[STATE STREET RESEARCH Logo]
MONEY MARKET FUND
A fund for short-term
cash investments or
current income.
Prospectus
August 1, 1998
[sidebar text]
This prospectus has information you should know before you invest. Please read
it carefully and keep it with your investment records.
Although these securities have been registered with the Securities and Exchange
Commission, the SEC has not approved or disapproved them and does not
guarantee the accuracy or adequacy of the information in this prospectus. Anyone
who informs you otherwise is committing a federal crime.
[end of sidebar text]
[graphic of Boston's Custom House]
<PAGE>
CONTENTS
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<TABLE>
<CAPTION>
2 THE FUND
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2 Goal and Strategies
3 Principal Risks
4 Volatility and Performance
6 Investor Expenses
8 Investment Management
9 YOUR INVESTMENT
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9 Opening an Account
9 Choosing a Share Class
11 Sales Charges
13 Dealer Compensation
14 Buying and Selling Shares
18 Account Policies
20 Distributions and Taxes
21 Investor Services
22 OTHER INFORMATION
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22 Other Securities and Risks
24 Financial Highlights
Back Cover For Additional Information
</TABLE>
<PAGE>
THE FUND 1
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[chess piece graphic] GOAL AND STRATEGIES
FUNDAMENTAL GOAL The fund seeks a high level of current income consistent with
the preservation of capital and maintenance of liquidity by investing in
high-quality, short-term money market instruments or in U.S. government
securities. These may include such short-term corporate debt securities as
commercial paper and master demand notes; securities issued or guaranteed as to
principal and interest by the U.S. government, its agencies or
instrumentalities; and bank certificates of deposit and bankers' acceptances.
PRINCIPAL STRATEGIES The fund manages its portfolio subject to strict SEC
guidelines, which are designed so that the fund may maintain a stable $1.00
share price, although there is no guarantee that the fund will do so. All of the
fund's investments are short-term; the dollar-weighted average portfolio
maturity of the fund may not exceed 90 days.
The fund invests at least 95% of total assets in high-quality securities called
"first tier" securities. These include U.S. government securities and corporate
securities that at the time of purchase, are rated by such firms as Standard &
Poor's and Moody's in their highest short-term major rating categories, or are
unrated securities that
[sidebar text]
[magnifying glass graphic] WHO MAY WANT TO INVEST
State Street Research Money Market Fund is designed for investors who seek one
or more of the following:
* a fund to complement a portfolio of more aggressive investments
* a fund for short-term investments
* a fund for emergency reserve money
The fund is NOT appropriate for investors who:
* require capital appreciation to meet their investment goals
* are seeking maximum income
[end sidebar text]
<PAGE>
2
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are considered equivalent by the investment manager. The fund invests more than
25% of its total assets in the financial services industry.
The fund may invest up to 5% of its portfolio in "second tier" securities, which
generally are corporate securities that, at the time of purchase, are rated by
such firms as Standard & Poor's and Moody's in their second highest short-term
major rating categories, or unrated securities that are considered equivalent by
the investment manager.
Investments typically include instruments such as commercial paper that are used
by corporations for short-term borrowings, as well as bank instruments such as
certificates of deposit. If it chooses, the fund may invest all of its assets in
any one type of first tier securities. Up to 50% of total assets may be invested
in restricted securities. Restricted securities generally are corporate
securities sold to institutional investors and subject to limited resale rights.
The fund may adjust the composition of its portfolio as market conditions and
economic outlooks change. For more information about the fund's investments and
practices, see page 22.
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3
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[traffic sign graphic] PRINCIPAL RISKS
Because the fund invests in money market instruments and manages its portfolio
to maintain a stable share price, its major risks are those that could affect
the overall yield of the fund. Among these situations are those that would cause
short-term interest rates to decline, such as strong equity markets or a weak
economy. Such a decline would lower the fund's yield and the return on your
investment.
To the extent the fund invests in restricted securities, it could hamper the
fund's ability to raise cash to meet redemptions. This is because these
securities may be new and complex and trade only among institutions; the markets
for these securities are still developing and may not function as efficiently as
established markets.
The fund cannot be certain that it will achieve its goal. Furthermore, fund
shares are not bank deposits and are not guaranteed, endorsed or insured by any
financial institution, government entity or the FDIC. Although the fund seeks to
preserve the value of your investment at $1.00 per share, it is possible that
you could lose money by investing in the fund.
Information on other securities and risks appears on page 22.
A "snapshot" of the fund's investments may be found in the current annual or
semiannual report (see back cover).
[sidebar text]
THE USES OF MONEY MARKET FUNDS
Money market funds can be a valuable tool in an investor's portfolio for a
variety of reasons. For example, money market funds are often used to meet
short-term cash investment needs. They also can serve as a place to hold cash
pending its use for a longer term investment. Finally, many investors use money
market funds to diversify a portfolio of more aggressive investments, especially
when they want to reduce their exposure to market volatility or when they expect
the market to decline.
[end sidebar text]
<PAGE>
4 VOLATILITY AND PERFORMANCE
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<TABLE>
<CAPTION>
[bar chart graphic] Years Ended December 31
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR-BY-YEAR TOTAL RETURN (Class E) 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
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6.99% 8.89% 7.77% 5.58% 3.15% 2.50% 3.60% 5.33% 4.81% 5.03%
</TABLE>
[graphic of up arrow] BEST QUARTER: second quarter 1989, up 2.31%
[graphic of down arrow] WORST QUARTER: second quarter 1993, up 0.60%
RETURN FROM 1/1/98 - 6/30/98 (not annualized): up 2.51%
<TABLE>
<CAPTION>
As of December 31, 1997
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AVERAGE ANNUAL TOTAL RETURN 1 Year 5 Years 10 Years
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<S> <C> <C> <C> <C>
To obtain current yield information Class B (%) (1.01) 2.95 4.87
call 1-800-562-0032. Class C (%) 2.99 3.31 4.87
Class E (%) 5.03 4.25 5.35
Class S (%) 5.03 4.25 5.35
MetLife Securities Money Fund Class T (introduced August 1, 1998) - - -
Merrill Lynch 3-month Treasury Bill Index (%) 5.33 4.80 5.85
Lipper Money Market Funds Index (%) 4.91 4.31 5.40
</TABLE>
<PAGE>
5
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[sidebar text]
[magnifying glass graphic] UNDERSTANDING
VOLATILITY AND
PERFORMANCE
The chart and table on the opposite page are designed to show two aspects of the
fund's track record:
* YEAR-BY-YEAR TOTAL RETURN shows how volatile the fund has been: how much the
difference has been, historically, between its best years and worst years. In
general, funds with higher average annual total returns will also have higher
volatility. The graph includes the effects of fund expenses, but not sales
charges. If sales charges had been included, returns would have been less
than shown.
* AVERAGE ANNUAL TOTAL RETURN is a measure of the fund's performance over time.
It is determined by taking the fund's performance over a given period and
expressing it as an average annual rate. Average annual total return includes
the effects of fund expenses and maximum sales charges for each class, and
assumes that you sold your shares at the end of the period.
Also included with the fund's average annual returns are two independent
measures of performance. The Merrill Lynch 3-month Treasury Bill Index is an
unmanaged index that measures the average yield of three-month Treasury bills.
The Lipper Money Market Funds Index shows you how well the fund has done
compared to competing funds. When making comparisons, keep in mind that the
Merrill Lynch index does not include any management fees or other expenses.
In both the chart and the table, the returns shown for the fund include
performance from before the creation of share classes in 1993. If the returns
for Class B and Class C from before 1993 had reflected their current
distribution/service (12b-1) fees (as described on page 6), these returns would
have been lower.
Keep in mind that past performance is no guarantee of future results.
[end of sidebar text]
<PAGE>
6 INVESTOR EXPENSES
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<TABLE>
<CAPTION>
Class descriptions begin on page 9
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SHAREHOLDER FEES (% of offering price) Class B Class C(1) Classes E, S & T(1)
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<S> <C> <C> <C>
MAXIMUM FRONT-END SALES CHARGE (LOAD) 0.00 0.00 0.00
MAXIMUM DEFERRED SALES CHARGE (LOAD) 5.00 1.00 0.00
ANNUAL FUND EXPENSES (% of average net assets) Class B Class C Classes E, S & T
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MANAGEMENT FEE 0.50 0.50 0.50
DISTRIBUTION/SERVICE (12B-1) FEES 1.00 1.00 0.00
OTHER EXPENSES 0.35 0.35 0.35
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TOTAL ANNUAL FUND OPERATING EXPENSES* 1.85 1.85 0.85
==== ==== ====
*Because some of the fund's expenses have been subsidized,
actual total operating expenses for the prior year were: 1.65 1.65 0.65
The fund expects the expense subsidy to continue through
the current fiscal year, although there is no guarantee
that it will.
Example Year Class B Class C Classes E, S & T
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1 $688/$188 $288/$188 $87
3 $882/$582 $582 $271
5 $1,201/$1,001 $1,001 $471
10 $1,907 $2,169 $1,049
</TABLE>
[sidebar text]
[footnote text]
(1) Before November 1, 1997, Class C shares were designated Class D and Class S
shares were designated Class C.
[end of footnote text]
[end of sidebar text]
<PAGE>
7
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[sidebar text]
[magnifying glass graphic] UNDERSTANDING
INVESTOR
EXPENSES
The information on the opposite page is designed to give you an idea of what you
should expect to pay in expenses as an investor in the fund:
* SHAREHOLDER FEES are costs that are charged to you directly. These fees are
not charged on reinvestments or exchanges.
* ANNUAL FUND EXPENSES are deducted from the fund's assets every year, and are
thus paid indirectly by all fund investors.
* The EXAMPLE is designed to allow you to compare the costs of this fund with
those of other funds. It assumes that you invested $10,000 over the years
indicated, reinvested all distributions, earned a hypothetical 5% annual
return and paid the maximum applicable sales charges. For Class B shares, it
also assumes the automatic conversion to Class A after eight years.
Where two numbers are shown separated by a slash, the first one assumes you
sold all your shares at the end of the period, while the second assumes you
stayed in the fund. Where there is only one number, the costs would be the
same either way.
The figures in the Example assume full annual expenses, and would be lower if
they reflected the subsidy.
Investors should keep in mind that the example is for comparison purposes
only. The fund's actual performance and expenses may be higher or lower.
[end of sidebar text]
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8 THE FUND continued
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[the thinker graphic] INVESTMENT MANAGEMENT
The fund's investment manager is State Street Research & Management Company, One
Financial Center, Boston, MA 02111. The firm traces its heritage back to 1924
and the founding of one of America's first mutual funds. Today the firm has more
than $53 billion in assets under management (as of June 30, 1998), including
more than $17 billion in mutual funds.
The investment manager is responsible for the fund's investment and business
activities, and receives the management fee annually as compensation (0.50% of
net assets). The investment manager is a subsidiary of Metropolitan Life
Insurance Company.
<PAGE>
YOUR INVESTMENT 9
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[key graphic] OPENING AN ACCOUNT
If you are opening an account through a financial professional, he or she can
assist you with all phases of your investment.
If you are investing through a large retirement plan or other special program,
follow the instructions in your program materials.
To open an account without the help of a financial professional, please use the
instructions on these pages.
[checklist graphic] CHOOSING A SHARE CLASS
The fund offers five share classes, each with its own sales charge and expense
structure.
Class E is the share class that is generally available for initial investment.
It is also the share class that is used for exchanges with Class A shares of
other State Street Research funds. Class B and Class C are available only by
exchange from the corresponding share class of other funds.
If you are investing through a special program, such as a large
employer-sponsored retirement plan or certain programs available through
brokers, you may be eligible to purchase Class S shares.
MetLife Securities Money Fund Class T is for accounts available through MetLife
and its affiliates.
<PAGE>
10 YOUR INVESTMENT continued
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[sidebar text]
[magnifying glass graphic] UNDERSTANDING
DISTRIBUTION/SERVICE
FEES
As noted in the descriptions at right, Class B and Class C have an annual
distribution/service fee. This is also called a 12b-1 fee, after the SEC rule
that permits this type of fee.
Under its current 12b-1 plan, the fund may pay certain distribution and service
fees for these classes out of fund assets. Because 12b-1 fees are an ongoing
expense, they will increase the cost of your investment and, over time, could
potentially cost you more than if you had paid other types of sales charges.
Some of the 12b-1 fee is used to compensate those financial professionals who
sell fund shares and provide ongoing service to shareholders. The table on page
13 shows how these professionals' compensation is calculated.
[end of sidebar text]
CLASS B - BACK LOAD
* Available only to investors exchanging from Class B shares of another
State Street Research fund
* No initial sales charge
* Deferred sales charge of 5% or less on shares you sell within five years
* Annual distribution/service (12b-1) fee of 1.00%
* Automatic conversion to Class E shares after eight years, reducing
future annual expenses
CLASS C(1) - LEVEL LOAD
* Available only to investors exchanging from Class C shares of another
State Street Research fund
* No initial sales charge
* Deferred sales charge of 1%, paid if you sell shares within one year of
purchase
* Lower deferred sales charge than Class B shares
* Annual distribution/service (12b-1) fee of 1.00%
* No conversion to Class E shares after eight years, so annual expenses do
not decrease
[footnote text]
(1) Before November 1, 1997, these were designated Class D.
[end of footnote text]
<PAGE>
11
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CLASS E - NO LOAD
* Available to all investors purchasing fund shares directly
* No sales charge of any kind
* No distribution/service (12b-1) fees; annual expenses are lower than
other share classes
CLASS S(2) - SPECIAL PROGRAMS
* Available only through certain retirement accounts, advisory accounts
of the investment manager and other special programs, including broker
programs with recordkeeping and other services; these programs usually
involve special conditions and separate fees (consult your financial
professional or your program materials)
* No sales charges of any kind
* No distribution/service (12b-1) fees; annual expenses are lower than
other share classes
[footnote text]
(2) Before November 1, 1997, these were designated Class C.
[end of footnote text]
METLIFE SECURITIES MONEY FUND CLASS T
* For accounts available through MetLife and certain affiliates
* No sales charge of any kind
* No distribution/service (12b-1) fees; annual expenses are lower than
other share classes
SALES CHARGES
CLASS B - BACK LOAD
<TABLE>
<CAPTION>
this % of net asset value
when you sell shares at the time of purchase (or
in this year after you of sale, if lower) is deducted
bought them from your proceeds
- --------------------------------------------------------
<S> <C>
First year 5.00
Second year 4.00
Third year 3.00
Fourth year 3.00
Fifth year 2.00
Sixth year or later None
</TABLE>
With Class B shares, you pay no sales charge when you invest, but you are
charged a "contingent deferred sales charge" (CDSC) when you sell shares you
have held for five years or less, as described in the table above. Any shares
acquired through reinvestment are not subject to the CDSC. There
<PAGE>
12 YOUR INVESTMENT continued
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is no CDSC on exchanges into other State Street Research funds, and the date of
your initial investment will continue to be used as the basis for CDSC
calculations when you exchange. To ensure that you pay the lowest CDSC possible,
the fund will always use the shares with the lowest CDSC to fill your sell
requests.
The CDSC is waived on shares sold for mandatory retirement distributions or
because of disability or death. Consult your financial professional or the State
Street Research Service Center.
Class B shares automatically convert to Class E shares after eight years; Class
E shares have lower annual expenses.
CLASS C (FORMERLY CLASS D) - LEVEL LOAD
<TABLE>
<CAPTION>
this % of net asset value
when you sell shares at the time of purchase (or
in this year after you of sale, if lower) is deducted
bought them from your proceeds
- --------------------------------------------------------------
<S> <C>
First year 1.00
Second year or later None
</TABLE>
With Class C shares, you pay no sales charge when you invest, but you are
charged a "contingent deferred sales charge" (CDSC) when you sell shares you
have held for one year or less, as described in the table above. Policies
regarding the calculation of the CDSC are the same as for Class B.
Class C shares currently have the same annual expenses as Class B shares, but
never convert to Class E shares (with their lower annual expenses).
CLASS E - NO LOAD;
CLASS S (FORMERLY CLASS C) -
SPECIAL PROGRAMS;
METLIFE SECURITIES MONEY FUND CLASS T
These shares have no sales charges.
<PAGE>
13
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[graphic of a check] DEALER COMPENSATION
Financial professionals who sell shares of State Street Research funds and
perform services for fund investors may receive sales commissions and annual
fees. These are paid by the fund's distributor, using money from sales charges,
distribution/service (12b-1) fees and its other resources.
Financial professionals may impose a transaction fee on the purchase or sale of
shares by shareholders. The distributor may pay its affiliate MetLife
Securities, Inc. additional compensation of up to 0.25% of certain sales or
assets.
BROKERS FOR PORTFOLIO TRADES
When placing trades for the fund's portfolio, State Street Research chooses
brokers that provide the best execution (a term defined by service as well as
price), but may also consider a broker's sales of fund shares.
MAXIMUM DEALER COMPENSATION
<TABLE>
<CAPTION>
INITIAL COMMISSION (%) ANNUAL FEE (%)
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<S> <C> <C>
Class B -- 0.25
Class C -- 0.90
Class E 0.00 0.00
Class S 0.00 0.00
Class T 0.00 0.00
</TABLE>
<PAGE>
14 BUYING AND SELLING SHARES
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[cash register graphic] POLICIES FOR
BUYING SHARES
Once you have chosen a share class, the next step is to determine the amount you
want to invest.
MINIMUM INITIAL INVESTMENTS:
* $1,000 for accounts that use the Investamatic program
* $2,000 for Individual Retirement Accounts
* $2,500 for all other accounts
MINIMUM ADDITIONAL INVESTMENTS:
* $50 for any account
Complete the enclosed application. You can avoid future inconvenience by signing
up now for any services you might later use.
TIMING OF REQUESTS The processing of your order will depend upon the method of
payment you choose, as well as the time your order is received. If you are
paying for your shares with a check, an order received prior to 4:00 p.m.
eastern time will be processed as of 4:00 p.m. on the next business day and you
will begin earning dividends on the business day after that.
If you are paying for your shares with a wire transfer, an order and wire
payment received prior to 4:00 p.m. eastern time will generally be processed as
of 4:00 p.m. on the same day and you will begin earning dividends on the next
business day. Special procedures are available to enable you to begin earning
dividends immediately on wire transfers of $25,000 or more. To make a same-day
wire investment, please notify State Street Research by 9:30 a.m. of your
intention to wire funds, and make sure your wire arrives by 12:00 noon.
WIRE TRANSACTIONS Funds may be wired between 8:00 a.m. and 4:00 p.m. eastern
time. Your bank may charge a fee for wiring money.
<PAGE>
INSTRUCTIONS FOR BUYING SHARES 15
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<TABLE>
<CAPTION>
To Open an Account To Add to an Account
<S> <C> <C>
[graphic of briefcase] Through a Consult your financial professional or your Consult your financial professional or your
Professional program materials. program materials.
or Program
By Mail [graphic of Make your check payable to "State Street Fill out an investment slip or indicate the
mailbox] Research Funds." Forward the check and your fund name and account number on your check.
application to State Street Research. Make your check payable to "State Street
Research Funds." Forward the check and stub to
State Street Research.
[graphic of By Federal Call to obtain an account number and Call State Street Research to obtain a control
Federal Building] Funds Wire forward your application to State Street number. Instruct your bank to wire funds to:
Research. Wire funds using the instructions * State Street Bank and Trust Company,
at right. Boston, MA
* ABA: 011000028
* BNF: fund name and share class you want to
buy
* AC: 99029761
* OBI: your name and your account number
* Control: the number given to you by State
Street Research
By Electronic [graphic Verify that your bank is a member of the Call State Street Research to verify that the
Funds Transfer of electric ACH (Automated Clearing House) system. necessary bank information is on file for your
(ACH) plug] Forward your application to State Street account. If it is, you may request a transfer
Research. Please be sure to include the with the same phone call. If not, please ask
appropriate bank information. Call State State Street Research to provide you with an
Street Research to request a purchase. EZ Trader application.
[graphic of By Investamatic Forward your application, with all Call State Street Research to verify that
calendar] appropriate sections completed, to State Investamatic is in place on your account, or
Street Research, along with a check for to request a form to add it. Investments
your initial investment payable to are automatic once Investamatic is in place.
"State Street Research Funds."
By Exchange [graphic of Call State Street Research or visit our Call State Street Research or visit our
Exchange] Web site. Web site.
State Street Research Service Center PO Box 8408, Boston, MA 02266-8408 Internet www.ssrfunds.com
Call toll-free: 1-800-562-0032 (business days 8:00 a.m. - 6:00 p.m., eastern time)
</TABLE>
<PAGE>
16 YOUR INVESTMENT continued
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[graphic of receipt] POLICIES FOR
SELLING SHARES
CIRCUMSTANCES THAT REQUIRE WRITTEN REQUESTS Please submit instructions in
writing when any of the following apply:
* you are selling more than $100,000 worth of shares
* the name or address on the account has changed within the last 30 days
* you want the proceeds to go to a name or address not on the account
registration
* you are transferring shares to an account with a different registration or
share class
* you are selling shares held in a corporate or fiduciary account; for these
accounts, additional documents are required:
corporate accounts: certified copy of a corporate resolution
fiduciary accounts: copy of power of attorney or other governing document
To protect your account against fraud, all signatures on these documents must be
guaranteed. You may obtain a signature guarantee at most banks and securities
dealers. A notary public cannot provide a signature guarantee.
INCOMPLETE SELL REQUESTS State Street Research will attempt to notify you
promptly if any information necessary to process your request is missing.
TIMING OF REQUESTS If you want proceeds from a redemption to be wired on the
same business day, you must submit your request before 9:30 a.m. eastern time.
If you follow this procedure you will not earn a dividend for the day of
redemption.
Other redemption requests received before 4:00 p.m. will be processed as of 4:00
p.m. Proceeds for these redemptions will not be available until the next
business day but you will earn a dividend for the day of redemption.
Redemption requests received after 4:00 p.m. will be treated as if they had been
received as of the opening of the next business day.
WIRE TRANSACTIONS Proceeds sent by federal funds wire must total at least
$1,000. A fee of $7.50 will be deducted from all proceeds sent by wire, and your
bank may charge an additional fee to receive wired funds.
SELLING RECENTLY PURCHASED SHARES If you sell shares before the check or
electronic funds transfer (ACH) for those shares has been collected, you will
not receive the proceeds until your initial payment has cleared. This may take
up to 15 days after your purchase was recorded (in rare cases, longer). If you
open an account with shares purchased by wire, you cannot sell those shares
until your application has been processed.
<PAGE>
INSTRUCTIONS FOR SELLING SHARES 17
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<TABLE>
<S> <C>
[graphic of briefcase] Through a Consult your financial professional or your program materials.
Professional
or Program
By Mail [graphic of mailbox] Send a letter of instruction, an endorsed stock power or share certificates (if
you hold certificate shares) to State Street Research. Specify the fund, the
account number and the dollar value or number of shares. Be sure to include all
necessary signatures and any additional documents, as well as signature
guarantees if required (see facing page).
[graphic of By Federal Check with State Street Research to make sure that a wire redemption privilege,
Federal Building] Funds Wire including a bank designation, is in place on your account. Once this is
established, you may place your request to sell shares with State Street
Research. Proceeds will be wired to your pre-designated bank account. (See "Wire
Transactions" on facing page.)
By Electronic [graphic of electric Check with State Street Research to make sure that the EZ Trader feature,
Funds Transfer plug] including a bank designation, is in place on your account. Once this is
(ACH) established, you may place your request to sell shares with State Street
Research. Proceeds will be sent to your pre-designated bank account.
[graphic of By Telephone As long as the transaction does not require a written request (see facing page),
telephone] you or your financial professional can sell shares by calling State Street
Research. A check will be mailed to you on the following business day.
By Exchange [graphic of Exchange] Read the prospectus for the fund into which you are exchanging. Call State Street
Research or visit our Web site.
[graphic of By Systematic See plan information on page 21.
calendar] Withdrawal Plan
By Check [graphic of The checkwriting privilege is available for Class E shares only. If you have requested
check] this privilege on your application, you may write checks for amounts of $500 or more.
State Street Research Service Center PO Box 8408, Boston, MA 02266-8408 Internet www.ssrfunds.com
Call toll-free: 1-800-562-0032 (business days 8:00 a.m. - 6:00 p.m., eastern time)
</TABLE>
<PAGE>
18 YOUR INVESTMENT continued
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[graphic of policies] ACCOUNT POLICIES
TELEPHONE REQUESTS When you open an account you automatically receive telephone
privileges, allowing you to place requests on your account by telephone. Your
financial professional can also use these privileges to request exchanges for
your account and, with your written permission, redemptions. For your
protection, all telephone calls are recorded.
As long as State Street Research takes certain measures to authenticate
telephone requests on your account, you may be held responsible for unauthorized
requests. Unauthorized telephone requests are rare, but if you want to protect
yourself completely, you can decline the telephone privilege on your
application. The fund may suspend or eliminate the telephone privilege at any
time.
EXCHANGE PRIVILEGES There is no fee to exchange shares among State Street
Research funds. Your new fund shares will be the equivalent class of your
current shares. Any contingent deferred sales charges will continue to be
calculated from the date of your initial investment.
ACCOUNTS WITH LOW BALANCES If the value of your account falls below $1,500,
State Street Research may mail you a notice asking you to bring the account back
up to $1,500 or close it out. If you do not take action within 60 days, State
Street Research may either sell your shares and mail the proceeds to you at the
address of record or, depending on the circumstances, may deduct an annual
maintenance fee (currently $18).
<PAGE>
19
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THE FUND'S BUSINESS HOURS The fund is open the same days as the New York Stock
Exchange (generally Monday through Friday). Fund representatives are available
from 8:00 a.m. to 6:00 p.m. eastern time on these days.
CALCULATING SHARE PRICE The fund calculates its share price every business day
at 12:00 noon and at the close of regular trading on the New York Stock Exchange
(usually 4:00 p.m. eastern time). The share price is the fund's total assets
minus its liabilities (net asset value, or NAV) divided by the number of
existing shares.
In calculating its NAV, the fund uses the amortized cost valuation method to
determine the value of portfolio securities. However, when the investment
manager believes that the use of amortized cost valuation may dilute or result
in unfairness to shareholders, the fund may take such action as it deems
appropriate to eliminate or reduce the extent of any dilution or unfairness.
REINSTATING RECENTLY SOLD SHARES For 120 days after you sell shares, you have
the right to "reinstate" your investment by putting some or all of the proceeds
into any currently available State Street Research fund at net asset value. Any
CDSC you paid on the amount you are reinstating will be credited to your
account. You may only use this privilege once in any twelve-month period with
respect to your shares of a given fund.
ADDITIONAL POLICIES Please note that the fund maintains additional policies and
reserves certain rights, including:
* The fund may vary its requirements for initial or additional investments,
exchanges, reinvestments, periodic investment plans, retirement and
employee benefit plans, sponsored arrangements and other similar programs
* All orders to purchase shares are subject to acceptance by the fund
* At any time, the fund may change or discontinue its sales charge waivers
and any of its order acceptance practices, and may suspend the sale of its
shares
* The fund may delay sending you redemption proceeds for up to seven days, or
longer if permitted by the SEC
* To permit investors to obtain the current price, dealers are responsible
for transmitting all orders to the State Street Research Service Center
promptly
<PAGE>
20 YOUR INVESTMENT continued
- --------------------------------------------------------------------------------
[graphic of Uncle Sam] DISTRIBUTIONS AND TAXES
INCOME AND CAPITAL GAINS DISTRIBUTIONS The fund distributes its net income to
shareholders; it declares dividends daily and pays them monthly. The fund does
not anticipate paying any capital gains distributions.
You may have your distributions reinvested in the fund, invested in a different
State Street Research fund, deposited in a bank account or mailed out by check.
If you do not give State Street Research other instructions, your distributions
will automatically be reinvested in the fund.
TAX EFFECTS OF DISTRIBUTIONS AND TRANSACTIONS In general, any dividends you
receive from the fund are taxable as ordinary income.
Every year, the fund will send you information detailing the amount of ordinary
income (and capital gains, if any) distributed to you for the previous year.
The sale of shares in your account could produce a gain or loss. For tax
purposes, an exchange is the same as a sale.
Your investment in the fund could have additional tax consequences. Please
consult your tax professional for assistance.
BACKUP WITHHOLDING By law, the fund must withhold 31% of your distributions and
proceeds if you have not provided complete, correct taxpayer information.
<PAGE>
21
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[interlocked hands graphic] INVESTOR SERVICES
INVESTAMATIC PROGRAM Use Investamatic to set up regular automatic investments in
the fund from your bank account. You determine the frequency and amount of your
investments.
SYSTEMATIC WITHDRAWAL PLAN This plan is designed for retirees and other
investors who want regular withdrawals from a fund account. The plan is free and
allows you to withdraw up to 8% of your fund assets a year without incurring any
contingent deferred sales charges. Certain terms and minimums apply.
EZ TRADER This service allows you to purchase or sell fund shares over the
telephone through the ACH (Automated Clearing House) system.
DIVIDEND ALLOCATION PLAN This plan automatically invests your distributions from
the fund into another fund of your choice, without any fees or sales charges.
AUTOMATIC BANK CONNECTION This plan lets you route any distributions or
Systematic Withdrawal Plan payments directly to your bank account.
RETIREMENT PLANS State Street Research also offers a full range of prototype
retirement plans for individuals, sole proprietors, partnerships, corporations
and employees.
Call 1-800-562-0032 for information on any of the services described above.
<PAGE>
22 OTHER INFORMATION
- --------------------------------------------------------------------------------
[graphic of securities certificates] OTHER SECURITIES
AND RISKS
Each of the fund's portfolio securities and investment practices offers certain
opportunities and carries various risks. Major investments and risk factors are
outlined in the fund description starting on page 2. Below are brief
descriptions of other securities and practices, along with their associated
risks.
SECURITIES RATINGS When securities are rated by one or more independent rating
agencies, the fund uses these ratings to determine credit quality. In cases
where a security has received a rating from only one independent rating agency,
it may rely on that rating. If a security has received ratings from two or more
rating agencies and at least two of the ratings are equivalent, the fund may
rely on the two equivalent ratings even if the other ratings are lower. In cases
where a security's two highest ratings are in conflicting categories, the fund
must follow the lower rating. If a security is unrated, the fund may assign it
to a given category based on its own credit research.
<PAGE>
23
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FOREIGN INVESTMENTS Foreign bonds and instruments of foreign banks generally
have more risk than their domestic counterparts, in part because of higher
political and economic risks and lack of reliable information. The fund may
invest up to 15% of total assets in securities of Canadian issuers. The fund
also may invest up to 25% of total assets in obligations of foreign banks (other
than U.S. branches of foreign banks) and foreign branches of U.S. banks without
the guarantee of a U.S. bank. All foreign securities purchased by the fund are
denominated in U.S. dollars.
REPURCHASE AGREEMENTS The fund may buy securities with the understanding that
the seller will buy them back with interest at a later date. If the seller is
unable to honor its commitment to repurchase the securities, the fund could lose
money.
DERIVATIVES Derivatives are financial instruments whose value derives from one
or more securities. Certain instruments that are first or second tier securities
also may be derivatives, such as short-term, high-quality asset-backed
securities. The fund uses derivatives to invest for potential income, and may
purchase them to the extent it can purchase any other type of first or second
tier security. The values of some derivatives are difficult to determine because
they are based on the values of other securities and the markets for some
derivatives may be limited. With some derivatives, such as certain option
contracts, there is also the risk that the counterparty may fail to honor its
contract terms, causing a loss for the fund.
YEAR 2000 The investment manager does not currently anticipate that computer
problems related to the year 2000 will have a material effect on the fund.
However, there can be no assurances in this area, including the possibility that
year 2000 computer problems could negatively affect communication systems,
investment markets or the economy in general.
<PAGE>
24 FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
These highlights are intended to help you understand the fund's performance over
the past five years. The information in these tables has been audited by
PricewaterhouseCoopers LLP, the fund's independent accountants. Total return
figures assume reinvestment of all distributions.
<TABLE>
<CAPTION>
Class B Class C (formerly Class D)
---------------------------------------------------------------------------------
Years ended March 31 Years ended March 31
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA 1994(1) 1995 1996 1997 1998 1994(1) 1995 1996 1997 1998
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR ($) 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net investment income ($)* 0.012 0.032 0.041 0.037 0.040 0.013 0.032 0.041 0.037 0.040
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Dividends from net investment income ($) (0.012) (0.032) (0.041) (0.037) (0.040) (0.013) (0.032) (0.041) (0.037) (0.040)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF YEAR ($) 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
======= ====== ======== ======= ======= ======= ======= ======= ======= =======
Total return (%)(2) 1.27(3) 3.27 4.16 3.72 4.09 1.30(3) 3.28 4.16 3.72 4.09
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year ($ thousands) 3,028 9,322 11,884 15,982 14,567 174 842 1,964 959 2,314
Expense ratio (%)* 1.75(4) 1.75 1.75 1.75 1.65 1.75(4) 1.75 1.75 1.75 1.65
Ratio of net investment income
to average net assets (%)* 1.54(4) 3.53 4.06 3.69 4.01 1.54(4) 3.30 4.08 3.68 4.01
*Reflects voluntary reduction of
expenses per share of these amounts ($) 0.007 0.004 0.003 0.002 0.002 0.002 0.005 0.003 0.002 0.002
</TABLE>
<PAGE>
25
-----
<TABLE>
<CAPTION>
Class E Class S (formerly Class C)
------------------------------------------------------------------------------------
Years ended March 31 Years ended March 31
PER SHARE DATA 1994 1995 1996 1997 1998 1994(1) 1995 1996 1997 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net investment income ($)* 0.025 0.042 0.051 0.047 0.050 0.021 0.042 0.051 0.047 0.050
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Dividends from net investment income ($) (0.025) (0.042) (0.051) (0.047) (0.050) (0.021) (0.042) (0.051) (0.047) (0.050)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF YEAR ($) 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Total return (%)(2) 2.48 4.31 5.20 4.78 5.12 2.08(3) 4.31 5.20 4.78 5.12
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year ($ thousands) 138,129 150,491 197,109 192,360 221,475 1,786 7,886 16,191 14,710 13,500
Expense ratio (%)* 0.75 0.75 0.75 0.75 0.65 0.75(4) 0.75 0.75 0.75 0.65
Ratio of net investment income
to average net assets (%)* 2.46 4.26 5.06 4.69 5.01 2.54(4) 4.66 5.03 4.69 5.01
*Reflects voluntary reduction of
expenses per share of these amounts 0.003 0.006 0.003 0.002 0.002 0.006 0.003 0.003 0.002 0.002
</TABLE>
[sidebar text]
[footnote text]
(1) June 1, 1993 (commencement of share class designations) to March 31, 1994.
(2) Does not reflect any front-end or contingent deferred sales charges. Total
return would be lower if the distributor and its affiliates had not
voluntarily reduced the fund's expenses.
(3) Not annualized.
(4) Annualized.
[end of footnote text]
[end of sidebar text]
<PAGE>
FOR ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
[sidebar text]
If you have questions about the fund or would like to request a free copy of the
current annual/semiannual report or SAI, contact State Street Research or your
financial professional.
[State Street Research logo]
Service Center
P.O. Box 8408, Boston, MA 02266
Telephone: 1-800-562-0032
Internet: www.ssrfunds.com
You can also obtain information about the fund, including the SAI and certain
other fund documents, on the Internet at www.sec.gov, in person at the SEC's
Public Reference Room in Washington, DC (telephone 1-800-SEC-0330) or by mail by
sending your request, along with a duplicating fee, to the SEC's Public
Reference Section, Washington, DC 20549-6009.
prospectus
SEC File Number: 811-4295
[end of sidebar text]
You can find additional information on the fund's structure and its performance
in the following documents:
ANNUAL/SEMIANNUAL REPORTS While the prospectus describes the fund's potential
investments, these reports detail the fund's actual investments as of the report
date. Reports include a discussion by fund management of recent economic and
market trends and fund performance. The annual report also includes the report
of the fund's independent accountants.
TICKER SYMBOLS
- -----------------------------
Class B (proposed) SSBXX
Class C (proposed) SSDXX
Class E SSRXX
Class S (proposed) SSSXX
Class T (proposed) SRMXX
STATEMENT OF ADDITIONAL INFORMATION (SAI) A supplement to the prospectus, the
SAI contains further information about the fund and its investment limitations
and policies. It also includes the most recent annual report and the independent
accountants' report. A current SAI for this fund is on file with the Securities
and Exchange Commission and is incorporated by reference (is legally part of
this prospectus).
XX-000X-000 XXX
Control Number: 0000-000000(0000)SSR-LD
<PAGE>
State Street Research Money Market Fund
a Series of
State Street Research Money Market Trust
STATEMENT OF ADDITIONAL INFORMATION
August 1, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
INVESTMENT OBJECTIVE......................................................2
ADDITIONAL INVESTMENT POLICIES AND RESTRICTIONS...........................2
MONEY MARKET INSTRUMENTS..................................................4
ADDITIONAL INFORMATION CONCERNING
CERTAIN RISKS AND INVESTMENTS...................................10
THE TRUST, THE FUND AND ITS SHARES.......................................13
TRUSTEES AND OFFICERS....................................................16
MANAGEMENT OF THE FUND AND INVESTMENT ADVISORY SERVICES .................21
PURCHASE AND REDEMPTION OF SHARES........................................22
SHAREHOLDER ACCOUNTS.....................................................26
NET ASSET VALUE..........................................................30
PORTFOLIO TRANSACTIONS...................................................31
CERTAIN TAX MATTERS......................................................35
DISTRIBUTION OF SHARES OF THE FUND.......................................36
CALCULATION OF PERFORMANCE DATA..........................................40
CUSTODIAN................................................................44
INDEPENDENT ACCOUNTANTS..................................................44
FINANCIAL STATEMENTS.....................................................44
</TABLE>
The following Statement of Additional Information is not a Prospectus.
It should be read in conjunction with the Prospectus of State Street Research
Money Market Fund (the "Fund") dated August 1, 1998, which may be obtained
without charge from the offices of State Street Research Money Market Trust (the
"Trust") or State Street Research Investment Services, Inc. (the "Distributor"),
One Financial Center, Boston, Massachusetts 02111-2690.
<PAGE>
CONTROL NUMBER: 1285L-980815(EXPO899)SSR-LD MM-879D-0898
<PAGE>
INVESTMENT OBJECTIVE
As set forth under "The Fund--Goal and Strategies--Fundamental Goal" in
the Prospectus of State Street Research Money Market Fund (the "Fund"), the
Fund's investment goal, which is to seek a high level of current income
consistent with the preservation of capital and maintenance of liquidity by
investing in securities issued or guaranteed as to principal and interest by the
U.S. government or its agencies or instrumentalities as well as high-quality,
short-term money market instruments such as bank certificates of deposit,
bankers' acceptances and such short-term corporate debt securities as commercial
paper and master demand notes, is fundamental and may not be changed by the Fund
except by the affirmative vote of a majority of the outstanding voting
securities of the Fund, as defined in the Investment Company Act of 1940, as
amended (the "1940 Act"). (Under the 1940 Act, a "vote of the majority of the
outstanding voting securities" means the vote, at the annual or a special
meeting of security holders duly called, (i) of 67% or more of the voting
securities present at the meeting if the holders of more than 50% of the
outstanding voting securities are present or represented by proxy or (ii) of
more than 50% of the outstanding voting securities, whichever is less.)
ADDITIONAL INVESTMENT POLICIES AND RESTRICTIONS
As set forth under "The Fund--Principal Risks" and "Other
Information--Other Securities and Risks" in the Fund's Prospectus, the Fund has
adopted certain investment restrictions, and those investment restrictions are
either fundamental or not fundamental. Fundamental restrictions may not be
changed by the Fund except by the affirmative vote of a majority of the
outstanding voting securities of the Fund. Restrictions that are not fundamental
may be changed by a vote of a majority of the Trustees of the Trust.
The Fund's fundamental investment restrictions are set forth below.
Under these restrictions, it is the Fund's policy:
(1) not to purchase a security of any one issuer (other than
securities issued or guaranteed as to principal or interest by
the U.S. Government or its agencies or instrumentalities) if
such purchase would, with respect to 75% of the Fund's total
assets, cause more than 5% of the Fund's total assets cause
more than 5% of the Fund's total assets to be invested in the
securities of such issuer or cause more than 10% of the voting
securities of such issuer to be held by the Fund;
(2) not to issue senior securities;
(3) not to underwrite or participate in the marketing of
securities of other issuers;
2
<PAGE>
(4) not to purchase or sell real estate in fee simple;
(5) not to invest in commodities or commodity contracts;
(6) not to lend money directly to natural persons; however, the
Fund may lend portfolio securities and purchase bonds,
debentures, notes, bills and any other debt-related
instruments or interests directly from the issuer thereof or
in the open market and may enter into repurchase transactions
collateralized by obligations of the U.S. Government and its
agencies and instrumentalities or other high quality
securities;
(7) not to conduct arbitrage transactions;
(8) not to invest in interests in oil, gas or other mineral
exploration or development programs (provided that the Fund
may invest in securities which are based, directly or
indirectly, on the credit of companies which invest in or
sponsor such programs);
(9) not to make any investment which would cause more than 25% of
the value of the Fund's total assets to be invested in the
securities of issuers principally engaged in any one industry,
as based on industry classifications as may be described in
the Fund's Prospectus or Statement of Additional Information,
as amended from time to time, except that the Fund will invest
more than 25% of its total assets in the financial services
industry and except that this limitation does not apply to
securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities or obligations of banks as
described in the Fund's Prospectus or Statement of Additional
Information, as amended from time to time; and
(10) not to borrow money (through reverse repurchase agreements or
otherwise) except for extraordinary and emergency purposes,
such as permitting redemption requests to be honored, and then
not in an amount in excess of 10% of the value of its total
assets, provided that additional investments will be suspended
during any period when borrowings exceed 5% of the Fund's
total assets and provided further that reverse repurchase
agreements shall not exceed 5% of the Fund's total assets.
Reverse repurchase agreements occur when the Fund sells money
market securities and agrees to repurchase such securities at
an agreed-upon price, date and interest payment. The Fund
would use the proceeds from the transaction to buy other money
market securities, which are either maturing or under the
terms of a resale agreement, on the same day as (or day prior
to) the expiration of the reverse repurchase agreement, and
would employ a reverse repurchase agreement when interest
income from investing the
3
<PAGE>
proceeds of the transaction is greater than the interest
expense of the reverse repurchase transaction.
The following investment restrictions may be changed by a vote of a
majority of the Trustees. Under these restrictions, it is the Fund's policy:
(1) not to purchase any security or enter into a repurchase
agreement if as a result more than 10% of its net assets would
be invested in securities that are illiquid (including
repurchase agreements not entitling the holder to payment of
principal and interest within seven days);
(2) not to purchase securities on margin, make a short sale of any
securities or purchase or deal in puts, calls, straddles or
spreads with respect to any security;
(3) not to hypothecate, mortgage or pledge any of its assets
except as may be necessary in connection with permitted
borrowings and then not in excess of 15% of the Fund's total
assets, taken at cost;
(4) not to purchase a security issued by another investment
company, except to the extent permitted under the 1940 Act or
except by purchase in the open market involving only customary
brokers' commissions, or securities acquired as dividends or
distributions or in connection with a merger, consolidation or
similar transaction or other exchange; and
(5) not to invest in companies for the purpose of exercising
control over their management.
MONEY MARKET INSTRUMENTS
The following describes further the money market instruments in which
the Fund may invest, as well as certain debt ratings used by the Fund, and is
provided as a supplement to the discussion appearing in the Fund's Prospectus.
Money Market Instruments
Short-Term Corporate and Other Securities
Short-term corporate debt instruments include commercial paper (i.e.,
short-term, unsecured promissory notes) issued by corporations (including bank
holding companies) to finance short-term credit needs. Commercial paper is
usually sold on a discounted basis and has a maturity at the time of issuance
not exceeding nine months.
4
<PAGE>
Short-term corporate debt instruments also include master demand notes.
Master demand notes are obligations of companies that permit an investor to
invest fluctuating amounts at varying rates of interest pursuant to arrangements
between the investor, as lender, and the companies, as borrowers. The Fund will
have the right, at any time, to increase the amount lent up to the full amount
provided by a note. Because the Fund may also decrease the amount lent at any
time, such instruments are highly liquid and in effect have a maturity of one
business day. The borrower will have the right, at any time, to prepay up to the
full amount of the amount borrowed without penalty. Because the notes are direct
lending obligations between the Fund and the borrowers, they are generally not
traded and there is no secondary market. Consequently, the Fund's ability to
receive repayment will depend upon the borrower's ability to pay principal and
interest on the Fund's demand. The Fund will invest only in notes that either
have the ratings described below for commercial paper or (because notes are not
typically rated by credit rating agencies) unrated notes that are issued by
companies having the ratings described below for issuers of commercial paper.
The Fund does not expect that the notes will be backed by bank letters of
credit. State Street Research & Management Company, the Fund's investment
manager (the "Investment Manager") will monitor the value of the Fund's
investments in commercial paper and master demand notes, taking into account
such factors as the issuer's earning power, cash flow and other liquidity
ratios.
Commercial paper investments at the time of purchase will be rated in
one of the two highest rating categories by a nationally recognized statistical
rating organization, such as within the A-1 or A-2 categories by Standard &
Poor's Corporation ("S&P") or within the Prime-1 or Prime-2 categories by
Moody's Investors Service, Inc. ("Moody's"), or, if not rated, issued by
companies having an outstanding debt issue rated at least within the AA category
by S&P or within the Aa category by Moody's or equivalent. See "Debt Securities
Ratings" below for further information.
Under certain limited circumstances, the Fund may invest in
nonconvertible corporate debt securities (e.g., bonds and debentures which may
be issued by U.S. or Canadian corporations) with no more than 397 calendar days
remaining either to the date of maturity or the date on which, under the
indenture governing the security, it may be sold back to the issuer thereof for
payment of principal and accrued interest. Corporate debt securities with a
remaining maturity of 397 calendar days or less are liquid (and tend to become
more liquid as their maturities lessen) and are traded as money market
securities. Such securities also tend to have considerably less market value
fluctuation than longer term issues.
Corporate debt and other securities in which the Fund invests must be
U.S. dollar-denominated Eligible Securities (as defined in Rule 2a-7 under the
1940 Act) that are determined to present minimal credit risks. In general, the
term "Eligible Security" is limited to any security that:
5
<PAGE>
(i) (a) either (1) has received a short-term rating from a
nationally recognized statistical rating organization
("NRSRO") or has been issued by an issuer that has received a
short-term rating from an NRSRO with respect to a class of
debt obligations(or any debt obligation within that class)
that is comparable in priority and security with the security
or (2) is subject to a guarantee that has received a
short-term rating from an NRSRO, or a guarantee issued by a
guarantor that has received a short-term rating from an NRSRO
with respect to a class of debt obligations (or any debt
obligation within that class) that is comparable in priority
and security with the guarantee, (b) has a remaining maturity
of 397 calendar days or less and (c) has received a rating
from the requisite number of NRSROs (i.e., two, if two
organizations have issued ratings and one if only one has
issued a rating) in one of the two highest short-term major
rating categories; or
(ii) is unrated but is of comparable quality to a rated security as
described in (i), above, and which at the time of issuance (a)
had a remaining maturity of more than 397 calendar days and
now has a remaining maturity of 397 calendar days or less and
(b) has not received a long-term rating from an NRSRO in any
NRSRO major rating category outside of the NRSRO's three
highest major rating categories, unless the security has
receive a long-term rating from the requisite number of NRSROs
(i.e., two, if two organizations have issued ratings and one
if only one has issued a rating) in one of the three highest
long-term major rating categories.
As indicated in the Fund's Prospectus, at least 95% of the Fund's total
assets will consist of government securities and "first tier" eligible
securities as defined in Rule 2a-7 under the 1940 Act, with the balance of the
Fund's assets invested in "second tier" eligible securities as defined in Rule
2a-7. For this purpose, "second tier" eligible securities generally are those
which have been (i) rated by at least two nationally recognized statistical
rating organizations in one of the two highest rating categories for short-term
obligations (or so rated by one such organization if it alone has rated the
security), (ii) issued by an issuer with comparable short-term obligations that
are rated in one of the two highest rating categories, or (iii) if unrated,
determined to be comparable to such securities. The Fund may not invest more
than the greater of 1% of its total assets or $1 million in "second tier"
eligible securities of any single issuer.
Bank Money Investments
Bank money investments include but are not limited to certificates of
deposit, bankers' acceptances and time deposits. Certificates of deposit are
generally short-term (i.e., less than one year), interest-bearing negotiable
certificates issued by commercial banks or savings and loan associations against
funds deposited in the issuing institution. A banker's acceptance is a
6
<PAGE>
time draft drawn on a commercial bank by a borrower, usually in connection with
an international commercial transaction (to finance the import, export, transfer
or storage of goods). A banker's acceptance may be obtained from a domestic or
foreign bank including a U.S. branch or agency of a foreign bank. The borrower
is liable for payment as well as the bank, which unconditionally guarantees to
pay the draft at its face amount on the maturity date. Most acceptances have
maturities of six months or less and are traded in secondary markets prior to
maturity. Time deposits are nonnegotiable deposits for a fixed period of time at
a stated interest rate. The Fund will not invest in any such bank money
investment unless the investment is issued by a U.S. bank that is a member of
the Federal Deposit Insurance Corporation ("FDIC"), including any foreign branch
thereof, a U.S. branch or agency of a foreign bank, a foreign branch of a
foreign bank, or a savings bank or savings and loan association that is a member
of the FDIC and which at the date of investment has capital, surplus and
undivided profits (as of the date of its most recently published financial
statements) in excess of $50 million. The Fund will not invest in time deposits
maturing in more than seven days and will not invest more than 10% of its total
assets in time deposits maturing in two to seven days.
U.S. branches and agencies of foreign banks are offices of foreign
banks and are not separately incorporated entities. They are chartered and
regulated either federally or under state law. U.S. federal branches or agencies
of foreign banks are chartered and regulated by the Comptroller of the Currency,
while state branches and agencies are chartered and regulated by authorities of
the respective states or the District of Columbia. U.S. branches of foreign
banks may accept deposits and thus are eligible for FDIC insurance; however, not
all such branches elect FDIC insurance. Unlike U.S. branches of foreign banks,
U.S. agencies of foreign banks may not accept deposits and thus are not eligible
for FDIC insurance. Both branches and agencies can maintain credit balances,
which are funds received by the office incidental to or arising out of the
exercise of their banking powers and can exercise other commercial functions,
such as lending activities.
U.S. Treasury Obligations
U.S. Government securities consist of various types of marketable
securities issued by the U.S. Treasury, that is, bills, notes and bonds. Such
securities are direct obligations of the U.S. Government and differ mainly in
the lengths of their maturities. Treasury bills, the most frequently issued
marketable government security, have a maturity of up to one year and are issued
on a discount basis. U.S. Government securities also include securities issued
under the U.S. Department of Treasury's STRIPS program, which is described in
the Fund's Prospectus.
U.S Government Agency and Similar Securities
U.S. Government agency securities consist of fixed income securities
issued or guaranteed by agencies and instrumentalities of the U.S. Government,
including the various
7
<PAGE>
types of instruments currently outstanding or which may be offered in the
future. Agencies and instrumentalities include, among others, the Federal
Housing Administration, Government National Mortgage Association ("GNMA"),
Federal National Mortgage Association, Export- Import Bank of the U.S., Federal
Maritime Administration, General Services Administration and Tennessee Valley
Authority. Instrumentalities include, for example, the Central Bank for
Cooperatives, Federal Home Loan Banks, Federal Farm Credit Banks, Student Loan
Marketing Association, Federal Home Loan Mortgage Corporation, Federal
Intermediate Credit Banks, Federal Land Banks and the U.S. Postal Service. The
Fund will purchase such securities only so long as they are backed by any of (i)
the full faith and credit of the U.S. Treasury (e.g., U.S. Treasury bills, bonds
and notes and GNMA participation certificates), (ii) the right of the issuer to
borrow a limited amount from the U.S. Treasury (e.g., securities of the Farmers
Home Administration), (iii) the discretionary authority of the U.S. Government
to purchase certain obligations of the agency or instrumentality (e.g.,
securities of the Federal National Mortgage Association) or (iv) the credit of
the agency or instrumentality (e.g., securities of a Federal Home Loan Bank).
The Fund may also invest in the obligations of mixed-ownership
Government corporations. Certain obligations of Resolution Funding Corporation,
a mixed-ownership Government corporation, are backed with respect to interest
payments by the U.S. Treasury, and with respect to principal payments by U.S.
Treasury obligations held in a segregated account with a Federal Reserve Bank.
Except for certain mortgage-related securities, the Fund will only invest in
obligations issued by mixed-ownership Government corporations where such
securities are guaranteed as to payment of principal or interest by the U.S.
Government or a U.S. Government agency or instrumentality, and any unguaranteed
principal or interest is otherwise supported by U.S. Government obligations held
in a segregated account.
Custodial Receipts
The Fund may acquire, subject to the limitations described herein,
custodial receipts that evidence ownership of future interest payments,
principal payments or both on certain U.S. Treasury notes or bonds in connection
with programs sponsored by banks and brokerage firms. Such notes and bonds are
held in custody by a bank on behalf of the owners of the receipts. These
custodial receipts are known by various names, including "Treasury Receipts"
("TRs"), "Treasury Investment Growth Receipts" ("TIGRs") and "Certificates of
Accrual on Treasury Securities" ("CATS"), and may not be treated as U.S.
Government securities.
Debt Securities Ratings
Description of Commercial Paper Ratings
Commercial paper rated within the "A" category (highest quality) by S&P
is issued by entities which have liquidity ratios which are adequate to meet
cash requirements. Long-term senior debt is rated A or better, although in some
cases credits within the "BBB" category may
8
<PAGE>
be allowed. The issuer has access to at least two additional channels of
borrowing. Basic earnings and cash flow have an upward trend with allowance made
for unusual circumstances. Typically, the issuer's industry is well established
and the issuer has a strong position within the industry. The reliability and
quality of management are unquestioned. The relative strength or weakness of the
above factors determines whether the issuer's commercial paper is rated A-1, A-2
or A-3. (Those A-1 issues determined to possess overwhelming safety
characteristics are denoted with a plus (+) sign: A-1+.)
The rating Prime is the highest commercial paper rating category
assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: evaluation of the management of the issuer; economic
evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; evaluation of the
issuer's products in relation to competition and customer acceptance; liquidity;
amount and quality of long-term debt; trend of earnings over a period of 10
years; financial management of obligations which may be present or may arise as
a result of public interest questions and preparations to meet such obligations.
These factors are all considered in determining whether the commercial paper is
rated Prime-1, Prime-2 or Prime-3.
Description of the Highest Corporate Bond and Debenture Ratings of S&P
AAA: An obligation rated within the AAA category has the highest rating
assigned by S&P. Capacity to meet the financial commitment on the obligation is
extremely strong.
AA: An obligation rated within the AA category differs from AAA issues
only in small degree. Capacity to meet the financial commitment on the
obligation is very strong.
Description of the Highest Corporate Bond and Debenture Ratings of Moody's
Aaa: Bonds which are rated within the Aaa category are judged to be of
the best quality. Interest payments are protected by a large or exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa: Bonds which are rated within the Aa category are judged to be of
high quality by all standards. Together with the Aaa group they comprise what
are generally known as high grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may be
other elements present which make the long term risks appear somewhat greater
than in Aaa securities.
9
<PAGE>
ADDITIONAL INFORMATION CONCERNING
CERTAIN RISKS AND INVESTMENTS
The following describes further certain investment practices that the
Fund may follow and is provided as a supplement to the discussion appearing in
the Fund's Prospectus.
Foreign Banks and Securities
The Fund may elect to concentrate its investments in obligations of
domestic banks, including certain U.S. branches and agencies of foreign banks
and certain foreign branches of U.S. banks as described under "Money Market
Instruments," above. The fund expects that investment, if any, in such
obligations will consist principally of obligations which are issued by U.S.
branches and agencies of foreign banks for sale in the U.S., and the Investment
Manager believes that the risks described below are reduced in the case of such
bank obligations. The Fund also may invest up to 25% of its total assets in
obligations of foriegn banks located abroad and obligations of foreign branches
of domestic banks not having a guarantee of a U.S. bank.
The Fund may invest up to 15% of its total assets in money market
instruments of issuers organized and located in Canada payable in U.S. dollars
as described in the Prospectus, subject to the issuer diversification and other
restrictions described in the Prospectus and Statement of Additional
Information. Securities of such issuers guaranteed as to principal and interest
by a U.S. parent and otherwise meeting applicable quality standards will not be
included for purposes of calculating the 15% limitation.
Investing in foreign branches of U.S. banks, U.S. branches of foreign
banks, foreign branches of foreign banks and U.S. agencies of foreign banks may
involve risks. These risks may include future unfavorable political and economic
developments, possible withholding or confiscatory taxes, seizure of foreign
deposits, currency controls, interest limitations and other governmental
restrictions that might affect payment of principal or interest, and possible
difficulties pursuing or enforcing claims against banks located outside the U.S.
Additionally, foreign issuers are not generally subject to uniform accounting,
auditing and financial reporting standards or other regulatory requirements and
practices comparable to U.S. issuers, and there may be less public information
available about foreign banks and their branches and agencies.
Restricted Securities
The Fund's policy is to not make an investment in restricted
securities, including Rule 144A and other restricted securities, if as a result
more than 50% of its total assets are invested in such securities, provided not
more than 10% of its total assets are invested in non-Rule 144A restricted
securities. Securities may be resold pursuant to Rule 144A under certain
10
<PAGE>
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. The Trustees
will periodically monitor the liquidity determinations. 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 a market for them.
Repurchase Agreements
The Fund may enter into repurchase agreements. Repurchase agreements
occur when the Fund acquires a security and the seller, which may be either (i)
a primary dealer in U.S. Government securities or (ii) an FDIC-insured bank
having gross assets in excess of $500 million, simultaneously commits to
repurchase it at an agreed-upon price on an agreed-upon date within a specified
number of days (usually not more than seven) from the date of purchase. The
repurchase price reflects the purchase price plus an agreed-upon market rate of
interest which is unrelated to the coupon rate or maturity of the acquired
security. The Fund will only enter into repurchase agreements involving U.S.
Government securities. Repurchase agreements could involve certain risks in the
event of default or insolvency of the other party, including possible delays or
restrictions upon the Fund's ability to dispose of the underlying securities.
Repurchase agreements will be limited to 30% of the Fund's net assets, except
that repurchase agreements extending for more than seven days when combined with
any other illiquid securities held by the Fund will be limited to 15% of the
Fund's net assets.
Securities Lending
The Fund may lend portfolio securities with a value of up to 33 1/3% of
its total assets. The Fund will receive cash or cash equivalents (e.g., U.S.
Government obligations) as collateral in an amount equal to at least 100% of the
current market value of any loaned securities plus accrued interest. Collateral
received by the Fund will generally be held in the form tendered, although cash
may be invested in unaffiliated mutual funds with quality short-term portfolios,
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, repurchase agreements or other similar investments. The
investing of cash collateral received from loaning portfolio securities involves
leverage which magnifies the potential for gain or loss on monies invested and,
therefore, results in an increase in the volatility of the Fund's outstanding
securities. Such loans may be terminated at any time.
11
<PAGE>
The Fund will retain rights to dividends, interest or other
distributions, on the loaned securities. Voting rights pass with the lending,
although the Fund may call loans to vote proxies if desired. Should the borrower
of the securities fail financially, there is a risk of delay in recovery of the
securities or loss of rights in the collateral. Loans are made only to borrowers
which are deemed by the Investment Manager or its agents to be of good financial
standing.
When-Issued Securities
The Fund may purchase "when-issued" securities, which are traded on a
price or yield basis prior to actual issuance. Such purchases will be made only
to achieve the Fund's investment objective and not for leverage. The when-issued
trading period generally lasts from a few days to months, or over a year or
more; during this period dividends or interest on the securities are not
payable. A frequent form of when-issued trading occurs when corporate securities
to be created by a merger of companies are traded prior to the actual
consummation of the merger. Such transactions may involve a risk of loss if the
value of the securities falls below the price committed to prior to actual
issuance. The Trust's custodian will establish a segregated account when the
Fund purchases securities on a when-issued basis consisting of cash or liquid
securities equal to the amount of the when-issued commitments. Securities
transactions involving delayed deliveries or forward commitments are frequently
characterized as when-issued transactions and are similarly treated by the Fund.
Industry Classifications
In determining how much of the portfolio is invested in a given
industry, the following industry classifications are currently used. Securities
issued by foreign governments are excluded. Companies engaged in the business of
financing may be classified according to the industries of their parent or
sponsor companies, or industries that otherwise most affect such financing
companies. The Fund will invest more than 25% of its total assets in the
Financial Services industry. 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. The industry concentration
limitations do not apply to bank money instruments, e.g. interest bearing
negotiable certificates, issued by the foreign branch of a domestic bank, if the
domestic parent would be unconditionally liable in the event that the foreign
branch failed to pay on its instruments for any reason.
Aerospace
Airline
Asset-backed--Mortgages
Asset-backed--Credit Card
Receivables
Automotive
Automotive Parts
Bank
Building
Business Service
Cable
Capital Goods & Equipment
Chemical
Computer Software & Service
Conglomerate
Consumer Goods & Services
Container
Cosmetics
Diversified
Drug
Electric
12
<PAGE>
Electric Equipment
Electronic Components
Electronic Equipment
Entertainment
Financial Service
Food & Beverage
Forest Products
Gaming & Lodging
Gas
Gas Transmission
Grocery
Healthcare & Hospital
Management
Hospital Supply
Hotel & Restaurant
Insurance
Machinery
Media
Metal & Mining
Office Equipment
Oil Production
Oil Refining & Marketing
Oil Service
Paper Products
Personal Care
Photography
Plastics
Printing & Publishing
Railroad
Real Estate and Building
Recreation
Retail Trade
Savings & Loan
Shipping & Transportation
Technology & Communications
Telephone
Textile & Apparel
Tobacco
Truckers
Trust Certificates--
Governmental Related
Lending
Computer-Related Risks
Many mutual funds and other companies that issue securities, as well as
government entities upon whom those mutual funds and companies depend, may be
adversely affected by computer systems (whether their own systems or systems of
their service providers) that do not properly process dates beginning with
January 1, 2000 and information related to those dates. The Investment Manager
currently is in the process of reviewing its internal computer systems as they
relate to the Fund, as well as the computer systems of those service providers
upon which the Fund relies, in order to obtain reasonable assurances that the
Fund will not experience a material adverse impact related to that problem. The
Fund does not currently anticipate that that problem will have a material
adverse impact on its portfolio investments, taken as a whole. There can be no
assurances in that area, however, including the possibility that that problem
could negatively affect the investment markets or the economy generally.
THE TRUST, THE FUND AND ITS SHARES
The Fund was organized in 1985 as a separate series of State Street
Research Money Market Trust, a Massachusetts business trust. A "series" is a
separate pool of assets of the Trust which is separately managed and may have a
different investment objective and different investment policies from the
objective and policies of another series. The Trust currently is comprised of
one series: State Street Research Money Market Fund. The Trustees of the Trust
have authority to issue an unlimited number of shares of beneficial interest of
each separate series, $.001 par value per share. The Trustees also have
authority, without the necessity of a shareholder vote, to create any number of
new series or classes or to commence the public offering of shares of any
previously established series or classes. The Trustees have authorized shares of
the Fund to be issued in five classes: Class B, Class C, Class E, Class S and
Class T (introduced August 1, 1998). Prior to November 1, 1997, the Fund's
current Class C shares were
13
<PAGE>
designated as Class D shares and the Fund's current Class S shares were
designated as Class C shares.
Each share of each class of shares represents an identical legal
interest in the same portfolio of investments of the Fund, has the same rights
and is identical in all respects, except that Class B and Class C shares bear
the expenses of the deferred sales arrangement and any expenses (including the
higher service and distribution fees) resulting from such sales arrangement, and
certain other incremental expenses related to a class. Each class will have
exclusive voting rights with respect to provisions of the Rule 12b-1
distribution plan pursuant to which the service and distribution fees, if any,
are paid. Although the legal rights of holders of each class of shares are
identical, it is likely that the different expenses borne by each class will
result in different net asset values and dividends. The different classes of
shares of the Fund also have different exchange privileges. Except for those
differences between classes of shares described above, in the Fund's Prospectus
and otherwise in this Statement of Additional Information, each share of the
Fund has equal dividend, redemption and liquidation rights with other shares of
the Fund, and when issued, is fully paid and nonassessable by the Fund.
The rights of holders of shares may be modified by the Trustees at any
time, so long as such modifications do not have an adverse effect on the rights
of any shareholder. On any matter submitted to the shareholders, the holder of a
Fund share is entitled to one vote per share (with proportionate voting for
fractional shares) regardless of the relative net asset value thereof.
Under the Master Trust Agreement, no annual or regular meeting of
shareholders is required. Thus, there ordinarily will be no shareholder meetings
unless required by the 1940 Act. Except as otherwise provided under the 1940
Act, the Board of Trustees will be a self-perpetuating body until fewer than
two-thirds of the Trustees serving as such are Trustees who were elected by
shareholders of the Trust. In the event less than a majority of the Trustees
serving as such were elected by shareholders of the Trust, a meeting of
shareholders will be called to elect Trustees. Under the Master Trust Agreement,
any Trustee may be removed by vote of two-thirds of the outstanding Trust
shares; holders of 10% or more of the outstanding shares of the Trust can
require that the Trustees call a meeting of shareholders for purposes of voting
on the removal of one or more Trustees. In connection with such meetings called
by shareholders, shareholders will be assisted in shareholder communications to
the extent required by applicable law.
Under Massachusetts law, the shareholders of the Trust could, under
certain circumstances, be held personally liable for the obligations for the
Trust. However, the 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
14
<PAGE>
to circumstances in which the Fund would be unable to meet its obligations. The
Investment Manager believes that, in view of the above, the risk of personal
liability to shareholders is remote.
The Fund is an "open-end" management investment company, and is a
"diversified company" as those terms are defined in the 1940 Act. The Fund also
intends to qualify as a "money market fund" within the meaning of Rule 2a-7
under the 1940 Act, which includes complying with the portfolio quality,
maturity and diversification requirements of that rule. Pursuant to Rule 2a-7,
compliance with the diversification requirements under the rule constitutes
meeting the definitional requirements of a diversified company under the 1940
Act. Generally, a fund that intends to meet its diversification requirements
under Rule 2a-7 may not invest more than 5% of its total assets in any one
issuer, although this limit may be greater if the securities are held for short
periods, are guaranteed or are subject to certain redemption or resale rights,
and there is no limit on investments in U.S. Government securities.
15
<PAGE>
TRUSTEES AND OFFICERS
The Trustees and principal officers of the Trust, their addresses, and
their principal occupations and positions with certain affiliates of the
Investment Manager are set forth below.
*+Dyann H. Kiessling, One Financial Center, Boston, MA 02111, serves as
Vice President of the Trust. She is 34. Her principal occupation is Vice
President of State Street Research & Management Company. Her principal
occupation during the past five years has been portfolio manager and fixed
income trader for State Street Research & Management Company.
+Steve A. Garban, The Pennsylvania State University, 210 Old Main,
University Park, PA 16802, serves as Trustee of the Trust. He is 60. He is
retired and was formerly Senior Vice President for Finance and Operations and
Treasurer of The Pennsylvania State University.
+Malcolm T. Hopkins, 14 Brookside Road, Biltmore Forest, Asheville, NC
28803, serves as Trustee of the Trust. He is 70. He is engaged principally in
private investments. Previously, he was Vice Chairman of the Board and Chief
Financial Officer of St. Regis Corp.
*+John H. Kallis, One Financial Center, Boston, MA 02111, serves as
Vice President of the Trust. He is 57. His principal occupation is Senior Vice
President of State Street Research & Management Company. During the past five
years he has also served as portfolio manager for State Street Research &
Management Company.
+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, Saltonstall & Co., 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.
- --------------
* or + See footnotes on page 18.
16
<PAGE>
*+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, Chief
Financial Officer and Director of State Street Research & Management Company.
Mr. Maus's other principal business affiliations include Executive Vice
President, Treasurer, Chief Financial Officer and Director of State Street
Research Investment Services, Inc. and Executive Vice President, Chief Financial
Officer, Administrative Officer and Director, 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,
Senior Vice President of State Street Research Investment Services, Inc. and as
Senior Vice President, General Counsel and Assistant Secretary of The Boston
Company, Inc., Boston Safe Deposit and Trust Company and The Boston Company
Advisors, Inc. Mr. McNamara's other principal business affiliations include
Executive Vice President, General Counsel and Clerk of State Street Research
Investment Services, Inc. and Executive Vice President and General Counsel, GFM
International Investors, Inc.
+Dean O. Morton, 3200 Hillview Avenue, Palo Alto, CA 94304, serves as
Trustee of the Trust. He is 66. He is retired and was formerly Executive Vice
President, Chief Operating Officer and Director, Hewlett-Packard Company.
+Toby Rosenblatt, 3409 Pacific Avenue, San Francisco, CA 94118, serves
as Trustee of the Trust. He is 60. 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.
- -------------------
* or + See footnotes on page 18.
17
<PAGE>
+Michael S. Scott Morton, Massachusetts Institute of Technology, 77
Massachusetts Avenue, Cambridge, MA 02139, serves as Trustee of the Trust. He is
60. His principal occupation during the past five years has been Jay W.
Forrester Professor of Management at Sloan School of Management, Massachusetts
Institute of Technology.
*+Thomas A. Shively, One Financial Center, Boston, MA 02111, serves as
Vice President of the Trust. He is 44. His principal occupation is Executive
Vice President and Director of State Street Research & Management Company.
During the past five years he has also served as Senior Vice President of State
Street Research & Management Company. Mr. Shively's other principal business
affiliation is Director of State Street Research Investment Services, Inc.
*+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. (and until February, 1996, prior
positions as President and Chief Executive Officer of that company), and
Chairman of the Board, President, Chief Executive Officer and Director of GFM
International Investors, Inc.
- -------------------
* These Trustees and/or officers are or may be deemed to be "interested
persons" of the Trust under the 1940 Act because of their affiliations
with the Fund's investment adviser.
+ Serves as a Trustee/Director and/or officer of one or more of the
following investment companies, each of which has an advisory
relationship with the Investment Manager or its parent, Metropolitan
Life Insurance Company ("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.
18
<PAGE>
Ownership of 25% or more of a voting security is deemed "control" as
defined in the 1940 Act. So long as 25% of a class of shares is so owned, such
owners will be presumed to be in control of such class of shares for purposes of
voting on certain matters submitted to a vote of shareholders, such as any
Distribution Plan for a given class.
As of April 30, 1998, the Trustees and principal officers of the Trust
as a group owned less than 1% of the Fund's outstanding Class E shares, and
owned no shares of the Fund's outstanding Class B, Class C, Class S or Class T
shares.
Also, as of April 30, 1998, the following persons or entities were the
record and/or beneficial owners of the approximate amounts of each class of
shares of the Fund as set forth beside their names:
Shareholder %
----------- ---
Class B State Street Bank 9.1
Class C (a) Metropolitan Life 33.4
State Street Bank 23.8
PaineWebber 11.8
R.R. Berthier and T.O. Berthier, JT Ten 5.9
Class E Metropolitan Life 21.3
Class S (a) Chase Manhattan 48.2
State Street Bank 33.6
The full name and address of each of the above persons or entities are
as follows:
Metropolitan Life Insurance Company (d)
One Madison Avenue
New York, NY 10010
State Street Bank and Trust Company (b) (e)
225 Franklin Street
Boston, MA 02110
The Chase Manhattan Bank (b)(c)
770 Broadway
New York, NY 10003
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<PAGE>
PaineWebber (b)(e)
P.O. Box 3321
Weehawken, NJ 07087
R.R. Berthier and T.O. Berthier JT Ten
c/o State Street Research Service Center
One Financial Center
Boston, MA 02111
- --------------------
(a) Prior to November 1, 1997, the Fund's current Class C shares were
designated as Class D shares and the Fund's current Class S shares were
designated as Class C shares.
(b) The Fund believes that such entity does not have beneficial ownership
of such shares.
(c) The Chase Manhattan Bank holds such shares as trustee under certain
employee benefit plans serviced by Metropolitan Life Insurance Company.
(d) Metropolitan, a New York corporation, was the record and/or beneficial
owner, directly or indirectly through its subsidiaries or affiliates,
of such shares.
(e) Includes shares owned by the indicated holder of record for the benefit
of named owners who may separately own less than 5% of the share class.
The Trustees were compensated as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Total
Compensation
Aggregate From Trust and
Name of Compensation Complex Paid
Trustee From Fund(a) to Trustees(b)
- -----------------------------------------------------------------------------
<S> <C> <C>
Steve A. Garban* $ 0 $ 34,750
Malcolm T. Hopkins* $ 0 $ 34,750
Edward M. Lamont $3,700 $ 59,375
Robert A. Lawrence $4,100 $ 92,125
Dean O. Morton $4,300 $ 96,125
Toby Rosenblatt $4,100 $ 59,375
Michael S. Scott Morton $4,600 $100,325
Ralph F. Verni $ 0 $ 0
</TABLE>
* Elected Trustee March 13, 1998 and, therefore, did not earn any fees
for the fiscal year ended March 31, 1998.
(a) For the Fund's fiscal year ended March 31, 1998.
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<PAGE>
(b) Includes compensation on behalf of all series of 12 investment
companies for which the Investment Manager 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.
MANAGEMENT OF THE FUND AND INVESTMENT ADVISORY SERVICES
Under the provisions of the Trust's Master Trust Agreement and the laws
of Massachusetts, responsibility for the management and supervision of the Fund
rests with the Trustees.
State Street Research & Management Company, the Investment Manager, a
Delaware corporation, with offices at One Financial Center, Boston,
Massachusetts 02111-2690, acts as investment adviser to the Fund. The Investment
Manager was founded by Paul Cabot, Richard Saltonstall and Richard Paine to
serve as investment adviser to one of the nation's first mutual funds, presently
known as State Street Research Investment Trust, which they had formed in 1924.
Their investment management philosophy emphasized comprehensive fundamental
research and analysis, including meetings with the management of companies under
consideration for investment. The Investment Manager's portfolio management
group has extensive investment industry experience managing equity and debt
securities.
The Investment Manager is charged with the overall responsibility for
managing the investments and business affairs of the Fund, subject to the
authority of the Board of Trustees. The Advisory Agreement provides that the
Investment Manager shall furnish the Fund with an investment program, office
facilities and such investment advisory, research and administrative services as
may be required from time to time. The Investment Manager compensates all
executive and clerical personnel and Trustees of the Trust if such persons are
employees of the Investment Manager or its affiliates. The Investment Manager is
an indirect, wholly owned subsidiary of Metropolitan.
The advisory fee payable monthly by the Fund to the Investment Manager
is computed as a percentage of the average of the value of the net assets of the
Fund as determined at the close of regular trading on the New York Stock
Exchange (the "NYSE") on each day the NYSE is open for trading, at the annual
rate of 0.50% of the net assets of the Fund.
The Distributor and its affiliates have from time to time and in
varying amounts voluntarily assumed some portion of fees or expenses relating to
the Fund. For the fiscal years ended March 31, 1996, 1997, and 1998 the Fund's
investment advisory fee prior to the assumption of fees or expenses was
$1,063,955, $1,152,723, and $1,219,931, respectively. For the same periods, the
voluntary reduction of fees or assumption of expenses amounted to $600,157,
$377,715, and $494,474, respectively.
21
<PAGE>
The Advisory Agreement provides that it shall continue in effect with
respect to the Fund for a period of two years after its initial effectiveness
and will continue from year to year thereafter as long as it is approved at
least annually both (i) by a vote of a majority of the outstanding voting
securities of the Fund (as defined in the 1940 Act) or by the Trustees of the
Trust, and (ii) in either event by a vote of a majority of the Trustees who are
not parties to the Advisory Agreement or "interested persons" of any party
thereto, cast in person at a meeting called for the purpose of voting on such
approval. The Advisory Agreement may be terminated on 60 days' written notice by
either party and will terminate automatically in the event of its assignment, as
defined under the 1940 Act and regulations thereunder. Such regulations provide
that a transaction which does not result in a change of actual control or
management of an adviser is not deemed an assignment.
Under the Code of Ethics of the Investment Manager, investment
management personnel are only permitted to engage in personal securities
transactions in accordance with certain conditions relating to such person's
position, the identity of the security, the timing of the transaction, and
similar factors. Such personnel must report their personal securities
transactions quarterly and supply broker confirmations of such transactions to
the Investment Manager.
PURCHASE AND REDEMPTION OF SHARES
Shares of the Fund are distributed by State Street Research Investment
Services, Inc. The Fund offers multiple classes of shares, which may be
purchased at the next determined net asset value per share plus, in the case of
all classes except Class E, Class S and Class T shares, a sales charge, which is
imposed on a deferred basis (the Class B and Class C shares). General
information on how to buy shares of the Fund, as well as sales charges involved,
are set forth under "Your Investment" in the Prospectus. The following
supplements that information.
Purchase Orders. When a purchase order is placed through a dealer, that
dealer is responsible for transmitting the order promptly to the State Street
Research Service Center (the "Service Center") in order to permit the investor
to obtain the current price. Any loss suffered by an investor which results from
a dealer's failure to transmit an order promptly is a matter for settlement
between the investor and the dealer.
Class B and Class C Shares. Class B and Class C shares are offered
solely in connection with exchanges from "Eligible Funds" (which include the
Fund and other funds as designated by the Distributor from time to time).
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Conversion of Class B Shares to Class E Shares. A shareholder's Class B
shares of the Fund, including all shares received as dividends or distributions
with respect to such shares, will automatically convert to Class E shares of the
Fund at the end of eight years following the issuance of such Class B shares;
consequently, they will no longer be subject to the higher expenses borne by
Class B shares. The conversion rate will be determined on the basis of the
relative per share net asset values of the two classes and may result in a
shareholder receiving either a greater or fewer number of Class E shares than
the Class B shares so converted. As noted above, holding periods for Class B
shares received in exchange for Class B shares of other Eligible Funds will be
counted toward the eight-year period.
Contingent Deferred Sales Charges. The amount of any contingent
deferred sales charge paid on Class B or Class C shares of the Fund will be paid
to the Distributor. The Distributor will pay dealers at the time of sale a 4%
commission for selling Class B shares and a 1% commission for selling Class C
shares. In certain cases, a dealer may elect to waive the 4% commission on Class
B shares and receive in lieu thereof an annual fee, usually 1% with respect to
such outstanding shares. The proceeds of the contingent deferred sales charges
and the distribution fees are used to offset distribution expenses and thereby
permit the sale of Class B and Class C shares without an initial sales charge.
In determining the applicability and rate of any contingent deferred
sales charge of Class B or Class C shares, it will be assumed that a redemption
of the shares is made first of those shares having the greatest capital
appreciation, next of shares representing reinvestment of dividends and capital
gains distributions and finally of remaining shares held by shareholder for the
longest period of time. Class B shares that are redeemed within a five-year
period after their purchase, and Class C shares that are redeemed within a
one-year period after their purchase, will not be subject to a contingent
deferred sales charge to the extent that the value of such shares represents (1)
capital appreciation of Fund assets or (2) reinvestment of dividends or capital
gains distributions. The holding period for purposes of applying a contingent
deferred sales charge for a particular class of shares of the Fund acquired
through an exchange from another Eligible Fund will be measured from the date
that such shares were initially acquired in the other Eligible Fund, and shares
of the same class being redeemed will be considered to represent, as applicable,
capital appreciation or dividend and capital gains distribution reinvestments in
such other Eligible Fund. These determinations will result in any contingent
deferred sales charge being imposed at the lowest possible rate. For federal
income tax purposes, the amount of the contingent deferred sales charge will
reduce the gain or increase the loss, as the case may be, on the amount realized
on redemption.
Contingent Deferred Sales Charge Waivers. With respect to Class B and
Class C shares of the Fund, the contingent deferred sales charge does not apply
to exchanges or to redemptions under a systematic withdrawal plan which meets
certain conditions. In addition, the contingent deferred sales charge will be
waived for: (i) redemptions made
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within one year of the death or total disability, as defined by the Social
Security Administration, of all shareholders of an account; (ii) redemptions
made after attainment of a specific age in an amount which represents the
minimum distribution required at such age under Section 401(a)(9) of the
Internal Revenue Code of 1986, as amended, for retirement accounts or plans
(e.g., age 70 1/2 for Individual Retirement Accounts and Section 403(b) plans),
calculated solely on the basis of assets invested in the Fund or other Eligible
Funds; and (iii) a redemption resulting from a tax-free return of an excess
contribution to an Individual Retirement Account. (The foregoing waivers do not
apply to a tax-free rollover or transfer of assets out of the Fund). The Fund
may modify or terminate the waivers at any time; for example, the Fund may limit
the application of multiple waivers and establish other conditions for employee
benefit plans.
Class E Shares. Class E shares may be issued directly or through
exchanges to certain shareholders of the Fund or other Eligible Funds who
previously held shares that are not subject to any future sales charge or
service fees or distribution fees.
Class S Shares. Class S shares are currently available to certain
employee benefit plans such as qualified retirement plans which meet criteria
relating to number of participants, service arrangements, or similar factors;
insurance companies; investment companies; advisory accounts of the Investment
Manager; endowment funds of nonprofit organizations with substantial minimum
assets (currently a minimum of $10 million); and other similar institutional
investors. Class S shares may be acquired through programs or products sponsored
by Metropolitan, its affiliates, or both for which Class S shares have been
designated. In addition, Class S shares are available through programs under
which, for example, investors pay an asset-based fee and/or a transaction fee to
intermediaries. Class S share availability is determined by the Distributor and
intermediaries based on the overall direct and indirect costs of a particular
program, expected assets, account sizes and similar considerations.
Class T Shares. MetLife Securities Money Fund Class T shares are for
accounts available through Metropolitan and its affiliates.
Reorganizations. In the event of mergers or reorganizations with other
public or private collective investment entities, including investment companies
as defined in the 1940 Act, as amended, the Fund may issue its shares at net
asset value (or more) to such entities or to their security holders.
Redemptions. The Fund reserves the right to pay redemptions in kind
with portfolio securities in lieu of cash. In accordance with its election
pursuant to Rule 18f-1 under the 1940 Act, the Fund may limit the amount of
redemption proceeds paid in cash. Although it has no present intention to do so,
the Fund may, under unusual circumstances, limit redemptions in cash with
respect to each shareholder during any ninety-day period to the lesser of (i)
$250,000 or (ii) 1% of the net asset value of the Fund at the beginning of such
period.
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In connection with any redemptions paid in kind with portfolio securities,
brokerage and other costs may be incurred by the redeeming shareholder in the
sale of the securities received.
Systematic Withdrawal Plan. A shareholder who owns noncertificated
Class E or Class S shares with a value of $5,000 or more, or Class B or Class C
shares with a value of $10,000 or more, may elect, by participating in the
Fund's Systematic Withdrawal Plan, to have periodic checks issued for specified
amounts. These amounts may not be less than certain minimums, depending on the
class of shares held. The Plan provides that all income dividends and capital
gains distributions of the Fund shall be credited to participating shareholders
in additional shares of the Fund. Thus, the withdrawal amounts paid can only be
realized by redeeming shares of the Fund under the Plan. To the extent such
amounts paid exceed dividends and distributions from the Fund, a shareholder's
investment will decrease and may eventually be exhausted.
In the case of shares otherwise subject to contingent deferred sales
charges, no such charges will be imposed on withdrawals of up to 8% annually of
either (a) the value, at the time the Systematic Withdrawal Plan is initiated,
of the shares then in the account or (b) the value, at the time of a withdrawal,
of the same number of shares as in the account when the Systematic Withdrawal
Plan was initiated, whichever is higher.
Expenses of the Systematic Withdrawal Plan are borne by the Fund. A
participating shareholder may withdraw from the Systematic Withdrawal Plan, and
the Fund may terminate the Systematic Withdrawal Plan at any time on written
notice. Purchase of additional shares while a shareholder is receiving payments
under a Systematic Withdrawal Plan is ordinarily disadvantageous because of
duplicative sales charges. For this reason, a shareholder may not participate in
the Investamatic Program (see "Your Investment--Investor Services--Investamatic
Program" in the Fund's Prospectus) and the Systematic Withdrawal Plan at the
same time.
Request to Dealer to Repurchase. For the convenience of shareholders,
the Fund has authorized the Distributor as its agent to accept orders from
dealers by wire or telephone for the repurchase of shares by the Distributor
from the dealer. The Fund may revoke or suspend this authorization at any time.
The repurchase price is the net asset value for the applicable shares next
determined following the time at which the shares are offered for repurchase by
the dealer to the Distributor. The dealer is responsible for promptly
transmitting a shareholder's order to the Distributor.
Signature Guarantees. Signature guarantees are required for, among
other things: (1) written requests for redemptions for more than $100,000; (2)
written requests for redemptions for any amount if the proceeds are transmitted
to other than the current address of record (unchanged in the past 30 days); (3)
written requests for redemptions for any amount submitted by corporations and
certain fiduciaries and other intermediaries; and (4) requests to transfer the
registration of shares to another owner.
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Signatures must be guaranteed by a bank, a member firm of a national stock
exchange, or other eligible guarantor institution. The Transfer Agent will not
accept guarantees (or notarizations) from notaries public. The above
requirements may be waived in certain instances.
Dishonored Checks. If a purchaser's check is not honored for its full
amount, the purchaser could be subject to additional charges to cover collection
costs and any investment loss, and the purchase may be canceled.
Processing Charges. Purchases and redemptions processed through
securities dealers may be subject to processing charges imposed by the
securities dealer in addition to sales charges that may be imposed by the Fund
or the Distributor.
SHAREHOLDER ACCOUNTS
General information on shareholder accounts is included in the Fund's
Prospectus under "Your Investment." The following supplements that information.
Maintenance Fees and Involuntary Redemption. Because of the relatively
high cost of maintaining small shareholder accounts, the Fund reserves the right
to redeem at its option any shareholder account which remains below $1,500 for a
period of 60 days after notice is mailed to the applicable shareholder, or to
impose a maintenance fee on such account after 60-days' notice. Such
involuntarily redemptions will be subject to applicable sales charges, if any.
The Fund may increase such minimum account value above such amount in the future
after notice to affected shareholders. Involuntarily redeemed shares will be
priced at the net asset value on the date fixed for redemption by the Fund, and
the proceeds of the redemption will be mailed to the affected shareholder at the
address of record. Currently, the maintenance fee is $18 annually, which is paid
to the Transfer Agent. The fee does not apply to certain retirement accounts or
if the shareholder has more than an aggregate $50,000 invested in the Fund and
other Eligible Funds combined. Imposition of a maintenance fee on a small
account could, over time, exhaust the assets of such account.
To cover the cost of additional compliance administration, a $20 fee
will be charged against any shareholder account that has been determined to be
subject to escheat under applicable state laws.
The Fund may not suspend the right of redemption or postpone the date
of payment of redemption proceeds for more than seven days, except that (a) it
may elect to suspend the redemption of shares or postpone the date of payment of
redemption proceeds: (1) during any period that the NYSE is closed (other than
customary weekend and holiday closings) or trading on the NYSE is restricted;
(2) during any period in which
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an emergency exists as a result of which disposal of portfolio securities is not
reasonably practicable or it is not reasonably practicable to fairly determine
the Fund's net asset values; or (3) during such other periods as the Securities
and Exchange Commission (the "SEC") may by order permit for the protection of
investors; and (b) the payment of redemption proceeds may be postponed as
otherwise provided under "Purchase and Redemption of Shares" in this Statement
of Additional Information.
The Open Account System. Under the Open Account System full and
fractional shares of the Fund owned by shareholders are credited to their
accounts by the Transfer Agent, State Street Bank and Trust Company, 225
Franklin Street, Boston, Massachusetts 02110. Share certificates will not be
issued. Shareholders will receive periodic statements of transactions in their
accounts.
The Fund's Open Account System provides the following options:
1. Additional purchases of shares of the Fund may be made through
dealers, by wire or by mailing a check payable to "State
Street Research Funds" under the terms set forth above under
"Purchase and Redemption of Shares" in this Statement of
Additional Information.
2. The following methods of receiving dividends from investment
income and distributions from capital gains generally are
available:
(a) All income dividends and capital gains distributions
reinvested in additional shares of the Fund.
(b) All income dividends and capital gains distributions
in cash.
(c) All income dividends and capital gains distributions
invested in any one available Eligible Fund
designated by the shareholder as described below. See
"--Dividend Allocation Plan" herein.
Dividend and distribution selections should be made on the Application
accompanying the initial investment. If no selection is indicated on the
Application, that account will be automatically coded for reinvestment of all
dividends and distributions in additional shares of the same class of the Fund.
Selections may be changed at any time by telephone or written notice to the
Service Center. Dividends and distributions are reinvested at net asset value
without a sales charge.
Requests by Check. Shareholders of Class E shares of the Fund may
redeem shares by checks drawn on State Street Bank and Trust Company. Checks may
be made payable to the order of any person or organization designated by the
shareholder and must be for amounts of at least $500. Shareholders will continue
to earn dividends on the
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shares to be redeemed until the check clears. There currently is no charge
associated with redemption of shares by check. Checkbooks are supplied for a $2
fee. Checks will be sent only to the registered owner at the address of record.
A $10 fee will be charged against an account in the event a redemption check is
presented for payment and not honored pursuant to the terms and conditions
established by State Street Bank and Trust Company.
Shareholders can request the checkwriting privilege by completing the
signature card, which is part of the application. In order to arrange for
redemption-by-check after an account has been opened, a revised application with
signature card and signatures guaranteed must be sent to the Service Center.
Canceled checks will be returned to shareholders at the end of each month.
The redemption-by-check service is subject to State Street Bank and
Trust Company's rules and regulations applicable to checking accounts (as
amended from time to time), and is governed by the Massachusetts Uniform
Commercial Code. All notices with respect to checks drawn on State Street Bank
and Trust Company must be given to State Street Bank and Trust Company. Stop
payment instructions with respect to checks must be given to State Street Bank
and Trust Company by calling 1-617-985-8543.
Exchange Privileges. Shareholders of the Fund may exchange their shares
for available shares with corresponding characteristics of any of the other
Eligible Funds at any time on the basis of the relative net asset values of the
respective shares to be exchanged, subject to compliance with applicable
securities laws. Shareholders of any other Eligible Fund may similarly exchange
their shares for Fund shares with corresponding characteristics. Prior to making
an exchange, shareholders should obtain the Prospectus of the Eligible Fund into
which they are exchanging. Under the Direct Program, subject to certain
conditions, shareholders may make arrangements for regular exchanges from the
Fund into other Eligible Funds. To effect an exchange, Class B and Class C
shares may be redeemed without the payment of any contingent deferred sales
charge that might otherwise be due upon an ordinary redemption of such shares.
Exchanges of Class E shares of the Fund into Class A shares of any other
Eligible Fund are subject to the initial sales charge or contingent deferred
sales charge applicable to an initial investment in such Class A shares, unless
a prior Class A sales charge has been paid directly or indirectly with respect
to the shares redeemed. For purposes of computing the contingent deferred sales
charge that may be payable upon disposition of any acquired Class A, Class B and
Class C shares, the holding period of the redeemed shares is "tacked" to the
holding period of any acquired shares. The period any Class E shares are held is
not tacked to the holding period of any acquired shares. No exchange transaction
fee is currently imposed on any exchange. Class T shares may not be exchanged
into shares of any other Eligible Fund, and no shares of any other Eligible Fund
may be exchanged into Class T shares.
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The exchange privilege may be terminated or suspended or its terms
changed at any time, subject, if required under applicable regulations, to 60
days' prior notice. New accounts established for investments upon exchange from
an existing account in another fund will have the same telephone privileges with
respect to the Fund (see "Your Investment--Account Policies--Telephone Requests"
in the Fund's Prospectus and "--Telephone Privileges," below) as the existing
account unless the Service Center is instructed otherwise. Related
administrative policies and procedures may also be adopted with regard to a
series of exchanges, street name accounts, sponsored arrangements and other
matters.
Reinvestment Privilege. A shareholder of the Fund who has redeemed
shares or had shares repurchased at his or her request may reinvest all or any
portion of the proceeds (plus that amount necessary to acquire a fractional
share to round off his or her reinvestment to full shares) in shares, of the
same class as the shares redeemed, of the Fund or any other Eligible Fund at net
asset value and without subjecting the reinvestment to an initial sales charge,
provided such reinvestment is made within 120 calendar days after a redemption
or repurchase. Upon such reinvestment, the shareholder will be credited with any
contingent deferred sales charge previously charged with respect to the amount
reinvested. The redemption of shares is, for federal income tax purposes, a sale
on which the shareholder may realize a gain or loss. If a redemption at a loss
is followed by a reinvestment within 30 days, the transaction may be a "wash
sale" resulting in a denial of the loss for federal income tax purposes.
Any reinvestment pursuant to the reinvestment privilege will be subject
to any applicable minimum account standards imposed by the fund into which the
reinvestment is made. Shares are sold to a reinvesting shareholder at the net
asset value thereof next determined following timely receipt by the Service
Center of such shareholder's written purchase request and delivery of the
request by the Service Center to the Transfer Agent. A shareholder may exercise
this reinvestment privilege only once per 12-month period with respect to his or
her shares of the Fund.
Dividend Allocation Plan. The Dividend Allocation Plan allows
shareholders to elect to have all their dividends and any other distributions
from the Fund or any Eligible Fund automatically invested at net asset value in
one other such Eligible Fund designated by the shareholder, provided the account
into which the dividends and distributions are directed is initially funded with
the requisite minimum amount.
Telephone Privileges. A shareholder with telephone privileges that are
offered with his or her Account (see "Your Investment--Account
Policies--Telephone Requests") is deemed to authorize the Service Center and the
Transfer Agent to: (1) act upon the telephone instructions of any person
purporting to be the shareholder or the shareholder's financial professional to
redeem or exchange, shares from any account; and (2) honor any
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<PAGE>
written instructions for a change of address regardless of whether such request
is accompanied by a signature guarantee. All telephone calls will be recorded.
Neither the Fund, the other Eligible Funds, the Transfer Agent, the Investment
Manager nor the Distributor will be liable for any loss, expense or cost arising
out of any request, including any fraudulent or unauthorized requests.
Shareholders assume the risk to the full extent of their accounts that telephone
requests may be unauthorized. Reasonable procedures will be followed to confirm
that instructions communicated by telephone are genuine. The shareholder will
not be liable for any losses arising from unauthorized or fraudulent
instructions if such procedures are not followed.
Alternative Means of Contacting the Fund. It is unlikely, during
periods of extraordinary market conditions, that a shareholder may have
difficulty in reaching the Service Center. In that event, however, the
shareholder should contact the Service Center at 1-800-562-0032, 1-617-357-7800
or otherwise at its main office at One Financial Center, Boston, Massachusetts
02111-2690.
NET ASSET VALUE
Securities held by the Fund are valued on the basis of amortized cost,
which involves a constant amortization of premium or accretion of discount to
maturity regardless of the impact of fluctuating interest rates on the market
value of the security. While this method provides certainty in valuation, it may
result in periods in which the value as determined by amortized cost is higher
or lower than the price the Fund would receive if it sold the security. On each
day that the NYSE is open for unrestricted trading, the net asset value of the
shares of the Fund is determined as of 12 noon and the close of regular trading
on the NYSE, which is ordinarily 4 P.M. New York City time. The NYSE is
currently closed on New Year's Day, Martin Luther King, Jr., Day, Presidents
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
The Fund anticipates that under ordinary and usual circumstances it
will be able to maintain a constant net asset value of $1.00 per share and the
Fund will use its best efforts to do so. However, such maintenance at $1.00
might not be possible if (1) there are changes in short-term interest rates or
other factors such as unfavorable changes in the credit of issuers affecting the
values of the securities held by the Fund and the Fund is compelled to sell such
securities at a time when the prices which it is able to realize vary
significantly from the values determined on the amortized cost basis or (2) the
Fund should have negative net income. It is expected that the Fund will have
positive net income at the time of each determination thereof. If for any reason
the net income of the Fund is negative, the Fund will first offset the negative
amount with respect to each shareholder account against the dividends which
accrued during the month with respect to each such account. If and to the extent
that such negative amount exceeds such accrued dividends at the end of the month
(or at any earlier time when redemption by the shareholder would reduce the net
asset value of the shares of the Fund in his
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account to less than the excess of such negative account over accrued
dividends), the Fund will reduce the number of its outstanding shares by
treating the shareholder as having contributed to the capital of the Fund that
number of shares of the Fund in the account of such shareholder which represents
the amount of such excess. Each shareholder will be deemed to have agreed to
such contributions in these circumstances by his investment in the Fund.
The utilization of the amortized cost method of valuation requires
compliance with the requirements of Rule 2a-7 under the 1940 Act. Such
compliance requires, among other things, the following:
(1) The Trustees must adopt procedures whereby the extent of
deviation, if any, of the current net asset value per share
calculated using available market quotations (or an
appropriate substitute which reflects current market
conditions) from the Fund's net asset value per share under
the amortized cost valuation method will be determined at such
intervals as the Trustees deem appropriate and reasonable in
light of current market conditions, and the Trustees must
review periodically the amount of the deviation as well as the
methods used to calculate the deviation;
(2) In the event such deviation from the Fund's net asset value
under the amortized cost valuation method exceeds 1/2 of 1%,
the Trustees must promptly consider what action should be
initiated by them, and when the Trustees believe the extent of
any deviation from the Fund's net asset value per share under
the amortized cost valuation method may result in material
dilution or any other unfair results to investors or existing
shareholders, they must take such action as they deem
appropriate to eliminate or reduce to the extent reasonably
practicable such dilution or unfair results (shareholders will
be notified in the event any such corrective action is taken
by the Trustees);
(3) The Fund may not purchase any instrument with a remaining
maturity greater than 397 calendar days or maintain a
dollar-weighted average portfolio maturity which exceeds 90
days;
(4) The Fund must limit its portfolio investments, including
repurchase agreements, to those United States
dollar-denominated instruments which the Trustees determine
present minimal credit risks and which are "eligible
securities" as defined in Rule 2a-7; and
(5) The Fund must record, maintain and preserve certain records
and observe certain reporting obligations in accordance with
Rule 2a-7.
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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). Because the Fund only invests in securities with remaining
maturities of 397 calendar days or less, virtually all of which are excludable
in determining the rate of portfolio turnover, the portfolio turnover rate for
the Fund's two most recent fiscal year ends has been zero.
Brokerage Allocation
The Investment Manager's policy is to seek for its clients, including
the Fund, what in the Investment Manager's judgment will be the best overall
execution of purchase or sale orders and the most favorable net prices in
securities transactions consistent with its judgment as to the business
qualifications of the various broker or dealer firms with whom the Investment
Manager may do business, and the Investment Manager may not necessarily choose
the broker offering the lowest available commission rate. Decisions with respect
to the market where the transaction is to be completed, to the form of
transaction (whether principal or agency), and to the allocation of orders among
brokers or dealers are made in accordance with this policy. In selecting brokers
or dealers to effect portfolio transactions, consideration is given to their
proven integrity and financial responsibility, their demonstrated execution
experience and capabilities both generally and with respect to particular
markets or securities, the competitiveness of their commission rates in agency
transactions (and their net prices in principal transactions), their willingness
to commit capital, and their clearance and settlement capability. The Investment
Manager makes every effort to keep informed of commission rate structures and
prevalent bid/ask spread characteristics of the markets and securities in which
transactions for the Fund occur. Against this background, the Investment Manager
evaluates the reasonableness of a commission or a net price with respect to a
particular transaction by considering such factors as difficulty of execution or
security positioning by the executing firm. The Investment Manager may or may
not solicit competitive bids based on its judgment of the expected benefit or
harm to the execution process for that transaction.
When it appears that a number of firms could satisfy the required
standards in respect of a particular transaction, consideration may also be
given by the Investment Manager to services other than execution services which
certain of such firms have provided in the past or may provide in the future.
Negotiated commission rates and prices, however, are based upon the Investment
Manager's judgment of the rate which reflects the execution requirements of the
transaction without regard to whether the broker provides services in addition
to execution. Among such other services are the supplying of supplemental
investment research; general economic, political and business information;
analytical and statistical data; relevant market
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information, quotation equipment and services; reports and information about
specific companies, industries and securities; purchase and sale recommendations
for stocks and bonds; portfolio strategy services; historical statistical
information; market data services providing information on specific issues and
prices; financial publications; proxy voting data and analysis services;
technical analysis of various aspects of the securities markets, including
technical charts; computer hardware used for brokerage and research purposes;
computer software and databases (including those used for portfolio analysis and
modeling in conjunction with certain trading systems and 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. 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.
In the case of the Fund and other registered investment companies
advised by the Investment Manager or its affiliates, the above services may
include data relating to performance, expenses and fees of those investment
companies and other investment companies; this information is used by the
Trustees or Directors of the investment companies to fulfill their
responsibility to oversee the quality of the Investment Manager's advisory
contracts between the investment companies and the Investment Manager. The
Investment Manager considers these investment company services only in
connection with the execution of transactions on behalf of its investment
company clients and not its other clients.
The Investment Manager regularly reviews and evaluates the services
furnished by broker-dealers. Among other measures, the Investment Manager's
investment management personnel conduct internal surveys and use other methods
to evaluate the quality of research and other services provided by broker-dealer
firms, and the results of those efforts are made available to the equity trading
department, which sometimes uses this information as a consideration to the
extent described above in the selection of brokers to execute portfolio
transactions.
Some services furnished by broker-dealers may be used for research and
investment decision-making purposes, and also for marketing or administrative
purposes. Under these circumstances, the Investment Manager allocates the cost
of such services to determine the proportion that is allocable to research or
investment decision-making and the proportion that is allocable to other
purposes. The Investment Manager pays directly from its own funds for that
portion that is allocable to uses other than research or investment making
decision. Some research and execution services may benefit the Investment
Manager's clients as a whole, while others may benefit a specific segment of
clients. Not all such services will necessarily be used exclusively in
connection with the accounts which pay the commissions to the broker-dealer
producing the services.
The Investment Manager has no fixed agreements or understandings with
any broker-dealer as to the amount of brokerage business which the firm may
expect to receive
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for services supplied to the Investment Manager or otherwise. There may be,
however, understandings with certain firms that in order for such firms to be
able to continuously supply certain services, they need to receive an allocation
of a specified amount of brokerage business. These understandings are honored to
the extent possible in accordance with the policies set forth above.
It is not the Investment Manager's policy to intentionally pay a firm a
brokerage commission higher than that which another firm would charge for
handling the same transaction in recognition of services (other than execution
services) provided. However, the Investment Manager is aware that this is an
area where differences of opinion as to fact and circumstances may exist, and in
such circumstances, if any, the Investment Manager relies on the provisions of
Section 28(e) of the Securities Exchange Act of 1934. During the fiscal years
ended March 31, 1996, 1997 and 1998, the Fund paid in secondary trading no
brokerage commissions in secondary trading. During and at the end of its most
recent fiscal year, the Fund held in its portfolio no securities of any entity
that might be deemed to be a regular broker-dealer of the Fund as defined under
the 1940 Act.
In the case of the purchase of fixed income securities in underwriting
transactions, the Investment Manager follows any instructions received from its
clients as to the allocation of new issue discounts, selling commissions and
designations to brokers or dealers which provide the client with research,
performance evaluation, master trustee and other services. In the absence of
instructions from the client, the Investment Manager may make such allocations
to broker-dealers which have provided the Investment Manager with research and
brokerage services.
In some instances, certain clients of the Investment Manager request
that it place all or part of the orders for their account with certain brokers
or dealers, which in some cases provide services to those clients. The
Investment Manager generally agrees to honor those requests to the extent
practicable. Clients may condition their requests by requiring the Investment
Manager only to effect transactions with the specified broker-dealers if the
broker-dealers are competitive as to price and execution. In other cases, the
Investment Manager may be unable to negotiate commissions or obtain volume
discounts or best execution. In addition, a disparity may exist among the
commissions charged to clients who request the Investment Manager to use
particular brokers or dealers, and also between those clients and those who do
not make such requests. A client who requests the use of a particular
broker-dealer should understand that it may lose the possible advantage which
non-requesting clients derive from 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.
When more than one client of the Investment Manager is seeking to buy
or sell the same security, the sale or purchase is carried out in a manner which
is considered fair and
34
<PAGE>
equitable to all accounts. In allocating investments among various clients
(including in what sequence orders for trades are placed), the Investment
Manager will use its best business judgment and will take into account such
factors as the investment objectives of the clients, the amount of investment
funds available to each, the size of the order, the amount already committed for
each client to a specific investment and the relative risks of the investments,
all in order to provide on balance a fair and equitable result to each client
over time. Although sharing in large transactions may sometimes affect price or
volume of shares acquired or sold, overall it is believed there may be an
advantage in execution. The Investment Manager may follow the practice of
grouping orders of various clients for execution to get the benefit of lower
prices or commission rates. In certain cases where the aggregate order may be
executed in a series of transactions at various prices, the transactions are
allocated as to amount and price in a manner considered equitable to each so
that each receives, to the extent practicable, the average price of such
transactions. Exceptions may be made based on such factors as the size of the
account and the size of the trade. For example, the Investment Manager may not
aggregate trades where it believes that it is in the best interests of clients
not to do so, including situations where aggregation might result in a large
number of small transactions with consequent increased custodial and other
transactional costs which may disproportionately impact smaller accounts. Such
disaggregation, depending on the circumstances, may or may not result in such
accounts receiving more or less favorable execution relative to other clients.
CERTAIN TAX MATTERS
Taxation of the Fund--In General
The Fund intends to qualify and elect to be treated each taxable year
as a "regulated investment company" under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"), although it cannot give complete
assurance that it will qualify to do so. Accordingly, the Fund must, among other
things, (a) derive at least 90% of its gross income in each taxable year from
dividends, interest, payments with respect to securities loans, gains from the
sale or other disposition of stock, securities or foreign currencies, or other
income (including, but not limited to, gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies (the "90% test"); and (b) satisfy certain
diversification requirements on a quarterly basis; and (d) in order to be
entitled to utilize the dividends paid deduction, distribute annually at least
90% of its investment company taxable income (determined without regard to the
deduction for dividends paid).
If the Fund should fail to qualify as a regulated investment company in
any year, it would lose the beneficial tax treatment accorded regulated
investment companies under Subchapter M of the Code and all of its taxable
income would be subject to tax at regular corporate rates without any deduction
for distributions to shareholders and such distributions will be taxable to
shareholders as ordinary income to the extent of the Fund's current or
35
<PAGE>
accumulated earnings and profits. Also, the shareholders, if they received a
distribution in excess of current or accumulated earnings and profits, would
receive a return of capital that would reduce the basis of their shares of the
Fund.
The Fund will be liable for a nondeductible 4% excise tax on amounts
not distributed (or deemed distributed) on a timely basis in accordance with a
calendar year distribution requirement. To avoid the tax, during each calendar
year the Fund must distribute, or be deemed to have distributed, an amount equal
to the sum of (1) at least 98% of its ordinary income (not taking into account
any capital gains or losses) for the calendar year, (2) at least 98% of its
capital gains in excess of its capital losses (adjusted for certain
extraordinary losses) for the 12-month period ending on October 31 of the
calendar year, and (3) all ordinary income and capital gains for previous years
that were not distributed during such years. For this purpose, any income or
gain retained by the Fund that is subject to corporate tax will be considered to
have been distributed by year-end. The Fund intends to make sufficient
distributions to avoid this 4% excise tax.
Taxation of the Fund's Shareholders
Dividends paid by the Fund from taxable net investment income and
distributions of any net short-term capital gains, whether paid in cash or
reinvested in additional shares, will be taxable for federal income tax purposes
to shareholders as ordinary income. Distributions of net capital gains, if any,
which are designated as capital gains distributions, whether paid in cash or
reinvested in additional shares, will be taxable for federal income tax purposes
to shareholders as capital gains, regardless of how long shareholders have held
their shares.
The foregoing discussion of United States federal income tax law
relates solely to the application of that law to United States persons, that
is, United States citizens and residents and United States corporations,
partnerships, trusts and estates. Each shareholder who is not a United States
person should consider the United States and foreign tax consequences of
ownership of shares of the Fund, including the possibility that such a
shareholder may be subject to United States withholding tax at a rate of up to
30% (or at a lower rate under an applicable treaty) on distributions from the
Fund.
Shareholders should consult their tax advisers about the application of
the provisions of tax law described in this Statement of Additional Information
in light of their particular tax situations.
36
<PAGE>
DISTRIBUTION OF SHARES OF THE FUND
The Trust has entered into a Distribution Agreement with State Street
Research Investment Services, Inc., as Distributor, whereby the Distributor acts
as agent to sell and distribute shares of the Fund. Shares of the Fund are sold
through dealers who have entered into sales agreements with the Distributor. The
Distributor distributes shares of the Fund on a continuous basis at an offering
price which is based on the net asset value per share of the Fund plus a sales
charge which is imposed on a deferred basis (the Class B and Class C shares).
The Distributor may allow all or portions of such sales charges as concessions
to dealers. The Distributor may also pay its affiliate MetLife Securities, Inc.
additional sales compensation of up to 0.25% of certain sales.
For the periods shown below, the Distributor received contingent
deferred sales charges upon redemption of Class B and Class C shares of the Fund
and paid initial commissions to securities dealers for sales of such Class B and
Class C shares as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
March 31, 1998 March 31, 1997 March 31, 1996
-------------- -------------- --------------
Contingent Commissions Contingent Commissions Contingent Commissions
Deferred Paid to Deferred Paid to Deferred Paid to
Sales Charges Dealers Sales Charges Dealers Sales Charges Dealers
------------- ------- ------------- ------- ------------- -------
<S> <C> <C> <C> <C> <C> <C>
Class B $ 185,067 $ 15,662 $ 200,580 $ 13,752 $226,763 $13,749
Class C* $ 6,967 $ 814 $ 22,159 $ 3,502 $ 0 $ 198
</TABLE>
* Prior to November 1, 1997, the Fund's current Class C shares were designated
as Class D shares and the Fund's current Class S shares were designated as Class
C shares.
For information on the amount of distribution fees paid by the Fund to
the Distributor, see below.
The Fund has adopted a "Plan of Distribution Pursuant to Rule 12b-1"
(the "Distribution Plan") under which the Fund may engage, directly or
indirectly, in financing any activities primarily intended to result in the sale
of Class B and Class C shares, including, but not limited to, (1) the payment of
commissions and/or reimbursement to underwriters, securities dealers and others
engaged in the sale of shares, including payments to the Distributor to be used
to pay commissions and/or reimbursement to securities dealers (which securities
dealers may be affiliates of the Distributor) engaged in the distribution and
marketing of shares and furnishing ongoing assistance to investors, (2)
reimbursement of direct out-of-pocket expenditures incurred by the Distributor
in connection with the distribution and marketing of shares and the servicing of
investor accounts including expenses relating to the formulation and
implementation of marketing strategies and promotional activities such as
37
<PAGE>
direct mail promotions and television, radio, newspaper, magazine and other mass
media advertising, the preparation, printing and distribution of Prospectuses of
the Fund and reports for recipients other than existing shareholders of the
Fund, and obtaining such information, analyses and reports with respect to
marketing and promotional activities and investor accounts as the Fund may, from
time to time, deem advisable, and (3) reimbursement of expenses incurred by the
Distributor in connection with the servicing of shareholder accounts including
payments to securities dealers and others in consideration of the provision of
personal services to investors and/or the maintenance or servicing of
shareholder accounts and expenses associated with the provision of personal
services by the Distributor directly to investors. In addition, the Distribution
Plan is deemed to authorize the Distributor and the Investment Manager to make
payments out of general profits, revenues or other sources to underwriters,
securities dealers and others in connection with sales of shares, to the extent,
if any, that such payments may be deemed to be within the scope of Rule 12b-1
under the 1940 Act.
Some or all of the service fees are used to pay or reimburse dealers
(including dealers that are affiliates of the Distributor) or others for
personal services and/or the maintenance of shareholder accounts. A portion of
any initial commission paid to dealers for the sale of shares of the Fund
represents payment for personal services and/or the maintenance or servicing of
shareholder accounts by such dealers. Dealers who have sold Class B and Class C
shares are eligible for further reimbursement after the first year during which
such shares have been held of record by such dealer as nominee for its clients
(or by such clients directly). Any service fees received by the Distributor and
not allocated to dealers may be applied by the Distributor in reduction of
expenses incurred by it directly for personal services and the maintenance or
servicing of shareholder accounts.
The distribution fees are used primarily to offset initial and ongoing
commissions paid to dealers for selling such shares. Any distribution fees
received by the Distributor and not allocated to dealers may be applied by the
Distributor in connection with sales or marketing efforts, including special
promotional fees and cash and noncash incentives based upon sales by dealers.
The Distributor provides distribution services on behalf of other funds
having distribution plans and receives similar payments from, and incurs similar
expenses on behalf of, such other funds. When expenses of the Distributor cannot
be identified as relating to a specific fund, the Distributor allocates expenses
among the funds in a manner deemed fair and equitable to each fund.
Commissions and other cash and noncash incentives and payments to
dealers, to the extent payable out of the general profits, revenues or other
sources of the Distributor (including the advisory fees paid by the Fund), have
also been authorized pursuant to the Distribution Plan.
38
<PAGE>
The expenditures to be made pursuant to the Distribution Plan may not
exceed with respect to Class B and Class C shares, an annual rate of 0.75% of
the average daily value of the net assets represented by such Class B or Class C
shares (as the case may be) to finance sales or promotion expenses and an annual
rate of 0.25% of the average daily value of the net assets represented by such
Class B or Class C shares (as the case may be) to make payments for personal
services and/or the maintenance or servicing of shareholder accounts. The
distribution and servicing expenses of a particular class will be borne solely
by that class. In addition, a rule of the NASD limits annual expenditures that
the Fund may incur under the Distribution Plan to 1%, of which 0.75% may be used
to pay distribution expenses and 0.25% may be used to pay shareholder service
fees. The NASD rule also limits the aggregate amount that the Fund may pay for
such distribution costs to 6.25% of gross share sales of a class since the
inception of any asset-based sales charge plus interest at the prime rate plus
1% on unpaid amounts thereof (less any contingent deferred sales charges). Such
limitation does not apply to shareholder service fees. Payments to the
Distributor or to dealers funded under the Distribution Plan may be discontinued
at any time.
The Distributor may pay certain dealers and other intermediaries
additional compensation for sales and administrative services. The Distributor
may provide cash and noncash incentives to intermediaries who, for example, sell
significant amounts of shares or develop particular distribution channels. The
Distributor may compensate dealers with clients who maintain their investments
in the Fund over a period of years. The incentives can include merchandise and
trips to, and attendance at, sales seminars at resorts. The Distributor may pay
for administrative services, such as technological and computer systems support
for the maintenance of pension plan participant records, for subaccounting, and
for distribution through mutual fund supermarkets or similar arrangements.
During the fiscal year ended March 31, 1998, the Fund paid the
Distributor fees under the Distribution Plan and the Distributor used all of
such payments for expenses incurred on behalf of the Fund as follows:
39
<PAGE>
<TABLE>
<CAPTION>
Class B Class C**
------- -------
<S> <C> <C>
Advertising $ 36,011 $ 2,221
Printing and mailing of prospectuses to 9,188 567
other than current shareholders
41,359 4,716
Compensation to dealers
Compensation to sales personnel 29,596 1,825
Interest 0 0
Carrying or other financing charges 0 0
Other expenses: marketing; general 34,160 1,700
----------- -----------
Total fees received $ 151,763 $ 11,029
----------- -----------
Difference $ 1,449*
=========
</TABLE>
* Net fees result from the timing of expenditures and are used against future
expenses.
** Prior to November 1, 1997, the Fund's current Class C shares were designated
as Class D shares.
The Distributor may have also used additional resources of its own for
further expenses on behalf of the Fund.
No interested Trustee of the Trust has any direct or indirect financial
interest in the operation of the Distribution Plan or any related agreements
thereunder. The Distributor's interest in the Distribution Plan is described
above.
To the extent that the Glass-Steagall Act may be interpreted as
prohibiting banks and other depository institutions from being paid for
performing services under the Distribution Plan, the Fund will make alternative
arrangements for such services for shareholders who acquired shares through such
institutions.
CALCULATION OF PERFORMANCE DATA
From time to time, in advertisements or in communications to
shareholders or prospective investors, the Fund may compare the performance of
its Class B, Class C, Class E, Class S or Class T shares to the performance of
other mutual funds with similar investment objectives, to certificates of
deposit and/or to other financial
40
<PAGE>
alternatives. The Fund may also compare its performance to appropriate indices,
such as the Consumer Price Index and/or to appropriate rankings and averages
such as those compiled by Lipper Analytical Services, Inc. for the Money Market
Instrument Fund category or those complied by Morningstar, Inc., Money Magazine,
Business Week, Forbes Magazine, The Wall Street Journal, Fortune Magazine,
Investor's Daily or Donoghue's Money Fund Report.
The average annual total return ("standard total return") of the Class
B, Class C, Class E, Class S and Class T shares of the Fund will be calculated
as set forth below. Total return is computed separately for each class of shares
of the Fund. Performance data for a specified class includes periods prior to
the adoption of class designations on June 1, 1993, when designations were
assigned based on the pricing and Rule 12b-1 fees applicable to shares sold
thereafter. The application of the additional Rule 12b-1 fees, if any, of up to
1% will, for periods after June 1, 1993, adversely affect Fund performance
results. Thus, performance data or rankings for a given class of shares should
be interpreted carefully by investors who hold or may invest in a different
class of shares.
The performance data below reflect Rule 12b-1 fees, where applicable,
sales charges as follows:
<TABLE>
<CAPTION>
Rule 12b-1 Fees Sales Charges
--------------- -------------
Current
Class Amount Period
- ----- ------ ------
<S> <C> <C> <C>
B 1.00% 0% until June 1, 1993; 1- and 5-year periods reflect a 5% and
1.00% June 1, 1993 to a 2% contingent deferred sales charge,
present; fee will reduce respectively
performance for periods after
June 1, 1993
C* 1.00% 0% until June 1, 1993; 1-year period reflects a 1% contingent
1.00% June 1, 1993 to deferred sales charge
present; fee will reduce
performance for periods after
June 1, 1993
E 0.00% Since commencement of None
operations to present
S* 0.00% Since commencement of None
operations to present
T** 0.00% Since commencement of None
operations to present
</TABLE>
- ------------------
41
<PAGE>
* Prior to November 1, 1997, the Fund's current Class C shares were
designated as Class D shares and the Fund's current Class S shares were
designated as Class C shares.
** Class T introduced August 1, 1998.
All calculations of performance data in this section reflect the
voluntary measures, if any, by the Fund's affiliates to reduce fees or expenses
relating to the Fund; see "Accrued Expenses and Recurring Charges" later in this
section.
Total Return
The Fund's standard average annual total returns ("standard total
return") of each class of shares were as follows:
<TABLE>
<CAPTION>
Ten Years Five Years One Year
Ended Ended Ended
March 31, 1998 March 31, 1998 March 31, 1998
-------------- -------------- --------------
<S> <C> <C> <C>
Class B 4.82% 3.03% -0.91%
Class C* 4.82% 3.39% 3.09%
Class E 5.32% 4.37% 5.12%
Class S* 5.32% 4.37% 5.12%
Class T** N/A N/A N/A
</TABLE>
- ------------------
* Prior to November 1, 1997, the Fund's current Class C shares were
designated as Class D shares and the Fund's current Class S shares were
designated as Class C shares.
** Class T shares introduced August 1, 1998.
Standard total return is computed separately for each class of shares
by determining the average annual compounded rates of return over the designated
periods that, if applied to the initial amount invested, would produce the
ending redeemable value in accordance with the following formula:
42
<PAGE>
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value
at the end of the
designated period assuming
a hypothetical $1,000
payment made at the
beginning of the designated
period
The calculation is based on the further assumptions that the highest
applicable initial or contingent deferred sales charge is deducted, and that all
dividends and distributions by the Fund are reinvested at net asset value on the
reinvestment dates during the periods. All accrued expenses and recurring
charges are also taken into account as described later herein.
Yield
The Fund's yield is its investment income, less expenses, expressed as
a percentage of assets on an annualized basis for a seven-day period. The yield
is expressed as a simple annualized yield and as a compounded effective yield.
The simple annualized yield for each of the Fund's Class B, Class C,
Class E, Class S and Class T shares is computed by determining the net change
(exclusive of realized gains and losses from the sale of securities and
unrealized appreciation and depreciation) in the value of a hypothetical
pre-existing account having a balance of one share at the beginning of the
seven-day period, dividing the net change in account value by the value of the
account at the beginning of the period, and annualizing the resulting quotient
(base period return) on a 365- day basis. The net change in account value
reflects the value of additional shares purchased with dividends from the
original shares in the account during the seven-day period, and expenses accrued
during the period. The compounded effective yield for each of the Fund's Class
B, Class C, Class E, Class S and Class T shares is computed by compounding the
unannualized base period return, by adding one to the base period return,
raising the sum to a power equal to 365 divided by seven and subtracting one
from the result.
The simple annualized and compounded effective yields as quoted in
advertisements will not be based on information as of a date more than 14 days
prior to the date of publication. Actual yield will vary depending on market
conditions, and principal is not insured. Actual yield also depends on the
qualities, maturities and types of instruments held by the Fund as well as its
operating expenses.
43
<PAGE>
Any net realized capital gains of the Fund in excess of any available
loss carry forward will be distributed to shareholders of the Fund from time to
time as is deemed appropriate in maintaining the Fund's net asset value at one
dollar per share.
Accrued Expenses and Recurring Charges
Accrued expenses include all recurring charges that are charged to all
shareholder accounts in proportion to the length of the base period. The
standard total return results take sales charges, if applicable, into account
although the results do not take into account recurring and nonrecurring charges
for optional services which only certain shareholders elect and which involve
nominal fees, such as the $7.50 fee for wire orders.
Accrued expenses do not include the subsidization, if any, by
affiliates of fees or expenses during the subject period. In the absence of such
subsidization, the performance of the Fund would have been lower.
Nonstandardized Total Return
The Fund may provide the above described standard total return results
for Class B, Class C, Class E, Class S and Class T shares for periods which end
no earlier than the most recent calendar quarter end and which begin one, five
and ten years before. In addition, the Fund may provide nonstandardized total
return results for differing periods, such as for the most recent six months,
and/or without taking sales charges into account. Such nonstandardized total
return is computed as otherwise described under "Total Return" except the result
may or may not be annualized, and, as noted, any applicable sales charge, if
any, may not be taken into account and therefore not deducted from the
hypothetical initial payment of $1,000. For example, the Fund's nonstandardized
total returns for the six months ended March 31, 1998, without taking sales
charges into account, were as follows:
<TABLE>
<S> <C>
Class B 2.04%
Class C* 2.04%
Class E 2.53%
Class S* 2.53%
Class T** N/A%
</TABLE>
- ------------------
* Prior to November 1, 1997, the Fund's current Class C shares were
designated as Class D shares and the Fund's current Class S shares were
designated as Class C shares.
** Class T shares introduced August 1, 1998.
44
<PAGE>
CUSTODIAN
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is the Trust's custodian. As custodian State Street Bank
and Trust Company is responsible for, among other things, safeguarding and
controlling the Fund's cash and securities, handling the receipt and delivery of
securities and collecting interest and dividends on the Fund's investments.
State Street Bank and Trust Company is not an affiliate of the Investment
Manager or its affiliates.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 160 Federal Street, Boston, Massachusetts 02110,
serves as the Trust's independent accountants, providing professional services
including (1) audits of the Fund's annual financial statements, (2) assistance
and consultation in connection with SEC filings and (3) review of the annual
income tax returns filed on behalf of the Fund.
FINANCIAL STATEMENTS
In addition to the reports provided to holders of record on a
semiannual basis, other supplementary financial reports may be made available
from time to time through electronic or other media. Shareholders with
substantial holdings in one or more State Street Research Funds may also receive
reports and other information which reflect or analyze their positions in a
consolidated manner. For more information, call State Street Research Service
Center.
The following financial statements are for the Fund's fiscal year ended
March 31, 1998:
DOCS\570864.6
45
<PAGE>
<TABLE>
STATE STREET RESEARCH MONEY MARKET FUND
- -----------------------------------------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------
March 31, 1998
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
PRINCIPAL MATURITY VALUE
AMOUNT DATE (NOTE 1)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMERCIAL PAPER 100.1%
AUTOMOTIVE 7.4%
Ford Motor Credit Co., 5.49% ..................... $ 6,600,000 6/12/1998 $ 6,527,532
General Motors Acceptance Corp., 5.44% ........... 4,100,000 5/01/1998 4,081,413
General Motors Acceptance Corp., 5.44% ........... 3,200,000 5/15/1998 3,178,724
General Motors Acceptance Corp., 5.48% ........... 5,000,000 6/12/1998 4,945,200
------------
18,732,869
------------
BANK 14.8%
Canadian Imperial Holdings, Inc., 5.45% .......... 8,000,000 5/13/1998 7,949,180
Canadian Imperial Holdings, Inc., 5.43% .......... 5,000,000 5/20/1998 4,963,046
J.P. Morgan & Co. Inc., 5.40% .................... 5,000,000 5/15/1998 4,967,000
J.P. Morgan & Co. Inc., 5.43% .................... 3,000,000 5/15/1998 2,980,090
J.P. Morgan & Co. Inc., 5.44% .................... 2,000,000 5/21/1998 1,984,889
J.P. Morgan & Co. Inc., 5.48% .................... 2,300,000 6/15/1998 2,273,742
Toronto Dominion Holdings, Inc., 5.57% ........... 6,200,000 4/07/1998 6,194,244
Toronto Dominion Holdings, Inc., 5.46% ........... 6,000,000 4/09/1998 5,992,720
------------
37,304,911
------------
CANADIAN 7.1%
Canadian Wheat Board, 5.40% ...................... 2,800,000 4/22/1998 2,791,180
Canadian Wheat Board, 5.40% ...................... 6,200,000 4/24/1998 6,178,610
Province of British Columbia, 5.41% .............. 2,900,000 6/01/1998 2,873,416
Province of Quebec, 5.47% ........................ 6,000,000 6/30/1998 5,917,950
------------
17,761,156
------------
CHEMICAL 9.7%
E.I. Du Pont De Nemours & Co., 5.39% ............. 5,000,000 4/27/1998 4,980,536
E.I. Du Pont De Nemours & Co., 5.41% ............. 6,000,000 4/29/1998 5,974,753
Monsanto Co., 5.48% .............................. 1,000,000 4/24/1998 996,550
Monsanto Co., 5.38% .............................. 5,000,000 5/12/1998 4,969,364
Monsanto Co., 5.45% .............................. 5,000,000 5/12/1998 4,968,965
Monsanto Co., 5.38% .............................. 2,630,000 5/13/1998 2,613,493
------------
24,503,661
------------
DIVERSIFIED 4.1%
Cargill Inc., 6.00% .............................. 3,724,000 4/01/1998 3,724,000
Cargill Inc., 5.72% .............................. 6,610,000 4/02/1998 6,608,950
------------
10,332,950
------------
ELECTRIC 2.0%
Florida Power Corp., 5.50% ....................... 5,000,000 5/21/1998 4,961,805
------------
ELECTRICAL EQUIPMENT 5.0%
General Electric Capital Corp., 5.48% ............ 6,900,000 5/22/1998 6,846,433
General Electric Capital Corp., 5.48% ............ 5,700,000 6/01/1998 5,647,072
------------
12,493,505
------------
FINANCIAL SERVICE 30.7%
American General Finance Corp., 5.50% ............ 8,000,000 7/06/1998 7,882,667
American General Finance Corp., 5.50% ............ 4,000,000 7/13/1998 3,937,055
Associates Corp. of North America, 5.49% ......... 5,900,000 6/11/1998 5,836,118
BankAmerica Corp., 5.48% ......................... 6,000,000 4/10/1998 5,991,780
Beneficial Corp., 5.46% .......................... 4,500,000 5/06/1998 4,476,112
Beneficial Corp., 5.50% .......................... 5,000,000 6/26/1998 4,934,306
Beneficial Corp., 5.50% .......................... 3,000,000 7/13/1998 2,952,792
Chevron USA Inc., 5.48% .......................... 10,000,000 6/05/1998 9,901,055
CIT Group Holdings Inc., 5.44% ................... 9,000,000 5/28/1998 8,922,480
Commercial Credit Co., 5.48% ..................... 4,000,000 6/22/1998 3,950,071
Goldman Sachs Group LP, 5.47% .................... 1,000,000 4/06/1998 999,250
Household Finance Corp., 5.68% ................... 5,000,000 4/06/1998 4,996,056
Merrill Lynch & Company Inc., 5.46% .............. 5,000,000 4/09/1998 4,993,933
Merrill Lynch & Company Inc., 5.43% .............. 5,500,000 4/30/1998 5,475,942
Merrill Lynch & Company Inc., 5.45% .............. 1,000,000 5/13/1998 993,642
Merrill Lynch & Company Inc., 5.49% .............. 1,000,000 6/12/1998 989,020
------------
77,232,279
------------
FOOD & BEVERAGE 6.9%
Coca-Cola Co., 5.43% ............................. 12,500,000 4/17/1998 12,470,222
H.J. Heinz Co., 5.45% ............................ 5,000,000 4/14/1998 4,990,160
------------
17,460,382
------------
MACHINERY 4.8%
John Deere Capital Corp., 5.44% .................. 7,500,000 4/30/1998 7,467,133
John Deere Capital Corp., 5.43% .................. 4,700,000 5/18/1998 4,666,681
------------
12,133,814
------------
RETAIL TRADE 7.6%
J.C. Penney Funding Corp., 5.50% ................. 7,000,000 7/01/1998 6,902,681
Sears Roebuck Acceptance Corp., 5.44% ............ 2,000,000 5/06/1998 1,989,422
Sears Roebuck Acceptance Corp., 5.44% ............ 2,000,000 5/13/1998 1,987,307
Sears Roebuck Acceptance Corp., 5.50% ............ 8,300,000 6/19/1998 8,199,823
------------
19,079,233
------------
Total Commercial Paper (Cost $251,996,565) .............................................. 251,996,565
------------
REPURCHASE AGREEMENTS 0.4%
State Street Bank and Trust Co., dated 3/31/98,
4.25%, repurchase proceeds $993,117,
collateralized by, $1,005,000 U.S. Treasury
Note, 5.875%, due 1/31/99, market value
$1,006,256 ..................................... 993,000 4/01/1998 993,000
------------
Total Repurchase Agreements (Cost $993,000) ............................................. 993,000
------------
Total Investments (Cost $252,989,565) - 100.5% .......................................... 252,989,565
Cash and Other Assets, Less Liabilities - (0.5%) ........................................ (1,133,623)
------------
Net Assets - 100.0% ..................................................................... $251,855,942
============
The accompanying notes are an integral part of the financial statements.
</TABLE>
46
<PAGE>
STATE STREET RESEARCH MONEY MARKET FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
March 31, 1998
ASSETS
Investments, at value (Cost $252,989,565) (Note 1) .............. $252,989,565
Cash ............................................................ 134
Receivable for fund shares sold ................................. 3,229,161
Receivable from Distributor (Note 3) ............................ 44,480
Other assets .................................................... 26,519
------------
256,289,859
LIABILITIES
Payable for fund shares redeemed ................................ 3,868,602
Accrued transfer agent and shareholder services (Note 2) ........ 167,076
Dividends payable ............................................... 150,056
Accrued management fee (Note 2) ................................. 105,511
Accrued trustees' fees (Note 2) ................................. 16,326
Accrued distribution and service fees (Note 5) .................. 13,907
Other accrued expenses .......................................... 112,439
------------
4,433,917
------------
NET ASSETS ...................................................... $251,855,942
============
Net Assets consist of:
Paid-in capital ............................................... $251,855,942
============
Net Asset Value and offering price per share of Class B shares
($14,567,090 / 14,567,090 shares)* ............................ $1.00
=====
Net Asset Value and offering price per share of Class C shares
($2,314,026 / 2,314,026 shares)* .............................. $1.00
=====
Net Asset Value, offering price and redemption
price per share of Class E shares
($221,475,031 / 221,475,031 shares) ........................... $1.00
=====
Net Asset Value, offering price and redemption
price per share of Class S shares
($13,499,795 / 13,499,795 shares) ............................. $1.00
=====
- --------------------------------------------------------------------------------
*Redemption price per share for Class B and Class C is equal to net asset
value less any applicable contingent deferred sales charge.
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the year ended March 31, 1998
INVESTMENT INCOME
Interest ........................................................ $13,822,338
EXPENSES
Management fee (Note 2) ......................................... 1,219,931
Transfer agent and shareholder services (Note 2) ................ 557,033
Custodian fee ................................................... 107,214
Reports to shareholders ......................................... 40,021
Distribution and service fees-Class B (Note 5) .................. 151,763
Distribution and service fees-Class C (Note 5) .................. 11,029
Registration fees ............................................... 69,977
Trustees' fees (Note 2) ......................................... 30,318
Audit fee ....................................................... 25,595
Legal fees ...................................................... 16,806
Miscellaneous ................................................... 15,433
-----------
2,245,120
Expenses borne by the Distributor (Note 3) ...................... (494,474)
-----------
1,750,646
-----------
Net investment income and net increase in net assets resulting
from operations ............................................... $12,071,692
===========
The accompanying notes are an integral part of the financial statements.
47
<PAGE>
STATE STREET RESEARCH MONEY MARKET FUND
<TABLE>
- ------------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------
<CAPTION>
YEARS ENDED MARCH 31
-------------------------------------
1997 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income and net increase resulting from
operations .............................................. $ 10,662,268 $ 12,071,692
------------ ------------
Dividends from net investment income:
Class B ................................................. (492,831) (608,692)
Class C ................................................. (25,541) (44,252)
Class E ................................................. (9,409,336) (10,636,161)
Class S ................................................. (734,560) (782,587)
------------ ------------
(10,662,268) (12,071,692)
------------ ------------
Net increase (decrease) from fund share transactions
(Note 6) ................................................ (3,137,041) 27,845,850
------------ ------------
Total increase (decrease) in net assets ................... (3,137,041) 27,845,850
NET ASSETS
Beginning of year ......................................... 227,147,133 224,010,092
------------ ------------
End of year ............................................... $224,010,092 $251,855,942
============ ============
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
May 31, 1998
NOTE 1
State Street Research Money Market Fund (the "Fund"), is a series of State
Street Research Money Market Trust (the "Trust"), which was organized as a
Massachusetts business trust in April, 1985 and is registered under the
Investment Company Act of 1940, as amended, as an open-end management
investment company. The Fund commenced operations in August, 1986. The Fund is
presently the only active series of the Trust, although the Trustees have the
authority to create an unlimited number of series.
The investment objective of the Fund is to seek a high level of current income
consistent with preservation of capital and maintenance of liquidity. The Fund
seeks to achieve its investment objective by investing in securities issued or
guaranteed as to principal and interest by the U.S. Government or its agencies
or instrumentalities as well as high quality, short-term money market
instruments such as bank certificates of deposit, bankers' acceptances and
such short-term corporate debt securities as commercial paper and master
demand notes.
The Fund offers four classes of shares. Before November 1, 1997, Class C
shares were designated Class D and Class S shares were designated Class C.
Class B shares are subject to a contingent deferred sales charge on certain
redemptions made within five years of purchase and pay annual distribution and
service fees of 1.00%. Class B shares automatically convert into Class E
shares (which pay lower ongoing expenses) at the end of eight years after the
issuance of the Class B shares. Class C shares are subject to a contingent
deferred sales charge of 1.00% on any shares redeemed within one year of their
purchase. Class C shares also pay annual distribution and service fees of
1.00%. Class E shares are offered to any individual. Class E shares are not
subject to any initial or contingent deferred sales charges and do not pay any
distribution or service fees. Class S shares are only offered through certain
retirement accounts, advisory accounts of State Street Research & Management
Company (the "Adviser"), an indirect wholly owned subsidiary of Metropolitan
Life Insurance Company ("Metropolitan"), and special programs. No sales charge
is imposed at the time of purchase or redemption of Class S shares. Class S
shares do not pay any distribution or service fees. The Fund's expenses are
borne pro rata by each class, except that each class bears expenses, and has
exclusive voting rights with respect to provisions of the Plan of
Distribution, related specifically to that class. The Trustees declare
separate dividends on each class of shares.
The following significant accounting 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.
48
<PAGE>
A. INVESTMENT VALUATION
The Fund values securities at amortized cost, pursuant to which the Fund must
adhere to certain conditions. The amortized cost method involves valuing a
portfolio security initially at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium regardless of the effect
of fluctuating interest rates on the market value of the investments.
B. SECURITY TRANSACTIONS
Security transactions are accounted for on the trade date (date the order to
buy or sell is executed). Realized gains or losses, if any, are reported on
the basis of identified cost of securities delivered.
C. NET INVESTMENT INCOME
Net investment income is determined daily and consists of interest accrued and
discount earned, less amortization of premium and the estimated daily expenses
of the Fund. Interest income is accrued daily as earned.
D. DIVIDENDS
Dividends from net investment income are declared daily and paid or reinvested
monthly. Net realized capital gains, if any, are distributed annually, unless
additional distributions are required for compliance with applicable tax
regulations.
E. FEDERAL INCOME TAXES
No provision for Federal income taxes is necessary because the Fund has
elected to qualify under Subchapter M of the Internal Revenue Code and its
policy is to distribute all of its taxable income, including net realized
capital gains, within the prescribed time periods.
F. ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE 2
The Trust and the Adviser have entered into an agreement under which the
Adviser earns monthly fees at an annual rate of 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 March 31, 1998, the fees
pursuant to such agreement amounted to $1,219,931.
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. In addition, Metropolitan receives a fee for maintenance of
the accounts of certain shareholders who are participants in sponsored
arrangements, employee benefit plans and similar programs or plans, through or
under which shares of the Fund may be purchased. During the year ended March 31,
1998, the amount of such expenses was $106,277.
The fees of the Trustees not currently affiliated with the Adviser amounted to
$30,318 during the year ended March 31, 1998.
NOTE 3
The Distributor and its affiliates may from time to time and in varying
amounts voluntarily assume some portion of fees or expenses relating to the
Fund. During the year ended March 31, 1998, the amount of such expenses
assumed by the Distributor and its affiliates was $494,474.
NOTE 4
For the year ended March 31, 1998, purchases and sales, including maturities,
of securities aggregated $2,531,914,011 and $2,514,344,898, respectively.
NOTE 5
The Trust has adopted a Plan of Distribution pursuant to Rule 12b-1 (the "Plan")
under the Investment Company Act of 1940. Under the Plan, the Fund pays annual
distribution and service fees to the Distributor at a rate of 0.75% and 0.25%,
respectively, of average daily net assets for Class B and Class C shares. The
Distributor uses such payments for personal services and/or the maintenance or
servicing of shareholder accounts, to reimburse securities dealers for
distribution and marketing services, to furnish ongoing assistance to investors
and to defray a portion of its distribution and marketing expenses. For the year
ended March 31, 1998, fees pursuant to such plan amounted to $151,763 and
$11,029 for Class B and Class C shares, respectively.
The Fund has been informed that MetLife Securities, Inc., a wholly-owned
subsidiary of Metropolitan, earned commissions aggregating $10,835 on sales of
the Fund's Class B shares and that the Distributor collected contingent
deferred sales charges aggregating $185,067 and $6,967 on redemptions of Class
B and Class C shares, respectively, during the year ended March 31, 1998.
49
<PAGE>
NOTE 6
The Trustees have the authority to issue an unlimited number of shares of
beneficial interest, $.001 par value per share.
At March 31, 1998, Metropolitan owned 73,599 Class B shares, 390,722 Class C
shares and 473,126 Class S shares and Metropolitan and certain of its
affiliates held of record 43,148,887 Class E shares of the Fund.
Share transactions were as follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31
----------------------------------------------------------------------------
1997 1998
------------------------------------- -------------------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ............. 28,609,585 $ 28,609,585 38,774,433 $ 38,774,433
Issued upon reinvestment
of dividends .......... 414,928 414,928 522,933 522,933
Shares repurchased ...... (24,926,640) (24,926,640) (40,711,796) (40,711,796)
------------ ------------ ------------ -------------
Net increase (decrease) . 4,097,873 $ 4,097,873 (1,414,430) $ (1,414,430)
============ ============ ============ =============
<CAPTION>
CLASS C (FORMERLY CLASS D) SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ............. 29,948,381 $ 29,948,381 20,294,283 $ 20,294,283
Issued upon reinvestment
of dividends .......... 15,948 15,948 31,087 31,087
Shares repurchased ...... (30,968,955) (30,968,955) (18,970,254) (18,970,254)
------------ ------------ ------------ -------------
Net increase (decrease) . (1,004,626) $ (1,004,626) 1,355,116 $ 1,355,116
============ ============ ============ =============
<CAPTION>
CLASS E SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ............. 785,239,791 $785,239,791 903,590,545 $ 903,590,545
Issued upon reinvestment
of dividends .......... 6,052,998 6,052,998 7,580,531 7,580,531
Shares repurchased ...... (796,041,966) (796,041,966) (882,055,600) (882,055,600)
------------ ------------ ------------ -------------
Net increase (decrease) . (4,749,177) $ (4,749,177) 29,115,476 $ 29,115,476
============ ============ ============ =============
<CAPTION>
CLASS S (FORMERLY CLASS C) SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ............. 32,645,556 $ 32,645,556 39,426,406 $ 39,426,406
Issued upon reinvestment
of dividends .......... 675,535 675,535 670,467 670,467
Shares repurchased ...... (34,802,202) (34,802,202) (41,307,185) (41,307,185)
------------ ------------ ------------ -------------
Net decrease ............ (1,481,111) $ (1,481,111) (1,210,312) $ (1,210,312)
============ ============ ============ =============
</TABLE>
50
<PAGE>
STATE STREET RESEARCH MONEY MARKET FUND
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------------------------------------------------------
For a share outstanding throughout each year:
<CAPTION>
CLASS B
---------------------------------------------------------------------------------
YEARS ENDED MARCH 31
---------------------------------------------------------------------------------
1994(1) 1995 1996 1997 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 1.000 1.000 1.000 1.000 1.000
----- ----- ----- ----- -----
Net investment income ($)* 0.012 0.032 0.041 0.037 0.040
Dividends from net investment
income ($) (0.012) (0.032) (0.041) (0.037) (0.040)
----- ----- ----- ----- -----
NET ASSET VALUE, END OF YEAR ($) 1.000 1.000 1.000 1.000 1.000
===== ===== ===== ===== =====
Total return(2) (%) 1.27(3) 3.27 4.16 3.72 4.09
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year ($
thousands) 3,028 9,322 11,884 15,982 14,567
Ratio of operating expenses to
average net assets (%)* 1.75(4) 1.75 1.75 1.75 1.65
Ratio of net investment income to
average net assets (%)* 1.54(4) 3.53 4.06 3.69 4.01
*Reflects voluntary assumption of
fees or expenses per share
in each year (Note 3) ($) 0.007 0.004 0.003 0.002 0.002
<CAPTION>
CLASS C (FORMERLY CLASS D)
---------------------------------------------------------------------------------
YEARS ENDED MARCH 31
---------------------------------------------------------------------------------
1994(1) 1995 1996 1997 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 1.000 1.000 1.000 1.000 1.000
----- ----- ----- ----- -----
Net investment income ($)* 0.013 0.032 0.041 0.037 0.040
Dividends from net investment
income ($) (0.013) (0.032) (0.041) (0.037) (0.040)
----- ----- ----- ----- -----
NET ASSET VALUE, END OF YEAR ($) 1.000 1.000 1.000 1.000 1.000
===== ===== ===== ===== =====
Total return(2) (%) 1.30(3) 3.28 4.16 3.72 4.09
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year ($
thousands) 174 842 1,964 959 2,314
Ratio of operating expenses to
average net assets (%)* 1.75(4) 1.75 1.75 1.75 1.65
Ratio of net investment income to
average net assets (%)* 1.54(4) 3.30 4.08 3.68 4.01
*Reflects voluntary assumption of
fees or expenses per share
in each year (Note 3) ($) 0.002 0.005 0.003 0.002 0.002
- ----------------------------------------------------------------------------------------------------------------------------
(1) June 1, 1993 (commencement of share class designations) to March 31, 1994.
(2) Does not reflect any front-end or contingent deferred sales charges. Total return would be lower if the Distributor
and its affiliates had not voluntarily assumed a portion of the Fund's expenses.
(3) Not annualized.
(4) Annualized.
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
Class E
----------------------------------------------------------------------------------
Years ended March 31
----------------------------------------------------------------------------------
1994(5) 1995 1996 1997 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 1.000 1.000 1.000 1.000 1.000
----- ----- ----- ----- -----
Net investment income ($)* 0.025 0.042 0.051 0.047 0.050
Dividends from net investment
income ($) (0.025) (0.042) (0.051) (0.047) (0.050)
----- ----- ----- ----- -----
NET ASSET VALUE, END OF YEAR ($) 1.000 1.000 1.000 1.000 1.000
===== ===== ===== ===== =====
Total return(2) (%) 2.48 4.31 5.20 4.78 5.12
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
($ thousands) 138,129 150,491 197,109 192,360 221,475
Ratio of operating expenses to
average net assets (%)* 0.75 0.75 0.75 0.75 0.65
Ratio of net investment income to
average net assets (%)* 2.46 4.26 5.06 4.69 5.01
*Reflects voluntary assumption of
fees or expenses per share
in each year (Note 3) ($) 0.003 0.006 0.003 0.002 0.002
<CAPTION>
CLASS S (FORMERLY CLASS C)
------------------------------------------------------------------------------------
YEARS ENDED MARCH 31
------------------------------------------------------------------------------------
1994(1) 1995 1996 1997 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 1.000 1.000 1.000 1.000 1.000
----- ----- ----- ----- -----
Net investment income ($)* 0.021 0.042 0.051 0.047 0.050
Dividends from net investment
income ($) (0.021) (0.042) (0.051) (0.047) (0.050)
----- ----- ----- ----- -----
NET ASSET VALUE, END OF YEAR ($) 1.000 1.000 1.000 1.000 1.000
===== ===== ===== ===== =====
Total return(2) (%) 2.08(3) 4.31 5.20 4.78 5.12
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of year
($ thousands) 1,786 7,886 16,191 14,710 13,500
Ratio of operating expenses to
average net assets (%)* 0.75(4) 0.75 0.75 0.75 0.65
Ratio of net investment income to
average net assets (%)* 2.54(4) 4.66 5.03 4.69 5.01
*Reflects voluntary assumption of
fees or expenses per share
in each year (Note 3) ($) 0.006 0.003 0.003 0.002 0.002
- ----------------------------------------------------------------------------------------------------------------------------
(1) June 1, 1993 (commencement of share class designations) to March 31, 1994.
(2) Does not reflect any front-end or contingent deferred sales charges. Total return would be lower if the Distributor and
its affiliates had not voluntarily assumed a portion of the Fund's expenses.
(3) Not annualized.
(4) Annualized.
(5) Effective November 30, 1993, the Fund discontinued offering Class A shares and any existing Class A shares were
redesignated Class E shares. Net investment income and dividends amounted to $.011 per share for Class A shares during
the period June 1, 1993 (commencement of share class designations) to November 30, 1993.
</TABLE>
52
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE TRUSTEES OF STATE STREET RESEARCH MONEY MARKET TRUST AND
THE SHAREHOLDERS OF STATE STREET RESEARCH MONEY MARKET FUND:
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of State Street Research Money Market
Fund (a series of State Street Research Money Market Trust, hereafter referred
to as the "Trust") at March 31, 1998, and the results of its operations, the
changes in its net assets and the financial highlights for the periods
indicated, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at March
31, 1998 by correspondence with the custodian, provide a reasonable basis for
the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
May 8, 1998
53
<PAGE>
STATE STREET RESEARCH MONEY MARKET FUND
- -------------------------------------------------------------------------------
REPORT ON SPECIAL MEETING OF SHAREHOLDERS
- -------------------------------------------------------------------------------
A Special Meeting of Shareholders of the State Street Research Money Market
Fund ("Fund"), a series of State Street Research Money Market Trust ("Trust"),
was convened on December 19, 1997 ("Meeting"), and continued thereafter. The
results of the Meeting are set forth below.
<TABLE>
<CAPTION>
VOTES (MILLIONS OF
SHARES)
-----------------------
ACTION ON PROPOSAL FOR WITHHELD
- -------------------------------------------------------------------------
<S> <C> <C>
1. The following persons were elected as Trustees:
Steve A. Garban .............................. 137.9 3.7
Malcolm T. Hopkins ........................... 137.9 3.8
Thomas L. Phillips ........................... 137.9 3.8
Toby Rosenblatt .............................. 137.8 3.9
Ralph F. Verni ............................... 137.7 3.9
VOTES (MILLIONS OF SHARES)
----------------------------
ACTION ON PROPOSAL FOR AGAINST ABSTAIN
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
2. The Fund's fundamental policy regarding
investments in illiquid securities was
amended and was reclassified from
fundamental to nonfundamental ............ 126.6 5.8 8.7
3. The Fund's fundamental policy regarding
industry concentration was amended ........ 126.8 5.5 8.7
4. The Fund's fundamental policies regarding
diversification of investments were amended 127.7 5.3 8.0
5. The Fund's fundamental policy on lending
was amended to clarify the permissibility
of securities lending ..................... 125.3 7.1 8.6
6. The Fund's policy regarding investments in
securities of companies with less than
three (3) years' continuous operation was
eliminated ................................ 119.8 12.7 8.4
7. The Master Trust Agreement was not amended
to permit the Trustees to reorganize, merge
or liquidate a fund without prior
shareholder approval ...................... 117.2 15.4 8.4
8. The Master Trust Agreement was amended to
eliminate specified time permitted between
the record date and any shareholders
meeting ................................... 123.8 8.2 9.0
</TABLE>
54
