[Logo] State Street Research
SUPPLEMENT NO. 1
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DATED JANUARY 1, 1999 TO
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PROSPECTUS DATED MARCH 1, 1998 (AS SUPPLEMENTED AUGUST 1, 1998) FOR:
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State Street Research Government Income Fund
PROSPECTUSES DATED MAY 1, 1998 FOR:
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State Street Research Tax-Exempt Fund
State Street Research New York Tax-Free Fund
PROSPECTUS DATED AUGUST 1, 1998 FOR:
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State Street Research High Income Fund
<PAGE>
1 INVESTOR EXPENSES
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In the Prospectus section captioned "Investor Expenses," the Shareholder Fees
portion of the table is revised as follows:
<TABLE>
<CAPTION>
Class B(1)
Shareholder Fees Class A and Class B Class C Class S
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<S> <C> <C> <C> <C>
Maximum front-end sales charge (load) 4.50 0.00 0.00 0.00
Maximum deferred sales charge (load) 0.00(a) 5.00 1.00 0.00
</TABLE>
(a) Except for investments of $1 million or more; see "Sales Charges -- Class A
-- Front Load."
In addition, the other column headings for Class B in the table are revised to
read "Class B(1) and Class B" and the figures for Class B are deemed to apply to
Class B(1).
<PAGE>
CHOOSING A SHARE CLASS, SALES CHARGES AND OTHER CDSC POLICIES 2
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The Prospectus sections captioned "Choosing a Share Class" and "Sales Charges"
are revised in their entirety to read as follows, and "Other CDSC Policies" is
added immediately afterward:
[Checklist Graphic] CHOOSING A SHARE CLASS
The fund generally offers four share classes, each with its own sales charge and
expense structure: Class A, Class B(1), Class C and Class S. The fund also
offers Class B shares, but only to current Class B shareholders through
reinvestment of dividends and distributions or through exchanges from existing
Class B accounts of the State Street Research funds.
If you are investing a substantial amount and plan to hold your shares for a
long period, Class A shares may make the most sense for you. If you are
investing a lesser amount, you may want to consider Class B(1) shares (if
investing for at least six years) or Class C shares (if investing for less than
six years). If you are investing through a special program, such as a large
employer-sponsored retirement plan or certain programs available through
financial professionals, you may be eligible to purchase Class S shares.
Because all future investments in your account will be made in the share class
you designate when opening the account, you should make your decision carefully.
Your financial professional can help you choose the share class that makes the
most sense for you.
<PAGE>
3
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CLASS A -- FRONT LOAD
[bullet] Initial sales charge of 4.50% or less
[bullet] Lower sales charges for larger investments; see sales charge schedule
at right
[bullet] Lower annual expenses than Class B(1) or Class C shares because of
lower distribution/service (12b-1) fee of 0.25%
CLASS B(1) -- BACK LOAD
[bullet] No initial sales charge
[bullet] Deferred sales charge of 5% or less on shares you sell within six years
[bullet] Annual distribution/service (12b-1) fee of 1.00%
[bullet] Automatic conversion to Class A shares after eight years, reducing
future annual expenses
CLASS B -- BACK LOAD
[bullet] Available only to current Class B shareholders. See page 4 of this
Supplement for details
CLASS C -- LEVEL LOAD
[bullet] No initial sales charge
[bullet] Deferred sales charge of 1%, paid if you sell shares within one year of
purchase
[bullet] Lower deferred sales charge than Class B(1) shares
[bullet] Annual distribution/service (12b-1) fee of 1.00%
[bullet] No conversion to Class A shares after eight years, so annual expenses
do not decrease
CLASS S -- SPECIAL PROGRAMS
[bullet] Available only through certain retirement accounts, advisory accounts
of the investment manager and other special programs, including
programs through financial professionals with recordkeeping and other
services; these programs usually involve special conditions and
separate fees (consult your financial professional or your program
materials)
[bullet] No sales charges of any kind
[bullet] No distribution/service (12b-1) fees; annual expenses are lower than
other share classes
SALES CHARGES
CLASS A -- FRONT LOAD
<TABLE>
<CAPTION>
when you invest this % is which equals
this amount deducted this % of
for sales your net
charges investment
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<S> <C> <C>
Up to $100,000 4.50 4.71
$100,000 to $250,000 3.50 3.63
$250,000 to $500,000 2.50 2.56
$500,000 to $1 million 2.00 2.04
$1 million or more see below
</TABLE>
With Class A shares, you pay a sales charge only when you buy shares.
If you are investing $1 million or more (either as a lump sum or through any of
the methods described on the application), you can purchase Class A shares
without any sales charge. However, you may be charged a "contingent deferred
sales charge" (CDSC) of 1% if you sell
<PAGE>
4
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any shares within one year of purchasing them. See "Other CDSC Policies."
Class A shares are also offered with low or no sales charges through various
wrap-fee programs and other sponsored arrangements (consult your financial
professional or your program materials).
CLASS B(1) -- BACK LOAD
<TABLE>
<CAPTION>
this % of net asset value
when you sell shares at the time of purchase (or
in this year after you of sale, if lower) is deduct-
bought them ed from your proceeds
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<S> <C>
First year 5.00
Second year 4.00
Third year 3.00
Fourth year 3.00
Fifth year 2.00
Sixth year 1.00
Seventh or eighth year none
</TABLE>
With Class B(1) shares, you pay no sales charge when you invest, but you are
charged a "contingent deferred sales charge" (CDSC) when you sell shares you
have held for six years or less, as described in the table above. See "Other
CDSC Policies."
Class B(1) shares automatically convert to Class A shares after eight years;
Class A shares have lower annual expenses.
CLASS B -- BACK LOAD
Class B shares are available only to current shareholders through reinvestment
of dividends and distributions or through exchanges from existing Class B
accounts of the State Street Research funds. Other investments made by current
Class B shareholders will be in Class B(1) shares. With Class B shares, you are
charged a "contingent deferred sales charge" (CDSC) when you sell shares you
have held for five years or less. The CDSC is a percentage of net asset value at
the time of purchase (or of sale, if lower) and is deducted from your proceeds.
When you sell shares in the first year after you bought them, the CDSC is 5.00%;
second year, 4.00%; third year, 3.00%; fourth year, 3.00%; fifth year, 2.00%;
sixth year or later, none. See "Other CDSC Policies."
Class B shares automatically convert to Class A shares after eight years.
<PAGE>
5
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CLASS C -- LEVEL LOAD
<TABLE>
<CAPTION>
this % of net asset value
when you sell shares at the time of purchase (or
in this year after you of sale, if lower) is deduct-
bought them ed from your proceeds
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<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. See "Other CDSC
Policies."
Class C shares currently have the same annual expenses as Class B(1) shares, but
never convert to Class A shares.
CLASS S -- SPECIAL PROGRAMS
Class S shares have no sales charges.
OTHER CDSC POLICIES
The CDSC will be based on the net asset value of the shares at the time of
purchase (or sale, if lower). Any shares acquired through reinvestment are not
subject to the CDSC. There is no CDSC on exchanges into other State Street
Research funds, and the date of your initial investment will continue to be used
as the basis for CDSC calculations when you exchange. To ensure that you pay the
lowest CDSC possible, the fund will always use the shares with the lowest CDSC
to fill your sell requests.
The CDSC is waived on shares sold for participant initiated distributions from
State Street Research prototype employee retirement plans. In other cases, the
CDSC is waived on shares sold for mandatory retirement distributions or for
distributions because of disability or death. Consult your financial
professional or the State Street Research Service Center for more information.
[sidebar text]
[Magnifying Glass Graphic] UNDERSTANDING
DISTRIBUTION/SERVICE
FEES
As noted in the descriptions on the previous pages, all share classes except
Class S have an annual distribution/service fee, also called a 12b-1 fee.
Under its current 12b-1 plans, 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. For
that reason, you should consider the effects of 12b-1 fees as well as sales
loads when choosing a share class.
Some of the 12b-1 fee is used to compensate those financial professionals who
sell fund shares and provide ongoing service to shareholders. The table on the
next page shows how these professionals' compensation is calculated.
The fund may continue to pay 12b-1 fees even if the fund is subsequently closed
to new accounts.
[end sidebar text]
<PAGE>
DEALER COMPENSATION 6
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The table under the Prospectus section captioned "Dealer Compensation" is
revised in its entirety to read as follows:
<TABLE>
<CAPTION>
Maximum Dealer Compensation (%) Class A Class B(1) Class B Class C Class S
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<S> <C> <C> <C> <C> <C>
Commission see below 4.00 4.00 1.00 0.00
Investments up to $100,000 4.00 -- -- -- --
$100,000 to $250,000 3.00 -- -- -- --
$250,000 to $500,000 2.00 -- -- -- --
$500,000 to $1 million 1.75 -- -- -- --
First $1 to 3 million 1.00(a) -- -- -- --
Next $2 million 0.75(a) -- -- -- --
Next $2 million 0.50(a) -- -- -- --
Next $1 and above 0.25(a) -- -- -- --
Annual fee 0.25 0.25 0.25 1.00 0.00
</TABLE>
(a) If your financial professional declines this commission, the one-year CDSC
on your investment is waived.
<PAGE>
7 POLICIES FOR BUYING SHARES
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The Prospectus sections "Policies for Buying Shares -- Minimum Initial
Investments" and "Minimum Additional Investments" are revised in their entirety
to read as follows:
MINIMUM INITIAL INVESTMENTS:
[bullet] $1,000 for accounts that use the Investamatic program*
[bullet] $2,000 for Individual Retirement Accounts*
[bullet] $2,500 for all other accounts
MINIMUM ADDITIONAL INVESTMENTS:
[bullet] $50 for any account
*Except that from January 1, 1999 through April 15, 1999, the minimum is $500
for Individual Retirement Accounts. Also the $10 annual administrative fee will
be waived for new IRAs with $5,000 invested by then.
ACCOUNT POLICIES
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The Prospectus section on "Account Policies -- Exchange Privileges" is revised
to add the following paragraph immediately after the first paragraph:
You must hold Class A shares of any fund for at least 30 days before you may
exchange them at net asset value for Class A shares of a different fund with a
higher applicable sales charge.
Control Number: (exp899)SSR-LD SSR-404F-199
