($) (0.50) (3.48) (0.23) -- --
------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS ($) (0.54) (3.48) (0.23) -- --
------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR ($) 15.02 20.32 15.06 18.38 27.99
====== ====== ====== ====== ======
Total return (%)(b) 42.52 71.26 (25.00) 21.98 52.37
RATIOS/SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------------------------
Net assets at end of year ($ thousands) 165 67,121 61,504 67,8161 80,877
Expense ratio (%) 2.20 2.09 2.15 2.21 2.13
Expense ratio after expense reductions (%)* 2.20 2.09 2.15 2.20 2.13
Ratio of net investment (loss)
to average net assets (%)* (1.38) (0.58) (0.68) (0.45) (0.30)
Portfolio turnover rate (%) 124.79 25.03 67.80 65.13 76.95
*REFLECTS VOLUNTARY REDUCTION OF
EXPENSES PER SHARE OF THESE AMOUNTS ($) 0.32 0.01 -- -- --
</TABLE>
(a) PER-SHARE FIGURES HAVE BEEN CALCULATED USING THE AVERAGE SHARES METHOD.
(b) DOES NOT REFLECT ANY FRONT-END OR CONTINGENT DEFERRED SALES CHARGES.
(c) JANUARY 1, 1999 (COMMENCEMENT OF SHARE CLASS) TO SEPTEMBER 30, 1999.
(d) NOT ANNUALIZED.
(e) ANNUALIZED.
<PAGE>
26 FINANCIAL HIGHLIGHTS continued
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS S
-------------------------------------------------------------------------------------------------------
Years ended September 30
----------------------------------------------------------
PER SHARE DATA 1996(a) 1997(a) 1998(a) 1999(a) 2000(a)
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 11.15 15.18 20.83 15.60 19.23
Net investment income (loss) ($)* (0.06) (0.00) 0.10 0.10 0.12
Net realized and unrealized gain
(loss) on investments ($) 4.70 9.13 (5.10) 3.53 10.31
TOTAL FROM INVESTMENT OPERATIONS ($) 4.64 9.13 (5.00) 3.63 10.43
====== ====== ====== ====== ======
Dividend from net investment income ($) (0.11) -- -- -- --
Distributions from capital gains ($) (0.50) (3.48) (0.23) -- --
TOTAL DISTRIBUTIONS ($) (0.61) (3.48) (0.23) -- --
NET ASSET VALUE, END OF YEAR ($) 15.18 20.83 15.60 19.23 29.66
Total return (%)(b) 43.95 73.10 (24.23) 23.21 54.32
RATIOS/SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------------------------
Net assets at end of year ($ thousands) 7,752 14,542 750 1,177 20,298
Expense ratio (%) 1.20 1.16 1.04 1.21 1.13
Expense ratio after expense reductions (%)* 1.20 1.16 1.04 1.20 1.13
Ratio of net investment income
(loss) to average net assets (%)* (0.43) (0.02) 0.53 0.54 0.63
Portfolio turnover rate (%) 124.79 25.03 67.80 65.13 76.95
*REFLECTS VOLUNTARY REDUCTION OF EXPENSES
PER SHARE OF THESE AMOUNTS ($) 0.32 0.12 -- -- --
</TABLE>
(a) PER-SHARE FIGURES HAVE BEEN CALCULATED USING THE AVERAGE SHARES METHOD.
(b) DOES NOT REFLECT ANY FRONT-END OR CONTINGENT DEFERRED SALES CHARGES.
<PAGE>
BOARD OF TRUSTEES 27
--------------------------------------------------------------------------------
[GRAPHIC: COLUMNS] The Board of Trustees is responsible for the operation of the
fund. They establish the fund's major policies, review investments, and provide
guidance to the investment manager and others who provide services to the fund.
The Trustees have diverse backgrounds and substantial experience in business and
other areas.
RICHARD S. DAVIS
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER,
State Street Research & Management Company
BRUCE R. BOND
FORMER CHAIRMAN OF THE BOARD,
CHIEF EXECUTIVE OFFICER
AND PRESIDENT,
PictureTel Corporation
STEVE A. GARBAN
FORMER SENIOR VICE PRESIDENT FOR FINANCE
AND OPERATIONS AND TREASURER,
The Pennsylvania State University
DEAN O. MORTON
FORMER EXECUTIVE VICE PRESIDENT,
CHIEF OPERATING OFFICER AND DIRECTOR,
Hewlett-Packard Company
SUSAN M. PHILLIPS
DEAN, School of Business and Public
Management, George Washington
University; FORMER MEMBER OF THE BOARD OF
GOVERNORS of the Federal Reserve System
and CHAIRMAN AND COMMISSIONER of the
Commodity Futures Trading Commission
TOBY ROSENBLATT
PRESIDENT, Founders Investments Ltd.
PRESIDENT, The Glen Ellen Company
MICHAEL S. SCOTT MORTON
JAY W. FORRESTER PROFESSOR OF
MANAGEMENT, Sloan School of
Management, Massachusetts
Institute of Technology
<PAGE>
28 NOTES
--------------------------------------------------------------------------------
<PAGE>
NOTES 29
--------------------------------------------------------------------------------
<PAGE>
FOR ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
IF YOU HAVE QUESTIONS ABOUT THE FUND OR WOULD LIKE TO REQUEST A FREE COPY OF THE
CURRENT ANNUAL/SEMIANNUAL REPORT OR SAI, CONTACT STATE STREET RESEARCH OR YOUR
FINANCIAL PROFESSIONAL.
[GRAPHIC: CHESS PIECE] STATE STREET RESEARCH
Service Center
P.O. Box 8408, Boston, MA 02266
Telephone: 1-87-SSR-FUNDS (1-877-773-8637)
Internet: www.statestreetresearch.com
YOU CAN ALSO OBTAIN INFORMATION ABOUT THE FUND, INCLUDING THE SAI AND CERTAIN
OTHER FUND DOCUMENTS, ON THE SEC'S EDGAR DATABASE ON THE INTERNET AT
WWW.SEC.GOV, BY ELECTRONIC REQUEST AT [email protected], IN PERSON AT THE SEC'S
PUBLIC REFERENCE ROOM IN WASHINGTON, DC (TELEPHONE 1-202-942-8090) OR BY MAIL BY
SENDING YOUR REQUEST, ALONG WITH A DUPLICATING FEE, TO THE SEC'S PUBLIC
REFERENCE SECTION, WASHINGTON, DC 20549-0102.
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 on the fund's financial statements.
STATEMENT OF ADDITIONAL INFORMATION (SAI) A supplement to the prospectus, the
SAI contains further information about the fund and its investment limitations
and policies. 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).
<TABLE>
<CAPTION>
TICKER SYMBOLS
------------------------------------------------
<S> <C>
Class A SSRAX
Class B(1) SSRPX
Class B SSRBX
Class C SSRDX
Class S(proposed) SSRCX
</TABLE>
PROSPECTUS AR-2958-1100
-------------------------
SEC File Number: 811-3838 Control Number: (exp0202)SSR-LD
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
FOR
STATE STREET RESEARCH MID-CAP GROWTH FUND
STATE STREET RESEARCH EMERGING GROWTH FUND
STATE STREET RESEARCH AURORA FUND
SERIES OF STATE STREET RESEARCH CAPITAL TRUST
FEBRUARY 1, 2001
This Statement of Additional Information is divided into two sections.
Section One contains information which is specific to each fund identified
above. Section Two contains information which generally is shared by certain
mutual funds of the State Street Research complex, including each fund specified
above.
The Statement of Additional Information is not a Prospectus. It should be
read in conjunction with the current Prospectuses of each fund dated February 1,
2001.
Financial statements for each fund, as of and for the most recently
completed fiscal year, are included in its Annual Report to Shareholders for
that year. The financial statements include the Fund's accounting policies,
Portfolio Holdings, Statement of Assets and Liabilities, Statement of
Operations, Statement of Changes in Net Assets, Financial Highlights and Report
of Independent Accountants. The financial statements are hereby incorporated by
reference from the Annual Reports listed below.
<TABLE>
<CAPTION>
EDGAR
Annual Report Fiscal Year Ended Accession Number
------------- ----------------- ----------------
<S> <C> <C>
State Street Research Mid-Cap Growth Fund September 30, 2000 0001005477-00-008256
State Street Research Emerging Growth Fund September 30, 2000 0001005477-00-008256
State Street Research Aurora Fund September 30, 2000 0001005477-00-008256
</TABLE>
Management's Discussion of Fund Performance for each Fund's latest fiscal
year ended September 30, 2000, is also included in the Annual Reports as
follows: Part I, page 2; Part II, pages 6-7.
Each Fund's Prospectus and shareholder report may be obtained without
charge from State Street Research Investment Services, Inc., One Financial
Center, Boston Massachusetts 02111-2690, or by calling 1-87-SSR-FUNDS
(1-877-773-8137).
Control Number: (exp0202)SSR-LD SSR-2959-1200
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
SECTION I........................................................................I, 1-1
1. STATE STREET RESEARCH MID-CAP GROWTH FUND................................I, 1-1
A. The Fund............................................................I, 1-1
B. Investment Objective................................................I, 1-1
C. Fundamental and Nonfundamental Restrictions.........................I, 1-1
D. Restricted Securities...............................................I, 1-3
E. Foreign Investments.................................................I, 1-4
F. Industry Classifications............................................I, 1-4
G. Control Persons and Principal Holders of Securities.................I, 1-6
H. Trustee Compensation................................................I, 1-7
I. Investment Advisory Fee.............................................I, 1-8
J. Portfolio Turnover..................................................I ,1-8
K. Brokerage Commissions...............................................I, 1-9
L. Sales Charges on Shares.............................................I, 1-9
M. Rule 12b-1 Fees....................................................I, 1-10
N. Performance........................................................I, 1-11
2. STATE STREET RESEARCH EMERGING GROWTH FUND...............................I, 2-1
A. The Fund............................................................I, 2-1
B. Investment Objective................................................I, 2-1
C. Fundamental and Nonfundamental Restrictions.........................I, 2-1
D. Restricted Securities...............................................I, 2-4
E. Foreign Investments.................................................I, 2-4
F. Industry Classifications............................................I, 2-4
G. Control Persons and Principal Holders of Securities.................I, 2-6
H. Trustee Compensation................................................I, 2-7
I. Investment Advisory Fee.............................................I, 2-8
J. Portfolio Turnover..................................................I, 2-8
K. Brokerage Commissions...............................................I, 2-9
L. Sales Charges on Shares.............................................I, 2-9
M. Rule 12b-1 Fees....................................................I, 2-10
N. Performance........................................................I, 2-11
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
3. STATE STREET RESEARCH AURORA FUND........................................I, 3-1
A. The Fund............................................................I, 3-1
B. Investment Objective................................................I, 3-1
C. Fundamental and Nonfundamental Restrictions.........................I, 3-1
D. Restricted Securities...............................................I, 3-4
E. Foreign Investments.................................................I, 3-4
F. Industry Classifications............................................I, 3-4
G. Control Persons and Principal Holders of Securities.................I, 3-6
H. Trustee Compensation................................................I, 3-7
I. Investment Advisory Fee.............................................I, 3-8
J. Purchase and Redemption of Shares-Class S Shares....................I, 3-8
K. Portfolio Turnover..................................................I, 3-8
L. Brokerage Commissions...............................................I, 3-9
M. Sales Charges on Shares.............................................I, 3-9
N. Rule 12b-1 Fees....................................................I, 3-10
O. Performance........................................................I, 3-11
</TABLE>
(ii)
<PAGE>
DEFINITIONS
Each of the following terms used in this Statement of Additional
Information has the meaning set forth below.
"1940 ACT" means the Investment Company Act of 1940, as amended.
"DISTRIBUTOR" means State Street Research Investment Services, Inc., One
Financial Center, Boston, Massachusetts 02111-2690.
"INVESTMENT MANAGER" means State Street Research & Management Company, One
Financial Center, Boston, Massachusetts 02111-2690.
"METLIFE" means Metropolitan Life Insurance Company.
"NYSE" means the New York Stock Exchange, Inc.
"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.
(iii)
<PAGE>
I. STATE STREET RESEARCH MID-CAP GROWTH FUND
The information in this part 1 of Section I relates only to State Street
Research Mid-Cap Growth Fund (the "Mid-Cap Growth Fund" or the "Fund"). For
information on other funds, see the Table of Contents.
A. THE FUND
The Fund was organized in 1984 as a separate series of State Street Research
Capital Trust, a Massachusetts business trust (the "Trust"). The Trust is an
"open-end" management investment company, as defined in the 1940 Act. A
"series" is a separate pool of assets of the Trust which is separately
managed and may have a different investment objective and different
investment policies from the objective and policies of another series. The
Trust currently is comprised of the following series: State Street Research
Mid-Cap Growth Fund, State Street Research Emerging Growth Fund and State
Street Research Aurora Fund.
The Fund is "diversified" as that term is defined in the 1940 Act.
Among other things, a diversified fund must, with respect to 75% of its total
assets, not invest more than 5% of its total assets in any one issuer or
invest in more than 10% of the outstanding voting securities of an issuer.
B. INVESTMENT OBJECTIVE
The investment objective of State Street Research Mid-Cap Growth Fund is
a fundamental policy and may only be changed by the affirmative vote of a
majority of the outstanding voting securities of the Fund.
C. FUNDAMENTAL AND NONFUNDAMENTAL RESTRICTIONS
The Fund has adopted the following investment restrictions, and those
investment restrictions are either fundamental or not fundamental. Fundamental
restrictions may not be changed except by the affirmative vote of a majority of
the outstanding voting securities of the Fund. Restrictions that are not
fundamental may be changed without a shareholder vote.
FUNDAMENTAL INVESTMENT RESTRICTIONS.
It is the Mid-Cap Growth Fund's policy:
(1) not to purchase the securities of any one issuer (other than
securities of other investment companies, and U.S. Government
securities as defined under the Investment Company Act of 1940, as
amended, and as interpreted from time to time by the Securities
and Exchange Commission) 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 outstanding voting securities of such
issuer to be held by the Fund;
I, 1-1
<PAGE>
(2) 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);
(3) not to underwrite or participate in the marketing of securities of
other issuers, except (a) the Fund may, acting alone or in a
syndicate or group, purchase or otherwise acquire securities of
other issuers for investment, either from the issuers or from
persons in a control relationship with the issuers or from
underwriters of such securities; and (b) to the extent that, in
connection with the disposition of the Fund's securities, the Fund
may be a selling shareholder in an offering or deemed to be an
underwriter under certain federal securities laws;
(4) not to make any investment in real property or real estate
mortgage loans [as a matter of interpretation, which is not part
of the fundamental policy, this restriction does not apply to the
extent the Fund purchases or sells other interests in real estate
including securities which are secured by real estate, or
securities of entities which own, invest or deal in real estate or
real estate mortgage loans];
(5) not to invest in physical commodities or physical commodity
contracts or options in excess of 10% of the Fund's total assets,
except that investments in essentially financial items or
arrangements such as, but not limited to, swap arrangements,
hybrids, currencies, currency and other forward contracts, futures
contracts and options on futures contracts on securities,
securities indices, interest rates and currencies shall not be
deemed investments in commodities or commodities contracts;
(6) not to issue senior securities;
(7) 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);
(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; and
(9) 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
I, 1-2
<PAGE>
borrowings by the Fund shall be authorized to an aggregate amount
greater than ten percent, as noted, of the net assets of the Fund.
NONFUNDAMENTAL INVESTMENT RESTRICTIONS.
It is the Mid-Cap Growth 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 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) 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;
(4) not to engage in transactions in options except that investments
in essentially financial items or arrangements such as, but not
limited to, options on 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
(5) not to purchase a security issued by another investment company,
except to the extent permitted under the 1940 Act or any exemptive
order from the Securities and Exchange Commission or except by
purchases in the open market involving only customary brokers'
commissions, or securities acquired as dividends or distributions
or in connection with a merger, consolidation or similar
transaction or other exchange.
D. RESTRICTED SECURITIES
It is the Fund's policy not to make an investment in restricted
securities, including 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.
I, 1-3
<PAGE>
E. 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
Depository Receipts ("ADRs"), European Depository Receipts ("EDRs") and Global
Depository Receipts ("GDRs"). Under current policy, however, the Fund limits
such investments, including ADRs, EDRs and GDRs, to a maximum of 35% of its
total assets.
F. INDUSTRY CLASSIFICATIONS
In determining how much of the portfolio is invested in a given
industry, the following industry classifications are currently used. Industry
classifications are subject to change from time to time. 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.
I, 1-4
<PAGE>
AUTOS & TRANSPORTATION
Air Transport
Auto Parts
Automobiles
Miscellaneous
[caad 234]a Transportation
Railroad Equipment
Railroads
Recreational Vehicles &
Boats
Tires & Rubber
Truckers
CONSUMER DISCRETIONARY
Advertising Agencies
Casino/Gambling,
Hotel/Motel
Commercial Services
Communications, Media
& Entertainment
Consumer Electronics
Consumer Products
Consumer Services
Household Furnishings
Leisure Time
Photography
Printing & Publishing
Restaurants
Retail
Shoes
Textile Apparel
Manufacturers
Toys
CONSUMER STAPLES
Beverages
Drug & Grocery Store
Chains
Foods
Household Products
Tobacco
FINANCIAL SERVICES
Banks & Savings and
Loans
Financial Data Processing
Services & Systems
Insurance
Miscellaneous Financial
Real Estate Investment
Trusts
Rental & Leasing
Services: Commercial
Securities Brokerage &
Services
HEALTH CARE
Drugs & Biotechnology
Health Care Facilities
Health Care Services
Hospital Supply
Service Miscellaneous
INTEGRATED OILS
Oil: Integrated Domestic
Oil: Integrated
International
MATERIALS & PROCESSING
Agriculture
Building & Construction
Chemicals
Containers & Packaging
Diversified Manufacturing
Engineering &
Contracting Services
Fertilizers
Forest Products
Gold & Precious Metals
Miscellaneous Material &
Processing
Non-Ferrous Metals
Office Supplies
Paper and Forest Products
Real Estate &
Construction
Steel
Textile Products
OTHER
Trust Certificates--
Government Related
Lending
Asset-backed--Mortgages
Asset-backed--Credit
Card Receivables
Miscellaneous
Multi-Sector Companies
OTHER ENERGY
Gas Pipelines
Miscellaneous Energy
Offshore Drilling
Oil and Gas Producers
Oil Well Equipment &
Services
PRODUCER DURABLES
Aerospace
Electrical Equipment &
Components
Electronics: Industrial
Homebuilding
Industrial Products
Machine Tools
Machinery
Miscellaneous Equipment
Miscellaneous Producer
Durables
Office Furniture &
Business Equipment
Pollution Control and
Environmental Services
Production Technology
Equipment
Telecommunications
Equipment
TECHNOLOGY
Communications
Technology
Computer Software
Computer Technology
Electronics
Electronics: Semi-
Conductors/Components
Miscellaneous Technology
UTILITIES
Miscellaneous Utilities
Utilities: Cable TV & Radio
Utilities: Electrical
Utilities: Gas Distribution
Utilities:
Telecommunications
Utilities: Water
I, 1-5
<PAGE>
G. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
TRUSTEES AND OFFICERS
The Trustees and principal officers of State Street Research Capital Trust as
a group owned approximately 3.3% of the Mid-Cap Growth Fund's outstanding
Class S shares and owned no shares of the Fund's outstanding Class A, Class
B(1), Class B, or Class C shares. All information is as of December 31, 2000.
OTHER PERSONS
The following persons or entities were the record and/or beneficial
owners of the following approximate percentages of the Mid-Cap Growth Fund's
outstanding shares. All information is as of December 31, 2000.
<TABLE>
<CAPTION>
Shareholder %
----------- ---
<S> <C> <C>
Class B Merrill Lynch 18.8
Class C Merrill Lynch 51.8
Class S Chase Manhattan, Trustee 62.5
MetLife Defined
Contribution Group 7.9
G. F. Bennett 7.6
</TABLE>
The full name and address of each of the above persons or entities are as
follows:
Merrill Lynch, Pierce, Fenner & Smith, Inc.
For the sole benefit of its customers
4800 Deerlake Drive East
Jacksonville, FL 32246
Chase Manhattan Bank, N.A. (a)(b)
4 New York Plaza
New York, NY 10004
MetLife Defined Contribution Group (a)
501 US Highway 22 #1W
Bridgewater, NJ 08807
I, 1-6
<PAGE>
G. F. Bennett
c/o State Street Research Service Center
One Financial Center
Boston, MA 02111
----------------------
(a) The Fund believes that the named record holder does not have beneficial
ownership of such shares.
(b) Chase Manhattan Bank holds such shares as a trustee under certain
employee benefit plans serviced by MetLife Securities, Inc.
Ownership of 25% or more of a voting security is deemed "control" as
defined in the 1940 Act. So long as 25% of a class of shares is so owned, such
owners will be presumed to be in control of such class of shares for purposes of
voting on certain matters submitted to a vote of shareholders of that class,
such as any Rule 12b-1 plan for a given class.
H. TRUSTEE COMPENSATION
The Trustees of State Street Research Capital Trust were compensated as
follows:
<TABLE>
<CAPTION>
Total Total Compensation
Compensation From All State
Aggregate From All Street Research Funds
Compensation State Street and Metropolitan
From Mid-Cap Research Funds Series Fund, Inc.
Name of Trustee Growth Fund (a) Paid to Trustees (b) Paid to Trustees (c)
--------------- ---------------- -------------------- --------------------
<S> <C> <C> <C>
Bruce R. Bond $ 4,960 $ 72,000 $ 72,000
Richard S. Davis(d) $ -- $ -- $ --
Steve A. Garban $ 5,290 $ 76,800 $ 118,300
Dean O. Morton $ 5,634 $ 81,800 $ 118,800
Susan M. Phillips $ 4,960 $ 72,000 $ 72,000
Toby Rosenblatt $ 4,960 $ 72,000 $ 72,000
Michael S. Scott Morton $ 5,634 $ 81,800 $ 118,800
</TABLE>
---------------
(a) For the Mid-Cap Growth Fund's fiscal year ended September 30, 2000. The
Mid-Cap Growth Fund does not provide any pension or retirement benefits
for the Trustees.
(b) Includes compensation on behalf of all series of 10 investment companies
for which the Investment Manager serves as sole investment adviser. The
figure in this column is for the 12 months ended December 31, 2000.
(c) Includes compensation on behalf of all series of 10 investment companies
for which the Investment Manager serves as sole investment adviser and
all series of Metropolitan Series Fund, Inc. The primary adviser to
Metropolitan Series Fund, Inc. is Metropolitan Life Insurance Company,
which has retained State Street Research & Management Company and other
unrelated managers as sub-adviser to the series of Metropolitan Series
Fund, Inc. The figure in this column includes compensation relating to
all series of Metropolitan Series Fund, Inc. including those sub-advised
by State Street Research & Management Company and those sub-advised by
unrelated managers. The figure is for the 12 months ended December 31,
2000.
(d) Richard S. Davis was elected a Trustee of the Trust on November 1, 2000.
I, 1-7
<PAGE>
For more information in the Trustees and officers of State Street
Research Capital Trust, see Section II, C of this Statement of Additional
Information.
I. INVESTMENT ADVISORY FEE
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
Mid-Cap Growth Fund as determined at the close of regular trading on the NYSE on
each day the NYSE is open for trading.
The percentage rate is 0.75% of the first $500 million of average net
assets, annually, 0.70% of the next $500 million, and 0.65% of any amount over
$1 billion.
The advisory fees paid by the Fund to the Investment Manager for the last
three fiscal years were as follows:
<TABLE>
<CAPTION>
Advisory Fees Paid
------------------
<S> <C>
Fiscal year ended September 30, 2000 $ 7,128,766
Fiscal year ended September 30, 1999 $ 6,424,845
Fiscal year ended September 30, 1998 $ 8,487,275
</TABLE>
For more information on the investment advisory arrangements, see Section
II, D of this Statement of Additional Information.
J. PORTFOLIO TURNOVER
The Mid-Cap Growth 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 Mid-Cap Growth 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 portfolio turnover rates for the last two fiscal years were as
follows:
<TABLE>
<CAPTION>
Portfolio Turnover Rates
------------------------
<S> <C>
Fiscal year ended September 30, 2000 171.87%
Fiscal year ended September 30, 1999 68.03%
</TABLE>
The Investment Manager believes that the portfolio turnover rate for the
fiscal year ended September 30, 2000 was significantly higher than the rate for
the prior year because of measures taken to restructure the Fund's portfolio.
The portfolio was restructured to provide long-term growth of capital through
investments in stocks of companies with medium market capitalizations and the
potential for earnings growth.
For more information on portfolio turnover, see Section II, H of this
Statement of Additional Information.
I, 1-8
<PAGE>
K. BROKERAGE COMMISSIONS
Brokerage commissions paid by the Mid-Cap Growth Fund in secondary
trading during the last three fiscal years were as follows:
<TABLE>
<S> <C>
Fiscal year ended September 30, 2000 $ 1,705,984
Fiscal year ended September 30, 1999 $ 1,855,703
Fiscal year ended September 30, 1998 $ 2,470,969
</TABLE>
During and at the end of its most recent fiscal year, the Mid-Cap Growth
Fund held the securities of no entity that might be deemed to be a regular
broker-dealer of the Mid-Cap Growth Fund, as defined under the 1940 Act.
For more information on brokerage commissions, see Section II, H of this
Statement of Additional Information.
L. SALES CHARGES ON SHARES
Total sales charges on Class A shares paid to the Distributor, and the
amounts retained by the Distributor after reallowance of concessions to dealers,
for the past three fiscal years were as follows:
FRONT-END SALES CHARGES (CLASS A)
<TABLE>
<CAPTION>
Retained by Distributor
After Reallowance of
Total Sales Charges Concessions to Dealers
------------------- ----------------------
<S> <C> <C>
Fiscal year ended September 30, 2000 $ 751,386 $ 102,716
Fiscal year ended September 30, 1999 $ 289,759 $ 33,948
Fiscal year ended September 30, 1998 $ 760,369 $ 89,146
</TABLE>
For the past three fiscal years, the Distributor received contingent
deferred sales charges upon redemption of Class A, Class B(1), Class B and Class
C shares of the Trust and paid initial commissions to securities dealers for
sales of such shares as follows:
CONTINGENT DEFERRED SALES CHARGES (CLASSES A, B(1), B AND C)
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
September 30, 2000 September 30, 1999 September 30, 1998
---------------------- ---------------------- ----------------------
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 $ 648,669 $ 0 $ 255,811 $ 0 $ 671,755
Class B(1)* $ 44,531 $ 522,811 $ 15,989 $ 264,593 $ N/A $ N/A
Class B $ 371,160 $ 9,064 $ 861,752 $ 532,511 $ 987,982 $ 1,353,004
Class C $ 266 $ 9,892 $ 3,455 $ 23,356 $ 11,026 $ 36,621
</TABLE>
--------------
*Class B(1) was introduced January 1, 1999.
I, 1-9
<PAGE>
For more information about sales charges, see Section II, J of this
Statement of Additional Information.
M. RULE 12b-1 FEES
The Fund has adopted plans of distribution pursuant to Rule 12b-1 under
the 1940 Act ("Distribution Plan(s)"). Under the Distribution Plans, the Fund
may engage, directly or indirectly, in financing any activities primarily
intended to result in the sale of shares of the Fund. Under the Distribution
Plans, the Fund provides the Distributor with a service fee at an annual rate of
0.25% on the average daily net assets of Class A, Class B(1), Class B and Class
C shares. The Fund also provides a distribution fee at an annual rate of (i) up
to 0.15% on the average daily net assets of Class A shares, and (ii) 0.75% on
the average daily net assets of Class B(1), Class B and Class C shares. The
service and distribution fees are used to cover personal services and/or the
maintenance of shareholder accounts provided by the Distributor, brokers,
dealers, financial professionals or others, and sales, promotional and marketing
activities relating to the respective classes.
Under the Distribution Plan covering Class A, Class B and Class C shares,
the Fund's payments are intended to reimburse the Distributor for expenditures
incurred under the plan, and any unused payments are returnable to the Fund.
Under the Distribution Plan covering Class B(1) shares, the Fund's
payments compensate the Distributor for services and expenditures incurred under
the plan, and none of the payments are returnable to the Fund.
During the fiscal year ended September 30, 2000, the Mid-Cap Growth Fund
paid the fees under the Distribution Plans and the fees were used as set forth
below. The Distributor may have also used additional resources of its own for
further expenses.
I, 1-10
<PAGE>
<TABLE>
<CAPTION>
CLASS A CLASS B(1) CLASS B CLASS C
------- ---------- ------- -------
<S> <C> <C> <C> <C>
Advertising $ 72,421 $ 25,305 $ 0 $ 20,783
Printing and mailing of prospectuses to 4,280 1,516 0 1,301
other than current shareholders
Compensation to dealers 652,597 45,625 2,034,287 359,292
Compensation to sales personnel 212,706 73,771 0 59,064
Interest 0 0 0 0
Carrying or other financing charges 0 0 0 0
Other expenses: marketing; general 177,956 63,373 119,923 49,431
Fees to offset carryforwards * 0 0 1,740,095 0
------------ ----------- ------------ ----------
Total Fees $ 1,119,960 $ 209,590 $ 3,894,305 $ 489,871
============ =========== ============= ===========
Unreimbursed expenses carried forward:
Amount $ 244,609 $ 414,059 $ 1,426,101 $ 1,447,926
% of net assets at year end 0.05% 1.12% 0.35% 2.80%
</TABLE>
----------------------------------
* Net fees result from the timing of expenditures and are used against future
expenses.
For more information about Rule 12b-1 fees, see Section II, J of this
Statement of Additional Information.
N. PERFORMANCE
All calculations of performance data in this section reflect voluntary
measures, if any, by the Investment Manager or its affiliates to reduce fees or
expenses relating to the Mid-Cap Growth Fund.
Performance data for a specified class includes periods prior to the
adoption of class designations in 1993. At that time, new share class
designations were assigned based on the pricing applicable to shares sold
thereafter and higher Rule 12b-1 fees were imposed.
Performance for Class B(1) shares reflects Class B performance through
December 31, 1998. Class B(1) shares were introduced on January 1, 1999.
I, 1-11
<PAGE>
STANDARD TOTAL RETURN
The average annual total return ("standard total return") of each class
of shares of the Mid-Cap Growth Fund was as follows:
<TABLE>
<CAPTION>
Ten Years Five Years One Year
Ended Ended Ended
September 30, 2000 September 30, 2000 September 30, 2000
------------------ ------------------ ------------------
<S> <C> <C> <C>
Class A 20.44% 12.31% 46.00%
Class B(1) 20.50% 12.55% 48.90%
Class B 20.50% 12.54% 48.83%
Class C 20.52% 12.78% 52.86%
Class S 21.41% 13.92% 55.32%
</TABLE>
NONSTANDARD TOTAL RETURN
The nonstandard total return of each class of shares of the Mid-Cap
Growth Fund for the six months ended September 30, 2000, without taking sales
charges into account, was as follows:
<TABLE>
<S> <C>
Class A 1.77%
Class B(1) 1.40%
Class B 1.46%
Class C 1.45%
Class S 1.93%
</TABLE>
For more information about performance, see Section II, K of this
Statement of Additional Information.
I, 1-12
<PAGE>
2. STATE STREET RESEARCH EMERGING GROWTH FUND
The information in this part 2 of Section I relates only to State Street
Research Emerging Growth Fund (the "Emerging Growth Fund" or the "Fund"). For
information on other funds, see the Table of Contents.
A. THE FUND
The Fund was organized in 1993 as a separate
series of State Street Research Capital Trust, a Massachusetts business trust
(the "Trust"). The Trust is an "open-end" management investment company, as
defined in the 1940 Act. A "series" is a separate pool of assets of the Trust
which is separately managed and may have a different investment objective and
different investment policies from the objective and policies of another
series. The Trust currently is comprised of the following series: State
Street Research Mid-Cap Growth Fund, State Street Research Emerging Growth
Fund and State Street Research Aurora Fund.
The Fund is "diversified" as that term is defined in the 1940 Act. Among
other things, a diversified fund must, with respect to 75% of its total
assets, not invest more than 5% of its total assets in any one issuer, or
invest in more than 10% of the outstanding voting securities of an issuer.
B. INVESTMENT OBJECTIVE
The investment objective of State Street Research Emerging Growth Fund is a
fundamental policy and may only be changed by the affirmative vote of a majority
of the outstanding voting securities of the Fund.
C. FUNDAMENTAL AND NONFUNDAMENTAL RESTRICTIONS
The Fund has adopted the following investment restrictions, and those
investment restrictions are either fundamental or not fundamental. Fundamental
restrictions may not be changed except by the affirmative vote of a majority of
the outstanding voting securities of the Emerging Growth Fund. Restrictions that
are not fundamental may be changed without a shareholder vote.
FUNDAMENTAL INVESTMENT RESTRICTIONS.
It is the Emerging Growth 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
I, 2-1
<PAGE>
purchase would, with respect to 75% of the Emerging Growth Fund's
total assets, cause more than 5% of the Emerging Growth 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 Emerging Growth 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 Emerging Growth Fund may, acting alone
or in syndicates or groups, purchase or otherwise acquire securities
of other issuers for investment, either from the issuers or from
persons in a control relationship with the issuers or from
underwriters of such securities and (b) to the extent that, in
connection with the disposition of the Emerging Growth Fund's
securities, the Emerging Growth 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 Emerging Growth 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 Emerging Growth 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 Emerging Growth 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 Emerging Growth 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
I, 2-2
<PAGE>
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.
NONFUNDAMENTAL INVESTMENT RESTRICTIONS.
It is the Emerging Growth 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);
(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 purchase of
securities on margin;
(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); and
(5) not to purchase a security issued by another investment company,
except to the extent permitted under the 1940 Act or any exemptive
order from the Securities
I, 2-3
<PAGE>
and Exchange Commission or except by purchases in the open market
involving only customary brokers' commissions, or securities acquired
as dividends or distributions or in connection with a merger,
consolidation or similar transaction or other exchange.
D. RESTRICTED SECURITIES
It is the Fund's policy not to make an investment in restricted securities,
including 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.
E. 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 Depository
Receipts ("ADRs"), European Depository Receipts ("EDRs") and Global Depository
Receipts ("GDRs"). Under current policy, however, the Fund limits such
investments, including ADRs, EDRs and GDRs, to a maximum of 35% of its total
assets
F. INDUSTRY CLASSIFICATIONS
In determining how much of the portfolio is invested in a given industry,
the following industry classifications are currently used. Industry
classifications are subject to change from time to time. 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.
I, 2-4
<PAGE>
AUTOS & TRANSPORTATION
Air Transport
Auto Parts
Automobiles
Miscellaneous
Transportation
Railroad Equipment
Railroads
Recreational Vehicles &
Boats
Tires & Rubber
Truckers
CONSUMER DISCRETIONARY
Advertising Agencies
Casino/Gambling,
Hotel/Motel
Commercial Services
Communications, Media
& Entertainment
Consumer Electronics
Consumer Products
Consumer Services
Household Furnishings
Leisure Time
Photography
Printing & Publishing
Restaurants
Retail
Shoes
Textile Apparel
Manufacturers
Toys
CONSUMER STAPLES
Beverages
Drug & Grocery Store
Chains
Foods
Household Products
Tobacco
FINANCIAL SERVICES
Banks & Savings and
Loans
Financial Data Processing
Services & Systems
Insurance
Miscellaneous Financial
Real Estate Investment
Trusts
Rental & Leasing
Services: Commercial
Securities Brokerage &
Services
HEALTH CARE
Drugs & Biotechnology
Health Care Facilities
Health Care Services
Hospital Supply
Service Miscellaneous
INTEGRATED OILS
Oil: Integrated Domestic
Oil: Integrated
International
MATERIALS & PROCESSING
Agriculture
Building & Construction
Chemicals
Containers & Packaging
Diversified Manufacturing
Engineering &
Contracting Services
Fertilizers
Forest Products
Gold & Precious Metals
Miscellaneous Material &
Processing
Non-Ferrous Metals
Office Supplies
Paper and Forest Products
Real Estate &
Construction
Steel
Textile Products
OTHER
Trust Certificates--
Government Related
Lending
Asset-backed--Mortgages
Asset-backed--Credit
Card Receivables
Miscellaneous
Multi-Sector Companies
OTHER ENERGY
Gas Pipelines
Miscellaneous Energy
Offshore Drilling
Oil and Gas Producers
Oil Well Equipment &
Services
PRODUCER DURABLES
Aerospace
Electrical Equipment &
Components
Electronics: Industrial
Homebuilding
Industrial Products
Machine Tools
Machinery
Miscellaneous Equipment
Miscellaneous Producer
Durables
Office Furniture &
Business Equipment
Pollution Control and
Environmental Services
Production Technology
Equipment
Telecommunications
Equipment
TECHNOLOGY
Communications
Technology
Computer Software
Computer Technology
Electronics
Electronics: Semi-
Conductors/Components
Miscellaneous Technology
UTILITIES
Miscellaneous Utilities
Utilities: Cable TV & Radio
Utilities: Electrical
Utilities: Gas Distribution
Utilities:
Telecommunications
Utilities: Water
I, 2-5
<PAGE>
G. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
TRUSTEES AND OFFICERS
The Trustees and principal officers of State Street Research Capital
Trust as a group owned none of Emerging Growth Fund's outstanding Class A,
Class B, Class B(1), Class C or Class S shares. All information is as of
December 31, 2000.
OTHER PERSONS
The following persons or entities were the record and/or beneficial owners
of the following approximate percentages of the Emerging Growth Fund's
outstanding shares. All information is as of December 31, 2000.
<TABLE>
<CAPTION>
Shareholder %
----------- ---
<S> <C> <C>
Class B Merrill Lynch 12.5
Class C Merrill Lynch 42.6
Class S Chase Manhattan, Trustee 66.9
R.F. Verni 9.2
</TABLE>
The full name and address of each of the above persons or entities are as
follows:
Merrill Lynch, Pierce, Fenner & Smith, Inc.
For the Sole Benefit of its Customers
4800 Deerlake Drive East
Jacksonville, FL 32246
Chase Manhattan Bank, NA (a)(b)
4 New York Plaza
New York, NY 10004
R.F. Verni
c/o State Street Research Service Center
One Financial Center
Boston, MA 02111
------------------------
(a) The Fund believes that each named recordholder does not have beneficial
ownership of such shares.
(b) Chase Manhattan Bank, N.A. holds such shares as trustee under certain
employee benefit plans serviced by MetLife Securities, Inc.
Ownership of 25% or more of a voting security is deemed "control" as
defined in the 1940 Act. So long as 25% of a class of shares is so owned, such
owners will be presumed to be in control of such class of shares for purposes of
voting on certain matters submitted to a vote of shareholders of that class,
such as any Rule 12b-1 plan for a given class.
I, 2-6
<PAGE>
H. TRUSTEE COMPENSATION
The Trustees of State Street Research Capital Trust were compensated as
follows:
<TABLE>
<CAPTION>
Total Total Compensation
Compensation From All State
Aggregate From All Street Research Funds
Compensation State Street and Metropolitan
From Emerging Research Funds Series Fund, Inc.
Name of Trustee Growth Fund(a) Paid to Trustees (b) Paid to Trustees (c)
--------------- -------------- -------------------- --------------------
<S> <C> <C> <C>
Bruce R. Bond $ 2,015 $ 72,000 $ 72,000
Richard S. Davis (d) $ --- $ -- $ --
Steve A. Garban $ 2,147 $ 76,800 $ 118,300
Dean O. Morton $ 2,287 $ 81,800 $ 118,800
Susan M. Phillips $ 2,015 $ 72,000 $ 72,000
Toby Rosenblatt $ 2,015 $ 72,000 $ 72,000
Michael S. Scott Morton $ 2,287 $ 81,800 $ 118,800
</TABLE>
---------------
(a) For the Emerging Growth Fund's fiscal year ended September 30, 2000. The
Emerging Growth Fund does not provide any pension or retirement benefits
for the Trustees.
(b) Includes compensation on behalf of all series of 10 investment companies
for which the Investment Manager serves as sole investment adviser. The
figure in this column is for the 12 months ended December 31, 2000.
(c) Includes compensation on behalf of all series of 10 investment companies
for which the Investment Manager serves as sole investment adviser and all
series of Metropolitan Series Fund, Inc. The primary adviser to
Metropolitan Series Fund, Inc. is Metropolitan Life Insurance Company,
which has retained State Street Research & Management Company and other
unrelated managers as sub-adviser to the series of Metropolitan Series
Fund, Inc. The figure in this column includes compensation relating to all
series of Metropolitan Series Fund, Inc. including those sub-advised by
State Street Research & Management Company and those sub-advised by
unrelated managers. The figure is for the 12 months ended December 31,
2000.
(d) Richard S. Davis was elected a Trustee of the Trust on November 1, 2000.
For more information on the Trustees and officers of State Street Research
Capital Trust, see Section II, C of this Statement of Additional Information.
I, 2-7
<PAGE>
I. INVESTMENT ADVISORY FEE
The advisory fee payable monthly by the Emerging Growth Fund to the
Investment Manager is computed as a percentage of the average of the value of
the net assets of the Emerging Growth Fund as determined at the close of regular
trading on the NYSE on each day the NYSE is open for trading. 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 Emerging Growth Fund.
The annual advisory fee rate is 0.75%.
The advisory fees paid by the Fund to the Investment Manager for the last
three fiscal years were as follows:
<TABLE>
<CAPTION>
Fees Waived
Advisory Fees Paid or Expenses Assumed
------------------ -------------------
<S> <C> <C>
Fiscal year ended September 30, 2000 $ 1,073,782 $ 320,829
Fiscal year ended September 30, 1999 $ 724,723 $ 480,847
Fiscal year ended September 30, 1998 $ 784,289 $ 164,484
</TABLE>
For more information on the investment advisory arrangements, see Section
II, D of this Statement of Additional Information.
J. PORTFOLIO TURNOVER
The Emerging Growth 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 Emerging Growth 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 portfolio turnover rates for the last two fiscal years were as follows:
<TABLE>
<CAPTION>
Portfolio Turnover Rates
------------------------
<S> <C>
Fiscal year ended September 30, 2000 218.99%
Fiscal year ended September 30, 1999 93.38%
</TABLE>
The Investment Manager believes that the portfolio turnover rate for the
fiscal year ended September 30, 2000 was significantly higher than the rate for
the prior year because
-------------------------------------------------------------------------.
I, 2-8
<PAGE>
For more information on portfolio turnover, see Section II, H of this
Statement of Additional Information.
K. BROKERAGE COMMISSIONS
Brokerage commissions paid by the Emerging Growth Fund in secondary trading
during the last three fiscal years were as follows:
<TABLE>
<S> <C>
Fiscal year ended September 30, 2000 $ 314,548
Fiscal year ended September 30, 1999 $ 194,646
Fiscal year ended September 30, 1998 $ 224,404
</TABLE>
During and at the end of its most recent fiscal year, the Emerging Growth
Fund held the securities of no entity that might be deemed to be a regular
broker-dealer of the Emerging Growth Fund, as defined under the 1940 Act.
For more information on brokerage commissions, see Section II, H of this
Statement of Additional Information.
L. SALES CHARGES ON SHARES
Total sales charges on Class A shares paid to the Distributor and the
amounts retained by the Distributor after reallowance of concessions to dealers,
for the past three fiscal years were as follows:
FRONT-END SALES CHARGES (CLASS A)
<TABLE>
<CAPTION>
Retained by Distributor
After Reallowance of
Total Sales Charges Concessions to Dealers
------------------- ----------------------
<S> <C> <C>
Fiscal year ended September 30, 2000 $ 301,093 $ 38,748
Fiscal year ended September 30, 1999 $ 747,875 $ 89,143
Fiscal year ended September 30, 1998 $ 380,618 $ 45,401
</TABLE>
For the past three fiscal years the Distributor received contingent
deferred sales charges upon redemption of Class A, Class B(1), Class B and Class
C shares of the Trust and paid initial commissions to securities dealers for
sales of shares as follows:
I, 2-9
<PAGE>
CONTINGENT DEFERRED SALES CHARGES (CLASSES A, B(1), B AND C)
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
September 30, 2000 September 30, 1999 September 30, 1998
-------------------------------- ------------------------------- -----------------------------
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 $ 262,345 $ 0 $ 658,732 $ 0 $ 335,217
Class B(1)* $ 28,447 $ 259,604 $ 2,553 $ 107,159 $ N/A $ N/A
Class B $ 102,467 $ 2,916 $ 132,796 $ 175,549 $ 81,822 $ 1,074,456
Class C $ 1,226 $ 11,716 $ 1,812 $ 74,819 $ 1,186 $ 35,861
</TABLE>
--------------
*Class B(1) was introduced January 1, 1999.
For more information about sales charges, see Section II, J of this
Statement of Additional Information.
M. RULE 12b-1 FEES
The Fund has adopted plans of distribution pursuant to Rule 12b-1 under the
1940 Act ("Distribution Plan(s)"). Under the Distribution Plans, the Fund may
engage, directly or indirectly, in financing any activities primarily intended
to result in the sale of shares of the Fund. Under the Distribution Plans, the
Fund provides the Distributor with a service fee at an annual rate of 0.25% on
the average daily net assets of Class A, Class B(1), Class B and Class C shares.
The Fund also provides a distribution fee at an annual rate of (i) up to 0.15%
on the average daily net assets of Class A shares, and (ii) 0.75% on the average
daily net assets of Class B(1), Class B and Class C shares. The service and
distribution fees are used to cover personal services and/or the maintenance of
shareholder accounts provided by the Distributor, brokers, dealers, financial
professionals or others, and sales, promotional and marketing activities
relating to the respective classes.
Under the Distribution Plan covering Class A, Class B and Class C shares,
the Fund's payments are intended to reimburse the Distributor for expenditures
incurred under the plan, and any unused payments are returnable to the Fund.
Under the Distribution Plan covering Class B(1) shares, the Fund's payments
compensate the Distributor for services and expenditures incurred under the plan
and none of the payments are returnable to the Fund.
During the fiscal year ended September 30, 2000, the Emerging Growth Fund
paid fees under the Distribution Plan and the fees were used as set forth below.
I, 2-10
<PAGE>
<TABLE>
<CAPTION>
CLASS A CLASS B(1) CLASS B CLASS C
------- ---------- ------- -------
<S> <C> <C> <C> <C>
Advertising $ 11,670 $ 13,246 $ 0 $ 7,984
Printing and mailing of prospectuses to 713 820 0 514
other than current shareholders
Compensation to dealers 58,578 24,112 412,570 22,309
Compensation to sales personnel 33,632 37,879 0 38,814
Interest 0 0 0 0
Carrying or other financing charges 0 0 0 0
Other expenses: marketing; general 28,142 32,497 13,344 18,674
Fees to offset carryforwards * 0 0 227,435 0
----------- ----------- ----------- -----------
Total Fees $ 132,735 $ 108,554 $ 653,349 $ 88,295
=========== =========== =========== ===========
Unreimbursed expenses carried forward:
Amount $ 100,696 $ 210,153 $ 713,417 $ 87,047
% of net assets at year-end 0.19% 1.27% 1.09% 0.96%
</TABLE>
---------------
*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.
For more information about Rule 12b-1 fees, see Section II, J of this
Statement of Additional Information.
N. PERFORMANCE
All calculations of performance data in this section reflect voluntary
measures, if any, by the Investment Manager or its affiliates to reduce fees or
expenses relating to the Emerging Growth Fund.
Performance data for a specified class includes periods prior to the
adoption of class designations in 1994. At that time, new share class
designations were assigned based on the pricing applicable to shares sold
thereafter and higher Rule 12b-1 fees were imposed.
I, 2-11
<PAGE>
Performance for Class B(1) shares reflects Class B performance through
December 31, 1998. Class B(1) shares were introduced on January 1, 1999.
STANDARD TOTAL RETURN
The average annual total return ("standard total return") of each class of
shares of the Emerging Growth Fund was as follows:
<TABLE>
<CAPTION>
Commencement
of Operations Five Years One Year
(October 4, 1993) to Ended Ended
September 30, 2000 September 30, 2000 September 30, 2000
------------------ ------------------ ------------------
<S> <C> <C> <C>
Class A 11.82% 16.58% 37.65%
Class B(1) 12.00% 16.89% 40.03%
Class B 11.99% 16.88% 39.93%
Class C 12.00% 17.11% 44.03%
Class S 13.09% 18.25% 46.36%
</TABLE>
NONSTANDARD TOTAL RETURN
The nonstandard total return of each class of shares of the Emerging Growth
Fund for the six months ended September 30, 2000, without taking sales charges
into account, was as follows:
<TABLE>
<S> <C>
Class A -11.99%
Class B(1) -12.26%
Class B -12.32%
Class C -12.31%
Class S -11.87%
</TABLE>
For more information about performance, see Section II, K of this Statement
of Additional Information.
I, 2-12
<PAGE>
3. STATE STREET RESEARCH AURORA FUND
The information in this part 3 of Section I relates only to State Street
Research Aurora Fund (the "Aurora Fund" or the "Fund"). For information on other
funds, see the Table of Contents.
A. THE FUND
The Fund was organized in 1995 as a separate series of State Street
Research Capital Trust, a Massachusetts business trust (the "Trust"). The Trust
is an "open-end" management company, as defined in the 1940 Act. A "series" is a
separate pool of assets of the Trust which is separately managed and may have a
different investment objective and different investment policies from the
objective and policies of another series. The Trust currently is comprised of
the following series: State Street Research Mid-Cap Growth Fund, State Street
Research Emerging Growth Fund and State Street Research Aurora Fund.
The Fund is "diversified" as that term is defined in the 1940 Act. Among
other things, a diversified fund must, with respect to 75% of its total assets,
not invest more than 5% of its total assets in any one issuer or invest in more
than 10% of the outstanding securities of an issuer.
B. INVESTMENT OBJECTIVE
The investment objective of State Street Research Aurora Fund is a
fundamental policy and may only be changed by the affirmative vote of a majority
of the outstanding voting securities of the Fund.
C. FUNDAMENTAL AND NONFUNDAMENTAL RESTRICTIONS
The Aurora Fund has adopted the following investment restrictions, and
those investment restrictions are either fundamental or not fundamental.
Fundamental restrictions may not be changed except by the affirmative vote of a
majority of the outstanding voting securities of the Aurora Fund. Restrictions
that are not fundamental may be changed without a shareholder vote.
The fundamental and nonfundamental policies of the Aurora Fund DO NOT apply
to any matters involving the issuance of multiple classes of shares of the Fund
or the creation or use of a structure allowing the Fund to invest substantially
all its assets in a related collective investment vehicle for similar funds or
allowing the Fund to serve as such a collective investment vehicle for other
similar funds, to the extent permitted by law and regulatory authorities.
I, 3-1
<PAGE>
FUNDAMENTAL INVESTMENT RESTRICTIONS.
It is the Aurora 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 Aurora Fund's total assets, cause more than 5% of the Aurora
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 Aurora 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 Aurora Fund may, acting alone or in
syndicates or groups, purchase or otherwise acquire securities of
other issuers for investment, either from the issuers or from persons
in a control relationship with the issuers or from underwriters of
such securities and (b) to the extent that, in connection with the
disposition of the Aurora Fund's securities, the Aurora 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
Aurora 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 Aurora 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 Aurora Fund may lend portfolio
securities and purchase bonds, debentures, notes and similar
obligations (and enter into repurchase agreements with respect
thereto);
I, 3-2
<PAGE>
(7) not to make any investment which would cause more than 25% of the
value of the Aurora 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.
NONFUNDAMENTAL INVESTMENT RESTRICTIONS.
It is the Aurora 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);
(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; and
(4) not to purchase a security issued by another investment company,
except to the extent permitted under the 1940 Act or any exemptive
order from the Securities and Exchange Commission or except by
purchases in the open market involving
I, 3-3
<PAGE>
only customary brokers' commissions, or securities acquired as
dividends or distributions or in connection with a merger,
consolidation or similar transaction or other exchange.
D. RESTRICTED SECURITIES
It is the Fund's policy not to make an investment in restricted securities,
including 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.
E. 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 Depository
Receipts ("ADRs"), European Depository Receipts ("EDRs") and Global Depository
Receipts ("GDRs"). Under current policy, however, the Fund limits such
investments, including ADRs, EDRs and GDRs, to a maximum of 35% of its total
assets.
F. INDUSTRY CLASSIFICATIONS
In determining how much of the portfolio is invested in a given industry,
the following industry classifications are currently used. Industry
classifications are subject to change from time to time. 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.
I, 3-4
<PAGE>
AUTOS & TRANSPORTATION
Air Transport
Auto Parts
Automobiles
Miscellaneous
Transportation
Railroad Equipment
Railroads
Recreational Vehicles &
Boats
Tires & Rubber
Truckers
CONSUMER DISCRETIONARY
Advertising Agencies
Casino/Gambling,
Hotel/Motel
Commercial Services
Communications, Media
& Entertainment
Consumer Electronics
Consumer Products
Consumer Services
Household Furnishings
Leisure Time
Photography
Printing & Publishing
Restaurants
Retail
Shoes
Textile Apparel
Manufacturers
Toys
CONSUMER STAPLES
Beverages
Drug & Grocery Store
Chains
Foods
Household Products
Tobacco
FINANCIAL SERVICES
Banks & Savings and
Loans
Financial Data Processing
Services & Systems
Insurance
Miscellaneous Financial
Real Estate Investment
Trusts
Rental & Leasing
Services: Commercial
Securities Brokerage &
Services
HEALTH CARE
Drugs & Biotechnology
Health Care Facilities
Health Care Services
Hospital Supply
Service Miscellaneous
INTEGRATED OILS
Oil: Integrated Domestic
Oil: Integrated
International
MATERIALS & PROCESSING
Agriculture
Building & Construction
Chemicals
Containers & Packaging
Diversified Manufacturing
Engineering &
Contracting Services
Fertilizers
Forest Products
Gold & Precious Metals
Miscellaneous Material &
Processing
Non-Ferrous Metals
Office Supplies
Paper and Forest Products
Real Estate &
Construction
Steel
Textile Products
OTHER
Trust Certificates--
Government Related
Lending
Asset-backed--Mortgages
Asset-backed--Credit
Card Receivables
Miscellaneous
Multi-Sector Companies
OTHER ENERGY
Gas Pipelines
Miscellaneous Energy
Offshore Drilling
Oil and Gas Producers
Oil Well Equipment &
Services
PRODUCER DURABLES
Aerospace
Electrical Equipment &
Components
Electronics: Industrial
Homebuilding
Industrial Products
Machine Tools
Machinery
Miscellaneous Equipment
Miscellaneous Producer
Durables
Office Furniture &
Business Equipment
Pollution Control and
Environmental Services
Production Technology
Equipment
Telecommunications
Equipment
TECHNOLOGY
Communications
Technology
Computer Software
Computer Technology
Electronics
Electronics: Semi-
Conductors/Components
Miscellaneous Technology
UTILITIES
Miscellaneous Utilities
Utilities: Cable TV & Radio
Utilities: Electrical
Utilities: Gas Distribution
Utilities:
Telecommunications
Utilities: Water
I, 3-5
<PAGE>
G. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
TRUSTEES AND OFFICERS
The Trustees and principal officers of State Street Research Capital Trust
as a group owned approximately 7.4% of the Aurora Fund's outstanding Class S
shares and owned no shares of the Fund's outstanding Class A, Class B, Class
B(1), or Class C shares. All information is as of December 31, 2000.
OTHER PERSONS
The following persons or entities were the record and/or beneficial owners
of the following approximate percentages of the Aurora Fund's outstanding
shares. All information is as of December 31, 2000.
<TABLE>
<CAPTION>
Shareholder %
----------- ---
<S> <C> <C>
Class A Merrill Lynch 17.6
Prudential Securities 5.2
Charles Schwab 5.0
Class B(1) Merrill Lynch 23.9
Class B Merrill Lynch 35.3
Class C Merrill Lynch 39.4
Class S D.O. & L. Morton 6.5
Boston Safe Deposit 62.3
</TABLE>
The full name and address of each of the above persons or entities are as
follows:
Merrill Lynch, Pierce, Fenner & Smith, Inc.
For the Sole Benefit of its Customers
4800 Deerlake Drive East
Jacksonville, FL 32246
Charles Schwab & Co. Inc. Special Custody A/C
For the Exclusive Benefit of Customers
101 Montgomery St
San Francisco, CA 94104
Prudential Securities Inc.
Special Custody Account for the Exclusive
Benefit of Customers
One New York Plaza
New York, NY 10004
Boston Safe Deposit & Trust Co. (a)
The TWA Piloto DAP/401K Plan
135 Santilli Hwy
Everett, MA 02149
D.O. & L. Morton
c/o State Street Research Service Center
One Financial Center
Boston, MA 02111
------------------------------
(a) The Fund believes that each named recordholder does not have beneficial
ownership of such shares.
I, 3-6
<PAGE>
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 of that class,
such as any Rule 12b-1 plan for a given class.
H. TRUSTEE COMPENSATION
The Trustees of State Street Research Capital Trust were compensated as
follows:
<TABLE>
<CAPTION>
Total Total Compensation
Compensation From All State
Aggregate From All Street Research Funds
Compensation State Street and Metropolitan
From Aurora Research Funds Series Fund, Inc.
Name of Trustee Fund(a) Paid to Trustees (b) Paid to Trustees (c)
--------------- ---------------- -------------------- --------------------
<S> <C> <C> <C>
Bruce R. Bond $ 3,743 $ 72,000 $ 72,000
Richard S. Davis(d) $ -- $ -- $ --
Steve A. Garban $ 3,972 $ 76,800 $ 118,300
Dean O. Morton $ 4,233 $ 81,800 $ 118,800
Susan M. Phillips $ 3,743 $ 72,000 $ 72,000
Toby Rosenblatt $ 3,743 $ 72,000 $ 72,000
Michael S. Scott Morton $ 4,233 $ 81,800 $ 118,800
</TABLE>
---------------
(a) For the Aurora Fund's fiscal year ended September 30, 2000. The Aurora Fund
does not provide any pension or retirement benefits for the Trustees.
(b) Includes compensation on behalf of all series of 10 investment companies
for which the Investment Manager serves as sole investment adviser. The
figure in this column is for the 12 months ended December 31, 2000.
(c) Includes compensation on behalf of all series of 10 investment companies
for which the Investment Manager serves as sole investment adviser and all
series of Metropolitan Series Fund, Inc. The primary adviser to
Metropolitan Series Fund, Inc. is Metropolitan Life Insurance Company,
which has retained State Street Research & Management Company and other
unrelated managers as sub-adviser to the series of Metropolitan Series
Fund, Inc. The figure in this column includes compensation relating to all
series of Metropolitan Series Fund, Inc. including those sub-advised by
State Street Research & Management Company and those sub-advised by
unrelated managers. The figure is for the 12 months ended December 31,
2000.
(d) Richard S. Davis was elected a Trustee of the Trust on November 1, 2000.
For more information in the Trustees and officers of State Street Research
Capital Trust, see Section II, C of this Statement of Additional Information.
I, 3-7
<PAGE>
I. INVESTMENT ADVISORY FEE
The advisory fee payable monthly by the Aurora Fund to the Investment
Manager is computed as a percentage of the average of the value of the net
assets of the Aurora Fund as determined at the close of regular trading on the
NYSE on each day the NYSE is open for trading. 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 Aurora Fund.
The advisory fee rate is 0.85%.
The advisory fees paid by the Fund to the Investment Manager for the last
three fiscal years were as follows:
<TABLE>
<CAPTION>
Fees Waived
Advisory Fees Paid or Expenses Assumed
------------------ -------------------
<S> <C> <C>
Fiscal year ended September 30, 2000 $ 5,842,991 $ 0
Fiscal year ended September 30, 1999 $ 3,516,380 $ 0
Fiscal year ended September 30, 1998 $ 4,919,113 $ 0
</TABLE>
For more information on the investment advisory arrangements, see Section
II, D of this Statement of Additional Information.
J. PURCHASE AND REDEMPTION OF SHARES - CLASS S SHARES
The first paragraph under the caption "Purchase and Redemption of
Shares - Class S Shares" in Section II of this Statement of Additional
Information is revised in its entirety to read as follows for the Aurora Fund:
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
MetLife, its affiliates, or both for which Class S shares have been
designated.
K. PORTFOLIO TURNOVER
The Aurora 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
I, 3-8
<PAGE>
Aurora 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 portfolio turnover rates for the last two fiscal years were as follows:
<TABLE>
<CAPTION>
Portfolio Turnover Rates
------------------------
<S> <C>
Fiscal year ended September 30, 2000 76.95%
Fiscal year ended September 30, 1999 65.13%
</TABLE>
For more information on portfolio turnover, see Section II, H of this
Statement of Additional Information.
L. BROKERAGE COMMISSIONS
Brokerage commissions paid by the Aurora Fund in secondary trading during
the last three fiscal years were as follows:
<TABLE>
<S> <C>
Fiscal year ended September 30, 2000 $ 1,061,705
Fiscal year ended September 30, 1999 $ 404,463
Fiscal year ended September 30, 1998 $ 710,885
</TABLE>
During and at the end of its most recent fiscal year, the Aurora Fund held
the securities of no entity that might be deemed to be a regular broker-dealer
of the Aurora Fund, as defined under the 1940 Act.
For more information on brokerage commissions, see Section II, H of this
Statement of Additional Information.
M. SALES CHARGES ON SHARES
Total sales charges on Class A shares paid to the Distributor and the
amounts retained by the Distributor after reallowance of concessions to dealers,
for the past three fiscal years were as follows:
FRONT-END SALES CHARGES (CLASS A)
<TABLE>
<CAPTION>
Retained by Distributor
After Reallowance of
Total Sales Charges Concessions to Dealers
------------------- ----------------------
<S> <C> <C>
Fiscal year ended September 30, 2000 $ 1,912,561 $ 259,510
Fiscal year ended September 30, 1999 $ 1,290,344 $ 226,638
Fiscal year ended September 30, 1998 $ 1,421,321 $ 229,788
</TABLE>
I, 3-9
<PAGE>
For the past three fiscal years the Distributor received contingent
deferred sales charges upon redemption of Class A, Class B(1), Class B and Class
C shares of the Trust and paid initial commissions to securities dealers for
sales of such shares as follows:
CONTINGENT DEFERRED SALES CHARGES (CLASSES A, B(1), B AND C)
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
September 30, 2000 September 30, 1999 September 30, 1998
--------------------------------- --------------------------------- --------------------------------
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 $1,653,051 $ 0 $ 1,063,706 $ 0 $ 1,247,116
Class B(1)* $ 63,638 $1,917,417 $ 16,804 $ 699,864 $ N/A $ N/A
Class B $ 339,107 $ 7,540 $ 928,580 $ 1,180,706 $ 702,451 $ 3,873,069
Class C $ 6,210 $ 601,590 $ 15,346 $ 258,109 $ 39,391 $ 348,378
</TABLE>
--------------
*Class B(1) was introduced January 1, 1999.
For more information about sales charges, see Section II, J of this
Statement of Additional Information.
N. RULE 12b-1 FEES
The Fund has adopted plans of distribution pursuant to Rule 12b-1 under the
1940 Act ("Distribution Plan(s)"). Under the Distribution Plans, the Fund may
engage, directly or indirectly, in financing any activities primarily intended
to result in the sale of shares of the Fund. Under the Distribution Plans, the
Fund provides the Distributor with a service fee at an annual rate of 0.25% on
the average daily net assets of Class A, Class B(1), Class B and Class C shares.
The Fund also provides a distribution fee at an annual rate of (i) up to 0.15%
on the average daily net assets of Class A shares, and (ii) 0.75% on the average
daily net assets of Class B(1), Class B and Class C shares. The service and
distribution fees are used to cover personal services and/or the maintenance of
shareholder accounts provided by the Distributor, brokers, dealers, financial
professionals or others, and sales, promotional and marketing activities
relating to the respective classes.
Under the Distribution Plan covering Class A, Class B and Class C shares,
the Fund's payments are intended to reimburse the Distributor for expenditures
incurred under the plan, and any unused payments are returnable to the Fund.
Under the Distribution Plan covering Class B(1) shares, the Fund's payments
compensate the Distributor for services and expenditures incurred under the
plan, and none of the payments are returnable to the Fund.
During the fiscal year ended September 30, 2000, the Aurora Fund paid the
fees under the Distribution Plans and the fees were used as set forth below.
I, 3-10
<PAGE>
<TABLE>
<CAPTION>
Class A Class B(1) Class B Class C
------- ---------- ------- -------
<S> <C> <C> <C> <C>
Advertising $ 101,445 $ 59,838 $ 0 $ 69,420
Printing and mailing of prospectuses to 5,918 3,539 0 4,089
other than current shareholders
Compensation to dealers 146,973 156,829 1,580,179 645,086
Compensation to sales personnel 300,036 175,679 0 204,265
Interest 0 0 0 0
Carrying or other financing charges 0 0 0 0
Other expenses: marketing; general 251,002 153,351 54,427 170,892
Fees to offset carryforwards * 0 0 672,878 0
---------- ---------- ---------- ----------
Total Fees $ 805,374 $ 549,236 $2,307,484 $1,093,752
========== ========== ========== ==========
Unreimbursed expenses carried forward:
Amount $1,425,601 $601,277 $890,055 $1,976,395
% of net assets at year-end 0.26% 0.54% 0.33% 1.09%
</TABLE>
---------------
*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.
For more information about Rule 12b-1 fees, see Section II, J of this
Statement of Additional Information.
O. PERFORMANCE
All calculations of performance data in this section reflect voluntary
measures, if any, by the Investment Manager or its affiliates to reduce fees or
expenses relating to the Aurora Fund.
Performance for Class B(1) shares reflects Class B performance through
December 31, 1998. Class B(1) shares were introduced on January 1, 1999.
I, 3-11
<PAGE>
STANDARD TOTAL RETURN
The average annual total return ("standard total return") of each class of
shares of the Aurora Fund was as follows:
<TABLE>
<CAPTION>
Commencement
of Operations Five Years One Year
(February 13, 1995) to Ended Ended
September 30, 2000 September 30, 2000 September 30, 2000
------------------ ------------------ ------------------
<S> <C> <C> <C>
Class A 27.21% 27.21% 44.62%
Class B(1) 27.53% 27.60% 47.37%
Class B 27.59% 27.60% 47.37%
Class C 27.59% 27.75% 51.37%
Class S 28.95% 29.12% 54.32%
</TABLE>
NONSTANDARD TOTAL RETURN
The nonstandard total return of each class of shares of the Aurora Fund for
the six months ended September 30, 2000, without taking sales charges into
account, was as follows:
<TABLE>
<S> <C>
Class A 19.01%
Class B(1) 18.65%
Class B 18.60%
Class C 18.60%
Class S 19.31%
</TABLE>
For more information about performance, see Section II, K of this Statement
of Additional Information.
I, 3-12
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
SECTION II
TABLE OF CONTENTS
PAGE
A. Additional Information Concerning Investment Restrictions,
Certain Risks and Investment Techniques................................II-1
B. Debt Instruments and Permitted Cash Investments........................II-13
C. The Trusts, the Trustees and Officers and Fund Shares..................II-23
D. Investment Advisory Services...........................................II-32
E. Purchase and Redemption of Shares......................................II-33
F. Shareholder Accounts...................................................II-42
G. Net Asset Value........................................................II-46
H. Portfolio Transactions.................................................II-47
I. Certain Tax Matters....................................................II-51
J. Distribution of Fund Shares............................................II-55
K. Calculation of Performance Data........................................II-58
L. Custodian..............................................................II-61
M. Independent Accountants................................................II-62
N. Financial Reports......................................................II-62
This Section II contains general information applicable to the fund(s)
identified on the cover page of this Statement of Additional Information. (If
more than one Fund is identified, each is referred to as "the Fund.")
A. ADDITIONAL INFORMATION CONCERNING INVESTMENT RESTRICTIONS, CERTAIN
RISKS AND INVESTMENT TECHNIQUES
The Fund follows certain fundamental and nonfundamental investment
restrictions. The fundamental and nonfundamental investment restrictions for the
Fund identified on the cover page of this Statement of Additional Information
are included in Section I of this Statement of Additional Information.
In addition, the Fund may invest in the following instruments, use the
following investment techniques or be exposed to the following investment risks.
PLEASE NOTE THAT NOT ALL OF THE INSTRUMENTS, TECHNIQUES AND RISKS DESCRIBED IN
THIS PART APPLY UNIFORMLY TO THE FUNDS IDENTIFIED ON THE COVER PAGE OF THIS
STATEMENT OF ADDITIONAL INFORMATION. THE EXTENT TO WHICH A FUND MAY ENGAGE IN
THE FOLLOWING PRACTICES DEPENDS ON ITS INVESTMENT STRATEGY AND ANY LIMITATIONS
SET FORTH IN ITS PROSPECTUS OR IN PART I OF ITS STATEMENT OF ADDITIONAL
INFORMATION. Some practices are more applicable to equity investments and would
be used more by Funds with substantial equity portions. For example, American
Depository Receipts ("ADRs") generally involve the stocks of foreign issuers and
are used more by Funds which invest in foreign securities. Similarly, some
practices are more applicable to debt
II-1
<PAGE>
securities and would be used more in Funds with substantial debt positions, for
example, techniques to manage the interest rate volatility of bonds. However,
since the Fund generally reserves the flexibility to invest to some degree in
ways which are outside their primary focus, it is possible for the Fund to
engage in all the described practices.
DERIVATIVES
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
(i) an expected decline in the market value of an asset or group of assets which
the Fund does not own or (ii) expected increases in the market value of an asset
which it does not plan to acquire. Information about specific types of
instruments is provided below.
FUTURES CONTRACTS.
Futures contracts are publicly traded contracts to buy or sell an
underlying asset or group of assets, such as a currency or an index of
securities, at a future time at a specified price. A contract to buy establishes
a long position while a contract to sell establishes a short position.
The purchase of a futures contract on an equity security or an index of
equity securities normally enables a buyer to participate in the market movement
of the underlying asset or index after paying a transaction charge and posting
margin in an amount equal to a small
II-2
<PAGE>
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
for the custodian to note as segregated on its books 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. If the Fund disposes of assets which have been noted as
segregated, an equivalent amount of assets will be noted as segregated. 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.
II-3
<PAGE>
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,
the 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.
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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 non-hedging
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.
Non-hedging strategies typically involve special risks. The profitability
of the Fund's non-hedging strategies will depend on the ability of the
Investment Manager to analyze both the applicable derivatives market and the
market for the underlying asset or group of assets. Derivatives markets are
often more volatile than corresponding securities markets and a 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.
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SHORT SALES AGAINST THE BOX
The Fund may effect short sales, but only if such transactions are short
sale transactions known as short sales "against the box." A short sale is a
transaction in which the Fund sells a security it does not own by borrowing it
from a broker, and consequently becomes obligated to replace that security. A
short sale against the box is a short sale where the Fund owns the security sold
short or has an immediate and unconditional right to acquire that security
without additional cash consideration upon conversion, exercise or exchange of
options with respect to securities held in its portfolio. The effect of selling
a security short against the box is to insulate that security against any future
gain or loss.
SWAP ARRANGEMENTS
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.
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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 (the
"CFTC") 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.
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 net 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 15% of the Fund's
net assets. To the extent excludable under relevant regulatory interpretations,
repurchase agreements involving U.S. Government securities are not subject to
the limitations on the Fund's total assets which may be invested in one issuer
or industry.
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REVERSE REPURCHASE AGREEMENTS
The Fund may enter into reverse repurchase agreements. 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 in the U.S. Treasury
market when dealers begin to trade a new issue of bonds or notes shortly after a
Treasury financing is announced, but prior to the actual sale of the securities.
Similarly, securities to be created by a merger of companies may also be 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 custodian holding Fund assets 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
The Fund may invest in restricted securities, including restricted
securities sold in accordance with Rule 144A under the Securities Act of 1933
("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 for the Fund. 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
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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.
MORTGAGE-RELATED SECURITIES
The Fund may invest in mortgage-related securities. Mortgage-related
securities represent interests in pools of commercial or residential mortgage
loans. Some mortgage-related securities provide the Fund with a flow-through of
interest and principal payments as such payments are received with respect to
the mortgages in the pool. Mortgage-related securities may be issued by private
entities such as investment banking firms, insurance companies, mortgage bankers
and home builders. Mortgage-related securities may be issued by U.S. Government
agencies, instrumentalities or mixed-ownership corporations or sponsored
enterprises, and the securities may or may not be supported by the credit of
such entities. An issuer may offer senior or subordinated securities backed by
the same pool of mortgages. The senior securities have priority to the interest
and/or principal payments on the mortgages in the pool; the subordinate
securities have a lower priority with respect to such payments on the mortgages
in the pool. The Fund does not presently expect to invest in mortgage pool
residuals.
Mortgage-related securities also include stripped securities which have
been divided into separate interest and principal components. Holders of the
interest components of mortgage related securities will receive payments of the
interest only on the current face amount of the mortgages and holders of the
principal components will receive payments of the principal on the mortgages.
"Interest only" securities are known as IOs; "principal only" securities are
known as POs.
In the case of mortgage-related securities, the possibility of prepayment
of the underlying mortgages which might be motivated, for instance, by declining
interest rates, could lessen the potential for total return in mortgage-related
securities. When prepayments of mortgages occur during periods of declining
interest rates, the Fund will have to reinvest the proceeds in instruments with
lower effective interest rates.
In the case of stripped securities, in periods of low interest rates and
rapid mortgage prepayments, the value of IOs for mortgage-related securities can
decrease significantly. The market for IOs and POs is new and there is no
assurance it will operate efficiently or provide liquidity in the future.
Stripped securities are extremely volatile in certain interest rate
environments.
ASSET-BACKED SECURITIES
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The Fund may invest in asset-backed, which are securities that represent
interests in pools of consumer loans such as credit card receivables, automobile
loans and leases, leases on equipment such as computers, and other financial
instruments. These securities provide a flow-through of interest and principal
payments as payments are received on the loans or leases and may be supported by
letters of credit or similar guarantees of payment by a financial institution.
FOREIGN INVESTMENTS
The Fund may invest in securities of non-U.S. issuers directly, or
indirectly in the form of American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs") and Global Depositary Receipts ("GDRs").
ADRs are receipts, typically issued by a U.S. bank or trust company, which
evidence ownership of underlying securities issued by a foreign corporation or
other entity. EDRs are receipts issued in Europe which evidence a similar
ownership arrangement. GDRs are receipts issued in one country which also
evidence a similar ownership arrangement. Generally, ADRs in registered form are
designed for use in U.S. securities markets and EDRs are designed for use in
European securities markets. GDRs are designed for use when the issuer is
raising capital in more than one market simultaneously, such as the issuer's
local market and the U.S., and have been used to overcome local selling
restrictions to foreign investors. In addition, many GDRs are eligible for
book-entry settlement through Cedel, Euroclear and DTC. The underlying
securities are not always denominated in the same currency as the ADRs, EDRs or
GDRs. Although investment in the form of ADRs, EDRs or GDRs facilitates trading
in foreign securities, it does not mitigate all the risks associated with
investing in foreign securities.
ADRs are available through facilities which may be either "sponsored" or
"unsponsored." In a sponsored arrangement, the foreign issuer establishes the
facility, pays some or all of the depository's fees, and usually agrees to
provide shareholder communications. In an unsponsored arrangement, the foreign
issuer is not involved, and the ADR holders pay the fees of the depository.
Sponsored ADRs are generally more advantageous to the ADR holders and the issuer
than are unsponsored ADRs. More and higher fees are generally charged in an
unsponsored program compared to a sponsored facility. Only sponsored ADRs may be
listed on the New York or American Stock Exchanges. Unsponsored ADRs may prove
to be more risky due to (a) the additional costs involved to the Fund; (b) the
relative illiquidity of the issue in U.S. markets; and (c) the possibility of
higher trading costs in the over-the-counter market as opposed to exchange based
trading. The Fund will take these and other risk considerations into account
before making an investment in an unsponsored ADR.
The risks associated with investments in foreign securities include those
resulting from fluctuations in currency exchange rates, revaluation of
currencies, future political and economic developments, including the risks of
nationalization or expropriation, the possible
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imposition of currency exchange blockages, higher operating expenses, foreign
withholding and other taxes which may reduce investment return, reduced
availability of public information concerning issuers, the difficulties in
obtaining and enforcing a judgment against a foreign issuer and the fact that
foreign issuers are not generally subject to uniform accounting, auditing and
financial reporting standards or to other regulatory practices and requirements
comparable to those applicable to domestic issuers. Moreover, securities of many
foreign issuers may be less liquid and their prices more volatile than those of
securities of comparable domestic issuers.
These risks are usually higher in less-developed countries. Such countries
include countries that have an emerging stock market on which trade a small
number of securities and/or countries with economies that are based on only a
few industries. The Fund may invest in the securities of issuers in countries
with less developed economies as deemed appropriate by the Investment Manager.
However, it is anticipated that a majority of the foreign investments by the
Fund will consist of securities of issuers in countries with developed
economies.
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.
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INDEXED SECURITIES
The Fund may purchase securities the value of which is indexed to interest
rates, foreign currencies and various indices and financial indications. 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.
SECURITIES LENDING
The Fund may receive a lending fee and 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, 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 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 may involve 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 high-quality 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
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types of high-quality instruments in which the Fund may invest for such purposes
include money market securities, such as repurchase agreements, and securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, certificates of deposit, time deposits and bankers'
acceptances of certain qualified financial institutions and corporate commercial
paper, which at the time of purchase are rated at least within the "A" major
rating category by Standard & Poor's 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.
OTHER INVESTMENT COMPANIES
The Fund may invest in securities of other investment companies, including
affiliated investment companies, such as open- or closed-end management
investment companies, hub and spoke (master/feeder) funds, pooled accounts or
other similar, collective investment vehicles. As a shareholder of an investment
company, the Fund may indirectly bear service and other fees in addition to the
fees the Fund pays its service providers. Similarly, other investment companies
may invest in the Fund. Other investment companies that invest in the Fund may
hold significant portions of the Fund and materially affect the sale and
redemption of Fund shares and the Fund's portfolio transactions.
The Fund may invest in investment companies issuing shares which are traded
like traditional equity securities on a national stock exchange or the NASDAQ
National Market System. Many exchange-traded securities represent ownership in a
trust that has been established to accumulate and hold a portfolio of securities
that is intended to track the performance of a securities market index. Certain
indices tracked by exchange-traded funds are highly concentrated in one or a few
industries or individual securities, and thus, may have higher price volatility
than many broad-based stock indices. With most new exchange-traded funds, there
is a risk that the overall liquidity of the secondary market for shares of those
funds may fluctuate and the shares become illiquid.
B. 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.
MANAGING VOLATILITY
In administering the Fund's investments, the Investment Manager attempts to
manage the volatility of the Fund's portfolio of debt securities by managing the
duration and weighted average maturity of those securities.
Duration is an indicator of the expected volatility of a bond portfolio's
net asset value in response to changes in interest rates. In calculating
duration, the fund measures the average
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time required to receive all cash flows associated with those debt securities --
representing payments of principal and interest -- by considering the timing,
frequency and amount of payment expected from each portfolio debt security. The
higher the duration, the greater the gains and losses when interest rates
change. Duration generally is a more accurate measure of potential volatility
with a portfolio composed of high-quality debt securities, such as U.S.
government securities, municipal securities and high-grade U.S. corporate bonds,
than with lower-grade securities.
The Investment Manager may use several methods to manage the duration of
the Fund's portfolio of debt securities in order to increase or decrease its
exposure to changes in interest rates. First, the Investment Manager may adjust
duration by adjusting the mix of debt securities held by the Fund. For example,
if the Investment Manager intends to shorten duration, it may sell debt
instruments that individually have a long duration and purchase other debt
instruments that individually have a shorter duration. Among the factors that
will affect a debt security's duration are the length of time to maturity, the
timing of interest and principal payments, and whether the terms of the security
give the issuer of the security the right to call the security prior to
maturity. Second, the Investment Manager may adjust duration using derivative
transactions, especially with interest rate futures and options contracts. For
example, if the Investment Manager wants to lengthen the duration of a Fund's
portfolio of debt securities, it could purchase interest rate futures contracts
instead of buying longer-term bonds or selling shorter-term bonds. Similarly,
during periods of lower interest rate volatility, the Investment Manager may use
a technique to extend duration in the event rates rise by writing an
out-of-the-money put option and receiving premium income with the expectation
that the option could be exercised. In managing duration, the use of such
derivatives may be faster and more efficient than trading specific portfolio
securities.
Weighted average maturity is another indicator of potential volatility used
by the Investment Manager with respect to the Fund's portfolio of debt
securities, although for certain types of debt securities, such as high quality
debt securities, it is not as accurate as duration in quantifying potential
volatility. Weighted average maturity is the average of all maturities of the
individual debt securities held by the Fund, weighted by the market value of
each security. Generally, the longer the weighted average maturity, the more
Fund price will vary in response to changes in interest rates.
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:
1. direct obligations of the U.S. Treasury, i.e., U.S. Treasury bills,
notes, certificates and bonds;
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2. 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
3. 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
Bank, the Federal Farm Credit Bank, the Federal National Mortgage Association
and the Federal Home Loan Mortgage Corporation are backed by the credit of the
agency or instrumentality issuing the obligations. Certain obligations of
Resolution Funding Corporation, a mixed-ownership Government corporation, are
backed with respect to interest payments by the U.S. Treasury, and with respect
to principal payments by U.S. Treasury obligations held in a 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.
II-15
<PAGE>
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.
FOREIGN GOVERNMENT DEBT
The obligations of foreign governmental entities have various kinds of
government support and include obligations issued or guaranteed by foreign
governmental entities with taxing powers. These obligations may or may not be
supported by the full faith and credit of a foreign government. Each Fund may
invest in foreign government securities of issuers considered stable by the
Investment Manager, based on its analysis of factors such as general political
or economic conditions relating to the government and the likelihood of
expropriation, nationalization, freezes or confiscation of private property. The
Investment Manager does not believe that the credit risk inherent in the
obligations of stable foreign governments is significantly greater than that of
U.S. Government securities.
SUPRANATIONAL DEBT
Supranational debt may be denominated in U.S. dollars, a foreign currency
or a multi-national currency unit. Examples of supranational entities include
the World Bank, the European Investment Bank, the Asian Development Bank and the
Inter-American Development Bank. The governmental members, or "stockholders,"
usually make initial capital contributions to the supranational entity and in
many cases are committed to make additional capital contributions if the
supranational entity is unable to repay its borrowings.
FOREIGN CURRENCY UNITS
The Fund may invest in securities denominated in a multi-national currency
unit. An illustration of a multi-national currency unit is the European Currency
Unit (the "ECU"), which is a "basket" consisting of specified amounts of the
currencies of the member states of the European Community, a Western European
economic cooperative organization that includes France, Germany, The Netherlands
and the United Kingdom. The specific amounts of currencies comprising the ECU
may be adjusted by the Council of Ministers of the European Community to reflect
changes in relative values of the underlying currencies. The Sub-Investment
Manager does not believe that such adjustments will adversely affect holders of
ECU-denominated obligations or the marketability of such securities. European
supranational entities, in particular, issue ECU-denominated obligations. The
Fund may invest in securities denominated in the currency of one nation although
issued by a governmental entity, corporation or financial institution of another
nation. For example, the Fund may invest in a British pound sterling-denominated
obligation issued by a United States corporation. Such investments involve
credit risks associated with the issuer and currency risks associated with the
currency in which the obligation is denominated.
II-16
<PAGE>
SYNTHETIC NON-U.S. MONEY MARKET POSITIONS
Money market securities denominated in foreign currencies are permissible
investments of the Fund. In addition to, or in lieu of direct investment in such
securities, the Fund may construct a synthetic non-U.S. money market position by
(i) purchasing a money market instrument denominated in U.S. dollars and (ii)
concurrently entering into a forward currency contract to deliver a
corresponding amount of U.S. dollars in exchange for a foreign currency on a
future date and a specified rate of exchange. Because of the availability of a
variety of highly liquid short-term U.S. dollar-denominated money market
instruments, a synthetic money market position utilizing such U.S.
dollar-denominated instruments may offer greater liquidity than direct
investment in a money market instrument denominated in a foreign currency.
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
II-17
<PAGE>
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, among others, (a) corporations and (b) domestic or foreign bank holding
companies or their subsidiaries or affiliates where the debt instrument is
guaranteed by the bank holding company or an affiliated bank or where the bank
holding company or the affiliated bank is unconditionally liable for the debt
instrument. Commercial paper is usually sold on a discounted basis and has a
maturity at the time of issuance not exceeding nine months.
LOWER RATED DEBT SECURITIES
The Fund may invest in debt securities within the BB major rating category
or lower by S&P or the Ba major rating category or lower by Moody's or debt
securities that are unrated but considered by the Investment Manager to be of
equivalent investment quality to comparable rated securities. Such securities
generally involve more credit risk than higher rated securities and are
considered by S&P and Moody's to be predominantly speculative with respect to
capacity to 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. Risks of lower quality debt securities include (i)
limited liquidity and secondary market support, (ii) substantial market price
volatility resulting from changes in prevailing interest rates and/or investor
perception, (iii) subordination to the prior claims of banks and other senior
lenders, (iv) the operation of mandatory sinking fund or call/redemption
provisions during periods of declining interest rates when the fund may be
required to reinvest premature redemption proceeds in lower yielding portfolio
securities; (v) the possibility that earnings of the issuer may be insufficient
to meet its debt service; (vi) the issuer's low creditworthiness and potential
for insolvency during periods of rising interest rates and economic downturn;
and (vii) the realization of taxable income for shareholders without the
corresponding receipt of cash in connection with investments in "zero coupon" or
"pay-in-kind" securities. Growth in the market for this type of security has
paralleled a general expansion in certain sectors in the U.S. economy, and the
effects of adverse economic changes (including a recession) are unclear. For
further information concerning the ratings of debt securities, see "--Commercial
Paper Ratings" and "--Rating Categories of Debt Securities," below. 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.
II-18
<PAGE>
ZERO AND STEP COUPON SECURITIES
Zero and step coupon securities are debt securities that may pay no
interest for all or a portion of their life but are purchased at a discount to
face value at maturity. Their return consists of the amortization of the
discount between their purchase price and their maturity value, plus in the case
of a step coupon, any fixed rate interest income. Zero and step coupon
securities pay no interest to holders prior to maturity even though interest on
these securities is reported as income to the Fund. The Fund will be required to
distribute all or substantially all of such amounts annually to its
shareholders. These distributions may cause the Fund to liquidate portfolio
assets in order to make such distributions at a time when the Fund may have
otherwise chosen not to sell such securities. The amount of the discount
fluctuates with the market value of such securities, which may be more volatile
than that of securities which pay interest at regular intervals.
MASTER LOAN PARTICIPATION AGREEMENTS
The Fund may invest in loan participations. These investments represent
interests in floating or variable rate loans to foreign countries, corporations
and other entities. Loan participations will generally be acquired by the Fund
from a lender, usually a bank or other similar financial services entity. The
underlying loans may pay interest at rates which are periodically redetermined
on the basis of a base lending rate plus a premium. These base lending rates are
generally the Prime Rate offered by a major U.S. bank, the London InterBank
Offered Rate or other base rates used by commercial lenders.
The Fund may invest in loans which are not secured by any collateral.
Uncollateralized loans pose a greater risk of nonpayment of interest or loss of
principal than do collateralized loans. Interest and principal payments on these
loan participations may be reduced, deferred, suspended or eliminated. While
loan participations generally trade at par value, the fund will also be able to
acquire loan participations that sell at a discount because of the borrower's
credit standing.
The loan participations generally are not rated by nationally recognized
statistical rating organizations. Participation interests generally are not
listed on any national securities exchange and no regular market has developed
for such interests. The loans may be subject to restrictions on resale and any
secondary purchases and sales generally are conducted in private transactions.
When acquiring a loan participation, the Fund will have a contractual
relationship only with the lender, not with the borrower. The Fund has the right
to receive payments of principal and interest only from the lender selling the
loan participation and only upon receipt by such lender of such payments from
the borrower. As a result, the Fund may assume the credit risk of both the
borrower and the lender selling the loan participation.
II-19
<PAGE>
CERTAIN RATINGS CATEGORIES
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 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.
RATING CATEGORIES OF DEBT SECURITIES.
Set forth below is a description of S&P corporate bond and debenture rating
categories:
AAA: An obligation rated within the AAA category has the highest rating
assigned by S&P. Capacity to meet the financial commitment on the obligation is
extremely strong.
AA: An obligation rated within the AA category differs from the highest
rated obligation only in small degree. Capacity to meet the financial obligation
is very strong.
II-20
<PAGE>
A: An obligation rated within the A category is somewhat more susceptible
to the adverse effects of changes in circumstances and economic conditions than
debt in higher rated categories. However, capacity to meet the financial
commitment on the obligation is still strong.
BBB: An obligation rated within the BBB category exhibits adequate
protection parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to meet the
financial commitment on the obligation.
Obligations rated within the BB, B, CCC, CC and C categories are regarded
as having significant speculative characteristics. BB indicates the least degree
of speculation and C the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
BB: An obligation rated within the BB category is less vulnerable to
nonpayment than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial or economic conditions
which could lead to inadequate capacity to meet the financial commitment on the
obligation. The BB rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied BBB rating.
B: An obligation rated within the B category is more vulnerable to
nonpayment than obligations rated within the BB category, but currently has the
capacity to meet the financial commitment on the obligation. Adverse business,
financial or economic conditions will likely impair capacity or willingness to
meet the financial commitment on the obligation. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.
CCC: An obligation rated within the CCC category is vulnerable to
nonpayment and is dependent upon favorable business, financial and economic
conditions to meet the financial commitment on the obligation. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to meet the financial commitment on the obligation.
CC: An obligation rated within the CC category is currently highly
vulnerable to nonpayment.
C: The C rating may be used to cover a situation where a bankruptcy
petition has been filed, but payments on this obligation are being continued.
D: An obligation rated within the D category is in payment default. The D
rating category is used when payments on an obligation are not made on the date
due even if the applicable grace period has not expired, unless S&P believes
that such payments will be made during such grace period. The D rating also will
be used upon the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
II-21
<PAGE>
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
S&P may attach the "r" symbol to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or volatility of
expected returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayments risks-such as interest only (IO) and
principal only (PO) mortgage securities; and obligations with unusually risky
terms, such as inverse floaters.
Set forth below is a description of Moody's corporate bond and debenture
rating categories:
Aaa: Bonds which are rated within the Aaa category are judged to be of the
best quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt-edge." Interest payments are protected by a large
or by an exceptionally stable margin, and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated within the Aa category are judged to be of high
quality by all standards. Together with the Aaa group they comprise what are
generally known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may be
other elements present which make the long-term risks appear somewhat larger
than in Aaa securities.
A: Bonds which are rated within the A category possess many favorable
investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Baa: Bonds which are rated within the Baa category are considered as medium
grade obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba: Bonds which are rated within the Ba category are judged to have
speculative elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during other good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
II-22
<PAGE>
B: Bonds which are rated within the B category generally lack
characteristics of the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over any long period
of time may be small.
Caa: Bonds which are rated within the Caa category are of poor standing.
Such issues may be in default or there may be present elements of danger with
respect to principal or interest.
Ca: Bonds which are rated within the Ca category represent obligations
which are speculative in a high degree. Such issues are often in default or have
other marked shortcomings.
C: Bonds which are rated within the C category are the lowest rated class
of bonds, and issues so rated can be regarded as having extremely poor prospects
of ever attaining any real investment standing.
1, 2 or 3: The ratings from Aa through B may be modified by the addition of
a numeral indicating a bond's rank within its rating category.
SECURITIES RATINGS POLICIES.
The Fund may invest in debt instruments which are split rated; for example,
rated investment grade by one rating agency, but lower than investment grade by
the other. Where an investment is split rated, the Fund may invest on the basis
of the higher rating. Where an investment is rated by only one rating agency,
the Fund may invest on the basis of the one rating or on the basis of a higher
rating derived from its own analysis. Also, the Fund may invest in debt
securities that are unrated but considered by the Investment Manager to be of
equivalent investment quality to comparable rated securities.
RATINGS DOWNGRADES.
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.
C. THE TRUSTS, THE TRUSTEES AND OFFICERS AND FUND SHARES
The Trustees of a 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. The Trustees have
authorized shares of each Fund to be issued in multiple classes.
II-23
<PAGE>
Each share of each class of shares represents an identical legal interest
in the same portfolio of investments of a Fund, has the same rights and is
identical in all respects, except that Class A, Class B(1), 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.
Shareholder rights granted under the Master Trust Agreement may be
modified, suspended or repealed, in whole or part, by the Trustees, except as
provided by law or under the terms of the Master Trust Agreement. The Master
Trust Agreement may not be amended by the Trustees if the amendment would (a)
repeal the limitation on personal liability of any shareholder or Trustee, or
repeal the prohibition of assessment upon shareholders, without the express
consent of each shareholder or Trustee involved or (b) adversely modify any
shareholder right without the consent of the holders of a majority of the
outstanding shares entitled to vote. 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 each Trust's 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 a Trust could, under certain
circumstances, be held personally liable for the obligations for the Trust.
However, each Master Trust Agreement 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
II-24
<PAGE>
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.
The Trustees and principal officers of each Trust are identified below,
together with biographical information.
II-25
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
STATE STREET CAPITAL EQUITY EXCHANGE FINANCIAL GROWTH INCOME
RESEARCH: TRUST TRUST TRUST TRUST TRUST TRUST
TRUSTEES AND
PRINCIPAL
OFFICERS
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------------
Bruce R. Bond Trustee Trustee Trustee Trustee Trustee Trustee
--------------------------------------------------------------------------------------------------------------------------
John R. Borzilleri Vice President
--------------------------------------------------------------------------------------------------------------------------
Paul J. Clifford, Jr.
--------------------------------------------------------------------------------------------------------------------------
Richard S. Davis Chairman of the Chairman of Chairman of Chairman of Chairman of Chairman of
Board, the Board, the Board, the Board, the Board, the Board,
President and President and President and President and President President
Chief Executive Chief Chief Chief and Chief and Chief
Officer Executive Executive Executive Executive Executive
Officer Officer Officer Officer Officer
--------------------------------------------------------------------------------------------------------------------------
Maureen Depp
--------------------------------------------------------------------------------------------------------------------------
Catherine Dudley Vice
President
--------------------------------------------------------------------------------------------------------------------------
Bruce A. Ebel Vice President
--------------------------------------------------------------------------------------------------------------------------
Steve A. Garban Trustee Trustee Trustee Trustee Trustee Trustee
--------------------------------------------------------------------------------------------------------------------------
Lawrence J. Haverty, Vice President
Jr.
--------------------------------------------------------------------------------------------------------------------------
F. Gardner Jackson, Vice President
Jr.
--------------------------------------------------------------------------------------------------------------------------
<CAPTION>
-----------------------------------------------------------------------------------------------
MASTER MONEY
STATE STREET INVESTMENT MARKET SECURITIES TAX-EXEMPT
RESEARCH: TRUST TRUST TRUST TRUST
TRUSTEES AND
PRINCIPAL
OFFICERS
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------
Bruce R. Bond Trustee Trustee Trustee Trustee
-----------------------------------------------------------------------------------------------
John R. Borzilleri
-----------------------------------------------------------------------------------------------
Paul J. Clifford, Jr. Vice President
-----------------------------------------------------------------------------------------------
Richard S. Davis Chairman of Chairman of Chairman of the Chairman of the
the Board, the Board, Board, Board, President and
President President and President and Chief Executive
and Chief Chief Chief Executive Officer
Executive Executive Officer
Officer Officer
-----------------------------------------------------------------------------------------------
Maureen Depp Vice President
-----------------------------------------------------------------------------------------------
Catherine Dudley
-----------------------------------------------------------------------------------------------
Bruce A. Ebel
-----------------------------------------------------------------------------------------------
Steve A. Garban Trustee Trustee Trustee Trustee
-----------------------------------------------------------------------------------------------
Lawrence J. Haverty,
Jr.
-----------------------------------------------------------------------------------------------
F. Gardner Jackson,
Jr.
-----------------------------------------------------------------------------------------------
</TABLE>
II-26
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
STATE STREET CAPITAL EQUITY EXCHANGE FINANCIAL GROWTH INCOME
RESEARCH: TRUST TRUST TRUST TRUST TRUST TRUST
TRUSTEES AND
PRINCIPAL
OFFICERS
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------------
John H. Kallis Vice President Vice
President
--------------------------------------------------------------------------------------------------------------------------
Dyann H. Kiessling
--------------------------------------------------------------------------------------------------------------------------
Rudolph K. Kluiber Vice President
--------------------------------------------------------------------------------------------------------------------------
Francis J. McNamara, Secretary Secretary Secretary Secretary Secretary Secretary
III
--------------------------------------------------------------------------------------------------------------------------
Gerard P. Maus Treasurer Treasurer Treasurer Treasurer Treasurer Treasurer
--------------------------------------------------------------------------------------------------------------------------
Thomas P. Moore, Jr. Vice President Vice President Vice
President
--------------------------------------------------------------------------------------------------------------------------
Dean O. Morton Trustee Trustee Trustee Trustee Trustee Trustee
--------------------------------------------------------------------------------------------------------------------------
Susan M. Phillips Trustee Trustee Trustee Trustee Trustee Trustee
--------------------------------------------------------------------------------------------------------------------------
E.K. Easton Ragsdale, Vice President
Jr.
--------------------------------------------------------------------------------------------------------------------------
Daniel J. Rice III Vice President
--------------------------------------------------------------------------------------------------------------------------
Toby Rosenblatt Trustee Trustee Trustee Trustee Trustee Trustee
--------------------------------------------------------------------------------------------------------------------------
<CAPTION>
------------------------------------------------------------------------------------------------
MASTER MONEY
STATE STREET INVESTMENT MARKET SECURITIES TAX-EXEMPT
RESEARCH: TRUST TRUST TRUST TRUST
TRUSTEES AND
PRINCIPAL
OFFICERS
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------
John H. Kallis Vice President Vice President Vice President
------------------------------------------------------------------------------------------------
Dyann H. Kiessling Vice President
------------------------------------------------------------------------------------------------
Rudolph K. Kluiber
------------------------------------------------------------------------------------------------
Francis J. McNamara, Secretary Secretary Secretary Secretary
III
------------------------------------------------------------------------------------------------
Gerard P. Maus Treasurer Treasurer Treasurer Treasurer
------------------------------------------------------------------------------------------------
Thomas P. Moore, Jr.
------------------------------------------------------------------------------------------------
Dean O. Morton Trustee Trustee Trustee Trustee
------------------------------------------------------------------------------------------------
Susan M. Phillips Trustee Trustee Trustee Trustee
------------------------------------------------------------------------------------------------
E.K. Easton Ragsdale,
Jr.
------------------------------------------------------------------------------------------------
Daniel J. Rice III
------------------------------------------------------------------------------------------------
Toby Rosenblatt Trustee Trustee Trustee Trustee
------------------------------------------------------------------------------------------------
</TABLE>
II-27
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
STATE STREET CAPITAL EQUITY EXCHANGE FINANCIAL GROWTH INCOME
RESEARCH: TRUST TRUST TRUST TRUST TRUST TRUST
TRUSTEES AND
PRINCIPAL
OFFICERS
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------------------
Michael S. Scott
Morton Trustee Trustee Trustee Trustee Trustee Trustee
---------------------------------------------------------------------------------------------------------------------------
Thomas A. Shively Vice President Vice
President
---------------------------------------------------------------------------------------------------------------------------
Tucker Walsh Vice President
---------------------------------------------------------------------------------------------------------------------------
James M. Weiss Vice President Vice President Vice President Vice President Vice Vice
President President
---------------------------------------------------------------------------------------------------------------------------
Elizabeth M.
Westvold
---------------------------------------------------------------------------------------------------------------------------
John T. Wilson Vice President
---------------------------------------------------------------------------------------------------------------------------
Kennard Woodworth, Vice President Vice President Vice
Jr. President
---------------------------------------------------------------------------------------------------------------------------
Peter A. Zuger Vice President
---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
------------------------------------------------------------------------------------------------
MASTER MONEY
STATE STREET INVESTMENT MARKET SECURITIES TAX-EXEMPT
RESEARCH: TRUST TRUST TRUST TRUST
TRUSTEES AND
PRINCIPAL
OFFICERS
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------
Michael S. Scott
Morton Trustee Trustee Trustee Trustee
------------------------------------------------------------------------------------------------
Thomas A. Shively Vice President Vice President Vice President
------------------------------------------------------------------------------------------------
Tucker Walsh
------------------------------------------------------------------------------------------------
James M. Weiss Vice Vice President
President
------------------------------------------------------------------------------------------------
Elizabeth M. Vice President
Westvold
------------------------------------------------------------------------------------------------
John T. Wilson Vice
President
------------------------------------------------------------------------------------------------
Kennard Woodworth, Vice President
Jr.
------------------------------------------------------------------------------------------------
Peter A. Zuger Vice President
------------------------------------------------------------------------------------------------
</TABLE>
II-28
<PAGE>
Additional information on the Trustees, Directors and principal officers of
the State Street Research Funds is provided below. The address for each person
is One Financial Center, Boston, Massachusetts 02111.
Bruce R. Bond: He is 54. During the past five years, Mr. Bond has also
served as Chairman of the Board, Chief Executive Officer and President of
PictureTel Corporation, Chief Executive Officer of ANS Communications (a
communications networking company) and as managing director of British
Telecommunications PLC.
*John R. Borzilleri, MD: He is 42 and his principal occupation is Senior
Vice President of the Investment Manager. During the past five years he has also
served as a Vice President of the Investment Manager, as a Vice President of
Montgomery Securities and as an equity analyst at Dean Witter.
*Paul J. Clifford, Jr.: He is 38 and his principal occupation is Senior
Vice President of the Investment Manager. During the past five years he has also
served as Vice President of the Investment Manager.
*Richard S. Davis: He is 55 and his principal occupation is Chairman of the
Board, President and Chief Executive Officer of the Investment Manager. During
the past five years he has also served as Senior Vice President, Fixed Income
Investments for Metropolitan Life Insurance Company and as Managing Director for
J.P. Morgan Investment Management. Mr. Davis's other principal business
affiliations include Chairman of the Board, President and Chief Executive
Officer of State Street Research Investment Services, Inc.
*Maureen Depp: She is 46 and her principal occupation is Vice President of
State Street Research & Management Company. During the past five years she has
also served as an analyst at Wellington Management.
*Catherine Dudley: She is 40 and her principal occupation is senior Vice
President of the Investment Manager. During the past five years she has also
served as a senior portfolio manager at Chancellor Capital Management.
*Bruce A. Ebel: He is 44 and his principal occupation is Senior Vice
President of the Investment Manager. During the past five years he has also
served as a Vice President and portfolio manager at Loomis, Sayles & Company,
L.P.
+Steve A. Garban: He is 62 and he is retired and was formerly Senior Vice
President for Finance and Operations and Treasurer of The Pennsylvania State
University. Mr. Garban is also a Director of Metropolitan Series Fund, Inc. (an
investment company).
*Lawrence J. Haverty, Jr.: He is 56 and his principal occupation is
currently, and during the past five years has been, Senior Vice President of the
Investment Manager.
II-29
<PAGE>
*F. Gardner Jackson, Jr.: He is 57 and his principal occupation is
currently, and during the past five years has been Senior Vice President of the
Investment Manager.
*John H. Kallis: He is 60 and his principal occupation is currently, and
during the past five years has been, Senior Vice President of the Investment
Manager.
*Dyann H. Kiessling: She is 37 and her principal occupation is Vice
President of the Investment Manager. During the past five years she has also
served as a fixed income trader for the Investment Manager.
*Rudolph K. Kluiber: He is 40 and his principal occupation currently is
Senior Vice President of the Investment Manager. During the past five years he
has also served as a Vice President of the Investment Manager.
*Gerard P. Maus: He is 49 and his principal occupation is currently, and
during the past five years has been, Executive Vice President, Treasurer, Chief
Financial Officer, Chief Administrative Officer and Director of the Investment
Manager. He also served as Interim Chief Operating Officer of the Investment
Manager for the period May 2000 through October 2000. Mr. Maus's other principal
business affiliations include Executive Vice President, Chief Financial Officer,
Chief Administrative Officer, Treasurer and Director of State Street Research
Investment Services, Inc.; Treasurer and Chief Financial Officer of SSRM
Holdings, Inc.; and Director of SSR Realty Advisors, Inc.
*Francis J. McNamara, III: He is 45 and his principal occupation is
Executive Vice President, General Counsel and Secretary of the Investment
Manager. During the past five years he has also served as Senior Vice President
of the Investment Manager. Mr. McNamara's other principal business affiliations
include Executive Vice President, General Counsel and Clerk of State Street
Research Investment Services, Inc.; and Secretary and General Counsel of SSRM
Holdings, Inc.
*Thomas P. Moore, Jr.: He is 62 and his principal occupation is
currently, and during the past five years has been, Senior Vice President of
the Investment Manager.
+Dean O. Morton: He is 68 and he is retired and was formerly Executive Vice
President, Chief Operating Officer and Director of Hewlett-Packard Company. Mr.
Morton is also a Director of Metropolitan Series Fund, Inc. (an investment
company).
+Susan M. Phillips: She is 56 and her principal occupation is currently
Dean of the School of Business and Public Management at George Washington
University and Professor of Finance. Previously, she was a member of the
Board of Governors of the Federal Reserve System and Chairman and
Commissioner of the Commodity Futures Trading Commission.
II-30
<PAGE>
*E.K. Easton Ragsdale, Jr.: He is 48 and his principal occupation is Senior
Vice President of the Investment Manager. During the past five years he has also
served as Vice President of the Investment Manager.
*Daniel J. Rice III: He is 49 and his principal occupation is currently,
and during the past five years has been, Senior Vice President of the Investment
Manager.
Toby Rosenblatt: He is 62 and his principal occupations during the past
five years have been President of Founders Investments Ltd. and President of The
Glen Ellen Company, a private investment company.
+Michael S. Scott Morton: He is 63 and 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. Dr. Scott Morton is
also a Director of Metropolitan Series Fund, Inc. (an investment company).
*Thomas A. Shively: He is 46 and his principal occupation is currently, and
during the past five years has been, Executive Vice President of the Investment
Manager. Mr. Shively is also a Director of the Investment Manager. Mr. Shively's
other principal business affiliations include Director of State Street Research
Investment Services, Inc.
*Tucker Walsh: He is 31 and his principal occupation is Vice President of
the Investment Manager. During the past five years he has also served as an
analyst for the Investment Manager and for Chilton Investment Partners and Cowen
Asset Management.
*James M. Weiss: He is 54 and his principal occupation is Executive Vice
President and Director of the Investment Manager. During the past five years he
has also served as Senior Vice President of the Investment Manager and as
President and Chief Investment Officer of IDS Equity Advisors.
*Elizabeth M. Westvold: She is 40 and her principal occupation is Senior
Vice President of the Investment Manager. During the past five years she has
also served as Vice President for the Investment Manager.
*John T. Wilson: He is 37 and his principal occupation is Senior Vice
President of the Investment Manager. During the past five years he has also
served as a Vice President of the Investment Manager, as an analyst and
portfolio manager at Phoenix Home Life Mutual Insurance Company and as a Vice
President of Phoenix Investment Counsel Inc.
*Kennard Woodworth, Jr.: He is 62 and his principal occupation is
currently, and during the past five years has been, Senior Vice President of the
Investment Manager.
II-31
<PAGE>
*Peter A. Zuger: He is 52. His principal occupation is Senior Vice
President of State Street Research & Management Company. During the past five
years he has also served as Vice President of American Century Investment
Management Company.
-----------------
* These Trustees and/or Officers are 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 Director of Metropolitan Series Fund, Inc., which has an
advisory relationship with the Investment Manager or its parent,
Metropolitan Life Insurance Company.
II-32
<PAGE>
D. INVESTMENT ADVISORY SERVICES
Under the provisions of each Trust's Master Trust Agreement and the laws of
Massachusetts, responsibility for the management and supervision of the Fund
rests with the Trustees.
State Street Research & Management Company, the Investment Manager, a
Delaware corporation, with offices at One Financial Center, Boston,
Massachusetts 02111-2690, acts as investment adviser to the Fund. The Investment
Manager was founded by Paul Cabot, Richard Saltonstall and Richard Paine to
serve as investment adviser to one of the nation's first mutual funds, presently
known as State Street Research Investment Trust, which they had formed in 1924.
Their investment management philosophy emphasized comprehensive fundamental
research and analysis, including meetings with the management of companies under
consideration for investment. The Investment Manager's portfolio management
group has extensive investment industry experience managing equity and debt
securities.
The Investment Manager is charged with the overall responsibility for
managing the investments and business affairs of each Fund, subject to the
authority of the Board of Trustees. Each Advisory Agreement provides that the
Investment Manager shall furnish the applicable Funds 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 each
Trust if such persons are employees of the Investment Manager or its affiliates.
The Investment Manager is an indirect wholly owned subsidiary of MetLife.
Each Advisory Agreement provides that it shall continue in effect with
respect to a Fund for a period of two years after its initial effectiveness and
will continue from year to year thereafter as long as it is approved at least
annually both (i) by a vote of a majority of the outstanding voting securities
of the Fund (as defined in the 1940 Act) or by the Trustees of the Trust, and
(ii) in either event by a vote of a majority of the Trustees who are not parties
to the Advisory Agreement or "interested persons" of any party thereto, cast in
person at a meeting called for the purpose of voting on such approval. The
Advisory Agreement may be terminated on 60 days' written notice by either party
and will terminate automatically in the event of its assignment, as defined
under the 1940 Act and regulations thereunder. Such regulations provide that a
transaction which does not result in a change of actual control or management of
an adviser is not deemed an assignment.
Information about rates at which fees are calculated under the Advisory
Agreement with respect to the Funds identified on the cover page of the
Statement of Additional Information, as well as the fees paid to the Investment
Manager in previous years, if applicable, is included in Section I of this
Statement of Additional Information.
The Fund, the Investment Manager, and the Distributor have adopted a Code
of Ethics pursuant to the requirements of the 1940 Act. Under the Code of
Ethics, personnel are only
II-33
<PAGE>
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. Transactions in
securities that may be held by the Fund are permitted, subject to compliance
with applicable provisions of the Code. Personal securities transactions must be
reported quarterly and broker confirmations of such transactions must be
provided for review.
E. PURCHASE AND REDEMPTION OF SHARES
Shares of each Fund are distributed by State Street Research Investment
Services, Inc., the Distributor. Class A, Class B(1), Class B, Class C and Class
S shares of the Fund 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(1), Class
B and Class C shares). Class B shares are available only to current Class B
shareholders through reinvestment of dividends and capital gains distributions
or through exchanges from existing Class B accounts of the State Street Research
Funds. General information on how to buy shares of the Fund, as well as sales
charges involved, are set forth under "Your Investment" 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, but not later than 4 p.m. eastern time, 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 broker-dealer,
that broker-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 broker-dealer's failure to
transmit an order promptly is a matter for settlement between the investor and
the broker-dealer. Under certain pre-established operational arrangements, the
price may be determined as of the time the order is received by the
broker-dealer or its designee.
ALTERNATIVE PURCHASE PROGRAM. Alternative classes of shares permit
investors to select a purchase program which they believe will be the most
advantageous for them, given the amount of their purchase, the length of time
they anticipate holding Fund shares, or the flexibility they desire in this
regard, and other relevant circumstances. Investors will be able to determine
whether in their particular circumstances it is more advantageous to incur an
initial sales charge and not be subject to certain ongoing charges or to have
their entire purchase price invested in the Fund with the investment being
subject thereafter to ongoing service fees and distribution fees.
II-34
<PAGE>
As described in greater detail below, financial professionals are paid
differing amounts of compensation depending on which class of shares they sell.
II-35
<PAGE>
The major differences among the various classes of shares are as follows:
<TABLE>
<CAPTION>
------------------------ ------------------ -------------------- ------------------- ------------------ ------------
CLASS A CLASS B(1) CLASS B CLASS C CLASS S
------- ---------- ------- ------- -------
------------------ -------------------- ------------------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
SALES CHARGES PAID BY Initial sales Contingent Contingent Contingent None
INVESTOR TO DISTRIBUTOR charge at time deferred sales deferred sales deferred sales
of investment of charge of 5% to 1% charge of 5% to charge of 1%
up to 5.75%* applies to any 2% applies to any applies to any
depending on shares redeemed shares redeemed shares redeemed
amount of within first six within first five within one year
investment years following years following following their
their purchase; no their purchase; purchase
contingent no contingent
deferred sales deferred sales
charge after six charge after five
years years
------------------------ ------------------ -------------------- ------------------- ------------------ ------------
On investments of
$1 million or
more, no initial
sales charge; but
contingent
deferred sales
charge of up to 1%
may apply to any
shares redeemed
within one year
following their
purchase
------------------------ ------------------ -------------------- ------------------- ------------------ ------------
INITIAL COMMISSION Above described 4% 4% 1% None
PAID BY DISTRIBUTOR TO initial sales
FINANCIAL PROFESSIONAL charge less
0.25% to 0.75%
retained by
distributor
On investments
of $1 million or
more, 0.25% to
1% paid to
dealer by
Distributor
------------------------ ------------------ -------------------- ------------------- ------------------ ------------
RULE 12b-1 SERVICE FEE
------------------------ ------------------ -------------------- ------------------- ------------------ ------------
PAID BY FUND TO
DISTRIBUTOR 0.25% each year 0.25% each year 0.25% each year 0.25% each year None
------------------------ ------------------ -------------------- ------------------- ------------------ ------------
PAID BY 0.25% each year 0.25% each year 0.25% each year 0.25% each year None
DISTRIBUTOR TO commencing after commencing after commencing after
FINANCIAL one year following one year one year
PROFESSIONAL purchase following purchase following purchase
------------------------ ------------------ -------------------- ------------------- ------------------ ------------
RULE 12b-1
DISTRIBUTION FEE
------------------------ ------------------ -------------------- ------------------- ------------------ ------------
PAID BY FUND TO Up to 0.15% each 0.75% for first 0.75% for first 0.75% each year None
DISTRIBUTOR year eight years; Class eight years;
B(1) shares convert Class B shares
automatically to convert
Class A shares automatically to
after eight years Class A shares
after eight years
------------------------ ------------------ -------------------- ------------------- ------------------ ------------
PAID BY Up to 0.15% each None None 0.75% each year None
DISTRIBUTOR TO year commencing after
FINANCIAL one year
PROFESSIONAL following
purchase
------------------------ ------------------ -------------------- ------------------- ------------------ ------------
</TABLE>
-----------------
* or up to 4.50% for State Street Research Government Income Fund, State Street
Research High Income Fund, State Street Research Strategic Income Fund, State
Street Research Tax-Exempt Fund and State Street Research New York Tax Free
Fund.
II-36
<PAGE>
CLASS A SHARES--REDUCED SALES CHARGES. The reduced sales charges set forth
under "Your Investment--Choosing a Share Class" in the 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.
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(1), 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
II-37
<PAGE>
herein as eligible to join with the investor in a single purchase.
Class B(1), 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 a sales
charge pursuant to certain sponsored arrangements for designated classes of
investors. These arrangements include programs sponsored by the Distributor or
others under which, for example, a company, employee benefit plan or other
organization makes recommendations to, or permits group solicitation of, its
employees, members or participants to purchase Fund shares. (These arrangements
are not available to any organization created primarily for the purpose of
obtaining shares of the Fund at a reduced sales charge or without a sales
charge.) Sponsored arrangements may be established for non-profit organizations,
holders of individual retirement accounts or participants in limited promotional
campaigns, such as a special offering to shareholders of funds in other
complexes that may be liquidating. 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 by the Distributor. Information on such arrangements and further
conditions and limitations is available from the Distributor.
The entire sales charge on Class A shares may be reallowed to financial
professionals who sell shares during certain special promotional periods which
may be instituted from time to time. The Fund reserves the right to have such
promotions without further supplement to the Prospectus or Statement of
Additional Information. The financial professionals who receive the entire sales
charge may be deemed to be underwriters of the Fund's shares under the
Securities Act of 1933 during such promotions.
In addition, no sales charge is imposed in connection with the sale of
Class A shares of the Fund to the following entities and persons: (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; (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; and (D)
others who because of their business relationship with the Fund, the Distributor
or its affiliates, and because of their knowledge of the Fund, do not require
any significant sales effort or expense to educate them about the Fund. 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
II-38
<PAGE>
administrative policies, regarding the qualification of purchasers, minimum
investments by various groups and any other matters, as may be adopted by the
Distributor from time to time.
CONVERSION OF CLASS B(1) AND CLASS B SHARES TO CLASS A SHARES. A
shareholder's Class B(1) and 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(1) or Class B shares; consequently, they
will no longer be subject to the higher expenses borne by Class B(1) and 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(1)
or Class B shares so converted. As noted above, holding periods for Class B(1)
shares received in exchange for Class B(1) shares of other Eligible Funds and
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(1), 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(1) and 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(1) and Class B shares and receive in lieu
thereof an annual fee, usually 1%, with respect to such outstanding 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(1),
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(1), 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(1) shares that are redeemed within a
six-year period after purchase, 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
II-39
<PAGE>
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(1), 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. The contingent
deferred sales charge will be waived for participant initiated distributions
from State Street Research prototype employee retirement plans. 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 waive the contingent deferred sales charge on any class,
or modify or terminate any waivers, at any time. The Fund may limit the
application of multiple waivers and establish other conditions for employee
benefit plans. Certain employee benefit plans sponsored by a financial
professional may be subject to other conditions for waivers under which the
plans may initially invest in Class B(1) or Class B shares and then Class A
shares of certain funds upon meeting specific criteria. No contingent
deferred sales charges apply to shares held by MetLife, the Investment
Manager or the Distributor.
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
MetLife, 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. For
information on different conditions that may apply to certain Funds, see Section
I for the relevant Fund.
In the discretion of the Distributor, Class S shares may be made available
to (a) current and former employees, officers and directors of the Investment
Manager and Distributor; (b) current and former directors or trustees of the
investment companies for
II-40
<PAGE>
which the Investment Manager serves as the primary investment adviser; and (c)
relatives of any such individuals, provided that the relationship is directly
verified by such individuals to the Distributor, and any beneficial account for
such relatives or individuals. Class A shares acquired by such individuals and
relatives may, in the discretion of the Distributor, be converted into Class S
shares. 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.
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.
IN-KIND PURCHASE OPTION. In the discretion of the Investment Manager,
shares of the Fund may be offered for purchase partly or entirely in exchange
for securities. This option is available only in very limited circumstances. The
Investment Manager will not approve the acceptance of any securities in exchange
for Fund shares unless it believes the securities are appropriate investments
for the Fund.
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(1), 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 12% annually
(minimum $50 per withdrawal) 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
II-41
<PAGE>
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 Investment--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
broker-dealers by wire or telephone for the repurchase of shares by the
Distributor from the broker-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 broker-dealer to the Distributor. The
broker-dealer is responsible for promptly transmitting a shareholder's order to
the Distributor. Under certain pre-established operational arrangements, the
price may be determined as of the time the order is received by the
broker-dealer or its designee.
SIGNATURE GUARANTEES. Signature guarantees are required for, among other
things: (1) written requests for redemptions for more than $100,000; (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; (4) requests to transfer the registration
of shares to another owner; and (5) if checkwriting is available for the
account, authorizations to establish the checkwriting privilege. 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.
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F. SHAREHOLDER ACCOUNTS
General information on shareholder accounts is included in the Fund's
Prospectus under "Your Investment." 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 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. Share certificates will not be issued. Shareholders
will receive periodic statements of transactions in their accounts.
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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.
EXCHANGE PRIVILEGES. Shareholders of the Fund may exchange their shares for
available shares with corresponding characteristics of any of the other Eligible
Funds on the basis of the relative net asset values of the respective shares to
be exchanged, and 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(1), 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. Class A shares acquired through a new investment after January 1,
1999, are subject to an incremental sales charge if exchanged within 30 days of
acquisition for Class A shares of a Fund with a
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higher applicable sales charge. For purposes of computing the contingent
deferred sales charge that may be payable upon disposition of any acquired Class
A, Class B(1), 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(1), 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 Investment--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
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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. The exchange limit may also be modified
under certain exchange arrangements for selected brokers with substantial asset
allocation programs. 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.
TELEPHONE AND INTERNET PRIVILEGES. The following privileges are available:
- TELEPHONE EXCHANGE AND REDEMPTION PRIVILEGE
- Shareholders automatically receive this privilege unless
declined.
- This privilege allows a shareholder or any person claiming to act
as the shareholder's representative to request exchanges into
other State Street Research funds or make redemptions.
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- INTERNET PRIVILEGE FOR SHAREHOLDER
- Shareholders may access the Fund's Web site to enter transactions
and for other purposes, subject to acceptance of the important
conditions set forth on the Web site.
A shareholder with the above privileges is deemed to authorize the Fund's
agents to: (1) act upon the telephone instructions of any person purporting to
be any of the shareholders of an account or a shareholder's financial
professional; (2) act upon the Internet instructions of any person purporting to
be any of the shareholders of an account; and (3) honor any telephone or
Internet instructions for a change of address. All telephone calls will be
recorded. Neither the Fund, any other State Street Research Fund, the Investment
Manager, the Distributor, nor any of their agents 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 or Internet requests may be unauthorized. Reasonable
procedures will be followed to confirm that instructions communicated by
telephone or Internet 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 A 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.
G. NET ASSET VALUE
The net asset value of the shares of each Fund is determined once daily as
of the close of regular trading on the NYSE, but not later than 4 P.M. eastern
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, Martin
Luther King, Jr. Day, Presidents Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
The net asset value per share of each Fund is computed by dividing the sum
of the value of the securities held by the Fund plus any cash or other assets
minus all liabilities by the total number of outstanding shares of the Fund at
such time. Any expenses, except for extraordinary or nonrecurring expenses,
borne by the Fund, including the investment management fee payable to the
Investment Manager, are accrued daily.
In determining the values of portfolio assets as provided below, the
Trustees 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
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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 authorized by the Trustees. The Trustees also reserve the right to
adopt other valuations based on fair value in pricing in unusual circumstances
where use of other methods as discussed in part above, could otherwise have a
material adverse effect on the Fund as a whole.
The Trustees have authorized the use of the amortized cost method to value
short-term debt instruments issued with a maturity of one year or less and
having a remaining maturity of 60 days or less when the value obtained is fair
value, provided that during any period in which more than 25% 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.
H. PORTFOLIO TRANSACTIONS
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).
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<PAGE>
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 by the
Investment Manager to services other than execution services which certain of
such firms have provided in the past or may provide in the future. Negotiated
commission rates and prices, however, are based upon the Investment Manager's
judgment of the rate which reflects the execution requirements of the
transaction without regard to whether the broker provides services in addition
to execution. Among such other services are the supplying of supplemental
investment research; general economic, political and business information;
analytical and statistical data; relevant market information, quotation
equipment and services; reports and information about specific companies,
industries and securities; purchase and sale recommendations for stocks and
bonds; portfolio strategy services; historical statistical information; market
data services providing information on specific issues and prices; financial
publications; proxy voting data and analysis services; technical analysis of
various aspects of the securities markets, including technical charts; computer
hardware used for brokerage and research purposes; computer software and
databases (including those contained in certain trading systems and used for
portfolio analysis and modeling and also including software providing investment
personnel with efficient access to current and historical data from a variety of
internal and external sources) and portfolio evaluation services and relative
performance of accounts.
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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 regularly reviews and evaluates the services
furnished by broker-dealers. The Investment Manager's investment management
personnel seek to evaluate the quality of the research and other services
provided by various broker-dealer firms, and the results of these efforts are
made available to the equity trading department, which uses this information as
consideration to the extent described above in the selection of brokers to
execute portfolio transactions.
Some services furnished by broker-dealers may be used for research and
investment decision-making purposes, and also for marketing or administrative
purposes. Under these circumstances, the Investment Manager allocates the cost
of the services to determine the proportion which is allocable to research or
investment decision-making and the proportion allocable to other purposes. The
Investment Manager pays directly from its own funds for that portion allocable
to uses other than research or investment decision-making. Some research and
execution services may benefit the Investment Manager's clients as a whole,
while others may benefit a specific segment of clients. Not all such services
will necessarily be used exclusively in connection with the accounts which pay
the commissions to the broker-dealer providing the services.
The Investment Manager has no fixed agreements or understandings with any
broker-dealer as to the amount of brokerage business which the firm may expect
to receive for services supplied to the Investment Manager or otherwise. There
may be, however, understandings with certain firms that in order for such firms
to be able to continuously supply certain services, they need to receive an
allocation of a specified amount of brokerage business. These understandings are
honored to the extent possible in accordance with the policies set forth above.
It is not the Investment Manager's policy to intentionally pay a firm a
brokerage commission higher than that which another firm would charge for
handling the same transaction in recognition of services (other than execution
services) provided. However, the Investment Manager is aware that this is an
area where differences of opinion as to fact and circumstances may exist, and in
such circumstances, if any, the Investment Manager relies on the provisions of
Section 28(e) of the Securities Exchange Act of 1934.
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In the case of the purchase of fixed income securities in underwriting
transactions, the Investment Manager follows any instructions received from its
clients as to the allocation of new issue discounts, selling commissions and
designations to brokers or dealers which provide the client with research,
performance evaluation, master trustee and other services. In the absence of
instructions from the client, the Investment Manager may make such allocations
to broker-dealers which have provided the Investment Manager with research and
brokerage services.
In some instances, certain clients of the Investment Manager request it to
place all or part of the orders for their account with certain brokers or
dealers, which in some cases provide services to those clients. The Investment
Manager generally agrees to honor these requests to the extent practicable.
Clients may request that the Investment Manager only effect transactions with
the specified broker-dealers if the broker-dealers are competitive as to price
and execution. Where the request is not so conditioned, the Investment Manager
may be unable to negotiate commissions or obtain volume discounts or best
execution. In cases where the Investment Manager is requested to use a
particular broker-dealer, different commissions may be charged to clients making
the requests. A client who requests the use of a particular broker-dealer should
understand that it may lose the possible advantage which non-requesting clients
derive from aggregation of orders for several clients as a single transaction
for the purchase or sale of a particular security. Among other reasons why best
execution may not be achieved with directed brokerage is that, in an effort to
achieve orderly execution of transactions, execution of orders that have
designated particular brokers may, at the discretion of the trading desk, be
delayed until execution of other non-designated orders has been completed.
When more than one client of the Investment Manager is seeking to buy or
sell the same security, the sale or purchase is carried out in a manner which is
considered fair and equitable to all accounts. In allocating investments among
various clients (including in what sequence orders for trades are placed), the
Investment Manager will use its best business judgment and will take into
account such factors as the investment objectives of the clients, the amount of
investment funds available to each, the size of the order, the relative sizes of
the accounts, 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.
In addition, when the Investment Manager is seeking to buy or sell the same
security on behalf of more than one client at approximately the same time, 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. Although
sharing large transactions may sometimes affect price or volume of shares
acquired or sold, the Investment Manager believes that grouping orders generally
provide an advantage in execution. Where an aggregate order is executed in a
series of transactions at various prices on a given day, each participating
account's proportionate share of such order will reflect the average price paid
or received with respect to the total order. The Investment Manager may decide
not to group orders,
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however, 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 interest 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 overall execution (including transactions costs) relative
to other clients.
The Investment Manager has developed certain internal policies governing
its short sale trading activities, including prior notification in certain
circumstances to portfolio managers of accounts holding long positions in the
same security. Generally, however, sales of long positions will take precedence
over short sales, regardless of the order in which the trade orders are
received.
Subject to the policy of seeking best overall price and execution as stated
above, sales of shares of investment companies under the Investment Manager's
management may be considered by the Investment Manager in the selection of
broker or dealer firms to execute portfolio transactions for investment
companies under its management.
I. CERTAIN TAX MATTERS
FEDERAL INCOME TAXATION OF THE FUND--IN GENERAL
The Fund intends to qualify and elects to be treated each taxable year as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"), although it cannot give complete assurance
that it will qualify to do so. Accordingly, 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"); and (b) satisfy certain
diversification requirements on a quarterly basis.
If in any year the Fund derives more than 10% of its gross income (as
defined in the Code, which disregards losses for that purpose) from investments
made directly in commodities, including precious metal investments, or
commodity-related options, futures or indices, the Fund in such year may fail to
qualify as a regulated investment company under the Code. The Investment Manager
intends to manage the Fund's portfolio so as to minimize the risk of such a
disqualification.
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
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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 on a timely basis in accordance with a calendar year distribution
requirement. To avoid the tax, during each calendar year the Fund must
distribute 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.
TAXATION OF THE FUND'S INVESTMENTS
ORIGINAL ISSUE DISCOUNT; MARKET 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
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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, and require
inclusion of unrealized gains in the Fund's income for the purposes of the
excise tax and the distribution requirements applicable to regulated investment
companies; (ii) defer recognition of realized losses; and (iii) characterize
both realized and unrealized gain or loss as short-term and long-term gain,
irrespective of the holding period of the investment. Such provisions generally
apply to, among other investments, options on debt securities, indices on
securities and futures contracts. The Fund will monitor its transactions and may
make certain tax elections available to it in order to mitigate the impact of
these rules and prevent disqualification of the Fund as a regulated investment
company.
Gains or losses attributable to foreign currency contracts or fluctuations
in exchange rates that occur between the time the Fund accrues income or
expenses denominated in a foreign currency and the time the Fund actually
collects such income or pays such expenses are treated as ordinary income or
loss. The portion of any gain or loss on the disposition of a debt security
denominated in a foreign currency that is attributable to fluctuations in the
value of the foreign currency during the holding period of the debt security
will likewise be treated as ordinary income or loss. Such ordinary income or
loss will increase or decrease the amount of the Fund's net investment income.
If the Fund invests in the stock of certain "passive foreign investment
companies" ("PFICs"), the income of such companies may become taxable to the
Fund prior to its distribution to the Fund or, alternatively, ordinary income
taxes and interest charges may be imposed on the Fund on "excess distributions"
received by the Fund or on gain from the disposition of such investments by the
Fund. Alternatively, if the stock of a PFIC is marketable, the Fund may elect to
mark the stock of the PFIC to market annually, and to recognize gain or loss of
the appreciation or depreciation in the stock. Any gain so recognized would be
treated as ordinary income, and a loss would be recognized and treated as an
ordinary deduction to the extent of any prior, unreversed amounts of gain
recognized with respect to that stock. The Fund does not intend to invest in
PFICs. Because of the broad scope of the PFIC rules, however, there can be no
assurance that the Fund can avoid doing so.
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<PAGE>
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.
The Fund may be subject to foreign taxes, including foreign income taxes.
If so, the Fund intends to meet the requirements of the Code for passing through
to its shareholders the tax benefit of foreign income taxes paid, although there
is no assurance that it will be able to do so. Under this provision, if more
than half of the value of the total assets of the Fund at the close of its
taxable year consists of stock or securities of foreign corporations, the fund
will be eligible and intends to elect to pass through to its shareholders the
amount of foreign taxes it paid if such amounts are material. Pursuant to this
election, a United States shareholder will, in general, be required to (i)
include in gross income, in addition to taxable distributions actually received,
his or her pro rata share of the foreign taxes paid by the Fund, (ii) treat that
share of taxes as having been paid directly by him or her, and (iii) either
deduct such share of taxes or treat such share of taxes as a credit against
United State income tax liability. A tax-exempt shareholder will ordinarily not
benefit from this election.
Generally, a credit for foreign taxes paid by the Fund may not exceed a
shareholder's United States income tax attributable to the shareholder's foreign
source income. This limitation applies separately to different categories of
income, one of which is a foreign-source passive income, which is likely to
include all of the foreign-source income of the Fund. As a result of these
limitations, some shareholders may not be able to utilize fully any foreign tax
credits generated by an investment in the Fund. In addition, holding period
requirements apply so that, generally, the shareholder will be unable to take a
tax credit for any foreign withholding tax on a dividend payment unless (a) the
Fund held the stock in the foreign corporation for more than 15 days during the
30-day period beginning on the date that the stock becomes ex-dividend with
respect to the dividend on which the withholding tax is paid and (b) the
shareholder held his or her shares in the Fund during the same period. In the
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<PAGE>
case of certain preference dividends on foreign stock, the 15-day and 30-day
periods are extended to 45 days and 90 days, respectively. Shareholders also
will be unable to claim a credit for foreign withholding taxes on dividends if
the Fund has entered into certain hedging transactions with respect to the stock
of the foreign corporation. Shareholders may take a deduction to the extent of
any tax credits disallowed under the holding period and hedging rules. The Fund
will provide its shareholders with information about the source of its income
and the foreign taxes it has paid for use in preparing the shareholder's United
States income tax returns, including information about withholding taxes for
which a tax credit could be denied to the Fund under the holding period and
hedging rules described above.
The foregoing discussion of United States federal income tax law relates
solely to the application of that law to United States persons, that is, United
States citizens and residents and United States corporations, partnerships,
trusts and estates. Each shareholder who is not a United States person should
consider the United States and foreign tax consequences of ownership of shares
of the Fund, including the possibility that such a shareholder may be subject to
United States withholding tax at a rate of up to 30% (or at a lower rate under
applicable treaty) on distributions from the Fund.
Shareholders should consult their tax advisers about the application of the
provisions of tax law described in this Statement of Additional Information in
light of their particular tax situations.
J. DISTRIBUTION OF FUND SHARES
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 broker-dealers who have entered into sales agreements with the
Distributor. The Fund has authorized certain broker-dealers to receive on its
behalf purchase and redemption orders, and such broker-dealers are authorized to
designate other intermediaries to receive orders on the Fund's behalf. The Fund
will be deemed to have received a purchase or redemption order when such
broker-dealer, or, if applicable, the broker-dealer's designee, receives the
order. In such case, orders will be priced at the Fund's net asset value next
computed after the orders are received by an authorized broker-dealer or its
designee. 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(1), Class B and Class C shares). The
Distributor may reallow all or portions of such sales charges as concessions to
broker-dealers. The Distributor may also pay its affiliate MetLife Securities,
Inc. additional sales compensation of up to 0.25% of certain sales or assets.
The differences in the price at which the Fund's Class A shares are
offered due to scheduled variations in sales charges, or Class S shares are
offered, as described in the
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<PAGE>
Fund's Prospectus, result from cost savings inherent in economies of scale,
among other factors. 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 special
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 may pay the authorized securities dealer
making such sale a commission based on the aggregate of such sales. Such
commission may also be paid 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 up to 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.
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<PAGE>
PLAN(S) OF DISTRIBUTION PURSUANT TO RULE 12b-1
The Fund may have one or more Distribution Plans under Rule 12b-1, as set
forth in Section I of this Statement of Additional Information for the Fund.
Under the Fund's Distribution Plans, the Fund may engage, directly or
indirectly, in financing any activities primarily intended to result in the sale
of shares, including, but not limited to, (1) the payment of commissions to
underwriters, securities dealers and others engaged in the sale of shares,
including payments to the Distributor to be used to pay commissions to
securities dealers (which securities dealers may be affiliates of the
Distributor), (2) expenditures incurred by the Distributor in connection with
the distribution and marketing of shares and the servicing of investor accounts,
and (3) expenses incurred by the Distributor in connection with the servicing of
shareholder accounts including payments to securities dealers and others for the
provision of personal service to investors and/or the maintenance or servicing
of shareholder accounts. In addition, the Distribution Plans authorize the
Distributor and the Investment Manager to make payments out of management fees,
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 an indirect financing of any activity primarily
resulting in the sale of shares of the Fund within the scope of Rule 12b-1 under
the 1940 Act. Payments by the Fund under the Distribution Plan may be
discontinued at any time. The Distributor may also voluntarily waive receipt of
payments from the Fund from time to time.
A rule of the National Association of Securities Dealers, Inc. ("NASD")
limits annual expenditures that the Fund may incur to 0.75% for distribution
expenses and 0.25% for 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 the
service fees.
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. The distribution fees are used primarily
to offset initial and ongoing commissions paid to dealers for selling such
shares and for other sales and marketing expenditures. Dealers who have sold
Class A shares are eligible for ongoing payments commencing as of the time of
such sale. Dealers who have sold Class B(1), Class B and Class C shares are
eligible for ongoing payments 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).
The Distributor provides distribution services on behalf of other funds
having distribution plans and receives similar payments from, and incurs similar
expenses on behalf
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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.
The payment of service and distribution fees may continue even if the Fund
ceases, temporarily or permanently, to sell one or more classes of shares to new
accounts. During the period the Fund is closed to new accounts, the distribution
fee will not be used for promotion expenses. The service and distribution fees
are used during a closed period to cover services provided to current
shareholders and to cover the compensation of financial professionals in
connection with the prior sale of Fund shares, among other non-promotional
distribution expenditures.
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.
No interested Trustee of the Trust has any direct or indirect financial
interest in the operation of the Distribution Plans. The Distributor's interest
in the Distribution Plans is described above.
K. 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(1), 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 Index and Dow Jones Industrial Average and/or to appropriate
rankings and averages such as those compiled by Lipper Analytical Services,
Inc., Morningstar, Inc., Money Magazine, Business Week, Forbes Magazine, The
Wall Street Journal and Investor's Daily.
The average annual total return ("standard total return") of the Class A,
Class B(1), Class B, Class C and Class S shares of each Fund will be calculated
as set forth below. Total return is computed separately for each class of shares
of the Fund.
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<PAGE>
TOTAL RETURN
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:
n
P(1+T) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end
of the designated period assuming
a hypothetical $1,000 payment made
at the beginning of the designated
period
The calculation is based on the further assumptions that the highest
applicable initial or contingent deferred sales charge is deducted, and that all
dividends and distributions by the Fund are reinvested at net asset value on the
reinvestment dates during the periods. All accrued expenses and recurring
charges are also taken into account as described later herein.
YIELD
Yield for each class of the Fund's shares is computed by dividing the net
investment income per share earned during a recent month or other specified
30-day period by the maximum offering price per share on the last day of the
period and annualizing the result in accordance with the following formula:
6
YIELD = 2[(a-b + 1) -1]
---
cd
Where a= dividends and interest earned during the period
b= expenses accrued for the period (net of voluntary
expense reductions by the Investment Manager)
c= the average daily number of shares outstanding
during the period that were entitled to receive
dividends
d= the maximum offering price per share on the last day
of the period
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<PAGE>
To calculate interest earned (for the purpose of "a" above) on debt
obligations, the Fund computes the yield to effective maturity of each
obligation held by the Fund based on the market value of the obligation
(including actual accrued interest) at the close of the last business day of the
preceding period, or, with respect to obligations purchased during the period,
the purchase price (plus actual accrued interest). The yield to effective
maturity is then divided by 360 and the quotient is multiplied by the market
value of the obligation (including actual accrued interest) to determine the
interest income on the obligation for each day of the period that the obligation
is in the portfolio. Dividend income is recognized daily based on published
rates.
With respect to the treatment of discount and premium on mortgage or other
receivables-backed obligations which are expected to be subject to monthly
payments of principal and interest ("paydowns"), the Fund accounts for gain or
loss attributable to actual monthly paydowns as a realized capital gain or loss
during the period. The Fund has elected not to amortize discount or premium on
such securities.
Undeclared earned income, computed in accordance with generally accepted
accounting principles, may be subtracted from the maximum offering price.
Undeclared earned income is the net investment income which, at the end of the
base period, has not been declared as a dividend, but is reasonably expected to
be declared as a dividend shortly thereafter. The maximum offering price
includes the maximum applicable sales charge.
All accrued expenses are taken into account as described later herein.
Yield information is useful in reviewing the Fund's performance, but
because yields fluctuate, such information cannot necessarily be used to compare
an investment in the Fund's shares with bank deposits, savings accounts and
similar investment alternatives which often are insured and/or provide an agreed
or guaranteed fixed yield for a stated period of time. Shareholders should
remember that yield is a function of the kind and quality of the instruments in
the Fund's portfolio, portfolio maturity and operating expenses and market
conditions.
ACCRUED EXPENSES AND RECURRING CHARGES
Accrued expenses include all recurring charges that are charged to all
shareholder accounts 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. Subsidization can include the
Investment Manager's waiver of a portion of its advisory fee, the Distributor's
waiver of a portion of its Rule 12b-1
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<PAGE>
fee, or the assumption of a portion of the Fund's expenses by either of them or
their affiliates. In the absence of such subsidization, the performance of the
Fund would have been lower.
NONSTANDARDIZED TOTAL RETURN
Each Fund may provide the above described standard total return results for
Class A, Class B(1), 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 (or the commencement of
the Fund's operations, whichever is earlier). 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, if any, may not be taken into account and therefore not
deducted from the hypothetical initial payment of $1,000.
DISTRIBUTION RATES
Each Fund may also quote its distribution rate for each class of shares.
The distribution rate is calculated by annualizing the latest per-share
distribution from ordinary income and dividing the result by the offering price
per share as of the end of the period to which the distribution relates. A
distribution can include gross investment income from debt obligations purchased
at a premium and in effect include a portion of the premium paid. A distribution
can also include nonrecurring, gross short-term capital gains without
recognition of any unrealized capital losses. Further, a distribution can
include income from the sale of options by the Fund even though such option
income is not considered investment income under generally accepted accounting
principles.
Because a distribution can include such premiums, capital gains and option
income, the amount of the distribution may be susceptible to control by the
Investment Manager through transactions designed to increase the amount of such
items. Also, because the distribution rate is calculated in part by dividing the
latest distribution by the offering price, which is based on net asset value
plus any applicable sales charge, the distribution rate will increase as the net
asset value declines. A distribution rate can be greater than the yield rate
calculated as described above.
L. CUSTODIAN
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is the custodian for Fund assets. 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 each Fund's investments.
State Street Bank and Trust Company is not an affiliate of the Investment
Manager or its affiliates.
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<PAGE>
M. INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts
02110, serves as the Trusts' independent accountants, providing professional
services including (1) audits of each 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 each Fund.
N. FINANCIAL REPORTS
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.
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<PAGE>
PART C
OTHER INFORMATION
-----------------
Item 23: Exhibits
(1)(a) First Amended and Restated Master Trust Agreement, Amendment
No. 1 and Amendment No. 2 (6)
(1)(b) Amendment No. 3 to First Amended and Restated Master Trust
Agreement (7)
(1)(c) Amendment No. 4 to First Amended and Restated Master Trust
Agreement (8)
(1)(d) Amendment No. 5 to First Amended and Restated Master Trust
Agreement (9)
(1)(e) Amendment No. 6 to First Amended and Restated Master Trust
Agreement (11)
(1)(f) Form of Amendment No. 7 to First Amended and Restated Master
Trust Agreement (12)
(2)(a) By-Laws of the Registrant (1)**
(2)(b) Amendment No. 1 to By-Laws, effective September 30, 1992
(3)**
(3) Not Applicable
(4)(a) Deleted.
(4)(b) Deleted.
(5)(a) Investment Advisory Contract with respect to State Street
Capital Fund (1)**
(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 (6)
(6)(a) Distribution Agreement with State Street Research Investment
Services, Inc. (4)**
(6)(b) Form of Selected Dealer Agreement, as Supplemented (8)
(6)(c) Form of Bank and Bank-Affiliated Broker-Dealer Agreement
(5)**
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<PAGE>
(6)(d) Letter Agreement with respect to the Distribution Agreement
relating to State Street Research Small Capitalization
Value Fund (6)
(7) Not Applicable
(8)(a) Custodian Contract (1)**
(8)(c) Letter Agreement with respect to the Custodian Contract
relating to State Street Small Capitalization Growth Fund
(3)**
(8)(d) Letter Agreement with respect to the Custodian Contract
relating to State Street Research Small Capitalization Value
Fund (6)
(8)(e) Data Access Services Addendum to Custodian Agreement (11)
(8)(f) Amendment to Custodian Contract
(9) Agreement and Plan of Reorganization and Liquidation (1)**
(10)(a) Consent and Opinion of counsel on legality of shares being
issued with respect to State Street Capital Fund (3)**
(10)(b) Consent and Opinion of counsel on legality of shares being
issued with respect to State Street Small Capitalization
Growth Fund (2)**
(10)(c) Consent and Opinion of counsel on legality of shares being
issued with respect to MetLife - State Street Research Small
Capitalization Value Fund (5)**
(11) Consent of PricewaterhouseCoopers LLP
(12) Not Applicable
(13)(a) Subscription and Investment Letters -- State Street Small
Capitalization Growth Fund (3)**
(13)(b) Subscription and Investment Letters -- State Street Research
Small Capitalization Value Fund (6)
(14)(a) Deleted
C-2
<PAGE>
(14)(b) Deleted
(14)(c) Deleted
(15)(a) Plan of Distribution Pursuant to Rule 12b-1 with respect to
State Street Research Capital Fund (5)**
(15)(b) Letter Agreement with respect to Plan of Distribution
Pursuant to Rule 12b-1 relating to State Street Research
Small Capitalization Growth Fund (4)**
(15)(c) Letter Agreement with respect to Plan of Distribution
Pursuant to Rule 12b-1 relating to State Street Research
Small Capitalization Value Fund (6)
(15)(d) Rule 12b-1 Plan for Class B(1) Shares (11)
(16)(a) Deleted
(16)(b) Deleted
(17)(a) First Amended and Restated Multiple Class Expense Allocation
Plan Adopted Pursuant to Rule 18f-3 (8)
(17)(b) Addendum to First Amended and Restated Multiple Class
Expense Allocation Plan (10)
(18)(a) Powers of Attorney (9)
(18)(b) Certificate of Board Resolution Respecting Powers of
Attorney (9)
(18)(c) Power of Attorney for Susan M. Phillips (10)
(18)(d) Certificate of Board Resolution Respecting Power of Attorney
for Susan M. Phillips (10)
(18)(e) Power of Attorney for Bruce R. Bond (11)
(18)(f) Certificate of Board Resolution Respecting Power of
Attorney for Bruce R. Bond (11)
(18)(g) Power of Attorney for Richard S. Davis
(18)(h) Certificate of Board Resolution Respecting Power of
Attorney for Richard S. Davis
(19)(a) New Account Application (10)
(19)(b) Additional Services Application (10)
(19)(c) MetLife Securities, Inc. New Account Application (10)
(27) Deleted
-------------
**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-3
<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
1 Post-Effective Amendment No. 2 December 2, 1988
2 Post-Effective Amendment No. 6 May 26, 1992
3 Post-Effective Amendment No. 7 November 25, 1992
4 Post-Effective Amendment No. 8 November 26, 1993
5 Post-Effective Amendment No. 10 November 18, 1994
6 Post-Effective Amendment No. 11 October 11, 1995
7 Post-Effective Amendment No. 12 November 29, 1995
8 Post-Effective Amendment No. 14 January 21, 1997
9 Post-Effective Amendment No. 15 December 3, 1997
10 Post-Effective Amendment No. 16 December 3, 1998
11 Post-Effective Amendment No. 17 December 17, 1999
12 Post-Effective Amendment No. 18 January 19, 2000
13 Post-Effective Amendment No. 19 January 31, 2000
C-4
<PAGE>
Item 24. Inapplicable
Item 25. 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.
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-5
<PAGE>
Item 26. Business and Other Connections of Investment Adviser
Describe any other business, profession, vocation or employment of a
substantial nature in which each investment adviser of the Registrant, and each
director, officer or partner of any such investment adviser, is or has been, at
any time during the past two fiscal years, engaged for his own account or in the
capacity of director, officer, employee, partner or trustee.
<TABLE>
<CAPTION>
Principal business
address of
Name Connection Organization organization
---- ---------- ------------ ------------------
<S> <C> <C> <C>
State Street Research & Investment Adviser Various investment advisory Boston, MA
Management Company clients
Abbott, Christopher C. Senior Managing Pioneer Investment Mgmt. Boston, MA
Executive Vice Director
President (until 10/99)
Bangs, Linda L. None
Vice President
Barghaan, Dennis C. Senior Vice President State Street Research Investment Services, Inc. Boston, MA
Senior Vice President Senior Vice President Metropolitan Life Insurance Company New York, NY
(until 12/98)
Barnwell, Amy F. Senior Vice President State Street Research Investment Services, Inc. Boston, MA
Senior Vice President
(Vice President
until 10/00)
Beatty, T. Kevin Vice President Fleet Investment Advisors Boston, MA
Vice President (until 9/99)
Bigley, Gary M. None
Vice President
Bochman, Kathleen M. None
Senior Vice President
(Vice President
until 10/00)
Borzilleri, John Vice President State Street Research Financial Trust Boston, MA
Senior Vice President
Bray, Michael J. None
Senior Vice President
Brezinski, Karen None
Vice President
Brown, Susan H. None
Vice President
Buffum, Andrea L. None
Vice President
Burbank, John F. None
Senior Vice President
</TABLE>
C-6
<PAGE>
<TABLE>
<CAPTION>
Principal business
address of
Name Connection Organization organization
---- ---------- ------------ ------------------
<S> <C> <C> <C>
Calame, Mara D. Vice President, Assistant State Street Research Investment Services, Inc. Boston, MA
Vice President, Clerk and Counsel
Assistant Secretary Assistant Secretary State Street Research Institutional Funds Boston, MA
and Assistant Counsel
Boston, MA
Callahan, Michael J. None
Vice President
Carley, Linda C. Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President Assistant Secretary State Street Research Institutional Funds Boston, MA
Carstens, Linda C. Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President
Clifford, Jr., Paul J. Vice President State Street Research Tax-Exempt Trust Boston, MA
Senior Vice President
Coleman, Thomas J. None
Senior Vice President
(Vice President
until 10/00)
Cullen, Terrence J. Vice President, Assistant State Street Research Investment Services, Inc. Boston, MA
Vice President, Clerk and Counsel
Assistant Secretary
and Assistant Counsel
D'Vari, Ronald None
Senior Vice President
Davis, Richard S. Senior Vice President, Metropolitan Life Insurance Company New York, NY
Chairman of the Board, Fixed Income Investments
President and Chief
Executive Officer Managing Director J.P. Morgan Investment Management New York, NY
Depp, Maureen G. Vice President State Street Research Securities Trust Boston, MA
Vice President
DeVeuve, Donald None
Vice President
DiVasta, Vincent P. None Boston, MA
Vice President
Dudley, Catherine Vice President State Street Research Capital Trust Boston, MA
Senior Vice President Vice President State Street Research Institutional Funds Boston, MA
Duggan, Peter J. None
Senior Vice President
Ebel, Bruce A.
Senior Vice President Vice President Loomis, Sayles & Company, L.P. Chicago, IL
(since 3/99)
Vice President State Street Research Institutitonal Funds Boston, MA
Vice President State Street Research Financial Trust Boston, MA
Even, Karen L. None
Vice President
Fazo, Steven A. None
Vice President
Federoff, Alex G. None
Senior Vice President
(Vice President
until 4/00)
Feliciano, Rosalina None
Vice President
Feeney, Kimberley Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President
</TABLE>
C-7
<PAGE>
<TABLE>
<CAPTION>
Principal business
address of
Name Connection Organization organization
---- ---------- ------------ ------------------
<S> <C> <C> <C>
Ficco, Bonnie A. None
Vice President
Fochtman, Jr., Leo None
Vice President
Forcione, Anthony F. None
Vice President
Freking, Dean M. -- -- --
Vice President
Frey, Kenneth Analyst The Boston Company Boston, MA
Vice President (until 10/99)
Frank, Christopher
Vice President
Gallivan Jr., Edward T. Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President
Gardner, Michael D. None
Senior Vice President
Ghiloni, Sharon F. Vice President Scudder-Kemper Investments Boston, MA
Vice President (until 09/00)
Goodman, Stephanie B. Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President
Govoni, Electra None
Vice President
Grace, Evan S. None
Vice President
Granger, Allison None
Vice President
Gray, Nancy Spalding Scudder-Kemper Investments Boston, MA
Vice President
Hadelman, Peter J. Vice President Pioneer Investment Management Boston, MA
Vice President (until 5/00)
Haggerty, Bryan D. None
Vice President
Hamilton, Jr., William A. Treasurer and Director Ellis Memorial and Eldredge House Boston, MA
Senior Vice President Treasurer and Director Nautical and Aviation Publishing Company, Inc. Baltimore, MD
Treasurer and Director North Conway Institute Boston, MA
Hasson, Ira P. Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President
Haverty, Jr., Lawrence J. Vice President State Street Research Capital Trust Boston, MA
Senior Vice President
Heineke, George R. None
Vice President
Hickman, Joanne Senior Vice President State Street Research Investment Services, Inc. Boston, MA
Senior Vice President
Holland, Thomas Senior Vice President Putnam Investments Boston, MA
Vice President (until 6/99)
Senior Vice President State Street Research Investment Services, Inc. Boston, MA
Holmes, Robert Director, Key Account American Skandia, Inc. Shelton, CT
Vice President Marketing (until 11/00)
Vice President State Street Research Investment Services, Inc. Boston, MA
Jackson, Jr., Vice President State Street Research Equity Trust Boston, MA
F. Gardner Trustee Certain trusts of related and
Senior Vice President non-related individuals
Trustee and Chairman of the Vincent Memorial Hospital Boston, MA
Board
</TABLE>
C-8
<PAGE>
<TABLE>
<CAPTION>
Principal business
address of
Name Connection Organization organization
---- ---------- ------------ ------------------
<S> <C> <C> <C>
Joseph, Robert I. None
Vice President
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 Institutional Funds Boston, MA
Vice President State Street Research Money Market Trust 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.
Kasper, M. Katherine Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President
Keelan, David E.
Vice President
Kiessling, Dyann H. Vice President State Street Research Money Market Trust Boston, MA
Vice President
Kluiber, Rudolph K. Vice President State Street Research Capital Trust Boston, MA
Senior Vice President
Krauss, Clifford -- Trust Company of the West Los Angeles, CA
Senior Vice President
Kuhn, Stephen P. Vice President State Street Research Investment Boston, MA
Vice President Services, Inc.
Langholm, Knut Director SSR Pegasus Funds Luxembourg
Senior Vice President
(Vice President until
4/99)
Leary, Eileen M. None
Vice President
Ledbury, Richard C. Vice President State Street Research Investment Boston, MA
Vice President Services, Inc.
Leese, Reginald -- -- --
Vice President
Lomasney, Mary T. None
Vice President
Lubas, Amy C.
Vice President
Marinella, Mark A. Vice President State Street Research Institutional Funds Boston, MA
Senior Vice President
Markel, Gregory S. None
Vice President
Marsh, Elanor H. Portfolio Manager Evergreen Investment Management Company Boston, MA
Vice President (until 3/00)
</TABLE>
C-9
<PAGE>
<TABLE>
<CAPTION>
Principal business
address of
Name Connection Organization organization
---- ---------- ------------ ------------------
<S> <C> <C> <C>
Maus, Gerard P. Treasurer State Street Research Equity Trust Boston, MA
Executive Treasurer State Street Research Income Trust Boston, MA
Vice President, Treasurer State Street Research Tax-Exempt Trust Boston, MA
Treasurer, Chief Treasurer State Street Research Capital Trust Boston, MA
Financial Officer and Treasurer State Street Research Exchange Trust Boston, MA
Chief Administrative Treasurer State Street Research Growth Trust Boston, MA
Officer and Director Treasurer State Street Research Master Investment Trust Boston, MA
Treasurer State Street Research Institutional Funds Boston, MA
Treasurer State Street Research Securities Trust Boston, MA
Treasurer State Street Research Money Market Trust Boston, MA
Treasurer State Street Research Financial Trust Boston, MA
Director, Chief Financial State Street Research Investment Services, Inc. Boston, MA
Officer, Chief
Administrative Officer
and Treasurer
Director Metric Holdings, Inc. San Francisco, CA
Director Certain wholly-owned subsidiaries
of Metric Holdings, Inc.
Treasurer and Chief SSRM Holdings, Inc. Boston, MA
Financial Officer
Director State Street Research Luxembourg
McGrath, Ann None
Vice President
McKown, Elizabeth G. Senoir Vice President State Street Research Investment Services, Inc. Boston, MA
Senior Vice President
(Vice President
until 10/00)
McNamara, III, Francis J. Executive Vice President, State Street Research Investment Services, Inc. Boston, MA
Executive Vice Clerk and General Counsel
President, Secretary Secretary and General Counsel State Street Research Master Investment Trust Boston, MA
and General Counsel Secretary and General Counsel State Street Research Capital Trust Boston, MA
Secretary and General Counsel State Street Research Exchange Trust Boston, MA
Secretary and General Counsel State Street Research Growth Trust Boston, MA
Secretary and General Counsel State Street Research Securities Trust Boston, MA
Secretary and General Counsel State Street Research Equity Trust Boston, MA
Secretary and General Counsel State Street Research Financial Trust Boston, MA
Secretary and General Counsel State Street Research Income Trust Boston, MA
Secretary and General Counsel State Street Research Money Market Trust Boston, MA
Secretary and General Counsel State Street Research Tax-Exempt Trust Boston, MA
Secretary and General Counsel SSRM Holdings, Inc. Boston, MA
Secretary and General Counsel State Street Research Institutional Funds Boston, MA
Moore, Jr., Thomas P. Vice President State Street Research Financial Trust Boston, MA
Senior Vice Vice President State Street Research Equity Trust Boston, MA
President Director Hibernia Savings Bank Quincy, MA
Governor on the Board Association for Investment Management Charlottesville, VA
of Governors and Research
Morey, Andrew None
Vice President
Mulligan, JoAnne C. None
Senior Vice President
Paddon, Steven W. Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President
Pannell, James C. Vice President State Street Research Institutional Funds Boston, MA
Executive Vice
President
</TABLE>
C-10
<PAGE>
<TABLE>
<CAPTION>
Principal business
address of
Name Connection Organization organization
---- ---------- ------------ ------------------
<S> <C> <C> <C>
Peters, Kim M. Vice President State Street Research Institutional Funds Boston, MA
Senior Vice President
Pierce, James D. None
Vice President
Poritzky, Dean E. None
Senior Vice President
(Vice President
until 4/00)
Pyle, David J. None
Vice President
Ragsdale, E.K. Easton Vice President State Street Research Financial Trust Boston, MA
Senior Vice President
Ransom, Clifford F. None
Vice President
Rawlins, Jeffrey A. Vice President State Street Research Institutional Funds Boston, MA
Senior Vice President
Refojo, Michael None
Senior Vice President
Rice III, Daniel Joseph Vice President State Street Research Equity Trust Boston, MA
Senior Vice President
Rolnick, Michael A. None
Vice President
Romich, Douglas A. Assistant Treasurer State Street Research Equity Trust Boston, MA
Senior Vice President Assistant Treasurer State Street Research Financial Trust Boston, MA
and Assistant Assistant Treasurer State Street Research Income Trust Boston, MA
Treasurer 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 Institutional Funds Boston, MA
Assistant Treasurer State Street Research Master Investment Trust Boston, MA
Assistant Treasurer State Street Research Securities Trust Boston, MA
Ryan, Michael J. None
Senior Vice President
Sanderson, Derek None
Senior Vice President
Schrage, Michael M. None
Senior Vice President
(Vice President until
4/00)
Shean, William G. None
Senior Vice President
(Vice President
until 4/00)
Sheldon, Michael A. None
Vice President
Shively, Thomas A. Vice President State Street Research Financial Trust Boston, MA
Director and Vice President State Street Research Income Trust Boston, MA
Executive Vice Vice President State Street Research Money Market Trust Boston, MA
President Vice President State Street Research Tax-Exempt Trust Boston, MA
Director State Street Research Investment Services, Inc. Boston, MA
Vice President State Street Research Securities Trust Boston, MA
Vice President State Street Research Institutional Funds Boston, MA
Director State Street Research Investment Services, Inc. Boston, MA
Shoemaker, Richard D. None
Senior Vice President
Silverstein, Jill None
Vice President
Simi, Susan None
Vice President
</TABLE>
C-11
<PAGE>
<TABLE>
<CAPTION>
Principal business
address of
Name Connection Organization organization
---- ---------- ------------ ------------------
<S> <C> <C> <C>
Simmons, Amy L. Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President Assistant Secretary State Street Research Capital Trust Boston, MA
Assistant Secretary State Street Research Exchange Trust Boston, MA
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
Smith, James None
Vice President
Stambaugh, Kenneth None
Vice President
Stolberg, Thomas None
Vice President
Strelow, Daniel R. None
Senior Vice President
Swanson, Amy McDermott Vice President State Street Research Institutional Funds Boston, MA
Senior Vice President
Thorndike, Benjamin W. -- Scudder-Kemper Investments Boston, MA
Senior Vice President
Tice, Robyn S. None
Senior Vice President
(Vice President
until 10/00)
Trebino, Anne M. Vice President SSRM Holdings, Inc. Boston, MA
Senior Vice President
Tucher, Anne -- -- --
Vice President
Wallace, Julie K. None
Vice President
Wardwell, Samuel -- Wellington Management Boston, MA
Senior Vice President
Walsh, Tucker Vice President State Street Research Capital Trust Boston, MA
Vice President
Wardwell, Samuel -- Wellington Management
Senior Vice President
Weiss, James M. Vice President State Street Research Exchange Trust Boston, MA
Director and Executive Vice President State Street Research Financial Trust Boston, MA
Vice President Vice President State Street Research Growth Trust Boston, MA
Vice President State Street Research Institutional Funds Boston, MA
Vice President State Street Research Securities Trust Boston, MA
Vice President State Street Research Capital Trust Boston, MA
Vice President State Street Research Equity Trust Boston, MA
Vice President State Street Research Income Trust Boston, MA
Vice President State Street Research Master Investment Trust Boston, MA
Director State Street Research Investment Services, Inc. Boston, MA
Welch, Timothy M. None
Vice President
Westvold, Vice President State Street Research Institutional Funds Boston, MA
Elizabeth McCombs Vice President State Street Research Securities Trust Boston, MA
Senior Vice President
Wilkins, Kevin Executive Vice President State Street Research Investment Services, Inc. Boston, MA
Executive Vice President (Senior Vice President
(Senior Vice President until 4/00)
until 4/00)
Wilson, John T. Vice President State Street Research Master Investement Trust Boston, MA
Senior Vice President Vice President State Street Research Institutional Funds Boston, MA
Winandy, Angela Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President
</TABLE>
C-12
<PAGE>
<TABLE>
<CAPTION>
Principal business
address of
Name Connection Organization organization
---- ---------- ------------ ------------------
<S> <C> <C> <C>
Wing, Darman A. Senior Vice President, State Street Research Investment Services, Inc. Boston, MA
Senior Vice President, Assistant Clerk & Assistant
Assistant Secretary General Counsel
and Assistant Assistant Secretary and State Street Research Capital Trust Boston, MA
General Counsel Assistant General Counsel
Assistant Secretary and State Street Research Exchange Trust Boston, MA
Assistant General Counsel
Assistant Secretary and State Street Research Growth Trust Boston, MA
Assistant General Counsel
Assistant Secretary and State Street Research Master Investment Trust Boston, MA
Assistant General Counsel
Assistant Secretary and State Street Research Securities Trust Boston, MA
Assistant General Counsel
Assistant Secretary and State Street Research Equity Trust Boston, MA
Assistant General Counsel
Assistant Secretary and State Street Research Financial Trust Boston, MA
Assistant General Counsel
Assistant Secretary and State Street Research Income Trust Boston, MA
Assistant General Counsel
Assistant Secretary and State Street Research Money Market Trust Boston, MA
Assistant General Counsel
Assistant Secretary and State Street Research Tax-Exempt Trust Boston, MA
Assistant General Counsel
Assistant Secretary and SSRM Holdings, Inc. Boston, MA
Assistant General Counsel
Woodbury, Robert S. None
Vice President
Woodworth, Jr., Kennard Vice President State Street Research Exchange Trust Boston, MA
Senior Vice Vice President State Street Research Growth Trust Boston, MA
President Vice President State Street Research Institutional Trust Boston, MA
Vice President State Street Research Securities Trust Boston, MA
Wu, Norman N. Partner Atlantic-Acton Realty Framingham, MA
Senior Vice President Director Bond Analysts Society of Boston Boston, MA
Yalamanchill, Kishore K. None
Vice President
Yu, Mandy Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President
Zuger, Peter A. Vice President State Street Research Equity Trust Boston, MA
Senior Vice
President
</TABLE>
C-13
<PAGE>
Item 27. 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 Institutional Funds.
(b) Directors and Officers of State Street Research Investment Services,
Inc. are as follows:
<TABLE>
<CAPTION>
(1) (2) (3)
Positions Positions
Name and Principal and Offices and Offices
Business Address with Underwriter with Registrant
------------------ ---------------- ----------------
<S> <C> <C>
Richard E. Davis Chairman of the Board, Chairman of the Board,
One Financial Center Chief Executive Officer President and Chief
Boston, MA 02111 and President Executive Officer
Gerard P. Maus Executive Vice President, Treasurer
One Financial Center Chief Financial Officer,
Boston, MA 02111 Chief Administrative
Officer and Treasurer
James M. Weiss Director Vice President
One Financial Center
Boston, MA 02111
Francis J. McNamara, III Executive Vice Secretary
One Financial Center President, General
Boston, MA 02111 Counsel and Clerk
Kevin Wilkins Executive Vice None
One Financial Center President
Boston, MA 02111
Dennis C. Barghaan Senior Vice President None
One Financial Center
Boston, MA 02111
Amy F. Barnwell Senior Vice President None
One Financial Center
Boston, MA 02111
Peter Borghi Senior Vice President None
One Financial Center
Boston, MA 02111
</TABLE>
C-14
<PAGE>
<TABLE>
(1) (2) (3)
Positions Positions
Name and Principal and Offices and Offices
Business Address with Underwriter with Registrant
------------------ ---------------- ----------------
<S> <C> <C>
Joanne Hickman Senior Vice President None
One Financial Center
Boston, MA 02111
Thomas Holland Senior Vice President None
One Financial Center
Boston, MA 02111
Elizabeth G. McKown Vice President None
One Financial Center
Boston, MA 02111
Douglas A. Romich Senior Vice President Assistant Treasurer
One Financial Center and Assistant Treasurer
Boston, MA 02111
Darman A. Wing Senior Vice President, Assistant
One Financial Center Assistant Clerk and Secretary
Boston, MA 02111 Assistant General Counsel
Mara D. Calame Vice President, None
One Financial Center Assistant Clerk and
Boston, MA 02111 Counsel
Linda Cook Carley Vice President None
One Financial Center
Boston, MA 02111
Linda C. Carslens Vice President None
One Financial Center
Boston, MA 02111
Terrence J. Cullen Vice President, None
One Financial Center Assistant Clerk
Boston, MA 02111 and Counsel
Kimberley Feeney Vice President None
One Financial Center
Boston, MA 02111
Edward T. Gallivan, Jr. Vice President None
One Financial Center
Boston, MA 02111
Stephanie B. Goodman Vice President None
One Financial Center
Boston, MA 02111
Nancy Spalding Gray Vice President None
One Financial Center
Boston, MA 02111
Ira P. Hasson Vice President None
One Financial Center
Boston, MA 02111
Robert Holmes Vice President None
One Financial Center
Boston, MA 02111
M. Katharine Kasper Vice President None
One Financial Center
Boston, MA 02111
Stephen F. Kuhn Vice President None
One Financial Center
Boston, MA 02111
Richard C. Ledbury Vice President None
One Financial Center
Boston, MA 02111
Stephen W. Paddon Vice President None
One Financial Center
Boston, MA 02111
Amy L. Simmons Vice President Assistant
One Financial Center Secretary
Boston, MA 02111
James Smith Vice President None
One Financial Center
Boston, MA 02111
Angela L. Winandy Vice President None
One Financial Center
Boston, MA 02111
Robert S. Woodbury Vice President None
One Financial Center
Boston, MA 02111
</TABLE>
C-15
<PAGE>
Item 28. Location of Accounts and Records
Gerard P. Maus
State Street Research & Management Company
One Financial Center
Boston, MA 02111
Item 29. Management Services
Under a Shareholders' Administrative Services Agreement between the
Registrant 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 series of the
Registrant and received the amounts set forth below:
<TABLE>
<CAPTION>
Year-end Year-end Year-End
Fund September 30, 1998 September 30, 1999 September 30, 2000
---- ------------------- ------------------ ------------------
<S> <C> <C> <C>
State Street Research
Mid-Cap Growth Fund $681,841 $970,310 $1,169,583
State Street Research
Emerging Growth Fund $ 76,684 $129,692 $ 178,471
State Street Research
Aurora Fund $244,943 $310,050 $ 509,186
</TABLE>
Item 30. 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-16
<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-17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Post-Effective
Amendment No. 20 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 12th day of January, 2001.
STATE STREET RESEARCH CAPITAL TRUST
By: *
-------------------------------------
Richard S. Davis
Chief Executive Officer
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:
* Chairman of the Board,
------------------------------------ Chief Executive Officer and President
Richard S. Davis (principal executive officer)
* Treasurer (principal financial
------------------------------------ and accounting officer)
Gerard P. Maus
*
------------------------------------ Trustee
Bruce R. Bond
*
------------------------------------ Trustee
Steve A. Garban
* Trustee
------------------------------------
Dean O. Morton
* Trustee
------------------------------------
Susan M. Phillips
*
------------------------------------ Trustee
Toby Rosenblatt
* Trustee
------------------------------------
Michael S. Scott Morton
*By: /s/ Francis J. McNamara, III
----------------------------
Francis J. McNamara, III,
Attorney-in-Fact under Powers of
Attorney incorporated by
reference from Post-Effective
Amendment Nos. 15, 16 and 17 filed December 3, 1997,
December 4, 1998 and December 17, 1999, respectively
and under a Power of Attorney filed herein.
C-18
<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. 20 [X]
and/or
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 26 [X]
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STATE STREET RESEARCH CAPITAL TRUST
(Exact Name of Registrant as Specified in Articles of Organization)
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EXHIBITS
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INDEX TO EXHIBITS
(8)(f) Amendment to Custodian Contract
(11) Consent of PricewaterhouseCoopers LLP
(18)(g) Power of Attorney for Richard S. Davis
(18)(h) Certificate of Resolution
