As filed with the Securities and Exchange Commission
on April 30, 1998
1940 Act File No. 811-4256
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 15 [x]
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STATE STREET RESEARCH EXCHANGE 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, One Financial Center, Boston, MA 02111
(Name and Address of Agent for Service)
Copy to:
Thomas J. Kelly, Esq.
Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C.
One Financial Center
Boston, Massachusetts 02111
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STATE STREET RESEARCH EXCHANGE TRUST
PART A - INFORMATION REQUIRED IN A PROSPECTUS
May 1, 1998
All information required by this Part of Form N-1A
except Items 1, 2, and 3 which are omitted pursuant
to Instruction F(4) is included in Part B.
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STATE STREET RESEARCH EXCHANGE TRUST
PART B - STATEMENT OF ADDITIONAL INFORMATION
May 1, 1998
The following Statement of Additional Information is not a Prospectus.
Registrant is not offering securities to the general public and maintains no
current prospectus. However, general information about Registrant which would
normally be included in a current prospectus, except such information as would
be applicable to an offering of Registrant's shares, has been included in this
Statement of Additional Information.
TABLE OF CONTENTS
Page
General Information and History ...............................2
Investment Policies............................................2
Trustees and Officers.........................................11
Controlling Persons and Principal Holders of Securities.......14
Investment Advisory and Other Services........................15
Portfolio Transactions........................................16
Shares of Beneficial Interest and Other Securities............18
Redemption and Pricing of Securities..........................20
Tax Status....................................................22
Financial Statements..........................................23
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General Information and History
Registrant's predecessor, State Street Exchange Fund, Inc., was
originally incorporated in Massachusetts on December 12, 1984 to
become the successor to State Street Exchange Fund (A Limited
Partnership) (the "Partnership") which was formed as a limited
partnership, and registered with the Securities and Exchange
Commission as an open-end, diversified management company, in 1975.
Effective May 1, 1985, in accordance with a Plan of Reorganization
and Liquidation which was approved by the partners of the
Partnership on December 11, 1984, State Street Exchange Fund, Inc.
succeeded to the business and operations of the Partnership.
Effective May 1, 1989 State Street Exchange Fund, Inc. was
reorganized as a Massachusetts business trust and carries on its
operations as State Street Research Exchange Fund (the "Fund")
(formerly known as State Street Exchange Fund), a series of State
Street Research Exchange Trust (the "Trust") (formerly known as
State Street Exchange Trust). References to Registrant here also
refer, where appropriate, to Registrant's predecessors.
Investment Policies
Investment Objective and Restrictions
The Fund's investment objective is to seek long-term growth of
capital and consequent long-term growth of income. This objective
cannot be changed without a vote of the shareholders. In order to
achieve this objective the Fund's assets normally will be invested
largely in a diversified and supervised portfolio of common stocks,
or securities convertible into common stocks, believed by management
to have growth potential over the years. However, there may be times
when, in management's judgment, the Fund's interests are best served
and the long range investment objective most likely to be achieved
by having a portion of the Fund's assets in cash or fixed income or
other defensive securities, and freedom to so administer the
portfolio is retained.
The Fund has no fundamental policy with respect to the issuance of
senior securities.
It is the Fund's policy not to purchase securities on margin or make
a short sale of any securities, or purchase or write puts, calls,
straddles or spreads except in connection with options on securities
and securities indices and options on futures with respect to
securities and securities indices.
It is the Fund's policy not to borrow money except for temporary,
emergency or extraordinary purposes and then only up to an amount
equal to 10% of its net assets.
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It is the Fund's policy not to underwrite securities of other
issuers except to the extent it may be deemed an "underwriter" when
it disposes of restricted securities. In addition, it is
Registrant's policy not to purchase or otherwise acquire securities
for its portfolio which are deemed by the Board of Trustees to be
restricted as to resale if such acquisition would cause more than
10% of the Fund's total assets (taken at market value) to be held in
such securities.
It is the Fund's policy not to make any investment which would cause
more than 25% of its total assets, taken at market value, to be
invested in any one industry.
It is the Fund's policy not to make any investment in real property.
The Fund has no fundamental policy with respect to investment in
real estate mortgage loans.
It is the Fund's policy not to invest in commodities or commodity
contracts except for futures and options on futures with respect to
securities and securities indices. (This policy is interpreted to
permit transactions in foreign currencies, including forward
contracts on foreign currencies, when used as a hedge with respect
to a specific foreign security held by the Fund.)
It is the Fund's policy not to make loans to other persons except
that Registrant may make loans of its portfolio securities
comprising not more than 10% of its total assets if such loans are
fully secured by cash when made. Registrant will lend portfolio
securities only when a determination has been made by the Board of
Trustees that the net return to the Fund in consideration of lending
the securities is reasonable and desirable, that any fee paid to the
broker placing such loan is reasonable and based solely upon
services rendered, that the lending of such securities is consistent
with the Fund's investment objective, and that no affiliate of the
Fund or of State Street Research & Management Company (the
"Management Company") is involved in such lending transaction or is
receiving any fees in connection therewith.
It is the Fund's policy not:
(a) To purchase oil, gas, or other mineral leases or
partnership interests in oil, gas, or other exploration
programs;
(b) To purchase for its portfolio, securities of any issuer
(other than the United States or its instrumentalities)
if such purchase at the time would cause more than 5% of
the total assets of Registrant (taken at market value)
to be invested in the securities of such issuer;
(c) To purchase for its portfolio, securities of any issuer
if such purchase at the time thereof would cause more
than 10% of any class of securities of such issuer to be
held by the Fund;
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(d) To make investments for the purpose of exercising
control or management of other companies;
(e) To purchase securities for its portfolio issued by any
other investment company;
(f) To purchase securities of any issuer which has a record
of less than three years' continuous operation if such
purchase would cause more than 5% of the Fund's total
assets (taken at market value) to be invested in the
securities of such issuers; provided that any such three
year period may include the operation of any predecessor
company, partnership, or individual enterprise if the
issuer whose securities are to be purchased came into
existence as a result of a merger, consolidation,
reorganization, or the purchase of substantially all the
assets of such predecessor company, partnership, or
individual enterprise; or
(g) To purchase or retain any securities of an issuer if, to
the knowledge of the Fund, those officers and trustees
of the Management Company who individually own
beneficially more than 1/2 of 1% of the shares or
securities of such issuer together own beneficially more
than 5% of such shares or securities.
Restricted Securities
It is the Fund's policy not to make an investment in restricted
securities, including restricted securities sold in accordance with
Rule 144A under the Securities Act of 1933 ("Rule 144A Securities")
if, as a result, more than 35% of the Fund's total assets are
invested in restricted securities other than Rule 144A Securites.
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.
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, such Rule 144A Securities may be deemed
to be liquid as determined by or in accordance with methods adopted
by the Trustees. Under such methods the following factors are
considered, among others: the frequency of trades and quotes for the
security, the number of dealers and potential purchasers in the
market, marketmaking activity, and the nature of the security and
marketplace trades. Investments in Rule 144A Securities could have
the effect of increasing the level of the Fund's illiquidity to the
extent that qualified institutional buyers become, for a time,
uninterested in purchasing such securities. Also, the Fund may be
adversely impacted by the possible illiquidity and subjective
valuation of such securities in the absence of an active market for
them.
Foreign Investments
The Fund reserves the right to invest without limitation in
securities of non-U.S. issuers directly, or indirectly in the form
of American Depositary Receipts ("ADRs") and
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European Depositary Receipts ("EDRs"). Under current policy,
however, the Fund limits such investments, including ADRs and EDRs,
to a maximum of 35% of its total assets.
ADRs are receipts, typically issued by a U.S. bank or trust company,
which evidence ownership of underlying securities issued by a
foreign corporation or other entity. EDRs are receipts issued in
Europe which evidence a similar ownership arrangement. Generally,
ADRs in registered form are designed for use in U.S. securities
markets and EDRs are designed for use in European securities
markets. The underlying securities are not always denominated in the
same currency as the ADRs or EDRs. Although investment in the form
of ADRs or EDRs facilitates trading in foreign securities, it does
not mitigate all the risks associated with investing in foreign
securities.
ADRs are available through facilities which may be either
"sponsored" or "unsponsored." In a sponsored arrangement, the
foreign issuer establishes the facility, pays some or all of the
depository's fees, and usually agrees to provide shareholder
communications. In an unsponsored arrangement, the foreign issuer is
not involved, and the ADR holders pay the fees of the depository.
Sponsored ADRs are generally more advantageous to the ADR holders
and the issuer than are unsponsored ADRs. More and higher fees are
generally charged in an unsponsored program compared to a sponsored
facility. Only sponsored ADRs may be listed on the New York or
American Stock Exchanges. Unsponsored ADRs may prove to be more
risky due to (a) the additional costs involved to the Fund; (b) the
relative illiquidity of the issue in U.S. markets; and (c) the
possibility of higher trading costs in the over-the-counter market
as opposed to exchange-based 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 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 and the fact that foreign
issuers are not generally subject to uniform accounting, auditing
and financial reporting standards or to other regulatory practices
and requirements comparable to those applicable to domestic issuers.
Moreover, securities of many foreign issuers may be less liquid and
their prices more volatile than those of securities of comparable
domestic issuers.
It is anticipated that most of the foreign investments of the Fund
will consist of securities of issuers in countries with developed
economies. However, the Fund may also invest
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in the securities of issuers in countries with less developed
economies as deemed appropriate by the Management Company. Such
countries include countries that have an emerging stock market that
trades a small number of securities and/or countries with economies
that are based on only a few industries. To the extent the Fund
invests in such securities, it will be subject to a variety of
additional risks, including risks associated with political
instability, economies based on relatively few industries, lesser
market liquidity, high rates of inflation, significant price
volatility of portfolio holdings and high levels of external debt in
the relevant country.
Although the Fund may invest in securities denominated in foreign
currencies, the Fund values its securities and other assets in U.S.
dollars. As a result, the net asset value of the Fund's shares may
fluctuate with U.S. dollar exchange rates as well as with price
changes of the Fund's securities in the various local markets and
currencies. Thus, an increase in the value of the U.S. dollar
compared to the currencies in which the Fund makes its investments
could reduce the effect of increases and magnify the effect of
decreases in the prices of the Fund's securities in their local
markets. Conversely, a decrease in the value of the U.S. dollar will
have the opposite effect of magnifying the effect of increases and
reducing the effect of decreases in the prices of the Fund's
securities in the local markets.
Currency Transactions
In order to protect against the effect of uncertain future exchange
rates on securities denominated in foreign currencies, the Fund may
engage in 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. Although such contracts tend to minimize the risk of
loss resulting from a correctly predicted decline in value of hedged
currency, they tend to limit any potential gain that might result
should the value of such currency increase. In entering a forward
currency transaction, 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, large institutions with which the
Management Company has done substantial business in the past.
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
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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. 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.
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
Management Company 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
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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 Management Company may enter into derivative positions for the
Fund for either hedging or non-hedging purposes. The term hedging is
applied to defensive strategies designed to protect the Fund from an
expected decline in the market value of an asset or group of assets
that the Fund owns (in the case of a short hedge) or to protect the
Fund from an expected rise in the market value of an asset or group
of assets which it intends to acquire in the future (in the case of
a long or "anticipatory" hedge). Non-hedging strategies include
strategies designed to produce incremental income (such as the
option writing strategy described below) or "speculative" strategies
which are undertaken to profit from an expected decline in the
market value of an asset or group of assets which the Fund does not
own or expected increases in the market value of an asset which it
does not plan to acquire. Information about specific types of
instruments is provided below.
Futures Contracts. Futures contracts are publicly traded contracts
to buy or sell an underlying asset or group of assets, such as a
currency, or an index of securities, at a future time at a specified
price. A contract to buy establishes a long position while a
contract to sell establishes a short position.
The purchase of a futures contract on an equity security or an index
of equity securities normally enables a buyer to participate in the
market movement of the underlying asset or index after paying a
transaction charge and posting margin in an amount equal to a small
percentage of the value of the underlying asset or index. The Fund
will initially be required to deposit with the Trust's custodian or
the broker effecting the futures transaction an amount of "initial
margin" in cash or securities, as permitted under applicable
regulatory policies.
Initial margin in futures transactions is different from margin in
securities transactions in that the former does not involve the
borrowing of funds by the customer to finance the transaction.
Rather, the initial margin is like a performance bond or good faith
deposit on the contract. Subsequent payments (called "maintenance
margin") to and from the broker will be made on a daily basis as the
price of the underlying asset fluctuates. This process is known as
"marking to market." For example, when the Fund has taken a long
position in a futures contract and the value of the underlying asset
has risen, that position will have increased in value and the Fund
will receive from the broker a maintenance margin payment equal to
the increase in value of the underlying asset. Conversely, when the
Fund has taken a long position
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in a futures contract and the value of the underlying instrument has
declined, the position would be less valuable, and the Fund would be
required to make a maintenance margin payment to the broker.
At any time prior to expiration of the futures contract, the Fund
may elect to close the position by taking an opposite position which
will terminate the Fund's position in the futures contract. A final
determination of maintenance margin is then made, additional cash is
required to be paid by or released to the Fund, and the Fund
realizes a loss or a gain. While futures contracts with respect to
securities do provide for the delivery and acceptance of such
securities, such delivery and acceptance are seldom made.
In transactions establishing a long position in a futures contract,
assets equal to the face value of the futures contract will be
identified by the Fund to the Trust's custodian for maintenance in a
separate account to insure that the use of such futures contracts is
unleveraged. Similarly, assets having a value equal to the aggregate
face value of the futures contract will be identified with respect
to each short position. The Fund will utilize such assets and
methods of cover as appropriate under applicable exchange and
regulatory policies.
Options. The Fund may use options to implement its investment
strategy. There are two basic types of options: "puts" and "calls."
Each type of option can establish either a long or a short position,
depending upon whether the Fund is the purchaser or the writer of
the option. A call option on a security, for example, gives the
purchaser of the option the right to buy, and the writer the
obligation to sell, the underlying asset at the exercise price
during the option period. Conversely, a put option on a security
gives the purchaser the right to sell, and the writer the obligation
to buy, the underlying asset at the exercise price during the option
period.
Purchased options have defined risk, that is, the premium paid for
the option, no matter how adversely the price of the underlying
asset moves, while affording an opportunity for gain corresponding
to the increase or decrease in the value of the optioned asset. In
general, a purchased put increases in value as the value of the
underlying security falls and a purchased call increases in value as
the value of the underlying security rises.
The principal reason to write options is to generate extra income
(the premium paid by the buyer). Written options have varying
degrees of risk. An uncovered written call option theoretically
carries unlimited risk, as the market price of the underlying asset
could rise far above the exercise price before its expiration. This
risk is tempered when the call option is covered, that is, when the
option writer owns the underlying asset. In this case, the writer
runs the risk of the lost opportunity to participate in the
appreciation in value of the asset rather than the risk of an
out-of-pocket loss. A written put option has defined risk, that is,
the difference between the agreed upon price that the Fund must pay
to the buyer upon exercise of the put and the value, which could be
zero, of the asset at the time of exercise.
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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.
Options on Futures Contracts. An option on a futures contract gives
the purchaser the right, in return for the premium paid, to assume a
position in a futures contract (a long position if the option is a
call and a short position if the option is a put) at a specified
exercise price at any time during the period of the option.
Limitations and Risks of Options and Futures Activity. The Fund may
not establish a position in a commodity futures contract or purchase
or sell a commodity option contract for other than bona fide hedging
purposes if immediately thereafter the sum of the amount of initial
margin deposits and premiums required to establish such positions
for such nonhedging purposes would exceed 5% of the market value of
the Fund's net assets. The Fund applies a similar policy to options
that are not commodities.
As noted above, the Fund may engage in both hedging and nonhedging
strategies. Although effective hedging can generally capture the
bulk of a desired risk adjustment, no hedge is completely effective.
The Fund's ability to hedge effectively through transactions in
futures and options depends on the degree to which price movements
in its holdings correlate with price movements of the futures and
options.
Nonhedging strategies typically involve special risks. The
profitability of the Fund's non-hedging strategies will depend on
the ability of the Management Company to analyze both the applicable
derivatives market and the market for the underlying asset or group
of assets.
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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 the Fund to
deposit cash to meet applicable margin requirements. The Fund will
enter into an option or futures position only if it appears to be a
liquid investment.
Swaps. The Fund may enter into various forms of swap arrangements
with counterparties with respect to interest rates, currency rates
or indices, including purchase of caps, floors and collars as
described below. In an interest rate swap the Fund could agree for a
specified period to pay a bank or investment banker the floating
rate of interest on a so-called notional principal amount (i.e., an
assumed figure selected by the parties for this purpose) in exchange
for agreement by the bank or investment banker to pay the Fund a
fixed rate of interest on the notional principal amount. In a
currency swap the Fund would agree with the other party to exchange
cash flows based on the relative differences in values of a notional
amount of two (or more) currencies; in an index swap, the Fund would
agree to exchange cash flows on a notional amount based on changes
in the values of the selected indices. Purchase of a cap entitles
the purchaser to receive payments from the seller on a notional
amount to the extent that the selected index exceeds an agreed upon
interest rate or amount whereas purchase of a floor entitles the
purchaser to receive such payments to the extent the selected index
falls below an agreed upon interest rate or amount. A collar
combines a cap and a floor.
The Fund may enter credit protection swap arrangements involving the
sale by the Fund of a put option on a debt security which is
exercisable by the buyer upon certain events, such as a default by
the referenced creditor on the underlying debt or a bankruptcy event
of the creditor.
Most swaps entered into by the Fund will be on a net basis; for
example, in an interest rate swap, amounts generated by application
of the fixed rate and the floating rate to the notional principal
amount would first offset one another, with the Fund either
receiving or paying the difference between such amounts. In order to
be in a position to meet any obligations resulting from swaps, the
Fund will set up a segregated custodial account to hold appropriate
liquid assets, including cash; for swaps entered into on a net
basis, assets will be segregated having a daily net asset value
equal to any excess of the Fund's accrued obligations over the
accrued obligations of the other party, while for swaps on other
than a net basis assets will be segregated having a value equal to
the total amount of the Fund's obligations.
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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 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
Management Company 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 Management Company 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.
Securities Lending
The Fund may lend portfolio securities with a value of up to 10%
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 the loaned
securities plus accrued interest. Collateral received by the Fund
will generally be held in the form tendered, although cash may be
invested in securities issued or guaranteed by the U.S. Government
or its agencies or instrumentalities, irrevocable stand-by letters
of credit issued by a bank, or any combination thereof. 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
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terminated at any time. The Fund will retain most rights of
ownership including 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 Management Company to be of good financial standing.
Industry Classifications
In determining how much of the portfolio is invested in a given
industry, the following industry classifications are currently used.
Securities issued or guaranteed as to principal or interest by the
U.S. Government or its agencies or instrumentalities or mixed-
ownership Government corporations or sponsored enterprises
(including repurchase agreements involving U.S. Government
securities to the extent excludable under relevant regulatory
interpretations) are excluded. Securities issued by foreign
governments are also excluded. Companies engaged in the business of
financing will be classified according to the industries of the
parent 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.
Basic Industries Consumer Staple Science & Technology
---------------- --------------- --------------------
Chemical Business Service Aerospace
Diversified Container Computer Software &
Electrical Equipment Drug Service
Forest Products Food & Beverage Electronic Components
Machinery Hospital Supply Electronic Equipment
Metal & Mining Personal Care Office Equipment
Railroad Printing & Publishing
Truckers Tobacco
Utility Energy Consumer Cyclical
---------------- --------------- --------------------
Electric Oil Refining Airline
Gas & Marketing Automotive
Gas Transmission Oil Production Building
Telephone Oil Service Hotel & Restaurant
Photography
Other Finance Recreation
---------------- --------------- Retail Trade
Trust Certificates-- Bank Textile & Apparel
Government Related Financial Service
Lending Insurance
Asset-backed--Mortgages
Asset-backed--Credit
Card Receivables
13
<PAGE>
Trustees and Officers
Under Registrant's Master Trust Agreement, subject to the terms
thereof, Registrant's Board of Trustees has general management and control of
all the property and affairs of the Fund.
The Trustees and principal officers of the Trust, their addresses,
and their principal occupations and positions with certain affiliates of the
Management Company are set forth below.
*+Peter C. Bennett, One Financial Center, Boston, MA 02111, serves
as Vice President of the Trust. He is 59. His principal occupation is Executive
Vice President and Director of State Street Research & Management Company.
During the past five years he has also served as Senior Vice President and Vice
President of State Street Research & Management Company. Mr. Bennett's other
principal business affiliation is Director, State Street Research Investment
Services, Inc. and Executive Vice President of GFM International Investors, Inc.
+Steve A. Garban, The Pennsylvania State University, 208 Old Main,
University Park, PA 16802, serves as Trustee of the Trust. He is 60. He is
retired and was formerly Senior Vice President Finance and Operations and
Treasurer Emeritus of The Pennsylvania State University.
+Malcolm T. Hopkins, 14 Brookside Road, Biltmore Forest, Asheville,
NC 28803, serves as Trustee of the Trust. He is 70. He is engaged principally
in private investments. Previously, he was Vice Chairman of the Board and Chief
Financial Officer of St. Regis Corp.
+Edward M. Lamont, Box 1234, Moores Hill Road, Syosset, NY 11791,
serves as Trustee of the Trust. He is 71. He is engaged principally in private
investments and civic affairs, and is an author of business history. Previously,
he was with an affiliate of J.P. Morgan & Co. in New York.
+Robert A. Lawrence, 175 Federal Street, Boston, MA 02110, serves as
Trustee of the Trust. He is 71. He is retired and was formerly a Partner in
Saltonstall & Co., a private investment firm.
*+Gerard P. Maus, One Financial Center, Boston, MA 02111, serves as
Treasurer of the Trust. He is 47. His principal occupation is currently, and
during the past five years has been, Executive Vice President, Treasurer and
Director of State Street Research & Management Company. Mr. Maus's other
principal business affiliations include Executive Vice President, Treasurer,
Chief Financial Officer and Director of State Street Research Investment
Services, Inc. and Executive Vice President, Chief Financial Officer, Chief
Administrative Officer and Director of GFM International Investors, Inc.
*+Francis J. McNamara, III, One Financial Center, Boston, MA 02111,
serves as Secretary and General Counsel of the Trust. He is 42. His principal
occupation is Executive Vice President, General Counsel and Secretary of State
Street Research & Management Company. During the past five years he has also
served as Senior Vice President of State Street Research & Management Company
and as Senior Vice President, General Counsel and Assistant Secretary of The
Boston Company, Inc., Boston Safe Deposit and Trust Company and The Boston
Company Advisors, Inc. Mr. McNamara's other principal business affiliations
include Executive Vice President, General Counsel and Clerk of State Street
Research Investment Services, Inc. and Executive Vice President, General
Counsel and Secretary of GFM International Investors, Inc.
- ------------------------------------------------
* or + See footnotes on page 16
14
<PAGE>
+Dean O. Morton, 3200 Hillview Avenue, Palo Alto, CA 94304, serves
as Trustee of the Trust. He is 66. He is retired, having served during the past
five years, until October 1992, as Executive Vice President, Chief Operating
Officer and Director of Hewlett-Packard Company.
+Toby Rosenblatt, 3409 Pacific Avenue, San Francisco, CA 94118,
serves as Trustee of the Trust. He is 59. His principal occupations during the
past five years have been President of The Glen Ellen Company, a private
investment company and Vice President of Founders Investments Ltd.
+Michael S. Scott Morton, Massachusetts Institute of Technology,
77 Massachusetts Avenue, Cambridge, MA 02139, serves as Trustee of the Trust. He
is 60. His principal occupation during the past five years has been Jay W.
Forrester Professor of Management at Sloan School of Management, Massachusetts
Institute of Technology.
*+Ralph F. Verni, One Financial Center, Boston, MA 02111, serves as
Chairman of the Board, President, Chief Executive Officer and Trustee of the
Trust. He is 55. His principal occupation is currently, and during the past five
years has been, Chairman of the Board, President, Chief Executive Officer and
Director of State Street Research & Management Company. Mr. Verni's other
principal business affiliations include Chairman of the Board and Director of
State Street Research Investment Services, Inc. (until February 1996, prior
positions as President and Chief Executive Officer) and Chairman of the Board,
President, Chief Executive Officer and Director of GFM International Investors,
Inc.
- ------------------------------------------------
* or + See footnotes on page 16
15
<PAGE>
*+James M. Weiss, One Financial Center, Boston, MA 02111, serves
as Vice President of the Trust. He is 51. His principal occupation is Senior
Vice President of State Street Research & Management Company. During the past
five years he has also served as President and Chief Investment Officer of IDS
Advisory Group, Inc. and as Senior Vice President of Stein, Roe & Farnham.
*+Kennard Woodworth, Jr., One Financial Center, Boston, MA 02111,
serves as Vice President of the Trust. He is 59. His principal occupation is
Senior Vice President of State Street Research & Management Company.
- ----------------------------
* These Trustees and/or officers are or may be deemed to be
"interested persons" of the Trust under the Investment Company Act
of 1940 (the "1940 Act") because of their affiliations with the
Trust's Management Company.
+ Serves as a Trustee and/or officer of one or more of the following
investment companies, each of which has an advisory relationship
with the Management Company or its parent, Metropolitan Life
Insurance Company ("Metropolitan"): State Street Research Equity
Trust, State Street Research Financial Trust, State Street Research
Income Trust, State Street Research Money Market Trust, State Street
Research Tax-Exempt Trust, State Street Research Capital Trust,
State Street Research Exchange Trust, State Street Research Growth
Trust, State Street Research Master Investment Trust, State Street
Research Securities Trust, State Street Research Portfolios, Inc.
and Metropolitan Series Fund, Inc.
16
<PAGE>
Controlling Persons and Principal Holders of Securities
There are no persons who control Registrant.
There are no persons who own or are known by Registrant to own of
record or beneficially 5% or more of Registrant's outstanding
shares.
Registrant's Trustees and principal Officers as a group beneficially
owned, as of March 31, 1998, less than 1% of the outstanding shares
of the Registrant.
The Trustees were compensated as follows:
Name of Aggregate Total
Trustee Compensation Compensation
From Trust(a) From Trust and
Complex Paid
to Trustees(b)
Steve A. Garban $3,165 $ 75,899
Malcolm T. Hopkins $3,465 $ 78,499
Edward M. Lamont $4,000 $ 68,741
Robert A. Lawrence $4,100 $ 93,125
Dean Morton $4,300 $ 97,125
Toby Rosenblatt $4,000 $ 68,741
Michael S. Scott Morton $4,600 $103,625
Ralph F. Verni $ 0 $ 0
(a) For the Fund's fiscal year ended December 31, 1997.
(b) Includes compensation on behalf of all series of 12 investment
companies for which the Management Company or its parent,
Metropolitan, served as investment adviser. "Total Compensation From
Trust and Complex Paid to Trustees" is for the 12 months ended
December 31, 1997. The Trust does not provide any pension or
retirement benefits for the Trustees.
17
<PAGE>
Investment Advisory and Other Services
Registrant's Management Company is State Street Research &
Management Company, a Delaware corporation, with offices at One
Financial Center, Boston, Massachusetts 02111-2690. The Management
Company is an indirect wholly-owned subsidiary of Metropolitan.
It, and its predecessor, a Massachusetts partnership having the same
name, have been providing investment advice and management to
clients since 1927. As of March 31, 1998, the Management Company had
assets of approximately $51.2 billion under direct or indirect
management.
The advisory fee payable quarterly by Registrant to the Management
Company is computed as a percentage of the average of the values of
the net assets of Registrant as determined at the close of each
business day during the quarter at the annual rate of 1/2 of 1% of
the value of such net assets.
The total investment management fees paid by Registrant to the
Management Company for the fiscal years ended December 31, 1997,
1996 and 1995 were $1,630,111, $1,281,051 and $1,078,699,
respectively.
Registrant's investment advisory contract with the Management
Company provides that the Management Company shall furnish
Registrant with suitable office space and facilities and such
management, investment advisory, statistical and research facilities
and services as may be required from time to time by Registrant.
Although under such contract Registrant is responsible for all of
its other expenses and services, the Management Company currently
follows, and expects to continue to follow, the practice of keeping
Registrant's general books and accounts relative to the net asset
value of Registrant's shares and of calculating such net asset
value, both at no additional charge.
Under the Code of Ethics of the Management Company, investment
management personnel are only permitted to engage in personal
securities transactions in accordance with certain conditions
relating to such person's position, the identity of the security,
the timing of the transaction, and similar factors. Such personnel
must report their personal securities transactions quarterly and
supply broker confirmations of such transactions to the Management
Company.
18
<PAGE>
State Street Bank and Trust Company (the "Bank") is the registrant's
custodian with main offices at 225 Franklin Street, Boston, MA
02110. As custodian the Bank maintains custody over all portfolio
securities and cash of Registrant. The Bank also acts as
Registrant's Dividend Disbursing Agent and as Transfer Agent (the
"Transfer Agent") with respect to shares of Registrant and in each
capacity maintains appropriate records relating to, and forwards
appropriate statements to, Registrant's shareholders.
Under a Shareholders' Administrative Services Agreement with the
Trust, State Street Research Investment Services, Inc. provides
shareholders' administrative services, such as responding to
inquiries and instructions from investors respecting shareholder
records and the redemption of shares of the Fund, and is entitled to
a fee for providing such services.
Registrant's independent accountants are Coopers & Lybrand L.L.P.,
One Post Office Square, Boston, MA 02109. This firm is responsible
for all required audit functions with respect to Registrant's
financial statements and reviews Registrant's semi-annual and annual
reports to Registrant's shareholders as well as Registrant's filings
with the Securities and Exchange Commission on Form N-1A.
PORTFOLIO TRANSACTIONS
Portfolio Turnover
The Fund's portfolio turnover rate is determined by dividing the
lesser of securities purchases or sales for a year by the monthly
average value of securities held by the Fund (excluding, for
purposes of this determination, securities the maturities of which
as of the time of their acquisition were one year or less). The
portfolio turnover rates for the fiscal years ended December 31,
1996 and 1997 were 5.39% and 2.26%, respectively.
Brokerage Allocation
The Management Company's policy is to seek for its clients,
including the Fund, what in the Management Company'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 Management Company may do business,
and the Management Company 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 Management Company
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 Management Company 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 Management Company 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 Management Company 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 Management Company'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
19
<PAGE>
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); portfolio evaluation services; and data relating
to the relative performance of accounts.
In the case of the Fund and other registered investment companies
advised by the Management Company 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 Management Company's advisory services and to review the fees
and other provisions contained in the advisory contracts between the
investment companies and the Management Company. The Management
Company 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 Management Company regularly reviews and evaluates the services
furnished by broker-dealers. The Management Company's investment
management personnel conduct internal surveys and use other methods
to evaluate the quality of the research and other services provided
by various broker-dealer firms, and the results of these efforts are
made available to the equity trading department which uses this
information as a consideration to the extent described above in the
selection of brokers to execute portfolio transactions.
Some services furnished by broker-dealers may be used for research
and investment decision-making purposes, and also for marketing or
administrative purposes. Under these circumstances, the Management
Company 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
Management Company 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 Management
Company'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 Management Company has no fixed agreements or understandings
with any broker-dealer as to the amount of brokerage business which
that firm may expect to receive for services supplied to the
Management Company 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 Management Company'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
Management Company is aware that this is an area where differences
of opinion as to fact and circumstances may exist, and in such
circumstances, if any, relies on the provisions of Section 28(e) of
the Securities Exchange Act of 1934. Brokerage commissions paid by
Registrant during the fiscal years ended December 31, 1997, 1996 and
1995 were $22,650, $37,358 and $77,724, respectively. During and at
the end of its most recent fiscal year, the Fund held in its
portfolio no securities of any
20
<PAGE>
entity that might be deemed to be a regular broker-dealer of the
Fund as defined under the 1940 Act.
In the case of the purchase of fixed income securities in
underwriting transactions, the Management Company follows any
instructions received from its clients as to the allocation of new
issue discounts, selling concessions 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 Management Company may make such
allocations to broker-dealers which have provided the Management
Company with research and brokerage services.
In some instances, certain clients of the Management Company 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 Management Company generally agrees to honor these
requests to the exact practicable. Clients may condition their
requests by requiring that the Management Company only effect
transactions with the specified broker-dealers if the broker-dealers
are competitive as to price and execution. In other cases, the
Management Company may be unable to negotiate commissions or obtain
volume discounts or best execution. In other cases, the Management
Company may be unable to negotiate commissions or obtain volume
discounts or best execution. In addition, a disparity may exist
among the commissions charged to clients who request the Management
Company to use particular brokers or dealers, and also between those
clients and those who do not make such requests. A client who
requests the use of a particular broker-dealer should understand
that it may lose the possible advantage which non-requesting clients
derive from aggregation of orders for several clients as a single
transaction for the purchase or sale of a particular security.
Among other reasons why best execution may not be achieved with
directed brokerage is that, in an effort to achieve orderly
execution of transactions, execution of orders that have designated
particular brokers may, at the discretion of the trading desk, be
delayed until execution of other non-designated orders has been
completed.
When more than one client of the Management Company 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 Management Company will
use its best business judgment and will take into account such
factors as the investment objectives of the clients, the amount of
investment funds available to each, the size of the order, the
amount already committed for each client to a specific investment
and the relative risks of the investments, all in order to provide
on balance a fair and equitable result to each client over time.
Although sharing in large transactions may sometimes affect price or
volume of shares acquired or sold, overall it is believed there may
be an advantage in execution. The Management Company may follow the
practice of grouping orders of various clients for execution to get
the benefit of lower prices or commission rates. In certain cases
where the aggregate order may be executed in a series of
transactions at various prices, the transactions are allocated as to
amount and price in a manner considered equitable to each so that
each receives, to the extent practicable, the average price of such
transactions. Exceptions may be made based on such factors as the
size of the account and the size of the trade. For example, the
Management Company may not aggregate trades where it believes that
it is in the best interests of clients not to do so, including
situations where aggregation might result in a large number of small
transactions with consequent increased custodial and other
transactional costs which may disproportionately impact smaller
accounts. Such disaggregation, depending on the circumstances, may
or may not result in such accounts receiving more or less favorable
execution relative to other clients.
Shares of Beneficial Interest and Other Securities
The Fund's only authorized and outstanding securities are shares of
beneficial interest ("Shares"). The following provisions are
applicable to the Shares.
(i) Distribution Rights
The Board of Trustees determines the amounts
of ordinary income and/or capital gains to
be distributed to the holders of Shares and
the time or times when such distributions
will be made. Distributions of net income,
exclusive of capital gains, to the extent
practicable will be made quarterly. Such
dividends are declared in additional Shares
with the option to each shareholder to elect
to receive the distribution in cash. The
Fund's current practice is to retain
long-term capital gains and to pay the
Federal
21
<PAGE>
taxes thereon at corporate capital gains tax
rates on behalf of the shareholders.
(ii) Voting Rights
Shareholders are entitled to one vote or
fraction thereof for each Share, or fraction
thereof, held. The Shares do not possess
cumulative voting rights.
(iii) Liquidation Rights
All Shares will participate on a pro rata
basis in net assets in the event of
liquidation.
(iv) Preemptive Rights
Shares and fractions thereof have no
Preemptive rights.
(v) Conversion Rights
Shares and fractions thereof have no
conversion rights.
(vi) Redemption Provisions
A Shareholder has the right to redeem his
Shares by delivering to the Fund either his
certificates, or an instrument of transfer
if no certificates have been issued, in good
order for transfer, with a separate written
request for redemption. Redemption is made
at the net asset value next computed after
such delivery. Good order means that
certificates or instruments of transfer must
be endorsed by the record owner(s) exactly
as the Shares are registered and the
signature(s) 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 by the Fund
in certain instances.
Payment for Shares surrendered for
redemption is made within seven days. The
Fund may suspend the right of redemption or
postpone the date of payment of a redemption
or redemptions during any period when
trading on the New York Stock Exchange (the
"NYSE") is restricted or such Exchange is
closed (other than weekends or holidays), or
the Securities and Exchange Commission has
by order permitted such suspension, or the
Board of Trustees has determined an
emergency exists making disposal of
securities, or determination of the net
asset value of the Fund, not reasonably
practicable. The Fund, in the sole
discretion of
22
<PAGE>
the Board of Trustees, may pay, and
ordinarily will pay, the redemption price in
whole or in part by a distribution in kind
of securities from the portfolio of the Fund
in lieu of cash.
(vii) Sinking Fund Provisions
There are no sinking fund provisions.
(viii) Liability to Further Calls or to Assessment
There is no liability to further calls or to
assessment by the Registrant.
The rights of Registrant's shareholders set
forth in Registrant's Master Trust Agreement
may be modified by lawful amendment thereof
at any time, so long as such amendment does
not have a material adverse effect on the
rights of any shareholder with respect to
which such amendment is or purports to be
applicable by an instrument in writing
signed by a majority of Trustees (or by an
officer pursuant to a vote of a majority of
Trustees). Any such amendment that does have
a material adverse effect on the rights of
shareholders may be adopted as above
provided when authorized by vote of a
majority of shares then outstanding and
entitled to vote.
Under Massachusetts law, the shareholders of
the Trust could, under certain
circumstances, be held personally liable for
the obligations of the Trust. However, the
Master Trust Agreement of the Trust
disclaims shareholder liability for acts or
obligations of the Trust and provides for
indemnification for all losses and expenses
of any shareholder of the Fund held
personally liable for the obligations of the
Trust. Thus, the risk of a shareholder
incurring financial loss on account of
shareholder liability is limited to
circumstances in which the Fund would be
unable to meet its obligations. The
Management Company believes that, in view of
the above, the risk of personal liability to
shareholders is remote.
Shareholder inquiries should be made to
State Street Research Shareholder Services,
P.O. Box 8408, Boston, MA 02266-8408 or, if
by telephone, to 1-800-562-0032.
Redemption and Pricing of Securities
The Fund is not offering its Shares to the general public and
consequently has no offering price. Registrant has no principal
underwriter.
23
<PAGE>
As set forth above, redemptions of the Fund's Shares are made at
their net asset value next computed after delivery of such shares to
the Fund in good order for transfer under the conditions and in
accordance with the policies and procedures there stated.
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.
The net asset value of the shares of the Fund is determined once
daily as of the close of the NYSE, ordinarily 4 P.M. New York
City time, Monday through Friday, on each day during which the NYSE
is open for unrestricted trading. The NYSE is currently closed for
Martin Luther King, Jr. Day, New Year's Day, Presidents Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
The net asset value per share of the Fund is computed by dividing
the sum of the market 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 Management
Company, are accrued daily.
In determining the values of the portfolio assets, the Trustees
utilize one or more pricing services to value, certain securities
for which market quotations are not readily available on a daily
basis. The pricing services 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' NASDAQ
System, or other system, are valued at the closing price supplied
through such system for that day at
24
<PAGE>
the close of the NYSE. Other securities are, in general, valued at
the mean of the bid and asked quotations last quoted prior to the
close of the NYSE if there are market quotations readily available,
or in the absence of such market quotations, then at the fair value
thereof as determined by or under authority of the Trustees of the
Trust with the use of such pricing services as may be deemed
appropriate or methodologies approved by the Trustees.
Short-term debt instruments issued with a maturity of one year or
less which have a remaining maturity of 60 days or less are valued
using the amortized cost method, 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. The amortized cost method is used
when the value obtained is fair value. 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.
Tax Status
Registrant intends to qualify under those sections of the Internal
Revenue Code which provide that Registrant, so long as it so
qualifies, will pay no federal income taxes on investment income or
on capital gains to the extent they are distributed to Registrant's
shareholders.
Dividends paid out of investment income are taxable to Registrant's
shareholders at ordinary income tax rates whether they are taken by
Registrant's shareholders in additional shares of Registrant or in
cash. In general, such dividends are eligible for the dividends
received deduction for corporations. The percentage of Registrant's
dividends eligible for such tax treatment may be less than 100% to
the extent that less than 100% of the Registrant's gross income may
be from qualifying dividends of domestic corporations. Distributions
of capital gains, if made, will ordinarily be taxable to
Registrant's shareholders at federal capital gain rates regardless
of how long the underlying shares of Registrant have been held and
regardless of whether they are taken by the shareholder in
additional shares of Registrant or in cash.
Registrant currently follows a policy of distributing substantially
all of its net investment income (ordinarily
25
<PAGE>
no less than 98% to avoid imposition of an excise tax under the
Internal Revenue Code) to its shareholders and of retaining net
realized capital gains and paying the Federal tax thereon on behalf
of its shareholders. Retention by Registrant of its net realized
long-term capital gains and payment of the tax thereon on behalf of
shareholders results in each shareholder including in his income tax
return his proportionate share of such gains and taking a credit for
the payment of the corporate tax thereon and of increasing the tax
basis of his shares in Registrant by an amount equal to the
difference between his proportionate share of such gains and the
amount of the tax paid on his behalf by Registrant.
Financial Statements
The Investment Portfolio, the Statement of Assets and Liabilities,
the Statement of Operations, the Notes to Financial Statements
(including Financial Highlights), the Report of Independent
Accountants and Management's Discussion of Fund Performance, each of
which is included in the Annual Report to Shareholders of State
Street Research Exchange Fund, for the fiscal year ended December
31, 1997, and the Statement of Changes in Net Assets for the year
ended December 31, 1997 and for the year ended December 31, 1996,
also included in said Annual Report, are hereby incorporated by
reference into this Statement of Additional Information.
26
<PAGE>
Part C
STATE STREET RESEARCH EXCHANGE TRUST
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements - Incorporated by reference in Part
B of this Registration Statement from the Annual Report
to Shareholders for the fiscal year ended December 31,
1997:
Investment Portfolio
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets - Years
ended December 31, 1997 and December 31,
1996
Notes to Financial Statements (including
Financial Highlights)
Report of Independent Accountants
Management's Discussion of Fund Performance
(b) Exhibits
(1) Master Trust Agreement and
Amendment No. 1 to the
Master Trust Agreement (v)
(2)(a) By-Laws (i)*
(2)(b) No. 1 to By-Laws effective
September 30, 1992 (iv)*
(5) Investment Advisory Contract (iii)**
(8) Custodian Contract (ii)**
(11) Consent of Coopers & Lybrand L.L.P.
(12) Annual Report to Shareholders
for fiscal year ended December 31, 1997
(17) First Amended and Restated Multiple Class
Expense Allocation Plan (vi)
(18)(a) Power of Attorney
(18)(b) Certificate of Board Resolution Respecting
Power of Attorney
(27) Financial Data Schedule
- ----------------------
Filed as part of the Registration Statement as noted below and incorporated
herein by reference:
Footnote Investment Company Act of 1940
Reference Registration/Amendment Date Filed
i Amendment No. 5 to April 26, 1989
Registration Statement
ii Amendment No. 6 to April 27, 1990
Registration Statement
iii Amendment No. 8 to April 30, 1991
Registration Statement
iv Amendment No. 10 to April 30, 1993
Registration Statement
v Amendment No. 13 to
Registration Statement April 29, 1996
vi Amendment No. 14 to
Registration Statement April 30, 1997
* Filed electronically April 24, 1996
**Filed electronically April 30, 1998
C-1
<PAGE>
Item 25. Persons Controlled by or under Common Control with
Registrant
Inapplicable.
Item 26. Number of Holders of Securities
(1) (2)
Number of Record
Title of Class Holders (at 3/31/98)
416
Shares of
Beneficial Interest
Item 27. Indemnification
Article VI of Registrant's 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.
C-2
<PAGE>
Item 28. Business and Other Connections of Investment Adviser
Describe any other business, profession, vocation or employment of a
substantial nature in which each investment adviser of the Registrant, and each
director, officer or partner of any such investment adviser, is or has been, at
any time during the past two fiscal years, engaged for his own account or in the
capacity of director, officer, employee, partner or trustee.
<TABLE>
<CAPTION>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
<S> <C> <C> <C>
State Street Investment Adviser Various investment Boston, MA
Research & advisory clients
Management
Company
Arpiarian, Tanya None
Vice President
Bangs, Linda L. None
Vice President
Bennett, Peter C. Vice President State Street Research Capital Trust Boston, MA
Director and Vice President State Street Research Exchange Trust Boston, MA
Executive Vice Vice President State Street Research Financial Trust Boston, MA
President Vice President State Street Research Growth Trust Boston, MA
Vice President State Street Research Master Investment Trust Boston, MA
Vice President State Street Research Equity Trust
Vice President State Street Research Income Trust Boston, MA
Director State Street Research Investment Services, Inc Boston, MA
Director State Street Research Luxembourg
Director Boston Private Bank & Trust Co. Boston, MA
President and Director Christian Camps & Conferences, Inc. Boston, MA
Chairman and Trustee Gordon College Wenham, MA
Executive Vice President GFM International Investors, Inc. London, England
Bochman, Kathleen None
Vice President
Borzilleri, John Vice President Montgomery Securities San Francisco, CA
Vice President (until 6/97)
Bray, Michael J. Employee Merrill Lynch & Co. Boston, MA
Vice President (until 7/96)
Brown, Susan H. None
Vice President
Buffum, Andrea Project Manager BankBoston Boston, MA
Vice President (until 12/96)
Burbank, John F. None
Senior Vice President
(Vice President until
7/96)
Cabrera, Jesus A. Vice President State Street Research Capital Trust Boston, MA
Vice President
Calame, Mara D. Assistant Vice President GFM International Investors, Inc. London, England
Vice President and Assistant Secretary
Canavan, Joseph W. Assistant Treasurer State Street Research Equity Trust Boston, MA
Senior Vice President Assistant Treasurer State Street Research Financial Trust Boston, MA
(Vice President until Assistant Treasurer State Street Research Income Trust Boston, MA
4/98) Assistant Treasurer State Street Research Money Market Trust Boston, MA
Assistant Treasurer State Street Research Tax-Exempt Trust Boston, MA
Assistant Treasurer State Street Research Capital Trust Boston, MA
Assistant Treasurer State Street Research Exchange Trust Boston, MA
Assistant Treasurer State Street Research Growth Trust Boston, MA
Assistant Treasurer State Street Research Master Investment Trust Boston, MA
Assistant Treasurer State Street Research Securities Trust Boston, MA
Assistant Treasurer State Street Research Portfolios, Inc. Boston, MA
Vice President GFM International Investors, Inc. London, England
C-3
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Carstens, Linda C. None
Vice President
Clifford, Jr., Paul J. Vice President State Street Research Tax-Exempt Trust Boston, MA
Vice President
Coleman, Thomas J. Account Manager MetLife Investment Management New York, NY
Vice President (until 9/96)
Cullen, Terrence J. Vice President and Counsel Keystone-Evergreen Boston, MA
Vice President (until 2/98)
and Counsel
D'Vari, Ronald None
Vice President
DeVeuve, Donald None
Vice President
DiFazio, Susan M.W. Senior Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President
Dillman, Thomas J Vice President State Street Research Securities Trust Boston, MA
Senior Vice President
Drake, Susan W. None
Vice President
Dudley, Catherine Senior Portfolio Manager Chancellor Capital Management Boston, MA
Senior Vice President
Duggan, Peter J. None
Senior Vice
President
Even, Karen None
Vice President
Federoff, Alex G. None
Vice President
Fee, Richard None
Vice President
Feliciano, Rosalina None
Vice President
Gardner, Michael D. None
Senior Vice President
Geer, Bartlett R. Vice President State Street Research Equity Trust Boston, MA
Senior Vice President Vice President State Street Research Income Trust Boston, MA
Vice President State Street Research Securities Trust Boston, MA
Giroux, June M. None
Vice President
Govoni, Electra None
Vice President
C-4
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Granger, Allison None
Vice President
Hamilton, Jr., William A. Treasurer and Director Ellis Memorial and Eldredge House Boston, MA
Senior Vice President Treasurer and Director Nautical and Aviation Publishing Company, Inc. Baltimore, MD
Treasurer and Director North Conway Institute Boston, MA
Hanson, Phyllis None
Vice President
Haverty, Jr., Lawrence J. Vice President State Street Research Capital Trust Boston, MA
Senior Vice President
Heineke, George R. None
Vice President
Jackson, Jr., F. Gardner Vice President State Street Research Equity Trust Boston, MA
Senior Vice President Trustee Certain trusts of related and
non-related individuals
Trustee and Chairman Vincent Memorial Hospital Boston, MA
of the Board
Jamieson, Frederick H. Senior Vice President State Street Research Investment Services, Inc. Boston, MA
and Asst. Treasurer
Senior Vice President Vice President and Asst. Treasurer SSRM Holdings, Inc. Boston, MA
Vice President and Controller MetLife Securities, Inc. New York, NY
(until 1/97)
Senior Vice President GFM International Investors, Inc. London, England
Jodka, Richard Portfolio Manager (until 1/98) Frontier Capital Management Boston, MA
Senior Vice President
Vice President State Street Research Capital Trust Boston, MA
Kallis, John H. Vice President State Street Research Financial Trust Boston, MA
Senior Vice President Vice President State Street Research Income Trust Boston, MA
Vice President State Street Research Money Market Trust Boston, MA
Vice President State Street Research Tax-Exempt Trust Boston, MA
Vice President State Street Research Securities Trust Boston, MA
Trustee 705 Realty Trust Washington, D.C.
Director and President K&G Enterprises Washington, D.C.
Kasper, M. Katherine None
Vice President
C-5
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Kluiber, Rudolph K. Vice President State Street Research Capital Trust Boston, MA
Vice President
Langholm, Knut Director State Street Research Luxembourg
Vice President
Leary, Eileen M. None
Vice President
McNamara, III, Francis J. Executive Vice President, Clerk State Street Research Investment Services, Inc. Boston, MA
Executive Vice and General Counsel
President, Secretary and General Counsel State Street Research Master Investment Trust Boston, MA
Secretary and Secretary and General Counsel State Street Research Capital Trust Boston, MA
General Counsel Secretary and General Counsel State Street Research Exchange Trust Boston, MA
(Senior Vice President Secretary and General Counsel State Street Research Growth Trust Boston, MA
until 7/96) Secretary and General Counsel State Street Research Securities Trust Boston, MA
Secretary and General Counsel State Street Research Equity Trust Boston, MA
Secretary and General Counsel State Street Research Financial Trust Boston, MA
Secretary and General Counsel State Street Research Income Trust Boston, MA
Secretary and General Counsel State Street Research Money Market Trust Boston, MA
Secretary and General Counsel State Street Research Portfolios, Inc. Boston, MA
Secretary and General Counsel State Street Research Tax-Exempt Trust Boston, MA
Secretary and General Counsel SSRM Holdings, Inc. Boston, MA
Executive Vice President, GFM International Investors, Inc. London, England
Secretary and General Counsel
C-6
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Maus, Gerard P. Treasurer State Street Research Equity Trust Boston, MA
Director, Executive Treasurer State Street Research Financial Trust Boston, MA
Vice President Treasurer State Street Research Income Trust Boston, MA
and Treasurer Treasurer State Street Research Money Market Trust Boston, MA
Treasurer State Street Research Tax-Exempt Trust Boston, MA
Treasurer State Street Research Capital Trust Boston, MA
Treasurer State Street Research Exchange Trust Boston, MA
Treasurer State Street Research Growth Trust Boston, MA
Treasurer State Street Research Master Investment Trust Boston, MA
Treasurer State Street Research Portfolios, Inc. Boston, MA
Treasurer State Street Research Securities Trust Boston, MA
Director, Executive Vice President, State Street Research Investment Services, Inc. Boston, MA
Treasurer and Chief Financial Officer
Executive Vice President, Chief
Financial Officer, Chief
Administrative Officer and Director GFM International Investors, Inc. London, England
Director State Street Research Luxembourg
Director Metric Holdings, Inc. San Francisco, CA
Director Certain wholly-owned subsidiaries
of Metric Holdings, Inc.
Treasurer and Chief Financial SSRM Holdings, Inc. Boston, MA
Officer
Treasurer (until 1/97) MetLife Securities, Inc. New York, NY
Milder, Judith J. None
Senior Vice President
Miller, Joan D. Senior Vice President State Street Research Investment Services, Inc. Boston, MA
Senior Vice President
(Vice President
until 7/96)
Moore, Jr., Thomas P. Vice President State Street Research Capital Trust Boston, MA
Senior Vice (until 11/96)
President Vice President State Street Research Exchange Trust Boston, MA
(until 2/97)
Vice President State Street Research Growth Trust Boston, MA
(until 2/97)
Vice President State Street Research Master Investment Trust Boston, MA
(until 2/97)
Vice President State Street Research Equity Trust Boston, MA
Vice President State Street Research Energy, Inc. Boston, MA
Director Hibernia Savings Bank Quincy, MA
Governor on the Association for Investment Management
Board of Governors and Research Charlottesville, VA
Morey, Andrew None
Vice President
Mulligan, JoAnne C. Vice President State Street Research Money Market Trust Boston, MA
Senior Vice President
(Vice President
until 7/96)
Orr, Stephen C. Member Technology Analysts of Boston Boston, MA
Vice President Member Electro-Science Analysts (of NYC) New York, NY
C-7
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Paddon, Steven W. Employee Metropolitan Life Insurance Company New York, NY
Vice President (until 10/96)
Pannell, James C. None
Senior Vice President
(Vice President
until 4/97)
Peters, Kim M. Vice President State Street Research Securities Trust Boston, MA
Senior Vice President
Poritzky, Dean E. Portfolio Manager Fidelity Investments Boston, MA
Vice President (until 4/97)
Pyle, David J. Analyst Oak Value Capital Management Durham, NC
Vice President (until 4/97)
Ragsdale, E.K. Easton Senior Vice President GFM International Investors, Inc. London, England
Senior Vice President
(Vice President
until 7/96)
Rawlins, Jeffrey A. None
Senior Vice President
(Vice President
until 7/96)
Rice III, Daniel Joseph Vice President State Street Research Equity Trust Boston, MA
Senior Vice President
Richards, Scott None
Vice President
Romich, Douglas A. Assistant Treasurer State Street Research Equity Trust Boston, MA
Senior Vice President Assistant Treasurer State Street Research Financial Trust Boston, MA
(Vice President Assistant Treasurer State Street Research Income Trust Boston, MA
until 4/98) Assistant Treasurer State Street Research Money Market Trust Boston, MA
Assistant Treasurer State Street Research Tax-Exempt Trust Boston, MA
Assistant Treasurer State Street Research Capital Trust Boston, MA
Assistant Treasurer State Street Research Exchange Trust
Assistant Treasurer State Street Research Growth Trust Boston, MA
Assistant Treasurer State Street Research Master Investment Trust Boston, MA
Assistant Treasurer State Street Research Securities Trust Boston, MA
Assistant Treasurer State Street Research Portfolios, Inc. Boston, MA
Vice President GFM International Investors, Inc. London, England
Sanderson, Derek Senior Vice President Freedom Capital Management Boston, MA
Senior Vice President
Saperstone, Paul None
Vice President
C-8
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Schrage, Michael None
Vice President
Schultz, David C. Director and Treasurer Mafraq Hospital Association Mafraq, Jordan
Executive Vice Member Association of Investment
President Management Sales Executives Atlanta, GA
Member, Investment Committee Lexington Christian Academy Lexington, MA
Shaver, Jr. C. Troy President, Chief Executive State Street Research Investment Services, Inc. Boston, MA
Executive Vice Officer and Executive Vice
President President
Shean, William G. None
Vice President
Shively, Thomas A. Vice President State Street Research Financial Trust Boston, MA
Director and Vice President State Street Research Money Market Trust Boston, MA
Executive Vice Vice President State Street Research Tax-Exempt Trust
President Director State Street Research Investment Services, Inc Boston, MA
Vice President State Street Research Luxembourg
Director State Street Research Securities Trust Boston, MA
Shoemaker, Richard D.
Senior Vice President Senior Vice President GFM International Investors, Inc. London, England
Stambaugh, Kenneth None
Vice President
(Assistant Vice
President until 9/97)
Strelow, Dan R. None
Senior Vice President
C-9
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Swanson, Amy McDermott None
Senior Vice President
Trebino, Anne M. Vice President SSRM Holdings, Inc. Boston, MA
Senior Vice President
Verni, Ralph F. Chairman, President, Chief State Street Research Capital Trust Boston, MA
Chairman, President, Executive Officer and Trustee
Chief Executive Chairman, President, Chief State Street Research Exchange Trust Boston, MA
Officer and Executive Officer and Trustee
Director Chairman, President, Chief State Street Research Growth Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Master Investment Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Securities Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Equity Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Financial Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Income Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Money Market Trust Boston, MA
Executive Officer and Trustee
Chairman, President, Chief State Street Research Portfolios, Inc. Boston, MA
Executive Officer and Director
Chairman, President, Chief State Street Research Tax-Exempt Trust Boston, MA
Executive Officer and Trustee
Chairman and Director State Street Research Investment Services, Inc. Boston, MA
Chairman, President, GFM International Investors, Inc. London, England
CEO and Director
Director State Street Research Luxembourg
Chairman and Director Metric Holdings, Inc. San Francisco, CA
Director and Officer Certain wholly-owned subsidiaries
of Metric Holdings, Inc.
Chairman of the Board and Director MetLife Securities, Inc. New York, NY
(until 1/97)
President, Chief Executive SSRM Holdings, Inc. Boston, MA
Officer and Director
Director CML Group, Inc. Boston, MA
Director Colgate University Hamilton, NY
C-10
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Wade, Dudley Vice President State Street Research Growth Trust Boston, MA
Freeman Vice President State Street Research Master Investment Trust Boston, MA
Senior Vice
President
Wallace, Julie K. None
Vice President
Weiss, James M. Vice President State Street Research Equity Trust Boston, MA
Senior Vice President Vice President State Street Research Exchange Trust Boston, MA
Vice President State Street Research Growth Trust Boston, MA
Vice President State Street Research Master Investment Trust Boston, MA
Vice President State Street Research Capital Trust Boston, MA
Westvold, Vice President State Street Research Securities Trust Boston, MA
Elizabeth McCombs
Senior Vice President
(Vice President
until 7/96)
Wilkins, Kevin Vice President State Street Research Investment Services, Inc. Boston, MA
Vice President
Various Positions Fidelity Investments Boston, MA
(until 10/96)
Wilson, John T. Vice President State Street Research Equity Trust Boston, MA
Vice President Vice President State Street Research Master Investment Trust Boston, MA
Vice President Phoenix Investment Counsel, Inc. Hartford, CT
(until 6/96)
Wing, Darman A.
Senior Vice President, Senior Vice President and State Street Research Investment Services, Inc. Boston, MA
Assistant Secretary Asst. Clerk
and Assistant Assistant Secretary and State Street Research Capital Trust Boston, MA
General Counsel Assistant General Counsel
(Vice President Assistant Secretary and State Street Research Exchange Trust Boston, MA
until 4/98) 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
Assisstant General Counsel State Street Research Portfolios, Inc. 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
Vice President and GFM International Investors, Inc. London, England
Assistant General Counsel
Woodbury, Robert S. None
Vice President
Woodworth, Jr., Kennard Vice President State Street Research Exchange Trust Boston, MA
Senior Vice Vice President State Street Research Growth Trust Boston, MA
President Vice President State Street Research Securities Trust Boston, MA
C-11
<PAGE>
Principal business
Name Connection Organization address of organization
- ---- ---------- ------------ -----------------------
Wu, Norman N. Partner Atlantic-Acton Realty Framingham, MA
Senior Vice President Director Bond Analysts Society of Boston Boston, MA
</TABLE>
C-12
<PAGE>
Item 29. Principal Underwriters
Inapplicable.
Item 30. Location of Accounts and Records
Gerard P. Maus
State Street Research & Management Company
One Financial Center
Boston, MA 02111
Item 31. Management Services
Inapplicable.
Item 32. Undertakings
(a) Inapplicable
(b) Inapplicable
(c) 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 Statement of Additional Information is
delivered with a copy of the Registrant's latest annual
report to shareholders, upon request and without charge.
C-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940,
the Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Boston, and
Commonwealth of Massachusetts, on the 29th day of April, 1998.
STATE STREET RESEARCH EXCHANGE TRUST
Registrant
By /s/Francis J. McNamara, III
------------------------------
Francis J. McNamara, III
Secretary
INVESTMENT ADVISORY CONTRACT
Contract entered into this first day of May, 1989, between State Street
Exchange Trust, a Massachusetts business trust having its principal place of
business in Boston, Massachusetts (the "Trust") and State Street Research &
Management Company, a Delaware Corporation having its principal place of
business in Boston, Massachusetts (the "Adviser").
WITNESSETH:
That in consideration of the mutual covenants herein contained and the
performance herein required, the Trust and the Adviser hereby mutually agree as
follows:
1. Appointment of Adviser. The Trust hereby appoints and employs the
Adviser to act as investment adviser for the State Street Exchange Fund ("Fund")
series of the Trust for the term, with the duties, and subject to the conditions
as provided in this Contract, and the Adviser hereby accepts such appointment
and employment.
2. Duties of Adviser. The Adviser shall furnish to the Trust such
management, investment advisory, statistical and research facilities and
services as may be required from time to time by the Trust in operating the
Fund.
3. Allocation of Expenses.
(a) Except as provided in subparagraph (b) of this paragraph 3, the
Adviser, at its own expense, shall furnish to the Trust suitable office space
and related facilities, including all necessary equipment and clerical personnel
for managing the affairs and investments of the Fund, in the offices maintained
by the Adviser in Boston, Massachusetts, or in such other place as may be agreed
on from time to time. The Adviser shall also pay the compensation of all
employees of the Trust and salaries, expenses and costs connected with
investment research and statistical work and the operation of the business of
the Adviser.
(b) All expenses of the Fund, other than those to be paid by the Adviser
pursuant to subparagraph (a) of this paragraph 3 shall be borne and paid by the
Fund, including, without implied limitation, governmental fees, fees of the
Trustees of the Trust not affiliated with the Adviser, interest charges, taxes,
membership dues in the Investment Company Institute, fees and expenses of
preparing, printing and mailing share confirmations or certificates, reports to
shareholders, notices, proxy statements and reports to governmental offices and
commissions, brokerage expenses, insurance premiums, fees and expenses of the
custodian for all services to the Fund, including safekeeping of funds and
securities, keeping of general books and accounts and
<PAGE>
calculation of the net asset value of shares of the Fund, expenses of
shareholders' meetings, and expenses relating to the issuance, registration and
qualification of shares of the Fund.
4. Compensation of the Adviser. As full compensation for the services to be
rendered and expenses to be borne by the Adviser as provided in paragraphs 2 and
3(a) hereof, the Fund shall pay to the Adviser quarterly, beginning with the
fiscal quarter in which falls the effective date of this Contract, an amount
equal to 1/8 of 1% of the average of the values of the net assets of the Fund
determined as of the close of the New York Stock Exchange on each day during
such fiscal quarter on which the net asset value per share of the Fund is
determined pursuant to the provisions of the Master Trust Agreement of the
Trust, as amended, other than any such days as fall prior to the effective date
of this Contract or subsequent to the date of termination of this Contract. Such
payment for a fiscal quarterly period shall be made by the Fund to the Adviser
within ten days following the close of such period. If the effective date of
this Contract is other than the first day of a fiscal quarter or if the term of
this Contract shall terminate other than on the last day of a fiscal quarter,
then the Adviser shall be entitled to receive as compensation a payment
calculated as above provided on a pro rata basis for the portion of the fiscal
quarterly period which shall have elapsed from and after such effective date or
up to and including such termination date, as the case may be.
5. Covenants of the Adviser. The Adviser covenants that during the term of
this Contract each of its officers and directors shall keep the Board of
Trustees of the Trust advised on a monthly basis of the names of those issuers
(the securities of which are owned by the Fund) in which such officer or
director owns more than one half of one percent (1/2 of 1%) of the outstanding
shares or securities, or both (taken at market value) of such issuer.
6. Effective Date, Duration and Termination of the Contract.
(a) This Contract shall become effective at the commencement of
business on May 1, 1989, and shall remain in effect (unless terminated as herein
provided) until April 30, 1990, and from year to year thereafter; provided that
this Contract shall continue in effect after April 30, 1990, only so long as (1)
such continuance is specifically approved at least annually by either (A) the
Board of Trustees of the Trust or, (B) "vote of a majority of the outstanding
voting securities" (as defined in section 2(a)(42) of the Investment Company Act
of 1940) of the Fund and (2) the terms of this Contract are approved at least
annually by the vote of a majority of the Trustees of the Trust who are not
parties to the Contract or "interested persons" of any such party (as such term
is defined in section 2(a)(19) of the Investment Company Act of 1940 after
giving effect to any exemption obtained by the Trust) cast in person at a
meeting called for the purpose of voting on such approval.
-2-
<PAGE>
(b) This Contract may be terminated at any time without the payment
of any penalty by vote of the Board of Trustees of the Trust or by "vote of a
majority of the outstanding voting securities" (as defined in section 2(a)(42)
of the Investment Company Act of 1940) of the Fund, or by the Adviser, in each
case upon sixty calendar days' prior written notice to the other party to the
Contract.
(c) This Contract shall terminate automatically in the event of its
"assignment" (as defined in section 2(a)(4) of the Investment Company Act of
1940).
(d) In the event of termination of this Contract for any reason
whatsoever, the Adviser shall have the right in its discretion to require the
Trust to change its name to eliminate all reference to "State Street."
7. Amendments. This Contract may be amended at any time or from time to
time by an instrument in writing signed by or under the authority of the Board
of Trustees of the Trust and by the Adviser, but no amendment to this Contract
shall be effective until (1) such amendment is approved by the affirmative "vote
of a majority of the outstanding voting securities" (as defined in section
2(a)(42) of the Investment Company Act of 1940) of the Fund, and (2) the terms
of such amendment are approved by the vote of a majority of the Trustees of the
Trust who are not parties to this Contract or "interested persons" of any such
party (as such term is defined in section 2(a)(19) of the Investment Company Act
of 1940), cast in person at a meeting called for the purpose of voting on such
approval.
8. Miscellaneous Provisions.
(a) The duties of the Adviser under the Contract shall not prevent
the Adviser from rendering similar services to other persons, firms, trusts,
corporations or other entities. The Adviser may also permit others to use the
words "State Street" in their names.
(b) The Adviser shall not be subject to liability for any act or
omission in the course of, or connected with, its performance of this Contract,
except in the case of willful misfeasance, bad faith or gross negligence on the
part of the Adviser, or the reckless disregard by the Adviser of its obligations
and duties under this Contract.
(c) Notices under this Contract shall be in writing and shall be
addressed, and delivered or mailed postage prepaid, to the other party at such
address as such other party may designate from time to time for the receipt of
such notices. Until further notice to the other party, the address of each party
to this Contract for this purpose shall be One Financial Center, Boston,
Massachusetts 02111.
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<PAGE>
(d) It is expressly agreed that the obligations of the Trust
hereunder, and the authorization, execution and delivery to this document, shall
not be binding upon any of the Trustees, shareholders, nominees, officers,
agents or employees of the Trust as individuals or personally, but shall bind
only the property of the Fund, as provided in the Master Trust Agreement of the
Trust. The Master Trust Agreement of the Trust provides, and it is expressly
agreed, that the Fund of the Trust shall be solely and exclusively responsible
for the payment of any direct or indirect debts, liabilities and obligations
relating to the Fund, and that no other fund shall be responsible for the same.
IN WITNESS WHEREOF, STATE STREET EXCHANGE TRUST has caused this instrument
to be signed in duplicate on its behalf by an officer, thereunto duly
authorized, and STATE STREET RESEARCH & MANAGEMENT COMPANY has caused this
instrument to be signed in duplicate on its behalf by an officer, thereunto duly
authorized, all as of the date and year first above written.
STATE STREET EXCHANGE TRUST
By: /s/ Charles L. Smith, Jr.
-------------------------------------
Charles L. Smith, Jr.
President
STATE STREET RESEARCH & MANAGEMENT COMPANY
By: /s/ Herbert P. Hess
-------------------------------------
Herbert P. Hess, President
-4-
AMENDMENT TO CUSTODIAN CONTRACT
Agreement made by and between State Street Bank and Trust Company (the
"Custodian") and State Street Exchange Trust (the "Fund").
WHEREAS, the Custodian and the Fund are parties to a custodian contract
dated March 5, 1990 (the "Custodian Contract") governing the terms and
conditions under which the Custodian maintains custody of the securities and
other assets of the Fund; and
WHEREAS, the Custodian and the Fund desire to amend the terms and
conditions under which the Custodian maintains the Fund's securities and other
non-cash property in the custody of certain foreign sub-custodians in conformity
with the requirements of Rule 17f-5 under the Investment Company Act of 1940, as
amended;
NOW THEREFORE, in consideration of the premises and covenants contained
herein, the Custodian and the Fund hereby amend the Custodian Contract by the
addition of the following terms and provisions;
1. Notwithstanding any provisions to the contrary set forth in the
Custodian Contract, the Custodian may hold securities and other non-cash
property for all of its customers, including the Fund, with a foreign
sub-custodian in a single account that is identified as belonging to the
Custodian for the benefit of its customers, provided however, that (i) the
records of the Custodian with respect to securities and other non-cash property
of the Fund which are maintained in such account shall identify by book-entry
those securities and other non-cash property belonging to the Fund and (ii) the
Custodian shall require that securities and other non-cash property so held by
the foreign sub-custodian be held separately from any assets of the foreign
sub-custodian or of others.
2. Except as specifically superseded or modified herein, the terms and
provisions of the Custodian Contract shall continue to apply with full force and
effect.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed as a sealed instrument in its name and behalf by its duly authorized
representative this 2nd day of November, 1995.
STATE STREET EXCHANGE TRUST
(Currently State Street Research Exchange Trust)
By: /s/ Gerard P. Maus
-------------------------------
Title: Treasurer
STATE STREET BANK AND TRUST COMPANY
By: /s/ Timothy J. Panaro
-------------------------------
Title: Vice President
<PAGE>
121189-1
CUSTODIAN CONTRACT
Between
STATE STREET EXCHANGE TRUST
and
STATE STREET BANK AND TRUST COMPANY
21E1089
WP0855C
<PAGE>
TABLE OF CONTENTS
Page
----
1. Employment of Custodian and Property to be Held By It....... 1
2. Duties of the Custodian with Respect to Property of
the Fund Held by the Custodian in the United States ........ 3
2.1 Holding Securities .................................. 3
2.2 Delivery of Securities .............................. 3
2.3 Registration of Securities .......................... 8
2.4 Bank Accounts ....................................... 9
2.5 Availability of Federal Funds ....................... 10
2.6 Collection of Income ................................ 10
2.7 Payment of Fund Monies............................... 10
2.8 Liability for Payment in Advance of
Receipt of Securities Purchased ..................... 14
2.9 Appointment of Agents ............................... 15
2.10 Deposit of Fund Assets in Securities System.......... 15
2.10A Fund Assets Held in the Custodian's Direct
Paper System......................................... 18
2.11 Segregated Account................................... 20
2.12 Ownership Certificates for Tax Purposes.............. 21
2.13 Proxies.............................................. 22
2.14 Communications Relating to Portfolio
Securities........................................... 22
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside of the United States.................. 23
3.1 Appointment of Foreign Sub-Custodians................ 23
3.2 Assets to be Held ................................... 23
3.3 Foreign Securities Depositories ..................... 24
3.4 Segregation of Securities ........................... 24
3.5 Agreements with Foreign Banking Institutions ........ 25
3.6 Access of Independent Accountants of the Fund ....... 25
3.7 Reports by Custodian ................................ 26
3.8 Transactions in Foreign Custody Account ............. 26
3.9 Liability of Foreign Sub-Custodians ................. 27
3.10 Liability of Custodian............................... 28
3.11 Reimbursement for Advances........................... 29
3.12 Monitoring Responsibilities.......................... 29
3.13 Branches of U.S. Banks............................... 30
4. Payments for Sales or Repurchase or Redemptions
of Shares of the Fund ...................................... 31
5. Proper Instructions ........................................ 32
6. Actions Permitted Without Express Authority ................ 32
7. Evidence of Authority ...................................... 33
8. Duties of Custodian With Respect to the Books of Account
and Calculation of Net Asset Value and Net
Income...................................................... 34
<PAGE>
9. Records.................................................... 34
10. Opinion of Fund's Independent Accountants.................. 35
11. Reports to Fund by Independent Public Accountants.......... 35
12. Compensation of Custodian.................................. 36
13. Responsibility of Custodian................................ 36
14. Effective Period, Termination and Amendment................ 38
15. Successor Custodian........................................ 40
16. Interpretive and Additional Provisions..................... 41
17. Additional Funds........................................... 42
18. Massachusetts Law to Apply................................. 42
19. Prior Contracts............................................ 42
20. Disclaimer................................................. 42
<PAGE>
CUSTODIAN CONTRACT
This Contract between State Street Exchange Trust, a business trust
organized and existing under the laws of Massachusetts, having its principal
place of business at One Financial Center, Boston, Massachusetts, 02111
hereinafter called the "Fund", and State Street Bank and Trust Company, a
Massachusetts trust company, having its principal place of business at 225
Franklin Street, Boston, Massachusetts, 02110, hereinafter called the
"Custodian",
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series, with
each such series representing interests in a separate portfolio of securities
and other assets; and
WHEREAS, the Fund intends to initially offer shares in one series, the
State Street Exchange Fund (such series together with all other series
subsequently established by the Fund and made subject to this Contract in
accordance with paragraph 17, being herein referred to as the "Portfolio(s)");
NOW THEREFOR, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of the assets of the
Portfolios of the Fund, including securities which the Fund, on behalf of the
applicable Portfolio desires to be held in places within the United States
("domestic
<PAGE>
securities") and securities it desires to be held outside the United States
("foreign securities") pursuant to the provisions of the Declaration of Trust.
The Fund on behalf of the Portfolio(s) agrees to deliver to the Custodian all
securities and cash of the Portfolios, and all payments of income, payments of
principal or capital distributions received by it with respect to all securities
owned by the Portfolio(s) from time to time, and the cash consideration received
by it for such new or treasury shares of beneficial interest of the Fund
representing interests in the Portfolios, ("Shares") as may be issued or sold
from time to time. The Custodian shall not be responsible for any property of a
Portfolio held or received by the Portfolio and not delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article 5),
the Custodian shall on behalf of the applicable Portfolio(s) from time to time
employ one or more sub-custodians, located in the United States but only in
accordance with an applicable vote by the Board of Trustees of the Fund on
behalf of the applicable Portfolio(s), and provided that the Custodian shall
have no more or less responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian. The Custodian may employ as sub-custodian
for the Fund's foreign securities on behalf of the applicable Portfolio(s) the
foreign banking institutions and foreign securities depositories designated in
Schedule A hereto but only in accordance with the provisions of Article 3.
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<PAGE>
2. Duties of the Custodian with Respect to Property of the Fund Held By
the Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and physically
segregate for the account of each Portfolio all non-cash property, to
be held by it in the United States including all domestic securities
owned by such Portfolio, other than (a) securities which are maintained
pursuant to Section 2.10 in a clearing agency which acts as a
securities depository or in a book-entry system authorized by the U.S.
Department of the Treasury, collectively referred to herein as
"Securities System" and (b) commercial paper of an issuer for which
State Street Bank and Trust Company acts as issuing and paying agent
("Direct Paper") which is deposited and/or maintained in the Direct
Paper System of the Custodian pursuant to Section 2.10A.
2.2 Delivery of Securities. The Custodian shall release and deliver
domestic securities owned by a Portfolio held by the Custodian or in a
Securities System account of the Custodian or in the Custodian's
Direct Paper book entry system account ("Direct Paper System Account")
only upon receipt of Proper Instructions from the Fund on behalf of the
applicable Portfolio, which may be continuing instructions when deemed
appropriate by the parties, and only in the following cases:
1) Upon sale of such securities for the account of the Portfolio
and receipt of payment therefor;
-3-
<PAGE>
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the
Portfolio;
3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other
similar offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the
name of the Portfolio or into the name of any nominee or
nominees of the Custodian or into the name or nominee name of
any agent appointed pursuant to Section 2.9 or into the name
or nominee name of any sub-custodian appointed pursuant to
Article 1; or for exchange for a different number of bonds,
certificates or other evidence representing the same aggregate
face amount or number of units; provided that, in any such
case, the new securities are to be delivered to the Custodian;
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<PAGE>
7) Upon the sale of such securities for the account of the
Portfolio, to the broker or its clearing agent, against a
receipt, for examination in accordance with "street delivery"
custom; provided that in any such case, the Custodian shall
have no responsibility or liability for any loss arising from
the delivery of such securities prior to receiving payment for
such securities except as may arise from the Custodian's own
negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and cash,
if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for
-5-
<PAGE>
definitive securities; provided that, in any such case, the
new securities and cash, if any, are to be delivered to the
Custodian;
10) For delivery in connection with any loans of securities made
by the Portfolio, but only against receipt of adequate
collateral as agreed upon from time to time by the Custodian
and the Fund on behalf of the Portfolio, which may be in the
form of cash or obligations issues by the United States
government, its agencies or instrumentalities, except that in
connection with any loans for which collateral is to be
credited to the Custodian's account in the book-entry system
authorized by the U.S. Department of the Treasury, the
Custodian will not be held liable or responsible for the
delivery of securities owned by the Portfolio prior to the
receipt of such collateral;
11) For delivery as security in connection with any borrowings by
the Fund on behalf of the Portfolio requiring a pledge of
assets by the Fund on behalf of the Portfolio, but only
against receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian and a
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<PAGE>
broker-dealer registered under the Securities Exchange Act of
1934 (the "Exchange Act") and a member of The National
Association of Securities Dealers, Inc. ("NASD"), relating to
compliance with the rules of The Options Clearing Corporation
and of any registered national securities exchange, or of any
similar organization or organizations, regarding escrow or
other arrangements in connection with transactions by the
Portfolio of the Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian, and a Futures Commission Merchant registered under
the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any
Contract Market, or any similar organization or organizations,
regarding account deposits in connection with transactions by
the Portfolio of the Fund;
14) Upon receipt of instructions from the transfer agent
("Transfer Agent") for the Fund, for delivery to such Transfer
Agent or to the holders of shares in connection with
distributions in kind, as may be described
-7-
<PAGE>
from time to time in the currently effective prospectus and
statement of additional information of the Fund, related to
the Portfolio ("Prospectus"), in satisfaction of requests by
holders of Shares for repurchase or redemption; and
15) For any other proper corporate purpose, but only upon receipt
of, in addition to Proper Instructions from the Fund on behalf
of the applicable Portfolio, a certified copy of a resolution
of the Board of Trustees or of the Executive Committee signed
by an officer of the Fund and certified by the Secretary or an
Assistant Secretary, specifying the securities of the
Portfolio to be delivered, setting forth the purpose for which
such delivery is to be made, declaring such purpose to be a
proper corporate purpose, and naming the persons or persons to
whom delivery of such securities shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, unless the Fund has authorized
in writing the appointment of a nominee to
-8-
<PAGE>
be used in common with other registered investment companies having the
same investment adviser as the Portfolio, or in the name or nominee
name of any agent appointed pursuant to Section 2.9 or in the name or
nominee name of any sub-custodian appointed pursuant to Article 1. All
securities accepted by the Custodian on behalf of the Portfolio under
the terms of this Contract shall be in "street name" or other good
delivery form. If, however, the Fund directs the Custodian to maintain
securities in "street name", the Custodian shall utilize its best
efforts only to timely collect income due the Fund on such securities
and to notify the Fund on a best efforts basis only of relevant
corporate actions including, without limitation, pendency of calls,
maturities, tender or exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio
of the Fund, subject only to draft or order by the Custodian acting
pursuant to the terms of this Contract, and shall hold in such account
or accounts, subject to the provisions hereof, all cash received by it
from or for the account of the Portfolio, other than cash maintained by
the Portfolio in a bank account established and used in accordance with
Rule 17f-3 under the Investment Company Act of 1940. Funds held by the
Custodian for a Portfolio may be deposited by it to its credit as
Custodian in the Banking Department
-9-
<PAGE>
of the Custodian or in such other banks or trust companies as it may in
its discretion deem necessary or desirable; provided, however, that
every such bank or trust company shall be qualified to act as a
custodian under the Investment Company Act of 1940 and that each such
bank or trust company and the funds to be deposited with each such bank
or trust company shall on behalf of each applicable Portfolio be
approved by vote of a majority of the Board of Trustees of the Fund.
Such funds shall be deposited by the Custodian in its capacity as
Custodian and shall be withdrawable by the Custodian only in that
capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund
on behalf of each applicable Portfolio and the Custodian, the Custodian
shall, upon the receipt of Proper Instructions from the Fund on behalf
of a Portfolio, make federal funds available to such Portfolio as of
specified times agreed upon from time to time by the Fund and the
Custodian in the amount of checks received in payment for Shares of
such Portfolio which are deposited into the Portfolio's account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to registered domestic securities held hereunder to which
each Portfolio shall be entitled either by law or pursuant to custom in
the securities business, and shall
-10-
<PAGE>
collect on a timely basis all income and other payments with respect to
bearer domestic securities if, on the date of payment by the issuer,
such securities are held by the Custodian or its agent thereof and
shall credit such income, as collected, to such Portfolio's custodian
account. Without limiting the generality of the foregoing, the
Custodian shall detach and present for payment all coupons and other
income items requiring presentation as and when they become due and
shall collect interest when due on securities held hereunder. Income
due each Portfolio on securities loaned pursuant to the provisions of
Section 2.2 (10) shall be the responsibility of the Fund. The Custodian
will have no duty or responsibility in connection therewith, other than
to provide the Fund with such information or data as may be necessary
to assist the Fund in arranging for the timely delivery to the
Custodian of the income to which the Portfolio is properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the
Fund on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Custodian
shall pay out monies of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of
the Portfolio but only (a) against the delivery
-11-
<PAGE>
of such securities or evidence of title to such options,
futures contracts or options on futures contracts to the
Custodian (or any bank, banking firm or trust company doing
business in the United States or abroad which is qualified
under the Investment Company Act of 1940, as amended, to act
as a custodian and has been designated by the Custodian as its
agent for this purpose) registered in the name of the
Portfolio or in the name of a nominee of the Custodian
referred to in Section 2.3 hereof or in proper form for
transfer; (b) in the case of a purchase effected through a
Securities System, in accordance with the conditions set forth
in Section 2.10 hereof; (c) in the case of a purchase
involving the Direct Paper System, in accordance with the
conditions set forth in Section 2.10A; (d) in the case of
repurchase agreements entered into between the Fund on behalf
of the Portfolio and the Custodian, or another bank, or a
broker-dealer which is a member of NASD, (i) against delivery
of the securities either in certificate form or through an
entry crediting the Custodian's account at the Federal Reserve
Bank with such securities or
-12-
<PAGE>
(ii) against delivery of the receipt evidencing purchase by
the Portfolio of securities owned by the Custodian along
with written evidence of the agreement by the Custodian
to repurchase such securities from the Portfolio or (e)
for transfer to a time deposit account of the Fund in
any bank, whether domestic or foreign; such transfer may
be effected prior to receipt of a confirmation from a
broker and/or the applicable bank pursuant to Proper
Instructions from the Fund as defined in Article 5;
2) In connection with conversion, exchange or surrender of
securities owned by the Portfolio as set forth in Section 2.2
hereof;
3) For the redemption or repurchase of Shares issued by the
Portfolio as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments
for the account of the Portfolio: interest, taxes, management,
accounting, transfer agent and legal fees, and operating
expenses of the Fund whether or not such expenses are to be in
whole or part capitalized or treated as deferred expenses;
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<PAGE>
5) For the payment of any dividends on Shares of the Portfolio
declared pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
Portfolio, a certified copy of a resolution of the Board of
Trustees or of the Executive Committee of the Fund signed by
an officer of the Fund and certified by its Secretary or an
Assistant Secretary, specifying the amount of such payment,
setting forth the purpose for which such payment is to be
made, declaring such purpose to be a proper purpose, and
naming the person or persons to whom such payment is to be
made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of domestic securities for the
account of a Portfolio is made by the Custodian in advance of receipt
of the securities purchased in the absence of specific written
instructions from the Fund on behalf of such Portfolio to so pay in
advance, the Custodian shall be absolutely liable to the Fund for such
securities to the
-14-
<PAGE>
same extent as if the securities hat been received by the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in
its discretion appoint (and may at any time remove) any other bank or
trust company which is itself qualified under the Investment Company
Act of 1940, as amended, to act as a Custodian, as its agent to carry
out such of the provisions of this Article 2 as the Custodian may from
time to time direct; provided, however, that the appointment of any
agent shall not relieve the Custodian of its responsibilities or
liabilities hereunder.
2.10 Deposit of Fund Assets in Securities Systems. The Custodian may deposit
and/or maintain securities owned by a Portfolio in a clearing agency
registered with the Securities and Exchange Commission under Section
17A of the Securities Exchange Act of 1934, which acts as a securities
depository, or in the book-entry system authorized by the U.S.
Department of the Treasury and certain federal agencies, collectively
referred to herein as "Securities System" in accordance with applicable
Federal Reserve Board and Securities and Exchange Commission rules and
regulations, if any, and subject to the following provisions:
1) The Custodian may keep securities of the Portfolio in a
Securities System provided that such securities are
represented in an account ("Account") of the Custodian in the
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<PAGE>
Securities System which shall not include any assets of the
Custodian other than assets held as a fiduciary, custodian or
otherwise for customers;
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a Securities System shall
identify by book-entry those securities belonging to the
Portfolio;
3) The Custodian shall pay for securities purchased for the
account of the Portfolio upon (i) receipt of advice from the
Securities System that such securities have been transferred
to the Account, and (ii) the making of an entry on the records
of the Custodian to reflect such payment and transfer for the
account of the Portfolio. The Custodian shall transfer
securities sold for the account of the Portfolio upon (i)
receipt of advice from the Securities System that payment for
such securities has been transferred to the Account, and (ii)
the making of an entry on the records of the Custodian to
reflect such transfer and payment for the account of the
Portfolio. Copies of all advices from the Securities System of
transfers of securities for the
-16-
<PAGE>
account of the Portfolio shall identify the Portfolio, be
maintained for the Portfolio by the Custodian and be provided
to the Fund at its request. Upon request, the Custodian shall
furnish the Fund on behalf of the Portfolio confirmation of
each transfer to or from the account of the Portfolio in the
form of a written advice or notice and shall furnish to the
Fund on behalf of the Portfolio copies of daily transaction
sheets reflecting each day's transactions in the Securities
System for the account of the Portfolio.
4) The Custodian shall provide the Fund for the Portfolio with
any report obtained by the Custodian on the Securities
System's accounting system, internal accounting control and
procedures for safeguarding securities deposited in the
Securities System;
5) The Custodian shall have received from the Fund on behalf of
the Portfolio the initial or annual certificate, as the case
may be, required by Article 14 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the
Portfolio for any loss or damage to the
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<PAGE>
Portfolio resulting from use of the Securities System by
reason of any negligence, misfeasance or misconduct of the
Custodian or any of its agents or of any of its or their
employees or from failure of the Custodian or any such agent
to enforce effectively such rights as it may have against the
Securities System; at the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with
respect to any claim against the Securities System or any
other person which the Custodian may have as a consequence of
any such loss or damage if and to the extent that the
Portfolio has not been made whole for any such loss or damage.
2.10A Fund Assets Held in the Custodian's Direct Paper System. The Custodian
may deposit and/or maintain securities owned by a Portfolio in the
Direct Paper System of the Custodian subject to the following
provisions:
1) No transaction relating to securities in the Direct Paper
System will be effected in the absence of Proper Instructions
from the Fund on behalf of the Portfolio;
2) The Custodian may keep Securities of the Portfolio in the
Direct Paper System only if such securities are represented in
an account
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<PAGE>
("Account") of the Custodian in the Direct Paper System which
shall not include any assets of the Custodian other than
assets held as a fiduciary, custodian or otherwise for
customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System
shall identify by book-entry those securities belonging to the
Portfolio;
4) The Custodian shall pay for securities purchased for the
account of the Portfolio upon the making of an entry on the
records of the Custodian to reflect such payment and transfer
of securities to the account of the Portfolio. The Custodian
shall transfer securities sold for the account of the
Portfolio upon the making of an entry on the records of the
Custodian to reflect such transfer and receipt of payment for
the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to or from the account
of the Portfolio, in the form of a written advice or notice,
of Direct Paper on the next business day following such
transfer and shall furnish
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<PAGE>
to the Fund on behalf of the Portfolio copies of daily
transaction sheets reflecting each day's transaction in the
Securities System for the account of the Portfolio;
6) The Custodian shall provide the Fund on behalf of the
Portfolio with any report on its system of internal accounting
control as the Fund may reasonably request from time to time.
2.11 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain a segregated account or accounts for and on
behalf of each such Portfolio, into which account or accounts may be
transferred cash and/or securities, including securities maintained in
an account by the Custodian pursuant to Section 2.10 hereof, (i) in
accordance with the provisions of any agreement among the Fund on
behalf of the Portfolio, the Custodian and a broker-dealer registered
under the Exchange Act and a member of the NASD (or any futures
commission merchant registered under the Commodity Exchange Act),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered contract
market), or of any similar organization or organizations, regarding
escrow or other arrangements in connection with
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transactions by the Portfolio, (ii) for purposes of segregating cash or
government securities in connection with options purchased, sold or
written by the Portfolio or commodity futures contracts or options
thereon purchased or sold by the Portfolio, (iii) for the purposes of
compliance by the Portfolio with the procedures required by Investment
Company Act Release No. 10666, or any subsequent release or releases of
the Securities and Exchange Commission relating to the maintenance of
segregated accounts by registered investment companies and (iv) for
other proper corporate purposes, but only, in the case of clause (iv),
upon receipt of, in addition to Proper Instructions from the Fund on
behalf of the applicable Portfolio, a certified copy of a resolution of
the Board of Trustees or of the Executive Committee signed by an
officer of the Fund and certified by the Secretary or an Assistant
Secretary, setting forth the purpose or purposes of such segregated
account and declaring such purposes to be proper corporate purposes.
2.12 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to domestic securities of each Portfolio held by
it and in connection with transfers of securities.
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2.13 Proxies. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than in
the name of the Portfolio or a nominee of the Portfolio, all proxies,
without indication of the manner in which such proxies are to be voted,
and shall promptly deliver to the Portfolio such proxies, all proxy
soliciting materials and all notices relating to such securities.
2.14 Communications Relating to Portfolio Securities. Subject to the
provisions of Section 2.3, the Custodian shall transmit promptly to the
Fund for each Portfolio all written information (including, without
limitation, pendency of calls and maturities of domestic securities and
expirations of rights in connection therewith and notices of exercise
of call and put options written by the Fund on behalf of the Portfolio
and the maturity of futures contracts purchased or sold by the
Portfolio) received by the Custodian from issuers of the securities
being held for the Portfolio. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Portfolio all
written information received by the Custodian from issuers of the
securities whose tender or exchange is sought and from the party (or
his agents) making the tender or exchange offer. If the Portfolio
desires to take action with respect to any tender offer, exchange offer
or any other similar transaction, the
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Portfolio shall notify the Custodian at least three business days prior
to the date on which the Custodian is to take such action.
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States
3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the Portfolio's
securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories
designated on Schedule A hereto ("foreign sub-custodians"). Upon
receipt of "Proper Instructions", as defined in Section 5 of this
Contract, together with a certified resolution of the Fund's Board of
Trustees, the Custodian and the Fund may agree to amend Schedule A
hereto from time to time to designate additional foreign banking
institutions and foreign securities depositories to act as
sub-custodian. Upon receipt of Proper Instructions, the Fund may
instruct the Custodian to cease the employment of any one or more such
sub-custodians for maintaining custody of the Portfolio's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(l) of Rule 17f-5
under the Investment Company Act of 1940, and (b) cash and cash
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equivalents in such amounts as the Custodian or the Fund may determine
to be reasonably necessary to effect the Portfolio's foreign securities
transactions.
3.3 Foreign Securities Depositories. Except as may otherwise be agreed upon
in writing by the Custodian and the Fund, assets of the Portfolios
shall be maintained in foreign securities depositories only through
arrangements implemented by the foreign banking institutions serving as
sub-custodians pursuant to the terms hereof. Where possible, such
arrangements shall include entry into agreements containing the
provisions set forth in Section 3.5 hereof.
3.4 Segregation of Securities. The Custodian shall identify on its books as
belonging to each applicable Portfolio of the Fund, the foreign
securities of such Portfolios held by each foreign sub-custodian. Each
agreement pursuant to which the Custodian employs a foreign banking
institution shall require that such institution establish a custody
account for the Custodian on behalf of the Fund for each applicable
Portfolio of the Fund and physically segregate in each account,
securities and other assets of the Portfolios, and, in the event that
such institution deposits the securities of one or more of the
Portfolios in a foreign securities depository, that it shall identify
on its books as belonging to the Custodian, as agent for each
applicable Portfolio, the securities so deposited.
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3.5 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall be substantially in the form set
forth in Exhibit 1 hereto and shall provide that: (a) the assets of
each Portfolio will not be subject to any right, charge, security
interest, lien or claim of any kind in favor of the foreign banking
institution or its creditors or agent, except a claim of payment for
their safe custody or administration; (b) beneficial ownership for the
assets of each Portfolio will be freely transferable without the
payment of money or value other than for custody or administration; (c)
adequate records will be maintained identifying the assets as belonging
to each applicable Portfolio; (d) officers of or auditors employed by,
or other representatives of the Custodian, including to the extent
permitted under applicable law the independent public accountants for
the Fund, will be given access to the books and records of the foreign
banking institution relating to its actions under its agreement with
the Custodian; and (e) assets of the Portfolios held by the foreign
sub-custodian will be subject only to the instructions of the Custodian
or its agents.
3.6 Access of Independent Accountants of the Fund. Upon request of the
Fund, the Custodian will use its best efforts to arrange for the
independent accountants of the Fund to be afforded access to the books
and records of any foreign banking institution employed as a foreign
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sub-custodian insofar as such books and records relate to the
performance of such foreign banking institution under its agreement
with the Custodian.
3.7 Reports by Custodian. The Custodian will supply to the Fund from time
to time, as mutually agreed upon, statements in respect of the
securities and other assets of the Portfolio(s) held by foreign
sub-custodians, including but not limited to an identification of
entities having possession of the Portfolio(s) securities and other
assets and advices or notifications of any transfers of securities to
or from each custodial account maintained by a foreign banking
institution for the Custodian on behalf of each applicable Portfolio
indicating, as to securities acquired for a Portfolio, the identity of
the entity having physical possession of such securities.
3.8 Transactions in Foreign Custody Account
(a) Except as otherwise provided in paragraph (b) of this Section 3.8,
the provision of Sections 2.2 and 2.7 of this Contract shall apply,
mutatis mutandis to the foreign securities of the Fund held outside the
United States by foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of each
applicable Portfolio and delivery of securities maintained for the
account of each applicable Portfolio may be effected in accordance with
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the customary established securities trading or securities processing
practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivering
securities to the purchaser thereof or to a dealer therefor (or an
agent for such purchaser or dealer) against a receipt with the
expectation of receiving later payment for such securities from such
purchaser or dealer.
(c) Securities maintained in the custody of a foreign sub-custodian may
be maintained in the name of such entity's nominee to the same extent
as set forth in Section 2.3 of this Contract, and the Fund agrees to
hold any such nominee harmless from any liability as a holder of record
of such securities.
3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable care
in the performance of its duties and to indemnify, and hold harmless,
the Custodian and each Fund from and against any loss, damage, cost,
expense, liability or claim arising out of or in connection with the
institution's performance of such obligations. At the election of the
Fund, it shall be entitled to be subrogated to the rights of the
Custodian with respect to any claims against a foreign banking
institution as a consequence of any such loss, damage, cost, expense,
liability or claim if and to
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the extent that the Fund has not been made whole for any such loss,
damage, cost, expense, liability or claim.
3.10 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set
forth with respect to sub-custodians generally in this Contract and,
regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a
U.S. bank as contemplated by paragraph 3.13 hereof, the Custodian shall
not be liable for any loss, damage, cost, expense, liability or claim
resulting from nationalization, expropriation, currency restrictions,
or acts of war or terrorism or any loss where the sub-custodian has
otherwise exercised reasonable care. Notwithstanding the foregoing
provisions of this paragraph 3.10, in delegating custody duties to
State Street London Ltd., the Custodian shall not be relieved of any
responsibility to the Fund for any loss due to such delegation, except
such loss as may result from (a) political risk (including, but not
limited to, exchange control restrictions, confiscation, expropriation,
nationalization, insurrection, civil strife or armed hostilities) or
(b) other losses (excluding a bankruptcy or insolvency of State Street
London Ltd. not caused by political risk) due to Acts of God, nuclear
incident or other losses under circumstances where the Custodian and
State Street London Ltd. have exercised reasonable care.
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3.11 Reimbursement for Advances. If the Fund requires the Custodian to
advance cash or securities for any purpose for the benefit of a
Portfolio including the purchase or sale of foreign exchange or of
contracts for foreign exchange, or in the event that the Custodian or
its nominee shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance
of this Contract, except such as may arise from its or its nominee's
own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the applicable
Portfolio shall be security therefor and should the Fund fail to repay
the Custodian promptly, the Custodian shall be entitled to utilize
available cash and to dispose of such Portfolios assets to the extent
necessary to obtain reimbursement.
3.12 Monitoring Responsibilities. The Custodian shall furnish annually to
the Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Contract. In addition, the Custodian
will promptly inform the Fund in the event that the Custodian learns of
a material adverse change in the financial condition of a foreign
sub-custodian or any material loss of the assets of the Fund or in the
case of any foreign sub-custodian
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not the subject of an exemptive order from the Securities and Exchange
Commission is notified by such foreign sub-custodian that there appears
to be a substantial likelihood that its shareholders' equity will
decline below $200 million (U.S. dollars or the equivalent thereof) or
that its shareholders' equity has declined below $200 million (in each
case computed in accordance with generally accepted U.S. accounting
principles).
3.13 Branches of U.S. Banks
(a) Except as otherwise set forth in this Contract, the provisions
hereof shall not apply where the custody of the Portfolios assets are
maintained in a foreign branch of a banking institution which is a
"bank" as defined by Section 2(a)(5) of the Investment Company Act of
1940 meeting the qualification set forth in Section 26(a) of said Act.
The appointment of any such branch as a sub-custodian shall be governed
by paragraph 1 of this Contract.
(b) Cash held for each Portfolio of the Fund in the United Kingdom
shall be maintained in an interest bearing account established for the
Fund with the Custodian's London branch, which account shall be subject
to the direction of the Custodian, State Street London Ltd. or both.
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4. Payments for Sales or Repurchases or Redemptions of Shares of the Fund
The Custodian shall receive from the distributor for the Shares or from the
Transfer Agent of the Fund and deposit into the account of the appropriate
Portfolio such payments as are received for Shares of that Portfolio issued or
sold from time to time by the Fund. The Custodian will provide timely
notification to the Fund on behalf of each such Portfolio and the Transfer Agent
of any receipt by it of payments for Shares of such Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and any applicable votes of the Board of
Trustees of the Fund pursuant thereto, the Custodian shall, upon receipt of
proper instructions from the Transfer Agent, make funds available for payment to
holders of Shares who have delivered to the Transfer Agent a request in good
order for redemption or repurchase of their Shares. In connection with the
redemption or repurchase of Shares of a Portfolio, the Custodian is authorized
upon receipt of instructions from the Transfer Agent to wire funds to or through
a commercial bank designated by the redeeming shareholders. In connection with
the redemption or repurchase of Shares of the Fund, the Custodian shall honor
checks drawn on the Custodian by a holder of Shares, which checks have been
furnished by the Transfer Agent to the holder of Shares, when presented to the
Custodian in accordance with such procedures and controls as are mutually agreed
upon from time to time between the Fund and the Custodian.
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5. Proper Instructions
Proper Instructions as used throughout this Contract means a writing signed
or initialled by one or more person or persons as the Board of Trustees shall
have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if the Custodian reasonably believes them
to have been given by a person authorized to give such instructions with
respect to the transaction involved. The Fund shall cause all oral instructions
to be confirmed in writing. Upon receipt of a certificate of the Secretary or an
Assistant Secretary as to the authorization by the Board of Trustees of the Fund
accompanied by a detailed description of procedures approved by the Board of
Trustees, Proper Instructions may include communications effected directly
between electro-mechanical or electronic devices provided that the Board of
Trustees and the Custodian are satisfied that such procedures afford adequate
safeguards for the Portfolios' assets. For purposes of this Section, Proper
Instructions shall include instructions received by the Custodian pursuant to
any three-party agreement which requires a segregated asset account in
accordance with Section 2.11.
6. Actions Permitted without Express Authority
The Custodian may in its discretion, without express authority from the
Fund on behalf of each applicable Portfolio:
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1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this Contract,
provided that all such payments shall be accounted for to the Fund on behalf of
the Portfolio;
2) surrender Securities in temporary form for securities in definitive
form;
3) endorse for collection, in the name of the Portfolio, checks, drafts and
other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection with
the sale, exchange, substitution, purchase, transfer and other dealings with the
securities and property of the Portfolio except as otherwise directed by the
Board of Trustees of the Fund.
7. Evidence of Authority
The Custodian shall be protected in acting upon any instructions, notice,
request, consent, certificate or other instrument or paper believed by it to be
genuine and to have been properly executed by or on behalf of the Fund. The
Custodian may receive and accept a certified copy of a vote of the Board of
Trustees of the Fund as conclusive evidence (a) of the authority of any person
to act in accordance with such vote or (b) of any determination or of any action
by the Board of Trustees pursuant to the Declaration of Trust as described in
such vote, and such vote may be considered as in full force and effect until
receipt by the Custodian of written notice to the contrary.
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8. Duties of Custodian with Respect to the Books of Account and Calculation of
Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of Trustees of the Fund to keep the
books of account of each Portfolio and/or compute the net asset value per share
of the outstanding shares of each Portfolio or, if directed in writing to do so
by the Fund on behalf of the Portfolio, shall itself keep such books of account
and/or compute such net asset value per share. If so directed, the Custodian
shall also calculate daily the net income of the Portfolio as described in the
Fund's currently effective prospectus related to such Portfolio and shall advise
the Fund and the Transfer Agent daily of the total amounts of such net income
and, if instructed in writing by an officer of the Fund to do so, shall advise
the Transfer Agent periodically of the division of such net income among its
various components. The calculations of the net asset value per share and the
daily income of each Portfolio shall be made at the time or times described from
time to time in the Fund's currently effective prospectus related to such
Portfolio.
9. Records
The Custodian shall with respect to each Portfolio create and maintain all
records relating to its activities and obligations under this Contract in such
manner as will meet the obligations of the Fund under the Investment Company Act
of 1940, with particular attention to Section 31 thereof and Rules 31a-1 and
31a-2 thereunder. All such records shall be the property of
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the Fund and shall at all times during the regular business hours of the
Custodian be open for inspection by duly authorized officers, employees or
agents of the Fund and employees and agents of the Securities and Exchange
Commission. The Custodian shall, at the Fund's request, supply the Fund with a
tabulation of securities owned by each Portfolio and held by the Custodian and
shall, when requested to do so by the Fund and for such compensation as shall be
agreed upon between the Fund and the Custodian, include certificate numbers in
such tabulations
10. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund on behalf of
each applicable Portfolio may from time to time request, to obtain from year to
year favorable opinions from the Fund's independent accountants with respect to
its activities hereunder in connection with the preparation of the Fund's Form
N-1A, and Form N-SAR or other annual reports to the Securities and Exchange
Commission and with respect to any other requirements of such Commission.
11. Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund, on behalf of each of the Portfolios
at such times as the Fund may reasonably require, with reports by independent
public accountants on the accounting system, internal accounting control and
procedures for safeguarding securities, futures contracts and options on futures
contracts, including securities deposited and/or maintained in a Securities
System, relating to the services provided by the Custodian under this Contract;
such reports, shall be of
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sufficient scope and in sufficient detail, as may reasonably be required by the
Fund to provide reasonable assurance that any material inadequacies would be
disclosed by such examination, and, if there are no such inadequacies, the
reports shall so state.
12. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its services
and expenses as Custodian, as agreed upon from time to time between the Fund on
behalf of each applicable Portfolio and the Custodian.
13. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable care,
the Custodian shall not be responsible for the title, validity or genuineness of
any property or evidence of title thereto received by it or delivered by it
pursuant to this Contract and shall be held harmless in acting upon any notice,
request, consent, certificate or other instrument reasonably believed by it to
be genuine and to be signed by the proper party or parties, including any
futures commission merchant acting pursuant to the terms of a three-party
futures or options agreement. The Custodian shall be held to the exercise of
reasonable care in carrying out the provisions of this Contract, but shall be
kept indemnified by and shall be without liability to the Fund for any action
taken or omitted by it in good faith without negligence. It shall be entitled to
rely on and may act upon advice of counsel (who may be counsel for the Fund) on
all matters, and shall be without liability for any action reasonably
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taken or omitted pursuant to such advice. Notwithstanding the foregoing, the
responsibility of the Custodian with respect to redemptions effected by check
shall be in accordance with a separate Agreement entered into between the
Custodian and the Fund.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 to the
same extent as set forth in Article 1 hereof with respect to sub-custodians
located in the United States (except as specifically provided in Article 3.10)
and, regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a U.S. bank
as contemplated by paragraph 3.11 hereof, the Custodian shall not be liable for
any loss, damage, cost, expense, liability or claim resulting from, or caused
by, the direction of or authorization by the Fund to maintain custody or any
securities or cash of the Fund in a foreign country including, but not limited
to, losses resulting from nationalization, expropriation, currency restrictions,
or acts of war or terrorism.
If the Fund on behalf of a Portfolio requires the Custodian to take any
action with respect to securities, which action involves the payment of money or
which action may, in the opinion of the Custodian, result in the Custodian or
its nominee assigned to the Fund or the Portfolio being liable for the payment
of money or incurring liability of some other form, the Fund on behalf of the
Portfolio, as a prerequisite to requiring
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the Custodian to take such action, shall provide indemnity to the Custodian in
an amount and form satisfactory to it.
If the Fund requires the Custodian to advance cash or securities for any
purpose for the benefit of a Portfolio including the purchase or sale of foreign
exchange or of contracts for foreign exchange or in the event that the Custodian
or its nominee shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance of this
Contract, except such as may arise from its or its nominee's own negligent
action, negligent failure to act or willful misconduct, any property at any time
held for the account of the applicable Portfolio shall be security therefor and
should the Fund fail to repay the Custodian promptly, the Custodian shall be
entitled to utilize available cash and to dispose of such Portfolio's assets to
the extent necessary to obtain reimbursement.
14. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution, shall continue in
full force and effect until terminated as hereinafter provided, may be amended
at any time by mutual agreement of the parties hereto and may be terminated by
either party by an instrument in writing delivered or mailed, postage prepaid to
the other party, such termination to take effect not sooner than thirty (30)
days after the date of such delivery or mailing; provided, however that the
Custodian shall not with respect to a Portfolio act under Section 2.10 hereof in
the absence of receipt of an initial certificate of the Secretary or
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an Assistant Secretary that the Board of Trustees of the Fund has approved the
initial use of a particular Securities System by such Portfolio and the receipt
of an annual certificate of the Secretary or an Assistant Secretary that the
Board of Trustees has reviewed the use by such Portfolio of such Securities
System, as required in each case by Rule 17f-4 under the Investment Company Act
of 1940, as amended and that the Custodian shall not with respect to a Portfolio
act under Section 2.10A hereof in the absence of receipt of an initial
certificate of the Secretary or an Assistant Secretary that the Board of
Trustees has approved the initial use of the Direct Paper System by such
Portfolio and the receipt of an annual certificate of the Secretary or an
Assistant Secretary that the Board of Trustees has reviewed the use by such
Portfolio of the Direct Paper System; provided further, however, that the Fund
shall not amend or terminate this Contract in contravention of any applicable
federal or state regulations, or any provision of the Declaration of Trust, and
further provided, that the Fund on behalf of one or more of the Portfolios may
at any time by action of its Board of Trustees (i) substitute another bank or
trust company for the Custodian by giving notice as described above to the
Custodian, or (ii) immediately terminate this Contract in the event of the
appointment of a conservator or receiver for the Custodian by the Comptroller of
the Currency or upon the happening of a like event at the direction of an
appropriate regulatory agency or court of competent jurisdiction.
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Upon termination of the Contract, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.
15. Successor Custodian
If a successor custodian for the Fund, of one or more of the Portfolios
shall be appointed by the Board of Trustees of the Fund, the Custodian shall,
upon termination, deliver to such successor custodian at the office of the
Custodian, duly endorsed and in the form for transfer, all securities of each
applicable Portfolio then held by it hereunder and shall transfer to an account
of the successor Custodian all of the securities of each such Portfolio held in
a Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Board of Trustees
of the Fund, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided
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profits, as shown by its last published report, of not less than $25,000,000,
all securities, funds and other properties held by the Custodian on behalf of
each applicable Portfolio and all instruments held by the Custodian relative
thereto and all other property held by it under this Contract on behalf of each
applicable Portfolio and to transfer to an account of such successor custodian
all of the securities of each such Portfolio held in any Securities System.
Thereafter, such bank or trust company shall be the successor of the Custodian
under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
16. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and the
Fund on behalf of each of the Portfolios, may from time to time agree on such
provisions interpretive of or in addition to the provisions of this Contract as
may in their joint opinion be consistent with the general tenor of this
Contract. Any such interpretive or additional provisions shall be in a
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writing signed by both parties and shall be annexed hereto, provided that no
such interpretive or additional provisions shall contravene any applicable
federal or state regulations or any provision of the Declaration of Trust of the
Fund. No interpretive or additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this Contract.
17. Additional Fund
In the event that the Fund establishes one or more series of Shares in
addition to State Street Exchange Fund with respect to which it desires to have
the Custodian render services as custodian under the terms hereof, it shall so
notify the Custodian in writing, and if the Custodian agrees in writing to
provide such services, such series of Shares shall become a Portfolio hereunder.
18. Massachusetts Law to Apply
This Contract shall he construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
19. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Fund on behalf of each of the Portfolios and the Custodian
relating to the custody of the Fund's assets.
20. Disclaimer
It is expressly agreed that the obligations of the Fund hereunder, and the
authorization, execution and delivery of this
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document, shall not be binding upon any of the Trustees, shareholders, nominees,
officers, agents or employees of the Fund as individuals or personally, but
shall bind only the property of the Portfolio, as provided in the Master Trust
Agreement of the Fund. The Master Trust Agreement of the Fund provides, and it
is expressly agreed, that the Portfolio of the Fund shall be solely and
exclusively responsible for the payment of any direct or indirect debts,
liabilities and obligations relating to the Portfolio, and that no other
portfolio shall be responsible for the same.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 5th day of March, 1990.
ATTEST STATE STREET EXCHANGE TRUST
/s/ Darman A Wing By /s/ Charles A. Austin III
----------------------------- -----------------------------
ATTEST STATE STREET BANK AND TRUST COMPANY
/s/ illegible By /s/ illegible
----------------------------- -----------------------------
Assistant Secretary Vice President
-43-
Exhibit (11)
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of
State Street Research Exchange Trust
We consent to the inclusion in Amendment No. 15 to the Registration
Statement of the State Street Research Exchange Trust on Form N-1A (1940 Act
File No. 811-4256) of our report dated February 9, 1998 on our audit of the
financial statements and the financial highlights of State Street Research
Exchange Fund, which report is included in the Annual Report to Shareholders for
the year ended December 31, 1997, which report is also included in the
Registration Statement. We also consent to the reference to our Firm under the
caption "Investment Advisory and Other Services" in the Registration Statement.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
April 29, 1998
Exhibit 12
STATE STREET RESEARCH EXCHANGE FUND
- ----------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- ----------------------------------------------------------------------------
December 31, 1997
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Value
Shares (Note 1)
- ----------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 97.7%
Basic Industries 11.1%
Chemical 5.8%
Dow Chemical Co. .......................... 60,000 $ 6,090,000
E.I. Du Pont De Nemours & Co. ............. 137,000 8,228,562
Monsanto Co. .............................. 135,000 5,670,000
------------
19,988,562
------------
Electrical Equipment 2.1%
General Electric Co. ...................... 64,990 4,768,641
General Signal Corp. ...................... 63,479 2,678,021
------------
7,446,662
------------
Forest Product 0.6%
Georgia-Pacific Corp. Timber Group* ....... 26,251 595,570
Georgia-Pacific Corp. ..................... 26,251 1,594,748
------------
2,190,318
------------
Machinery 2.6%
Caterpillar Inc. .......................... 116,800 5,672,100
Millipore Corp. ........................... 99,400 3,373,387
------------
9,045,487
------------
Total Basic Industries .................... 38,671,029
------------
Consumer Cyclical 9.1%
Automotive 1.7%
General Motors Corp. ...................... 100,000 6,062,500
------------
Recreation 3.2%
Walt Disney Co. ........................... 112,283 11,123,035
------------
Retail Trade 4.2%
Dayton Hudson Corp. ....................... 150,552 10,162,260
Wal-Mart Stores, Inc. ..................... 111,600 4,401,225
------------
14,563,485
------------
Total Consumer Cyclical ................... 31,749,020
------------
Consumer Staple 29.6%
Drug 11.6%
American Home Products Corp. .............. 103,472 7,915,608
Merck & Company, Inc. ..................... 117,259 12,458,769
Novartis AG ADR ........................... 92,692 7,530,761
Pfizer Inc. ............................... 167,600 12,496,675
------------
40,401,813
------------
<PAGE>
- ----------------------------------------------------------------------------
Value
Shares (Note 1)
- ----------------------------------------------------------------------------
Food & Beverage 4.9%
Anheuser-Busch Companies, Inc. ............ 112,600 $ 4,954,400
Coca-Cola Co. ............................. 107,535 7,164,519
General Mills Inc. ........................ 69,200 4,956,450
------------
17,075,369
------------
Hospital Supply 4.1%
Johnson & Johnson ......................... 215,091 14,169,120
------------
Personal Care 6.2%
Gillette Co. .............................. 118,200 11,871,713
Procter & Gamble Co. ...................... 123,200 9,832,900
------------
21,704,613
------------
Tobacco 2.8%
Philip Morris Companies, Inc. ............. 213,900 9,692,344
------------
Total Consumer Staple ..................... 103,043,259
------------
Energy 11.1%
Oil 7.5%
Amoco Corp. ............................... 71,032 6,046,599
Exxon Corp. ............................... 170,136 10,410,196
Mobil Corp. ............................... 136,800 9,875,250
------------
26,332,045
------------
Oil Service 3.6%
Halliburton Co. ........................... 70,024 3,636,872
Schlumberger Ltd. ......................... 109,238 8,793,659
------------
12,430,531
------------
Total Energy .............................. 38,762,576
------------
Finance 14.0%
Bank 6.1%
Banc One Corp. ............................ 125,902 6,838,052
BankAmerica Corp. ......................... 136,800 9,986,400
Chase Manhattan Corp. ..................... 41,576 4,552,572
------------
21,377,024
------------
Financial Service 5.4%
American Express Co. ...................... 141,591 12,636,997
Federal National Mortgage Association ..... 110,400 6,299,700
------------
18,936,697
------------
Insurance 2.5%
General Re Corp. .......................... 40,941 8,679,492
------------
Total Finance ............................. 48,993,213
------------
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
STATE STREET RESEARCH EXCHANGE FUND
- ----------------------------------------------------------------------------
Value
Shares (Note 1)
- ----------------------------------------------------------------------------
Science & Technology 21.3%
Aerospace 4.5%
Boeing Co. ................................ 131,800 $ 6,449,963
Raytheon Co. Cl. A ........................ 6,377 314,466
Raytheon Co. Cl. B ........................ 176,165 8,896,332
-----------
15,660,761
-----------
Computer Software & Service 3.4%
First Data Corp. .......................... 65,338 1,911,136
Microsoft Corp.* .......................... 78,000 10,081,500
-----------
11,992,636
-----------
Electronic Components 1.2%
AMP Inc. .................................. 96,000 4,032,000
-----------
Electronic Equipment 5.7%
L.M. Ericsson Telephone Co. ADR Cl. B ..... 152,460 5,688,664
Lucent Technologies Inc. .................. 90,522 7,230,445
Motorola Inc. ............................. 50,600 2,887,362
Perkin-Elmer Corp. ........................ 58,000 4,121,625
-----------
19,928,096
-----------
Office Equipment 6.5%
Hewlett-Packard Co. ....................... 160,000 10,000,000
International Business Machines Corp. ..... 119,600 12,505,675
-----------
22,505,675
-----------
Total Science & Technology ................ 74,119,168
-----------
Utility 1.5%
Telephone 1.5%
AirTouch Communications Inc.* ............. 123,800 5,145,438
-----------
Total Utility ............................. 5,145,438
-----------
Total Common Stocks (Cost $93,546,875) .... 340,483,703
-----------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Principal Maturity
Amount Date
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS 3.3%
American Express Credit Corp.,
6.10% .......................... $2,712,000 1/05/1998 2,712,000
General Electric Capital Corp.,
5.75% .......................... 8,644,000 1/08/1998 8,644,000
---------
Total Short-Term Obligations
(Cost $11,356,000) ........................................ 11,356,000
----------
Total Investments
(Cost $104,902,875)--101.0% .... .......................... 351,839,703
Cash and Other Assets,
Less Liabilities--(1.0%) ................................. (3,549,739)
-----------
Net Assets--100.0% .......................................... $348,289,964
============
Federal Income Tax Information:
At December 31, 1997, the net unrealized appreciation of investments based
on cost for Federal income tax purposes of $92,417,070 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of
value over tax cost ................................ $259,422,633
Aggregate gross unrealized depreciation for all
investments in which there is an excess of
tax cost over value ................................ --
------------
$259,422,633
============
</TABLE>
- ----------------------------------------------------------------------------
* Nonincome-producing securities
ADR stands for American Depositary Receipt, representing ownership of
foreign securities.
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
STATE STREET RESEARCH EXCHANGE FUND
- ----------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- ----------------------------------------------------------------------------
December 31, 1997
<TABLE>
<S> <C>
Assets
Investments, at value (Cost $104,902,875) (Note 1) ............ $351,839,703
Cash .......................................................... 29,195
Dividends and interest receivable ............................. 409,354
Receivable for securities sold ................................ 21,052
Other assets .................................................. 388
------------
352,299,692
Liabilities
Federal income tax payable (Note 1) ........................... 3,472,689
Accrued management fee (Note 2) ............................... 442,417
Payable for fund shares redeemed .............................. 21,054
Accrued trustees' fees (Note 2) ............................... 10,198
Accrued transfer agent and shareholder
services (Note 2) ........................................... 6,475
Other accrued expenses ........................................ 56,895
------------
4,009,728
------------
Net Assets $348,289,964
============
Net Assets consist of:
Undistributed net investment income ......................... $ 101,097
Unrealized appreciation of investments ....................... 246,936,828
Paid-in capital .............................................. 101,252,039
------------
$348,289,964
============
Net Asset Value per share
($348,289,964 [divided by] |PE|PE|PE827,110 shares) ......... $ 421.09
============
</TABLE>
- ----------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- ----------------------------------------------------------------------------
For the year ended December 31, 1997
<TABLE>
<S> <C>
Investment Income
Dividends, net of foreign taxes of $35,455 ............... $ 5,406,052
Interest ................................................. 308,875
-----------
5,714,927
Expenses
Management fee (Note 2) .................................. 1,630,111
Custodian fee ............................................ 77,824
Trustees' fees (Note 2) .................................. 35,848
Audit fee ................................................ 31,865
Transfer agent and shareholder services (Note 2) ......... 22,474
Reports to shareholders .................................. 18,799
Legal fees ............................................... 5,385
Miscellaneous ............................................ 11,028
-----------
1,833,334
-----------
Net investment income .................................... 3,881,593
-----------
Realized and Unrealized Gain on Investments
Net realized gain on investments (Notes 1 and 3) ......... 16,583,125
Provision for federal income tax ......................... (3,472,689)
-----------
13,110,436
Net unrealized appreciation of investments ............... 66,182,224
-----------
Net gain on investments .................................. 79,292,660
-----------
Net increase in net assets resulting from operations ..... $83,174,253
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
STATE STREET RESEARCH EXCHANGE FUND
- -----------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended December 31
----------------------------------
1996 1997
- -----------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment income ............ $ 3,490,601 $ 3,881,593
------------ ------------
Net realized gain on
investments .................... 15,724,519 16,583,125
Provision for federal income
tax ............................ (2,598,359) (3,472,689)
------------ ------------
13,126,160 13,110,436
------------ ------------
Net unrealized appreciation of
investments .................... 40,186,634 66,182,224
------------ ------------
Net increase resulting from
operations ..................... 56,803,395 83,174,253
------------ ------------
Distribution from net realized
gains .......................... (432,035) --
------------ ------------
Dividends from net
investment income .............. (3,498,914) (3,864,410)
------------ ------------
Share transactions:
Net asset value of shares
issued in payment of:
Distribution from net
realized gains ................ 130,117 --
Dividends from net
investment income ............. 333,745 297,743
Cost of shares repurchased ....... (10,034,082) (8,041,950)
------------ ------------
Net decrease from fund share
transactions ................... (9,570,220) (7,744,207)
------------ ------------
Total increase in net assets ..... 43,302,226 71,565,636
Net Assets
Beginning of year ................ 233,422,102 276,724,328
------------ ------------
End of year (including
undistributed net
investment income of
$77,382 and $101,097,
respectively) .................. $276,724,328 $348,289,964
============ ============
Number of shares:
Issued upon reinvestment of:
Distribution from net
realized gains ................ 398 --
Dividends from net
investment income ............. 934 754
Repurchased ...................... (33,611) (20,727)
------------ ------------
Net decrease in fund shares ...... (32,279) (19,973)
------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
December 31, 1997
Note 1
State Street Research Exchange Fund (the "Fund"), is a series of State Street
Research Exchange Trust (the "Trust"), which is a Massachusetts business trust
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company. The Fund is presently the only series of the
Trust.
The investment objective of the Fund is to provide long-term growth of capital
and, secondarily, long-term growth of income. In seeking to achieve its
investment objective, the Fund invests primarily in common stocks, or securities
convertible into common stocks, that have long-term growth potential.
The following significant policies are consistently followed by the Fund in
preparing its financial statements, and such policies are in conformity with
generally accepted accounting principles for investment companies.
A. Investments in Securities
Values for listed securities represent the last sale on national securities
exchanges quoted prior to the close of the New York Stock Exchange.
Over-the-counter securities quoted on the National Association of Securities
Dealers Automated Quotation ("NASDAQ") system are valued at the closing price
supplied through such system. In the absence of recorded sales and for those
over-the-counter securities not quoted on the NASDAQ system, valuations are at
the mean of the closing bid and asked quotations, except for securities that may
be restricted as to public resale, which are valued in accordance with methods
adopted by the Trustees. Security transactions are accounted for on the trade
date (date the order to buy or sell is executed), and dividends declared but not
received are accrued on the ex-dividend date. Interest income is determined on
the accrual basis. Realized gains and losses from security transactions are
reported on the basis of average cost of securities delivered.
B. Federal Income Taxes
No provision for Federal income taxes is necessary with respect to net
investment income since the Fund has elected to qualify under Subchapter M of
the Internal Revenue Code and maintains a policy to distribute substantially all
of such income. It is also the intention of the Fund to distribute an amount
sufficient to avoid imposition of any Federal Excise Tax under Section 4982 of
the Internal Revenue Code. The Fund retains and designates as undistributed
gains all of its taxable net long-term capital gains and pays Federal income
taxes thereon on behalf of the shareholders.
C. Dividends
Dividends from net investment income are declared and paid or reinvested
quarterly. Net realized short-term capital gains, if any, are distributed
annually.
Income dividends and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles. The difference is primarily due to differing treatments
for nontaxable redemptions in kind and
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
STATE STREET RESEARCH EXCHANGE FUND
- --------------------------------------------------------------------------------
NOTES (cont'd)
- --------------------------------------------------------------------------------
the disposition of securities that have different bases for financial reporting
and tax purposes. The permanent book and tax basis difference relating to
shareholder distributions will result in reclassifications to paid-in capital.
D. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
E. Securities Lending
The Fund may seek additional income by lending portfolio securities to qualified
institutions. The Fund will receive cash or securities as collateral in an
amount equal to at least 100% of the current market value of any loaned
securities plus accrued interest. If the borrower fails to return the securities
and the value of the collateral has declined during the term of the loan, the
Fund will bear the loss. During the year ended December 31, 1997, there were no
loaned securities.
Note 2
The Trust and State Street Research & Management Company (the "Adviser"), an
indirect wholly owned subsidiary of Metropolitan Life Insurance Company
("Metropolitan"), have entered into a contract that provides for an annual fee
equal to 0.50% of the Fund's average daily net assets. In consideration of these
fees, the Adviser furnishes the Fund with management, investment advisory,
statistical and research facilities and services. The Adviser also pays all
salaries, rent and certain other expenses of management. During the year ended
December 31, 1997, the fees pursuant to such agreement amounted to $1,630,111.
State Street Research Service Center, a division of State Street Research
Investment Services, Inc., the Trust's principal underwriter (the
"Distributor"), an indirect wholly owned subsidiary of Metropolitan, provides
certain shareholder services to the Fund such as responding to inquiries and
instructions from investors with respect to the purchase and redemption of
shares of the Fund. During the year ended December 31, 1997, the amount of such
expenses was $3,863.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$35,848 during the year ended December 31, 1997.
Note 3
For the year ended December 31, 1997, exclusive of short-term investments and
U.S. Government obligations, purchases and sales of securities, including
$7,580,963 representing redemptions in kind, aggregated $7,175,553 and
$20,547,333, respectively.
Note 4
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share.
At December 31, 1997, the Adviser owned 13,766 shares of the Fund.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a share outstanding throughout each year: For a share outstanding throughout
each year:
<TABLE>
<CAPTION>
Years ended December 31
-----------------------
1993 1994
----------- -----------
<S> <C> <C>
Net asset value, beginning of year ($) 205.98 205.81
------ ------
Net investment income ($) 3.47 3.79
Net realized and unrealized gain (loss) on investments ($)* (0.24) (1.67)
------- -------
Total from investment operations ($) 3.23 2.12
------- -------
Dividends from net investment income ($) (3.40) (3.80)
Distributions from net realized gains ($) -- --
------- -------
Total distributions ($) (3.40) (3.80)
------- -------
Net asset value, end of year ($) 205.81 204.13
======= =======
Total return (%) 4.88 3.44
Ratios/supplemental data:
Net assets at end of year ($ thousands) 206,153 195,150
Ratio of operating expenses to average net assets (%) 0.62 0.57
Ratio of net investment income to average net assets (%) 1.65 1.80
Portfolio turnover rate (%) 22.10 16.31
Average commission rate (1) ($) -- --
*After provision for Federal tax on retained capital gains at end of year ($) 6.79 4.88
For a share outstanding throughout each year:
<CAPTION>
Years ended December 31
-----------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net asset value, beginning of year ($) 204.13 265.44 326.68
------ ------- -------
Net investment income ($) 3.63 4.09 4.67
Net realized and unrealized gain (loss) on investments ($)* 61.75 61.76 94.39
------ ------- -------
Total from investment operations ($) 65.38 65.85 99.06
------ ------- -------
Dividends from net investment income ($) (3.80) (4.10) (4.65)
Distributions from net realized gains ($) (0.27) (0.51) --
------- ------- -------
Total distributions ($) (4.07) (4.61) (4.65)
------- ------- -------
Net asset value, end of year ($) 265.44 326.68 421.09
======= ======= =======
Total return (%) 34.44 26.06 31.71
Ratios/supplemental data:
Net assets at end of year ($ thousands) 233,422 276,724 348,290
Ratio of operating expenses to average net assets (%) 0.58 0.57 0.56
Ratio of net investment income to average net assets (%) 1.49 1.36 1.19
Portfolio turnover rate (%) 11.67 5.39 2.26
Average commission rate (1) ($) -- 0.0298 0.0306
*After provision for Federal tax on retained capital gains at end of year ($) 4.64 3.07 4.20
</TABLE>
- --------------------------------------------------------------------------------
(1)Average commission rate per share paid by the Fund for security trades on
which commissions are charged beginning with the fiscal year ended December
31, 1996.
6
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Trustees of State Street Research Exchange Trust and Shareholders of
State Street Research Exchange Fund:
We have audited the accompanying statement of assets and liabilities of State
Street Research Exchange Fund, including the schedule of portfolio investments,
as of December 31, 1997, and the related statement of operations for the year
then ended, the statement of changes in net assets for each of the two years in
the period then ended, and the financial highlights for each of the five years
in the period then ended. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of State
Street Research Exchange Fund as of December 31, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the five years in the period then ended, in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 9, 1998
7
<PAGE>
STATE STREET RESEARCH EXCHANGE FUND
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
Exchange Fund provided shareholders with strong performance during the year. For
the 12 months ended December 31, 1997 the Fund returned 31.71%. The Fund
outperformed the average growth and income fund, which was up 27.14%, according
to Lipper Analytical Services. It slightly underperformed the S&P 500, which
gained 33.35% for the same period.
The Fund's current portfolio is invested primarily in large, well-known growth
companies with an emphasis on steady revenue and earnings growth potential.
During the first half, investors favored the large, high quality brand name
companies that the Fund invests in and performance was strong. However, as stock
prices rose and valuations skyrocketed, investors sought opportunity among
value-oriented stocks and smaller companies did better than large companies in
the third quarter. However, when turmoil in Southeast Asia made U.S. investors
nervous, they returned to large-company growth stocks and the Fund's positions
began to rebound. At the end of the period, the Fund was 98% invested in stocks
with 2% in cash. Drug stocks were the Fund's single largest investment position,
followed by oil and office equipment.
December 31, 1997
The Standard & Poor's 500 Composite Index (S&P 500) includes 500 widely traded
common stocks and is a commonly used measure of U.S. stock market performance.
The index is unmanaged and direct investment in the index is not possible;
results are for illustrative purposes only. All returns represent past
performance, which is no guarantee of future results. The investment return and
principal value in an investment made in the Fund will fluctuate and shares,
when redeemed, may be worth more or less than their original cost. All returns
assume reinvestment of capital gain distributions and income dividends.
Comparison Of Change In Value Of A $10,000
Investment In Exchange Fund and The S&P 500
[LINE CHART]
Average Annual Total Return
- -----------------------------------------------------
1 Year 5 Years 10 Years
- -----------------------------------------------------
31.71% 19.35% 17.38%
- -----------------------------------------------------
10000 10000
11786 11656
15805 15343
14775 14866
19203 19386
20500 20861
21500 22958
22240 23260
29900 31990
37692 39331
49643 52448
12/87 -- 12/97
8
POWER OF ATTORNEY
We, the undersigned State Street Research Exchange Trust ("Trust"), a
Massachusetts business trust, its trustees, its principal executive officer and
its principal financial and accounting officer, hereby severally constitute and
appoint Francis J. McNamara, III and Darman A. Wing, as our true and lawful
attorneys, with full power to each of them alone to sign for us, in our names
and in the capacities indicated below, any Registration Statements and any and
all amendments thereto of the Trust filed with the Securities and Exchange
Commission and generally to do all such things in our names and in the indicated
capacities as are required to enable the Trust to comply with provisions of the
Securities Act of 1933, as amended, and/or the Investment Company Act of 1940,
as amended, and all requirements and regulations of the Securities and Exchange
Commission, hereby ratifying and confirming our signatures as they have been and
may be signed by our said attorneys to said Registration Statements, and any and
all amendments thereto.
IN WITNESS WHEREOF, we have hereunto set our hands, on this 29th day of
April, 1998.
SIGNATURES
STATE STREET RESEARCH EXCHANGE TRUST
By: /s/ Ralph F. Verni
-------------------------------
Ralph F. Verni, Chief Executive
Officer and President
/s/ Ralph F. Verni /s/ Dean O. Morton
- ------------------------------------ --------------------------------
Ralph F. Verni, Trustee and Dean O. Morton, Trustee
principal executive officer
/s/ Gerard P. Maus /s/ Thomas L. Phillips
- ------------------------------------ --------------------------------
Gerard P. Maus, Principal financial Thomas L. Phillips, Trustee
and accounting officer
/s/ Steve A. Garban /s/ Toby Rosenblatt
- ------------------------------------ --------------------------------
Steve A. Garban, Trustee Toby Rosenblatt, Trustee
/s/ Malcolm T. Hopkins /s/ Michael S. Scott Morton
- ------------------------------------ --------------------------------
Malcolm T. Hopkins, Trustee Michael S. Scott Morton, Trustee
/s/ Edward M. Lamont /s/ Jeptha H. Wade
- ------------------------------------ --------------------------------
Edward M. Lamont, Trustee Jeptha H. Wade, Trustee
/s/ Robert A. Lawrence
- -----------------------------------
Robert A. Lawrence, Trustee
STATE STREET RESEARCH EXCHANGE TRUST
Certificate of Resolution
I, the undersigned Darman A. Wing, hereby certify that I am Assistant
Secretary of State Street Research Exchange Trust (the "Trust"), a Massachusetts
business trust duly authorized and validly existing under Massachusetts law, and
that the following is a true, correct and complete statement of a vote duly
adopted by the Trustees of said Trust on May 5, 1995:
"VOTED: That Francis J. McNamara, III and Darman A. Wing be, and each
hereby is, authorized and empowered, for and on behalf of the
Trust, its principal financial and accounting officer, and in
their name, to execute, and file a Power of Attorney relating
to, the Trust's Registration Statements under the Investment
Company Act of 1940 and/or the Securities Act of 1933, and
amendments thereto, the execution and delivery of such Power of
Attorney, Registration Statements and amendments thereto, to
constitute conclusive proof of such authorization."
I further certify that said vote has not been amended or revoked and
the same is now in full force and effect.
IN WITNESS WHEREOF, I have hereunto set my hand this 29th day of April,
1998.
/s/ Darman A. Wing
-------------------
Darman A. Wing
Assistant Secretary
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000766768
<NAME> STATE STREET RESEARCH EXCHANGE TRUST
<SERIES>
<NUMBER> 01
<NAME> STATE STREET RESEARCH EXCHANGE FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 104,902,875
<INVESTMENTS-AT-VALUE> 351,839,703
<RECEIVABLES> 430,406
<ASSETS-OTHER> 29,583
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 352,299,692
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,009,728
<TOTAL-LIABILITIES> 4,009,728
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 101,252,039
<SHARES-COMMON-STOCK> 827,110
<SHARES-COMMON-PRIOR> 847,083
<ACCUMULATED-NII-CURRENT> 101,097
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 246,936,828
<NET-ASSETS> 348,289,964
<DIVIDEND-INCOME> 5,406,052
<INTEREST-INCOME> 308,875
<OTHER-INCOME> 0
<EXPENSES-NET> 1,833,334
<NET-INVESTMENT-INCOME> 3,881,593
<REALIZED-GAINS-CURRENT> 13,110,436
<APPREC-INCREASE-CURRENT> 66,182,224
<NET-CHANGE-FROM-OPS> 83,174,253
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,864,410)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> (20,727)
<SHARES-REINVESTED> 754
<NET-CHANGE-IN-ASSETS> 71,565,636
<ACCUMULATED-NII-PRIOR> 77,382
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,630,111
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,833,334
<AVERAGE-NET-ASSETS> 326,022,200
<PER-SHARE-NAV-BEGIN> 326.68
<PER-SHARE-NII> 4.67
<PER-SHARE-GAIN-APPREC> 94.39
<PER-SHARE-DIVIDEND> (4.65)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 421.09
<EXPENSE-RATIO> 0.56
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
