Supplement No. 2 dated July 17, 1995
(Supplanting Supplement No. 1 dated December 22, 1994)
to
Prospectus dated August 1, 1994
for
METLIFE - STATE STREET RESEARCH HIGH INCOME FUND
METLIFE - STATE STREET RESEARCH GOVERNMENT SECURITIES FUND
METLIFE - STATE STREET RESEARCH MANAGED ASSETS
Series of MetLife - State Street Income Trust
HIGH INCOME FUND AND MANAGED ASSETS ONLY:
Minimum Investment
The section under the caption "Purchase of Shares--Minimum Investment" is
revised in its entirety as follows:
"Class of Shares
A B C D
Minimum Initial Investment
By Wire $5,000 $5,000 (a) $5,000
IRAs $2,000 $2,000 (a) $2,000
By Investamatic $1,000 $1,000 (a) $1,000
All other $2,500 $2,500 (a) $2,500
Minimum Subsequent Investment
By Wire $5,000 $5,000 (a) $5,000
IRAs $50 $50 (a) $50
By Investamatic $50 $50 (a) $50
All other $50 $50 (a) $50
(a) Special conditions apply; contact the Distributor.
The Fund reserves the right to vary the minimums for initial or subsequent
investments from time to time as in the case of, for example, exchanges and
investments under various retirement and employee benefit plans, sponsored
arrangements involving group solicitations of the members of an organization, or
other investment plans such as for reinvestment of dividends and distributions
or for periodic investments (e.g., Investamatic Check Program)."
Sales Charges
The last sentence of the third paragraph under the caption "Purchase of
Shares--Class A Shares--Initial Sales Charge--Sales Charges" is
revised in its entirety as follows:
"In addition, the contingent deferred sales charge will be waived for certain
other redemptions as described under "Contingent Deferred Sales Charge Waivers"
below (as otherwise applicable to Class B shares)."
Other Programs
Immediately after the first sentence of the first paragraph under the caption
"Purchase of Shares--Class A Shares--Initial Sales Charges--Other
Programs," the following is added:
"Sales without a sales charge, or with a reduced sales charge, may also be made
through brokers, financial planners, institutions, and others, under managed
fee-based programs (e.g., "wrap fee" or similar programs) which meet certain
requirements established from time to time by the Distributor, in the event the
Distributor determines to implement such arrangements."
Contingent Deferred Sales Charge Waivers
The paragraph captioned "Purchase of Shares--Class B Shares--Contingent
Deferred Sales Charges--Contingent Deferred Sales Charge Waivers" is revised
in its entirety as follows:
"The contingent deferred sales charge does not apply to exchanges, or to
redemptions under a systematic withdrawal plan which meets certain conditions.
In addition, the contingent deferred sales charge will be waived for: (i)
redemptions made within one year of the death or total disability, as defined by
the Social Security Administration, of all shareholders of an account; (ii)
redemptions made after attainment of a specific age in an amount which
represents the minimum distribution required at such age under Section 401(a)(9)
of the Internal Revenue Code for retirement accounts or plans (e.g., age 70-1/2
for IRAs 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 IRA. (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 described above at any time;
for example, the Fund may limit the application of multiple waivers."
Additional Information
Under the caption "Redemption of Shares-- Additional Information," the first
paragraph is revised in its entirety as follows:
"Because of the relatively high cost of maintaining small shareholder accounts,
the Fund reserves the right to involuntarily 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 involuntary 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 promptly 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."
Investment Plans
The first paragraph under the caption "Shareholder Services--Investment
Plans" is revised in its entirety to read as follows:
"The Fund offers Class A, Class B and Class D shareholders the Investamatic
Check Program. Under this Program, shareholders may make regular investments by
authorizing withdrawals from their bank accounts each month or quarter on the
Investamatic application form available from Shareholder Services."
Systematic Withdrawal Plan
The second paragraph under the caption "Shareholder Services--Systematic
Withdrawal Plan" is revised in its entirety as follows:
"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 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 Plan was initiated, whichever is higher."
Dividend Allocation Plan
The first sentence under the caption "Shareholder Services--Dividend
Allocation Plan" is revised in its entirety as follows:
"The Dividend Allocation Plan allows shareholders to elect to have all of 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 investment is
made is initially funded with the requisite minimum amount."
GOVERNMENT SECURITIES FUND ONLY:
Shares of the Government Securities Fund are no longer available for investment.
The Fund has ceased operations.
CONTROL NUMBER: 2456F-950717(0896)SSR-LD SSR-254E-795IBS
<PAGE>
MetLife - State Street Research
High Income Fund
Government Securities Fund
Prospectus - August 1, 1994
METLIFE - STATE STREET RESEARCH HIGH INCOME FUND (the "High Income Fund"
or the "Fund") seeks primarily, high current income and, secondarily, capital
appreciation, from investments in fixed income securities. In selecting
investments for the High Income Fund, the investment manager seeks to
identify those fixed income securities which it believes will not involve
undue risk. See page 7. Certain of the High Income Fund's investments,
however, may be considered predominantly speculative. See page 8.
METLIFE - STATE STREET RESEARCH GOVERNMENT SECURITIES FUND (the
"Government Securities Fund" or the "Fund") seeks high current income by
investing primarily in debt obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities. See page 8.
State Street Research & Management Company serves as investment adviser
for the Funds (the "Investment Manager"). As of May 31, 1994, the Investment
Manager had assets of approximately $23.0 billion under management. State
Street Research Investment Services, Inc. serves as distributor (the
"Distributor") for the Funds.
Shareholders may have their shares redeemed directly by the Funds at net
asset value plus the applicable contingent deferred sales charge, if any;
redemptions processed through securities dealers may be subject to processing
charges.
There are risks in any investment program, including the risk of changing
economic and market conditions, and there is no assurance that a Fund will
achieve its investment objective. The net asset value of a share of a Fund
will fluctuate as market conditions change.
This Prospectus sets forth concisely the information a prospective
investor ought to know about the Funds before investing. It should be
retained for future reference. A Statement of Additional Information about
the Funds dated August 1, 1994 has been filed with the Securities and
Exchange Commission and is incorporated by reference in this Prospectus. It
is available, at no charge, upon request to the Funds at the address
indicated on the back cover or by calling 1-800-562-0032.
Each Fund is a diversified series of MetLife - State Street Income Trust
(the "Trust"), an open-end management investment company.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE HIGH INCOME FUND WILL INVEST AT LEAST 65% OF ITS TOTAL ASSETS IN LOWER
RATED BONDS, COMMONLY KNOWN AS "JUNK BONDS," THAT ENTAIL GREATER RISKS,
INCLUDING DEFAULT RISKS, THAN THOSE FOUND IN HIGHER RATED SECURITIES.
INVESTORS SHOULD CAREFULLY CONSIDER THESE RISKS BEFORE INVESTING. SEE "THE
FUNDS' INVESTMENTS," PAGES 7 AND 8 AND "APPENDIX--DESCRIPTION OF DEBT/BOND
RATINGS, PAGES 31 TO 32."
Table of Contents Page
Table of Expenses 2
Financial Highlights 5
The Funds' Investments 7
Other Investment Policies 10
Purchase of Shares 12
Redemption of Shares 20
Shareholder Services 22
The Funds and Their Shares 25
Management of the Funds 27
Dividends and Distributions; Taxes 27
Calculation of Performance Data 28
Appendix--Description of Debt/Bond Ratings 31
<PAGE>
The Funds offer four classes of shares which may be purchased at the next
determined net asset value per share plus, in the case of all classes except
Class C shares, a sales charge which, at the election of the investor, may be
imposed (i) at the time of purchase (the Class A shares) or (ii) on a
deferred basis (the Class B and Class D shares).
Class A shares are subject to (i) an initial sales charge of up to 4.5%
and (ii) an annual service fee of 0.25% of the average daily net asset value
of the Class A shares.
Class B shares are subject to (i) a contingent deferred sales charge
(declining from 5% to 2%), which will be imposed on most redemptions made
within five years of purchase and (ii) annual distribution and service fees
of 1% of the average daily net asset value of such shares. Class B shares
automatically convert into Class A shares (which pay lower ongoing expenses)
at the end of eight years after purchase. No contingent deferred sales charge
applies after the fifth year following the purchase of Class B shares.
Class C shares are offered only to certain pension employee benefit plans
and large institutions. No sales charge is imposed at the time of purchase or
redemption of Class C shares. Class C shares do not pay any distribution or
service fees.
Class D shares are subject to (i) a contingent deferred sales charge of 1%
if redeemed within one year following purchase and (ii) annual distribution
and service fees of 1% of the average daily net asset value of such shares.
Table of Expenses
<TABLE>
<CAPTION>
Class A Class B Class C Class D
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses (1)
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price) 4.5% None None None
Maximum Sales Charge Imposed on
Reinvested Dividends (as a percentage
of offering price) None None None None
Maximum Deferred Sales Charge (as a
percentage of original purchase price
or redemption proceeds, as
applicable) None (2) 5% None 1%
Redemption Fees (as a percentage of
amount redeemed,
if applicable) None None None None
Exchange Fees None None None None
</TABLE>
(1) Reduced sales charge purchase plans are available for Class A shares. The
maximum 5% contingent deferred sales charge on Class B shares applies to
redemptions during the first year after purchase; the charge declines
annually through the fifth year, and no contingent deferred sales charge is
imposed after the fifth year. Class D shares are subject to a 1% contingent
deferred sales charge on any portion of the purchase redeemed within one year
of the sale. Long-term investors in a class of shares with a distribution fee
may, over a period of years, pay more than the economic equivalent of the
maximum sales charge permissible under applicable rules. See "Purchase of
Shares."
(2) Purchases of Class A shares of $1 million or more are not subject to a
sales charge. If such shares are redeemed within 12 months of purchase, a
contingent deferred sales charge of 1% will be applied to the redemption. See
"Purchase of Shares."
2
<PAGE>
<TABLE>
<CAPTION>
High Income Fund Class A Class B Class C Class D
<S> <C> <C> <C> <C>
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees 0.65% 0.65% 0.65% 0.65%
12b-1 Fees 0.25% 1.00% None 1.00%
Other Expenses 0.30% 0.30% 0.30% 0.30%
----- ----- ----- -----
Total Fund Operating Expenses 1.20% 1.95% 0.95% 1.95%
===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Government Securities Fund Class A Class B Class C Class D
<S> <C> <C> <C> <C>
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees 0.65% 0.65% 0.65% 0.65%
12b-1 Fees 0.25% 1.00% None 1.00%
Other Expenses 0.60% 0.60% 0.60% 0.60%
Less Voluntary Reduction (0.25%) (0.25%) (0.25%) (0.25%)
------- ------- ------- -------
Total Fund Operating Expenses
(after voluntary reduction) 1.25% 2.00% 1.00% 2.00%
======= ======= ======= =======
</TABLE>
Example:
You would pay the following expenses on a $1,000 investment assuming (1)
5% annual return and (2) redemption of the entire investment at the end of
each time period:
<TABLE>
<CAPTION>
High Income Fund 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Class A shares $57 $81 $108 $184
Class B shares (1) $70 $91 $125 $208
Class C shares $10 $30 $ 53 $117
Class D shares $30 $61 $105 $227
</TABLE>
<TABLE>
<CAPTION>
Government Securities Fund 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Class A shares $57 $83 $111 $189
Class B shares (1) $70 $93 $128 $213
Class C shares $10 $32 $ 55 $122
Class D shares $30 $63 $108 $233
</TABLE>
You would pay the following expenses on the same investment, assuming no
redemption:
<TABLE>
<CAPTION>
High Income Fund 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Class B shares (1) $20 $61 $105 $208
Class D shares $20 $61 $105 $227
</TABLE>
<TABLE>
<CAPTION>
Government Securities Fund 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Class B shares (1) $20 $63 $108 $213
Class D shares $20 $63 $108 $233
</TABLE>
(1) Ten-year figures assume conversion of Class B shares to Class A shares at
the end of eight years.
The example should not be considered as a representation of past or future
return or expenses. Actual return or expenses may be greater or less than
shown.
3
<PAGE>
The purpose of the table above is to assist the investor in understanding
the various costs and expenses that an investor will bear directly or
indirectly. The percentage expense levels shown in the table above are based
on experience with expenses during the fiscal year ended March 31, 1994;
actual expense levels for the current fiscal year and future years may vary
from the amounts shown. The table does not reflect charges for optional
services elected by certain shareholders, such as the $7.50 fee for
remittance of redemption proceeds by wire. For further information on sales
charges, see "Purchase of Shares--Alternative Purchase Program"; for further
information on management fees, see "Management of the Funds"; and for
further information on 12b-1 fees, see "Purchase of Shares--Distribution
Plan."
The Funds have been advised that 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 Funds. For the fiscal year ended March 31,
1994, Total Fund Operating Expenses as a percentage of the average net assets
of Class A, Class B, Class C and Class D shares respectively, would have been
1.19%, 2.00%, 1.00% and 2.00% of the High Income Fund; and 1.37%, 2.25%,
1.05% and 2.29% of the Government Securities Fund, in the absence of the
voluntary assumption of fees or expenses by the Distributor and its
affiliates. Such assumption of fees or expenses, as a percentage of average
net assets, amounted to .03%, .07%, .07% and .07% of the Class A, Class B,
Class C and Class D Shares of the High Income Fund, respectively; and .13%,
.25%, .05% and .29% of the Class A, Class B, Class C and Class D shares of
the Government Securities Fund, respectively. The amount of fees or expenses
assumed during the fiscal year ended March 31, 1994 differed among classes
because of the impact of new class-specific expenses that were applied as
class designations were implemented during the year. The Government
Securities Fund expects the subsidization of fees or expenses to continue in
the current year, although it cannot give complete assurance that such
assistance will be received.
4
<PAGE>
Financial Highlights
The data set forth below has been audited by Price Waterhouse, independent
accountants, and their reports thereon for the latest five years, is included
in the Statement of Additional Information. For further information about the
performance of the Funds, see the Funds' Annual Reports, which appear under
the caption "Financial Statements" in the Statement of Additional
Information.
High Income Fund
<TABLE>
<CAPTION>
Class A
Year ended March 31
1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset
value,
beginning
of period $ 6.32 $ 5.95 $ 5.21 $ 5.88 $ 7.20 $ 7.22 $ 7.73
Net
investment
income* .66 .67 .71 .75 .88 .84 .85
Net
realized
and
unrealized
gain
(loss) on
investments
and
foreign
currency .22 .37 .72 (.67) (1.31) (.01) (.52)
Dividends
from net
investment
income (.62) (.67) (.69) (.75) (.89) (.85) (.83)
Distributions
from net
realized
gains (.15) -- -- -- -- -- (.01)
------ ----- ----- ----- ----- ----- ------
Net asset
value,
end of
period $6.43 $6.32 $5.95 $5.21 $5.88 $7.20 $7.22
====== ===== ===== ===== ===== ===== =====
Total
return 14.58%+ 18.70%+ 28.99%+ 2.18%+ (6.72%)+ 12.32%+ 4.79%+
Net assets
at end of
period
(000s) $650,755 $496,352 $308,921 $195,739 $157,987 $88,681 $41,637
Ratio of
operating
expenses
to
average
net
assets* 1.16% 1.15% 1.17% 1.21% 1.24% 1.25% 1.25%
Ratio of
net
investment
income to
average
net
assets* 10.41% 11.25% 12.71% 14.21% 13.46% 11.85% 11.90%
Portfolio
turnover
rate 24.36% 79.39% 72.62% 58.15% 52.46% 110.92% 126.68%
*Reflects
the
voluntary
assumption
of fees
or
expenses
per share
in each
period $ 0.00 -- -- -- $ 0.00 $ 0.01 $ 0.02
</TABLE>
<PAGE>
High Income Fund
<TABLE>
<CAPTION>
Class A Class B Class C Class D
August 25,
1986
(Commencement
of
Operations)
to
March 17,
1987 1994** 1994** 1994**
<S> <C> <C> <C> <C>
Net asset value,
beginning of
period $ 7.40 $ 6.34 $ 6.34 $ 6.34
Net investment
income* .48 .51 .57 .51
Net realized and
unrealized gain
(loss) on
investments and
foreign
currency .33 .15 .14 .15
Dividends from
net investment
income (.48) (.48) (.53) (.48)
Distributions
from net
realized gains -- (.10) (.10) (.10)
-------- -------- ------- -------
Net asset value,
end of period $ 7.73 $ 6.42 $ 6.42 $ 6.42
======== ======== ======= =======
Total return 11.34%++ 10.76%++ 11.67%++ 10.74%++
Net assets at
end of period
(000s) $25,809 $67,337 $ 851 $2,661
Ratio of
operating
expenses to
average net
assets* 1.25%# 1.93%# 0.93%# 1.93%#
Ratio of net
investment
income to
average net
assets* 10.62%# 10.32%# 11.32%# 10.32%#
Portfolio
turnover rate 39.75% 24.36% 24.36% 24.36%
*Reflects the
voluntary
assumption of
fees or
expenses per
share in each
period $ 0.01 $ 0.00 $ 0.00 $ 0.00
</TABLE>
**June 1, 1993 (commencement of share class designations) to March 31, 1994.
#Annualized.
+Total return figures do not reflect any front-end or contingent deferred
sales charges.
++Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charge.
Past results may not be indicative of future performance because of, among
other things, changes in the Fund's investment objective and policies in
January 1994. See "Calculation of Performance Data."
5
<PAGE>
Government Securities Fund
<TABLE>
<CAPTION>
Class A
Year ended March 31
1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 7.58 $ 7.13 $ 6.90 $ 6.62 $ 6.55 $ 6.90 $ 7.45
Net investment income* .44 .46 .50 .54 .56 .58 .57
Net realized and
unrealized gain
(loss) on
investments, foreign
currency and forward
contracts (.23) .45 .23 .27 .07 (.35) (.54)
Dividends from net
investment income (.45) (.46) (.50) (.53) (.56) (.58) (.57)
Distributions from net
realized gains (.19) -- -- -- -- -- (.01)
--------- -------- -------- -------- -------- -------- --------
Net asset value, end
of period $ 7.15 $ 7.58 $ 7.13 $ 6.90 $ 6.62 $ 6.55 $ 6.90
========= ======== ======== ======== ======== ======== ========
Total return 2.59%+ 13.10%+ 10.82%+ 12.78%+ 9.72%+ 3.41%+ 0.81%+
Net assets at end of
period (000s) $101,759 $96,567 $66,228 $39,189 $31,218 $27,480 $25,623
Ratio of operating
expenses to average
net assets* 1.24% 1.24% 1.25% 1.25% 1.25% 1.25% 1.25%
Ratio of net
investment income to
average net assets* 5.85% 6.27% 7.11% 8.00% 8.24% 8.57% 8.35%
Portfolio turnover
rate 112.20% 159.36% 73.40% 42.69% 63.88% 93.23% 109.17%
*Reflects the
voluntary assumption
of fees or expenses
per share in each
period $ 0.01 $ 0.00 $ 0.01 $ 0.02 $ 0.02 $ 0.02 $ 0.02
</TABLE>
Government Securities Fund
<TABLE>
<CAPTION>
Class A Class B Class C Class D
August 25,
1986
(Commencement
of
Operations
to)
March 31,
<S> <C> <C> <C> <C>
1987 1994** 1994** 1994**
Net asset value,
beginning of period $ 7.40 $ 7.51 $ 7.51 $ 7.51
Net investment income* .35 .33 .39 .33
Net realized and
unrealized gain
(loss) on
investments, foreign
currency and forward
contracts .05 (.17) (.16) (.17)
Dividends from net
investment income (.35) (.33) (.39) (.32)
Distributions from net
realized gains -- (.19) (.19) (.19)
-------- -------- -------- --------
Net asset value, end
of period $ 7.45 $ 7.15 $ 7.16 $ 7.16
======== ======== ======== ========
Total return 5.52%++ 0.89%++ 1.86%++ 1.00%++
Net assets at end of
period (000s) $24,389 $13,642 $ 268 $ 1,528
Ratio of operating
expenses to average
net assets* 1.25%# 2.00%# 1.00%# 2.00%#
Ratio of net
investment income to
average net assets* 7.76%# 5.07%# 6.07%# 5.07%#
Portfolio turnover
rate 40.71% 112.20% 112.20% 112.20%
*Reflects the
voluntary assumption
of fees or expenses
per share in each
period $ 0.01 $ 0.02 $ 0.00 $ 0.02
</TABLE>
**June 1, 1993 (commencement of share class designations) to March 31, 1994.
#Annualized.
+Total return figures do not reflect any front-end or contingent deferred
sales charges.
++Represents aggregate return for the period without annualization and does
not reflect any front-end or contingent deferred sales charge.
6
<PAGE>
The Funds' Investments
Each of the High Income Fund and the Government Securities Fund has its own
investment objective and policies, as described below. Each Fund's investment
objective is a fundamental policy of that Fund and may not be changed without
approval of the shareholders of that Fund.
There are risks in any investment program, and there is no assurance that
either Fund will achieve its investment objective. All bonds are subject to
relative degrees of credit risk and market volatility. Credit risk relates to
the issuer's (and any guarantor's) ability to make timely payments of
principal and interest. Market volatility relates to the changes in market
price that occur as a result of variations in the level of prevailing
interest rates and yield relationships between sectors in the bond market and
other market factors. When interest rates increase, the value of debt
securities and shares of the Funds can be expected to decline. Generally,
prices of lower rated issues tend to fluctuate more than prices of higher
rated issues, and, for any given change in the level of interest rates,
prices of issues with longer maturities tend to fluctuate more than prices of
issues with shorter maturities.
MetLife - State Street Research High Income Fund
The investment objective of the High Income Fund is to seek, primarily, high
current income and, secondarily, capital appreciation, from investments in
fixed income securities.
In seeking to achieve this investment objective, the Fund, under normal
market conditions, invests at least 65% of its total assets in fixed income
securities, including convertible bonds and preferred stocks, rated at the
time of purchase in categories BBB through D by Standard & Poor's Corporation
("S&P") or Baa through C by Moody's Investors Service, Inc. ("Moody's"), or
which are unrated but believed by the Investment Manager to be of comparable
quality; provided that the Fund shall not invest more than 20% of its total
assets in securities which are rated CCC or lower by S&P, or Caa or lower by
Moody's. In selecting investments for the Fund, including any in the lower
rated categories, the Investment Manager seeks to identify those securities
the returns on which are appropriate within the context of the risks
involved. In doing so, the Investment Manager will consider both its own
credit analysis and the ratings of S&P and Moody's.
The High Income Fund may invest in securities rated higher than BBB by S&P
or Baa by Moody's (or unrated securities of comparable quality) when the
difference in yields between quality classifications is relatively narrow or
for temporary defensive purposes when the Investment Manager anticipates
adverse market conditions. Investments in higher quality issues may serve to
lessen a decline in net asset value but may also affect the amount of current
income produced by the Fund, since the yields from such issues are usually
lower than those from medium and lower quality issues.
For the fiscal year ended March 31, 1994, the percentage of the High
Income Fund's total investments on an average annual basis invested in debt
securities of any particular rating category or its equivalent, as determined
by the Investment Manager, was as follows: 0.1% BBB, 6.1% BB, 68.9% B and
7.2% CCC, on a dollar weighted basis, comprising 82.3% of total investments.
Of these bonds, 80.0% were rated by a nationally recognized statistical
rating organization and 20.0% were unrated but considered to be equivalent,
as determined by the Investment Manager, to comparable rated securities. The
above percentages reflect ratings as of the time of purchase and subsequent
changes, if any, including downgrades, for the period the securities were
held.
Fixed income securities in which the High Income Fund may invest include
debt obligations of all kinds such as bonds, debentures and notes as well as
bonds, debentures and preferred stocks that are convertible into, or carry
rights to acquire, equity securities. Although the High Income Fund intends
to invest primarily in fixed income debt securities as described above, it
may invest up to 35% of the market value of its total assets in
dividend-paying common stocks of established companies listed on a national
securities exchange to the extent the Investment Manager considers such
investments consistent with the Fund's investment objective.
7
<PAGE>
The High Income Fund may invest up to 15% of its net assets in illiquid
securities, including repurchase agreements extending for more than seven
days. The Fund may invest up to 15% of its net assets in restricted
securities, including not more than 5% of its net assets in restricted
securities which are not eligible for resale under Rule 144A or other
exemptive provisions. Although many illiquid securities may also be
restricted, and vice versa, compliance with each of these policies will be
determined independently.
Risk Factors
Lower rated high yield, high risk securities (i.e., bonds rated BB or lower
by S&P or Ba or lower by Moody's or equivalent as determined by the
Investment Manager) of the type in which the High Income Fund invests
generally involve more credit risk than higher rated securities and are
considered by S&P and Moody's to be predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with the terms of
the obligation. Such securities may also be subject to greater market price
fluctuations than lower yielding, higher rated debt securities; credit
ratings do not reflect this market risk. In addition, these ratings may not
reflect the effect of recent developments on an issuer's ability to make
interest and principal payments. Bonds rated in the lowest category and in
default may never resume interest payments or repay principal and their
market value may be difficult to determine. In the event the rating of a
security is downgraded, the Investment Manager will determine whether the
security should be retained or sold depending on an assessment of all facts
and circumstances at that time.
Additional risks of such securities include (i) limited liquidity and
secondary market support, particularly in the case of securities that are not
rated or are subject to restrictions on resale, which may limit the
availability of securities for purchase by the Fund, limit the ability of the
Fund to sell portfolio securities either to meet redemption requests or in
response to changes in the economy or the financial markets, heighten the
effect of adverse publicity and investor perceptions and make selection and
valuation of portfolio securities more subjective and dependent upon the
Investment Manager's credit analysis; (ii) substantial market price
volatility and/or the potential for the insolvency of issuers during periods
of changing interest rates and economic difficulty, particularly with respect
to securities that do not pay interest currently in cash; (iii) subordination
to the prior claims of banks and other senior lenders; (iv) the possibility
that earnings of the issuer may be insufficient to meet its debt service; and
(v) the realization of taxable income for shareholders without the
corresponding receipt of cash in connection with investments in "zero coupon"
or "pay-in-kind" securities. Growth in the market for this type of security
has paralleled a general expansion in certain sectors in the U.S. economy,
and the effects of adverse economic changes (including a recession) are
unclear.
For further information concerning the ratings of debt securities, see the
Appendix to this Prospectus.
MetLife - State Street Research
Government Securities Fund
The investment objective of the Government Securities Fund is to seek high
current income by investing not less than 65% of its total assets in debt
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. The balance of the Fund's portfolio under normal market
conditions will consist of securities of other issuers rated at the time of
purchase AAA by S&P or Aaa by Moody's or unrated but considered by the
Investment Manager to be of equivalent investment quality to comparable rated
securities.
Securities in which the Government Securities Fund will invest include (a)
direct obligations of the U.S. Treasury, including bills, bonds and notes;
and (b) obligations issued or guaranteed as to principal and interest by U.S.
Government agencies or instrumentalities and supported by any of (i) the full
faith and credit of the U.S. Treasury (e.g., Government National Mortgage
Association participation certificates ("GNMA 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
8
<PAGE>
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 Government Securities Fund may
also invest in repurchase agreements with respect to such instruments,
subject to certain limitations. See the Statement of Additional Information.
GNMA Certificates are mortgage-backed securities representing part
ownership of a pool of mortgage loans. These loans, issued by lenders such as
mortgage bankers, commercial banks and savings and loan associations, are
either insured by the Federal Housing Administration or guaranteed by the
Veterans Administration. A "pool" or group of such mortgages is assembled
and, after being approved by GNMA, is offered to investors through securities
dealers. Once approved by GNMA, the timely payment of interest and principal
on each mortgage is guaranteed by the full faith and credit of the U.S.
Government.
The Fund may also invest in the obligations of mixed-ownership Government
corporations such as Resolution Funding Corporation. 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.
In addition, the Fund may invest in mortgage- related securities which
represent interests in pools of mortgage loans and provide the Fund with a
flow-through of interest and principal payments as such payments are
received with respect to the mortgages in the pool. Mortgage-related
securities may be issued by U.S. Government agencies, instrumentalities or
mixed-ownership corporations, and the securities may or may not be supported
by the credit of such entities. Mortgage-related securities may also be
issued by private entities such as investment banking firms and insurance
companies. An issuer may offer senior or subordinated securities backed by
the same pool of mortgages. The senior securities have priority to the
interest and/or principal payments on the mortgages in the pool; the
subordinate securities have less priority to such payments on the mortgages
in the pool. The mortgage-related securities in which the Fund invests will
be rated AAA by S&P or Aaa by Moody's or not rated but considered by the
Investment Manager to be of equivalent investment quality to comparably rated
securities.
Mortgage-related securities currently offer yields higher than those
available from other kinds of government securities, but because of the
possibility of prepayment of the underlying mortgages, they may be less
effective than other types of securities as a means of locking in attractive
long-term interest rates. This is caused by the need to reinvest prepayments
of principal generally and the possibility of significant unscheduled
payments resulting from a decline in mortgage rates. As a result, mortgage-
related securities may have less potential for capital appreciation during
periods of declining interest rates than other securities with comparable
maturities, while having a comparable risk of decline during periods of
rising interest rates.
Securities issued or guaranteed as to principal and interest by the U.S.
Government may be acquired by the Government Securities Fund in the form of
separately traded principal and interest components of securities issued or
guaranteed by the U.S. Treasury. The principal and interest components of
selected securities are currently traded independently under the Separate
Trading of Registered Interest and Principal of Securities ("STRIPS")
program. Under the STRIPS program, the principal and interest components are
individually numbered and separately issued by the U.S. Treasury at the
request of depository financial institutions, which then trade the component
parts independently.
In addition, the Fund may invest in custodial receipts that evidence
ownership of future interest payments, principal payments or both on certain
U.S. Treasury notes or bonds in connection with programs
9
<PAGE>
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.
The Fund may also invest from time to time in collective investment
vehicles, the assets of which consist principally of U.S. Government
securities or other assets substantially collateralized or supported by such
securities, such as government trust certificates.
The securities in which the Fund invests do not, in general, have as high
a yield as more speculative securities or securities not supported by the
U.S. Government or its agencies or instrumentalities.
The Fund may invest up to 10% of its total assets in illiquid securities,
including securities restricted as to resale (limited to 5% of total assets),
repurchase agreements extending for more than seven days and other securities
which are not readily marketable.
Portfolio Maturity and Turnover
Each Fund's holdings may include issues across the maturity spectrum.
Ordinarily each Fund will emphasize investments in medium and longer term
instruments; the weighted average maturity of portfolio holdings, however,
may be shortened or lengthened depending primarily upon the Investment
Manager's outlook for interest rates.
Each Fund reserves full freedom with respect to portfolio turnover. In
periods when there are rapid changes in economic conditions or security price
levels or when investment strategy is changed significantly, portfolio
turnover may be significantly higher than during times of economic and market
price stability or when investment strategy remains relatively constant.
Increases in the rate of portfolio turnover will result in increased
transaction costs for the Funds and may result in an increase in the
realization of short-term capital gains.
Other Investment Policies
Fixed income securities in which each Fund may invest include zero or step
coupon securities. Zero or step coupon securities may pay no interest for all
or a portion of their life but are purchased at a discount to face value at
maturity. Their return consists of the amortization of the discount between
their purchase price and their maturity value, plus, in the case of a step
coupon, any fixed rate interest income. Zero coupon securities pay no
interest to holders prior to maturity even though interest on these
securities is reported as income to the Fund. Each Fund will be required to
distribute all or substantially all of such amounts annually to its
shareholders. These distributions may cause a Fund to liquidate portfolio
assets in order to make such distributions at a time when the Fund may have
otherwise chosen not to sell such securities. The amount of the discount
fluctuates with the market value of such securities, which may be more
volatile than that of securities which pay interest at regular intervals.
The High Income Fund may invest up to 20%, and the Government Securities
Fund may invest up to 5%, of its total assets in securities of foreign
issuers such as foreign corporate or government fixed income securities
consistent with its investment objective and policies and in connection with
such investments may enter into forward currency exchange contracts to reduce
the risks of currency fluctuations. For this purpose, American Depositary
Receipts ("ADRs") are not considered to be foreign securities.
ADRs are available through facilities which may be either "sponsored" or
"unsponsored." In a sponsored arrangement, the foreign issuer establishes the
facility, pays some or all of the depository's fees, and usually agrees to
provide shareholder communications. In an unsponsored arrangement, the
foreign issuer is not involved, and the ADR holders pay the fees of the
depository. Sponsored ADRs are generally more advantageous to the ADR holders
and the issuer than are unsponsored ADRs. More and higher fees are generally
charged in an unsponsored program compared to a sponsored facility. Only
sponsored ADRs may be listed on the New York or American Stock Exchanges.
Unsponsored ADRs may prove to be more risky due to
10
<PAGE>
(a) the additional costs involved to the Fund; (b) the relative illiquidity
of the issue in U.S. markets; and (c) the possibility of higher trading costs
in the over-the- counter market as opposed to exchange-based tradings. The
Fund will take these and other risk considerations into account before making
an investment in an unsponsored ADR.
Investing in foreign securities entails certain risks, including those
resulting from fluctuations in currency exchange rates, revaluation of
currencies, future political and economic developments, the possible
imposition of currency exchange blockages, higher operating expenses,
expropriation of a Fund's assets by a foreign government, foreign withholding
and other taxes which may reduce investment return, reduced availability of
public information concerning issuers and the fact that foreign issuers are
not generally subject to uniform accounting, auditing and financial reporting
standards or to other regulatory practices and requirements comparable to
those applicable to domestic issuers. Moreover, securities of many foreign
issuers may be less liquid and their prices more volatile than those of
securities of comparable domestic issuers. Finally, to the extent a Fund
invests in less developed countries or emerging foreign markets, it will be
subject to a variety of additional risks, including risks associated with
political instability, economies based on relatively few industries, lesser
market liquidity, high rates of inflation, significant price volatility of
portfolio holdings and high levels of external debt in the relevant country.
In seeking to lessen investment risk, each Fund operates under certain
investment restrictions. The restrictions in the following two paragraphs may
not be changed with respect to a Fund except by a vote of the shareholders of
that Fund. The remaining restrictions and policies are subject to change by
the Trustees.
No Fund may invest in a security if the transaction would result in: (a)
more than 5% of the Fund's total assets being invested in any one issuer; (b)
the Fund's owning more than 10% of any class of voting securities of an
issuer; (c) more than 5% of the Fund's total assets being invested in
securities of issuers (including predecessors) with less than three years of
continuous operations unless such securities are rated BBB or higher by S&P
or Baa or higher by Moody's; or (d) more than 25% of the Fund's total assets
being invested in any one industry. These restrictions do not apply to
investments in securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities.
A Fund will not make loans except that it may purchase debt obligations,
including money market instruments, directly from the issuer thereof or in
the open market and may engage in repurchase transactions collateralized by
obligations of the U.S. Government and its agencies and instrumentalities.
For further discussion of these and other investment restrictions including
nonfundamental investment restrictions which may be changed without a
shareholder vote, see the Statement of Additional Information.
Although the Funds intend to invest primarily in fixed income securities,
to aid in achieving its investment objective each Fund may, subject to
certain limitations, enter into financial futures contracts, buy put and call
options on debt securities such as U.S. Treasury bills, bonds and notes, buy
put and call options on financial futures and write covered call options
against securities held in its portfolio. A Fund may not establish a position
in a futures contract or purchase or sell an option for other than bona fide
hedging purposes if immediately thereafter the sum of the amount of initial
margin deposits and premiums on open positions with respect to futures and
options used for such nonhedging purposes would exceed 5% of the market value
of a Fund's net assets.
Each Fund may purchase securities on a "when-issued" basis and invest up
to 30% of its total assets in repurchase agreements, subject to certain
limitations. The Funds may invest in restricted securities in accordance with
Rule 144A, under the Securities Act of 1933, which allows for the resale of
such securities among certain qualified institutional buyers. Because the
market for such securities is still developing, such securities could
possibly become illiquid in particular circumstances. See the Statement of
Additional Information.
Each Fund may hold up to 100% of its assets in cash or short-term
securities for temporary defensive
11
<PAGE>
purposes. A Fund will adopt a temporary defensive position when, in the
opinion of the Investment Manager, such a position is more likely to provide
protection against unfavorable market conditions than adherence to the Fund's
other investment policies. The types of short-term instruments in which the
Funds may invest for such purposes include short-term money market
securities such as repurchase agreements and securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities, certificates of
deposit, time deposits and bankers' acceptances of certain qualified
financial institutions and corporate commercial paper rated at the time of
purchase at least "A" by S&P or "Prime" by Moody's (or, if not rated, issued
by companies having outstanding long-term unsecured debt issue rated at least
"A" by S&P or Moody's). See the Statement of Additional Information. Not less
than 65% of the Government Securities Fund's assets shall consist of
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities when such Fund is in a temporary defensive position.
Information on the Purchase of Shares, Redemption of Shares and Shareholder
Services is set forth on pages 12 to 25 below.
A Fund is available for investment by many kinds of investors including
participants investing through 401(k) or other retirement plan sponsors,
employees investing through savings plans sponsored by employers, Individual
Retirement Accounts ("IRAs"), trusts, corporations, individuals, etc. The
applicability of the general information and administrative procedures set
forth below accordingly will vary depending on the investor and the
recordkeeping system established for a shareholder's investment in a Fund.
Participants in 401(k) and other plans should first consult with the
appropriate person at their employer or refer to the plan materials before
following any of the procedures below. For more information or assistance,
anyone may call 1-800-562-0032.
Purchase of Shares
Methods of Purchase
Through Dealers
Shares of the Funds are continuously offered through securities dealers who
have entered into sales agreements with the Distributor. Purchases through
dealers are confirmed at the offering price, which is the net asset value
plus the applicable sales charge, next determined after the order is duly
received by State Street Research Shareholder Services ("Shareholder
Services"), a division of State Street Research Investment Services, Inc.,
from the dealer. ("Duly received" for purposes herein means in accordance
with the conditions of the applicable method of purchase as described below.)
The dealer is responsible for transmitting the order promptly to Shareholder
Services in order to permit the investor to obtain the current price. See
"Purchase of Shares--Net Asset Value" herein.
By Mail
Initial investments in a Fund may be made by mailing or delivering to the
investor's securities dealer a completed Application (accompanying this
Prospectus), together with a check for the total purchase price payable to
the Fund. The dealer must forward the Application and check in accordance
with the instructions on the Application.
Additional shares may be purchased by mailing to Shareholder Services a
check payable to the Fund in the amount of the total purchase price together
with any one of the following: (i) an Application; (ii) the stub from a
shareholder's account statement; or (iii) a letter setting forth the name of
the Fund, the class of shares and the shareholder's account name and number.
Shareholder Services will deliver the purchase order to the transfer agent
and dividend paying agent, State Street Bank and Trust Company (the "Transfer
Agent").
If a 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 cancelled.
12
<PAGE>
By Wire
An investor may purchase shares by wiring Federal Funds of not less than
$5,000 to State Street Bank and Trust Company, which also serves as the
Trust's custodian (the "Custodian"), as set forth below. Prior to making an
investment by wire, an investor must notify Shareholder Services at
1-800-521-6548 and obtain a control number and instructions. Following such
notification, Federal Funds should be wired through the Federal Reserve
System to:
ABA #011000028
State Street Bank and Trust Company
Boston, MA
BNF = Name of Fund and class of shares
(A, B, C or D)
AC = 99029761
OBI = Shareholder Name
Shareholder Account Number
Control #K (assigned by State Street
Research Shareholder Services)
In order for a wire investment to be processed on the same day (i) the
investor must notify Shareholder Services of his or her intention to make
such investment by 12 noon Boston time on the day of his or her investment;
and (ii) the wire must be received by 4 P.M. Boston time that same day.
An investor making an initial investment by wire must promptly complete
the Application accompanying this Prospectus and deliver it to his or her
securities dealer, who should forward it as required. No redemptions will be
effected until the Application has been duly processed.
A Fund may in its discretion discontinue, suspend or change the practice
of accepting orders by any of the methods described above. Orders for the
purchase of shares are subject to acceptance by a Fund.
Minimum Investment
<TABLE>
<CAPTION>
Class of Shares
A B C D
<S> <C> <C> <C> <C>
Minimum Initial Investment
By Wire $5,000 $5,000 $5,000 $5,000
Investamatic Check Program $ 25 $ 25 $ 25 $ 25
IRAs $ 500 $2,000 $ 500 $2,000
All other $ 500 $2,500 $ 500 $2,500
Minimum Subsequent
Investment $ 50 $ 50 $ 50 $ 50
</TABLE>
The Funds reserve the right to vary the minimums for initial or subsequent
investments from time to time as in the case of, for example, exchanges and
investments pursuant to various retirement, dividend and other investment
plans, or sponsored arrangements involving group solicitations of the members
of an organization. The Funds also reserve the right at any time to suspend
the offering of shares or to reject any specific purchase order for shares.
Alternative Purchase Program
General
Alternative classes of shares permit investors to select a purchase program
which they believe will be the most advantageous for them, given the amount
of their purchase, the length of time they anticipate holding Fund shares, or
the flexibility they desire in this regard, and other relevant circumstances.
Investors will be able to determine whether in their particular circumstances
it is more advantageous to incur an initial sales charge and not be subject
to certain ongoing charges or to have their entire initial purchase price
invested in a Fund with the investment being subject thereafter to ongoing
service fees and distribution fees.
As described in greater detail below, securities dealers are paid
differing amounts of commissions and other compensation depending on which
class of shares they sell.
13
<PAGE>
The major differences among the various classes of shares are as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
<S> <C> <C> <C> <C>
Sales Charges Initial sales Contingent deferred None Contingent deferred
charge at time of sales charge of 5% sales charge of 1%
investment of up to 2% applies to applies to any shares
to 4.5% depending any shares redeemed redeemed within one
on amount of within first five years year following
investment following their their purchase
purchase; no
contingent deferred
sales charge
after five years
On investments of $1
million or more, no
initial sales charge;
but contingent
deferred sales charge
of 1% applies to any
shares redeemed within
one year following
their purchase
Distribution Fee None 0.75% for first None 0.75% each year
eight years;
Class B shares
convert auto-
matically to
Class A shares
after eight years
Service Fee 0.25% each year 0.25% each year None 0.25% each year
Initial Above described 4% None 1%
Commission initial sales charge
Received by less 0.25% to 0.50%
Selling retained by
Securities Distributor
Dealers
On investments of $1
million or more,
0.25% to 0.70% paid
to dealer by
Distributor
</TABLE>
14
<PAGE>
In deciding which class of shares to purchase, the investor should
consider the amount of the investment, the length of time the investment is
expected to be held, and the ongoing service fee and distribution fee, among
other factors.
Class A shares are sold at net asset value plus an initial sales charge of
up to 4.5% of the public offering price. Because of the sales charge, not all
of an investor's purchase amount is invested unless the purchase equals
$1,000,000 or more. Class B shareholders pay no initial sales charge, but a
contingent deferred sales charge of up to 5% generally applies to shares
redeemed within five years of purchase. Class D shareholders also pay no
initial sales charge, but a contingent deferred sales charge of 1% generally
applies to redemptions made within one year of purchase. For Class B and
Class D shareholders, therefore, the entire purchase amount is immediately
invested in a Fund.
An investor who qualifies for a significantly reduced initial sales
charge, or a complete waiver of the sales charge on investments of $1,000,000
or more, on the purchase of Class A shares might elect that option to take
advantage of the lower ongoing service and distribution fees that
characterize Class A shares compared with Class B or Class D shares.
Class A, Class B and Class D shares are assessed an annual service fee of
0.25% of average daily net assets. Class B shares are assessed an annual
distribution fee of 0.75% of daily net assets for an eight-year period
following the date of purchase and are then automatically converted to Class
A shares. Class D shares are assessed an annual distribution fee of 0.75% of
daily net assets for as long as the shares are held. The prospective investor
should consider these fees plus the initial or contingent deferred sales
charges in estimating the costs of investing in the various classes of a
Fund's shares.
Only certain employee benefit plans and large institutions may make
investments in Class C shares.
Some of the service and distribution fees are allocated to dealers (see
"Distribution Plan" below). In addition, the Distributor will, at its
expense, provide additional cash and noncash incentives to securities dealers
that sell shares. Such incentives may be extended only to those dealers who
have sold or may sell significant amounts of shares and/or meet other
conditions established by the Distributor; for example, the Distributor may
sponsor special promotions to develop particular distribution channels or to
reach certain investor groups. The incentives include luxury merchandise,
trips to luxury resorts in exotic locations and attendance at sales seminars
at luxury resorts.
Class A Shares--Initial Sales Charges
Sales Charges
The purchase price of a Class A share of a Fund is the Fund's per share net
asset value next determined after the purchase order is duly received, as
defined herein, plus a sales charge which varies depending on the dollar
amount of the shares purchased as set forth in the table below. A major
portion of this sales charge is reallowed by the Distributor to the
securities dealer responsible for the sale.
<TABLE>
<CAPTION>
Sales Sales
Charge Charge
Paid by Paid by Dealer
Dollar Investor Investor Concession
Amount of As % of As % of As % of
Purchase Purchase Net Asset Purchase
Transaction Price Value Price
<S> <C> <C> <C>
Less than $100,000 4.50% 4.71% 4.00%
$100,000 or above but
less than $250,000 3.50% 3.63% 3.00%
$250,000 or above but
less than $500,000 2.50% 2.56% 2.00%
$500,000 or above but
less than
$1 million 2.00% 2.04% 1.75%
See
$1 million and above 0% 0% following
discussion
</TABLE>
On any sale of Class A shares to a single investor in the amount of
$1,000,000 or more, the Distributor will pay the authorized securities dealer
a commission as follows:
15
<PAGE>
<TABLE>
<CAPTION>
Amount of Sale Commission
<S> <C>
(a) $1 million to $3 million 0.70%
(b) Next $2 million 0.50%
(c) Amount over $5 million 0.25%
</TABLE>
On such sales of $1,000,000 or more, the investor is subject to a 1%
contingent deferred sales charge on any portion of the purchase redeemed
within one year of the sale. However, such redeemed shares will not be
subject to the contingent deferred sales charge to the extent that their
value represents (1) capital appreciation or (2) reinvestment of dividends or
capital gains distributions. In addition, the contingent deferred sales
charge will be waived for certain redemptions in connection with
distributions from a tax plan as described under "Contingent Deferred Sales
Charge Waivers" below (as otherwise applicable to Class B shares).
Class A shares of a Fund that are purchased without a sales charge may be
exchanged for Class A shares of certain other Eligible Funds, as defined
below, without the imposition of a contingent deferred sales charge, although
contingent deferred sales charges may apply upon a subsequent redemption
within one year of the Class A shares which are acquired through such
exchange. 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. The amount of any contingent
deferred sales charge will be paid to the Distributor.
Reduced Sales Charges
The reduced sales charges set forth in the table above are applicable to
purchases made at any one time by any "person," as defined in the Statement
of Additional Information, of $100,000 or more of Class A shares of a Fund or
a combination of "Eligible Funds." "Eligible Funds" include the Funds and
other funds so designated by the Distributor from time to time. Class B,
Class C and Class D shares may also be included in the combination under
certain circumstances. Securities dealers should call Shareholder Services
for details concerning the other Eligible Funds and any persons who may
qualify for reduced sales charges and related information. See the Statement
of Additional Information.
Letter of Intent
Any investor who provides a Letter of Intent may qualify for a reduced sales
charge on purchases of no less than an aggregate of $100,000 of Class A
shares of the Funds and any other Eligible Funds within a 13-month period.
Class B, Class C and Class D shares may also be included in the combination
under certain circumstances. Additional information on a Letter of Intent is
available from dealers, or from the Distributor, and also appears in the
Statement of Additional Information.
Right of Accumulation
Investors may purchase Class A shares of a Fund or a combination of shares of
the Funds and other Eligible Funds at reduced sales charges pursuant to a
Right of Accumulation. Under the Right of Accumulation, the sales charge is
determined by combining the current purchase with the value of the Class A
shares of other Eligible Funds held at the time of purchase. Class B, Class C
and Class D shares may also be included in the combination under certain
circumstances. See the Statement of Additional Information and call
Shareholder Services for details concerning the Right of Accumulation.
Other Programs
Class A shares of the Funds may be sold or issued in an exchange at a reduced
sales charge or without a sales charge pursuant to certain sponsored
arrangements, which include programs under which a company, employee benefit
plan or other organization makes recommendations to, or permits group
solicitation of, its employees, members or participants, except any
organization created primarily for the purpose of obtaining shares of the
Funds at a reduced sales charge or without a sales charge. Information on
such arrangements and further conditions and limitations is available from
the Distributor.
In addition, no sales charge is imposed in connection with the sale of
Class A shares of a Fund to the following entities and persons: (A) the
Investment Manager, Distributor, or any affiliated entities, including any
direct or indirect parent
16
<PAGE>
companies and other subsidiaries of such parents (collectively "Affiliated
Companies"); (B) employees, officers, sales representatives or current or
retired directors or trustees of the Affiliated Companies or any investment
company managed by any of the Affiliated Companies, any relatives of any such
individuals whose relationship is directly verified by such individuals to
the Distributor, or any beneficial account for such relatives or individuals;
and (C) employees, officers, sales representatives or directors of dealers
and other entities with a selling agreement with the Distributor to sell
shares of any aforementioned investment company, any spouse or child of such
person, or any beneficial account for any of them. The purchase must be made
for investment and the shares purchased may not be resold except through
redemption. This purchase program is subject to such administrative policies,
regarding the qualification of purchasers and any other matters, as may be
adopted by the Distributor from time to time.
Class B Shares--Contingent Deferred
Sales Charges
Contingent Deferred Sales Charges
The public offering price of Class B shares is the net asset value per share
next determined after the purchase order is duly received, as defined herein.
No sales charge is imposed at the time of purchase; thus the full amount of
the investor's purchase payment will be invested in the Funds. However, a
contingent deferred sales charge may be imposed upon redemptions of Class B
shares as described below.
The Distributor will pay securities dealers at the time of sale a 4%
commission for selling Class B shares. The proceeds of the contingent
deferred sales charge and the distribution fee are used to offset
distribution expenses and thereby permit the sale of Class B shares without
an initial sales charge.
Class B shares that are redeemed within a five-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 amount of any applicable contingent deferred sales charge will be
calculated by multiplying the net asset value of such shares at the time of
redemption or at the time of purchase, whichever is lower, by the applicable
percentage shown in the table below:
<TABLE>
<CAPTION>
Contingent Deferred
Sales Charge
As A Percentage Of
Net Asset Value
Redemption During At Redemption
<S> <C>
1st Year Since Purchase 5%
2nd Year Since Purchase 4
3rd Year Since Purchase 3
4th Year Since Purchase 3
5th Year Since Purchase 2
6th Year Since Purchase and Thereafter None
</TABLE>
In determining the applicability and rate of any contingent deferred sales
charge, it will be assumed that a redemption of Class B 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 the shareholder for the longest period of
time. The holding period for purposes of applying a contingent deferred sales
charge on Class B shares of a 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 Class B shares 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.
The amount of any contingent deferred sales charge will be paid to the
Distributor.
Contingent Deferred Sales Charge Waivers
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) a total or partial redemption made
17
<PAGE>
within one year of the death or total disability of the shareholder or in
connection with a lump-sum or other distribution in the case of an IRA, a
Keogh Plan or a custodial account under Section 403(b) of the Internal
Revenue Code following attainment of age 59-1/2; (ii) any total or partial
redemption resulting from a distribution following retirement in the case of
a tax-qualified retirement plan; and (iii) a redemption resulting from a
tax-free return of an excess contribution to an IRA. (The foregoing waivers
do not apply to a rollover or transfer of assets.)
Conversion of Class B Shares to Class A Shares
A shareholder's Class B shares, including all shares received as dividends or
distributions with respect to such shares, will automatically convert to
Class A shares of a Fund at the end of eight years following the issuance of
such Class B shares; consequently, they will no longer be subject to the
higher expenses borne by Class B shares. The conversion rate will be
determined on the basis of the relative per share net asset values of the two
classes and may result in a shareholder receiving either a greater or fewer
number of Class A shares than the Class B shares so converted. As noted
above, holding periods for Class B shares received in exchange for Class B
shares of other Eligible Funds will be counted toward the eight-year period.
Class C Shares--Institutional; No Sales Charge
The purchase price of a Class C share of a Fund is the Fund's per share net
asset value next determined after the purchase order is duly received, as
defined herein. No sales charge is imposed at the time of purchase or
redemption. The Funds will receive the full amount of the investor's purchase
payment.
Class C shares are only available for new investments by certain employee
benefit plans and large institutions. See the Statement of Additional
Information. Information on the availability of Class C shares and further
conditions and limitations with respect thereto is available from the
Distributor.
Class C shares may be also issued in connection with mergers and
acquisitions involving a Fund, and under certain other circumstances as
described in this Prospectus (e.g., see "Shareholder Services--Exchange
Privilege").
Class C shares may have also been issued directly or through exchanges to
those shareholders of the Funds or other Eligible Funds who previously held
shares not subject to any future sales charge or service fees or distribution
fees.
Class D Shares--Spread Sales Charges
The purchase price of a Class D share of a Fund is the Fund's per share net
asset value next determined after the purchase order is duly received, as
defined herein. No sales charge is imposed at the time of purchase; thus the
full amount of the investor's purchase payment will be invested in the Funds.
Class D shares are subject to a 1% contingent deferred sales charge on any
portion of the purchase redeemed within one year of the sale. The contingent
deferred sales charge will be 1% of the lesser of the net asset value of the
shares at the time of purchase or at the time of redemption. The Distributor
pays securities dealers a 1% commission for selling Class D shares at the
time of purchase. The proceeds of the contingent deferred sales charge and
the distribution fee are used to offset distribution expenses and thereby
permit the sale of Class D shares without an initial sales charge.
Class D shares that are redeemed within one year after purchase will not
be subject to the 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. In addition,
the contingent deferred sales charge will be waived for certain redemptions
in connection with distributions from a tax plan as described under
"Contingent Deferred Sales Charge Waivers" above (as otherwise applicable to
Class B shares). 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. The amount of any
contingent deferred sales charge will be paid to the Distributor.
18
<PAGE>
Net Asset Value
Each Fund's per share net asset values are determined Monday through Friday
as of the close of the New York Stock Exchange (the "NYSE") exclusive of days
on which the NYSE is closed. The NYSE ordinarily closes at 4 P.M. New York
City time. Each Fund uses one or more pricing services to value its portfolio
securities. The pricing services utilize information with respect to market
transactions, quotations from dealers and various relationships among
securities in determining value and may provide prices determined as of times
prior to the close of the NYSE. Assets for which quotations are readily
available are valued as of the close of business on the valuation date.
Securities for which there is no pricing service valuation or last reported
sale price are valued as determined in good faith by or under the authority
of the Trustees of the Trust. The Trustees have authorized the use of the
amortized cost method to value short-term debt instruments issued with a
maturity of one year or less and having a remaining maturity of 60 days or
less when the value obtained is fair value. Further information with respect
to the valuation of the Fund's assets is included in the Statement of
Additional Information.
Distribution Plan
The Funds have adopted a Plan of Distribution Pursuant to Rule 12b-1 (the
"Distribution Plan") in accordance with the regulations under the Investment
Company Act of 1940, as amended (the "1940 Act"). Under the provisions of the
Distribution Plan, each Fund makes payments to the Distributor based on an
annual percentage of the average daily value of the net assets of each class
of shares as follows:
<TABLE>
<CAPTION>
Class Service Fee Distribution Fee
<S> <C> <C>
A 0.25% None
B 0.25% 0.75%
C None None
D 0.25% 0.75%
</TABLE>
Some or all of the service fees are used to reimburse securities dealers
(including securities dealers that are affiliates of the Distributor) 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 a Fund
represents payment for personal services and/or the maintenance of
shareholder accounts by such dealers. Dealers who have sold Class A shares
are eligible for further reimbursement commencing as of the time of such
sale. Dealers who have sold Class B and Class D 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 of shareholder
accounts.
The distribution fees are used primarily to offset initial and ongoing
commissions paid to securities 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 securities 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 Funds), have also
been authorized pursuant to the Distribution Plan.
A rule of the National Association of Securities Dealers, Inc. ("NASD")
limits the annual expenditures which a 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 which a Fund may
19
<PAGE>
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 by the Trustees of the Trust.
Redemption of Shares
Shareholders may redeem all or any portion of their accounts on any day the
NYSE is open for business. Redemptions will be effective at the net asset
value per share next determined (see "Purchase of Shares--Net Asset Value"
herein) after receipt of the redemption request, in accordance with the
requirements described below, by Shareholder Services and delivery of the
request by Shareholder Services to the Transfer Agent. To allow time for the
clearance of checks used for the purchase of any shares which are tendered
for redemption shortly after purchase, the remittance of the redemption
proceeds for such shares could be delayed for 15 days or more after the
purchase. Shareholders who anticipate a potential need for immediate access
to their investments should, therefore, purchase shares by wire. Except as
noted, redemption proceeds are normally remitted within seven days after
receipt of the redemption request and any necessary documents in good order.
Methods of Redemption
Request By Mail
A shareholder may request redemption of shares, with proceeds to be mailed to
the shareholder or wired to a predesignated bank account (see "Proceeds By
Wire" below), by sending to State Street Research Shareholder Services, P.O.
Box 8408, Boston, Massachusetts 02266-8408: (1) a written request for
redemption signed by the registered owner(s) of the shares, exactly as the
account is registered; (2) an endorsed stock power in good order with respect
to the shares or, if issued, the share certificates for the shares endorsed
for transfer or accompanied by an endorsed stock power; (3) any required
signature guarantees (see "Redemption of Shares--Signature Guarantees"
below); and (4) any additional documents which may be required for redemption
in the case of corporations, trustees, etc., such as certified copies of
corporate resolutions, governing instruments, powers of attorney, and the
like. The Transfer Agent will not process requests for redemption until it
has received all necessary documents in good order. A shareholder will be
notified promptly if a redemption request cannot be accepted. Shareholders
having any questions about the requirements for redemption should call
Shareholder Services toll-free at 1-800-562-0032.
Request By Telephone
Shareholders may request redemption by telephone with proceeds to be
transmitted by check or by wire (see "Proceeds By Wire" below). A shareholder
can request a redemption for $50,000 or less to be transmitted by check. Such
check for the proceeds will be made payable to the shareholder of record and
will be mailed to the address of record. There is no fee for this service. It
is not available for shares held in certificate form or if the address of
record has been changed within 30 days of the redemption request. The Funds
may revoke or suspend the telephone redemption privilege at any time and
without notice. See "Shareholder Services-- Telephone Services" for a
discussion of the conditions and risks associated with Telephone Privileges.
Request By Check (Class A Shares Only)
Shareholders of Class A shares of a 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 but not more than $100,000. Shareholders will
continue to earn dividends on the shares to be redeemed until the check
clears. There is currently 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
20
<PAGE>
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 Shareholder Services. Cancelled 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. Shareholders may not close out an
account by check.
Proceeds By Wire
Upon a shareholder's written request or by telephone if the shareholder has
Telephone Privileges (see "Shareholder Services--Telephone Services" herein),
the Trust's custodian will wire redemption proceeds to the shareholder's
predesignated bank account. To make the request, the shareholder should call
1-800-521-6548 prior to 4 P.M. Boston time. A $7.50 charge against the
shareholder's account will be imposed for each wire redemption. This charge
is subject to change without notice. The shareholder's bank may also impose a
charge for receiving wires of redemption proceeds. The minimum redemption by
wire is $5,000.
Request to Dealer to Repurchase
For the convenience of shareholders, each 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 Funds 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 by the dealer for repurchase by the Distributor.
The dealer is responsible for promptly transmitting a shareholder's order to
the Distributor. Payment of the repurchase proceeds is made to the dealer who
placed the order promptly upon delivery of certificates for shares in proper
form for transfer or, for Open Accounts, upon the receipt of a stock power
with signatures guaranteed as described below, and, if required, any
supporting documents. Neither the Funds nor the Distributor imposes any
charge upon such a repurchase. However, a dealer may impose a charge as agent
for a shareholder in the repurchase of his or her shares.
The Funds have reserved the right to change, modify or terminate the
services described above at any time.
Additional Information
Because of the relatively high cost of maintaining small shareholder
accounts, a Fund reserves the right to involuntarily redeem at its option any
shareholder account which, as a result of redemptions, falls and remains
below $250 (or such lower amount as in effect when the account was opened)
for a period of 60 days after notice is mailed to the applicable shareholder.
A Fund may increase such minimum account value to $250 or above 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 a Fund, and
the proceeds of the redemption will be mailed promptly to the affected
shareholder at the address of record.
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.
A Fund may not suspend the right of redemption or postpone the date of
payment of redemption proceeds for more than seven days, except that (a) it
may elect to suspend the redemption of shares or postpone the date of payment
of redemption proceeds: (1) during any period that the NYSE is closed (other
than customary weekend and holiday closings) or trading on the NYSE is
restricted; (2) during any period in which an emergency exists as a result of
which disposal of portfolio securities is not reasonably practicable or it is
not reasonably practicable to fairly determine the Fund's net asset value; or
(3) during such other periods as the Securities and Exchange Commission may
by order permit for the protection of
21
<PAGE>
investors; and (b) the payment of redemption proceeds may be postponed as
provided under "Redemption of Shares."
Signature Guarantees
To protect shareholder accounts, the Transfer Agent, the Funds, the
Investment Manager and the Distributor from possible fraud, signature
guarantees are required for certain redemptions. Signature guarantees enable
the Transfer Agent to be certain that the person who has authorized a
redemption from the account is, in fact, the shareholder. Signature
guarantees are required for: (1) all redemptions requested by mail; (2)
requests to transfer the registration of shares to another owner; and (3)
authorizations to establish the checkwriting privilege. Signatures must be
guaranteed by a bank, a member firm of a national stock exchange, or other
eligible guarantor institution. The Transfer Agent will not accept guarantees
(or notarizations) from notaries public. The above requirements may be waived
by a Fund in certain instances.
Shareholder Services
The Open Account System
Under the Open Account System full and fractional shares of each Fund owned
by shareholders are credited to their accounts by the Transfer Agent, State
Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02110. Certificates representing Class B or Class D shares will not be
issued, while certificates representing Class A or Class C shares will only
be issued if specifically requested in writing and, in any case, will only be
issued for full shares, with any fractional shares to be carried on the
shareholder's account. Shareholders will receive periodic statements of
transactions in their account.
The Funds' Open Account System provides the following options:
1. Additional purchases of shares of any Fund may be made through dealers,
by wire or by mailing a check, payable to the applicable Fund, to Shareholder
Services under the terms set forth above under "Purchase of Shares."
2. The following methods of receiving dividends from investment income and
distributions from capital gains are available:
(a) All income dividends and capital gains distributions reinvested in
additional shares of the applicable Fund.
(b) All income dividends in cash; all capital gains distributions
reinvested in additional shares of the applicable Fund.
(c) All income dividends and capital gains distributions in cash.
(d) 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 automatically be coded for reinvestment of all
dividends and distributions in additional shares of the same class of the
applicable Fund. Selections may be changed at any time by telephone or
written notice to Shareholder Services. Dividends and distributions are
reinvested at net asset value without a sales charge.
Exchange Privilege
Shareholders of a 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 shares of a Fund 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 a
Fund into other Eligible Funds. To effect an exchange, Class A, Class B and
Class D shares may be redeemed
22
<PAGE>
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 from a money market fund into Class A shares of the Funds or
any other Eligible Fund are subject to the initial sales charge or contingent
deferred sales charge applicable to an initial investment in such Class A
shares, unless a prior Class A sales charge has been paid directly or
indirectly with respect to the shares redeemed. For purposes of computing the
contingent deferred sales charge that may be payable upon disposition of any
acquired Class A, Class B and Class D shares, the holding period of the
redeemed shares is "tacked" to the holding period of the 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.
For the convenience of the shareholders who have Telephone Privileges, the
Funds permit exchanges by telephone request from either the shareholder or
his or her dealer. Shares may be exchanged by telephone provided that the
registration of the two accounts is the same. The toll-free number for
exchanges is 1-800-521-6548. See "Telephone Services" herein for a discussion
of conditions and risks associated with Telephone Privileges.
The exchange privilege may be exercised only in those states where shares
of the relevant other Eligible Fund may legally be sold. For tax purposes,
each exchange actually represents the sale of shares of one fund and the
purchase of shares of another. Accordingly, exchanges may produce a capital
gain or loss for tax purposes. 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 as the existing account, unless
Shareholder Services 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.
If an exchange request in good order is received by Shareholder Services
and delivered by Shareholder Services to the Transfer Agent by 12 noon Boston
time on any business day, the exchange usually will occur that day. For
further information regarding the exchange privilege, shareholders should
contact Shareholder Services.
Reinvestment Privilege
A shareholder of a 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 a 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 30 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 Shareholder
Services of such shareholder's written purchase request and delivery of the
request by Shareholder Services to the Transfer Agent. A shareholder may
exercise this reinvestment privilege only once with respect to his or her
shares of a Fund. No charge is imposed by the Funds for such reinvestments;
however, dealers may charge fees in connection with the reinvestment
privilege. The reinvestment privilege may be exercised with respect to an
Eligible Fund only in those states where shares of the relevant other
Eligible Fund may legally be sold.
23
<PAGE>
Investment Plans
The Funds offer shareholders the Investamatic Check Program. Under this
Program, shareholders may make regular investments by authorizing withdrawals
from their bank accounts each month or quarter on the Investamatic
application form available from Shareholder Services.
The Fund also offers tax-sheltered retirement plans, including prototype
and other employee benefit plans for employees, sole proprietors,
partnerships and corporations and IRAs. Details of these investment plans and
their availability may be obtained from securities dealers or from
Shareholder Services.
Systematic Withdrawal Plan
A shareholder who owns noncertificated Class A or Class C shares with a value
of $5,000 or more, or Class B or Class D shares with a value of $10,000 or
more, may elect, by participating in the Funds' 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 designated Fund shall be credited to participating shareholders in
additional shares of that 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 relevant Fund or
Funds, a shareholder's investment will decrease and may eventually be
exhausted.
A Class B or Class D shareholder of a Fund may withdraw up to 8% annually
of either (a) the value, at the time the 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 Plan was initiated,
whichever is higher. No contingent deferred sales charge will be imposed on
such withdrawals for Class B or Class D shares, although any applicable Class
A contingent deferred sales charge will apply.
Expenses of the Plan are borne by the Funds. A participating shareholder
may withdraw from the Plan, and a Fund may terminate the Plan at any time on
written notice. Purchase of additional shares while a shareholder is
receiving payments under a Plan is ordinarily disadvantageous because of
duplicative sales charges. For this reason, a shareholder may not participate
in the Investamatic Check Program and the Systematic Withdrawal Plan at the
same time.
Dividend Allocation Plan
The Dividend Allocation Plan allows shareholders to elect to have all their
dividends and any other distributions from a Fund or any Eligible Fund
automatically invested at net asset value in one other such Eligible Fund
designated by the shareholder. The number of shares purchased will be
determined as of the dividend payment date. The Dividend Allocation Plan is
subject to state securities law requirements, to suspension at any time, and
to such policies, limitations and restrictions, as, for instance, may be
applicable to street name or master accounts, that may be adopted from time
to time.
Automatic Bank Connection
A shareholder may elect, by participating in the Funds' Automatic Bank
Connection ("ABC"), to have dividends and other distributions, including
Systematic Withdrawal Plan payments, automatically deposited in the
shareholder's bank account by electronic funds transfer. Some contingent
deferred sales charges may apply. See "Systematic Withdrawal Plan" herein.
Reports
Reports for each Fund will be sent to shareholders of record of that Fund at
least semiannually. These reports will include a list of the securities owned
by the applicable Fund as well as the Fund's financial statements.
Telephone Services
The following telephone privileges ("Telephone Privileges") can be used:
(1) the privilege allowing the shareholder to make telephone redemptions for
amounts up to $50,000 to be mailed to the shareholder's address of record is
available automatically;
24
<PAGE>
(2) the privilege allowing the shareholder or his or her dealer to make
telephone exchanges is available automatically; and
(3) the privilege allowing the shareholder to make telephone redemptions for
amounts over $5,000, to be remitted by wire to the shareholder's
predesignated bank account, is available by election on the Application
accompanying this Prospectus. A current shareholder who did not previously
request such telephone wire privilege on his or her original Application may
request the privilege by completing a Telephone Redemption-by-Wire Form
which may be obtained by calling 1-800-562-0032. The Telephone Redemption-
by-Wire Form requires a signature guarantee.
A shareholder may decline the automatic Telephone Privileges set forth in
(1) and (2) above by so indicating on the Application accompanying this
Prospectus.
A shareholder may discontinue any Telephone Privilege at any time by
advising Shareholder Services that the shareholder wishes to discontinue the
use of such privileges in the future.
Unless such Telephone Privileges are declined, a shareholder is deemed to
authorize Shareholder Services and the Transfer Agent to: (1) act upon the
telephone instructions of any person purporting to be the shareholder to
redeem, or purporting to be the shareholder or the shareholder's dealer to
exchange, shares from any account for which such services have been
authorized; and (2) honor any written instructions for a change of address
regardless of whether such request is accompanied by a signature guarantee.
All telephone calls will be recorded. None of the Funds, the other Eligible
Funds, the Transfer Agent, the Investment Manager or 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.
Shareholders may redeem or exchange shares by calling toll-free
1-800-521-6548. Although it is unlikely, during periods of extraordinary
market conditions, a shareholder may have difficulty in reaching Shareholder
Services at such telephone number. In that event, the shareholder should
contact Shareholder Services at 1-800-562-0032, 1-617-357-7805 or otherwise
at its main office at One Financial Center, Boston, Massachusetts 02111-2690.
Shareholder Account Inquiries:
Please call 1-800-562-0032
Call this number for assistance in answering general questions on your
account, including account balance, available shareholder services, statement
information and performance of the Funds. Account inquiries may also be made
in writing to State Street Research Shareholder Services, P.O. Box 8408,
Boston, Massachusetts 02266-8408. A fee of up to $10 will be charged against
an account for providing additional account transcripts or photocopies of
paid redemption checks or for researching records in response to special
requests.
Shareholder Telephone Transactions:
Please call 1-800-521-6548
Call this number for assistance in purchasing shares by wire and for
telephone redemptions or telephone exchange transactions. Shareholder
Services will require some form of personal identification prior to acting
upon instructions received by telephone. Written confirmation of each
transaction will be provided.
The Funds and Their Shares
The Funds were organized in 1985 as series of MetLife - State Street Income
Trust, a Massachusetts business trust. The Trust is registered with the
Securities and Exchange Commission as an open-end management investment
company. The fiscal year end of the Funds is March 31.
The Funds have received an order from the Securities and Exchange
Commission permitting the issuance and sale of multiple classes of shares
representing interests in the existing portfolio of any
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<PAGE>
series of the Trust. Except for those differences between the classes of
shares described below and elsewhere in the Prospectus, each share of a Fund
has equal dividend, redemption and liquidation rights with other shares of
the Fund and when issued is fully paid and nonassessable. The Trustees have
authorized the Funds to offer four classes of shares as described above. In
the future, certain classes may be redesignated, for administrative purposes
only, to conform to standard class designations and common usage of terms
which may develop in the mutual fund industry. For example, Class C shares
may be redesignated as Class Y shares and Class D shares may be redesignated
as Class C shares. Any redesignations would not affect any substantive rights
respecting the shares.
Each share of each class of shares represents an identical legal interest
in the same portfolio of investments of a Fund, has the same rights and is
identical in all respects, except that Class A, Class B and Class D 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 Funds also have different exchange
privileges.
The rights of holders of shares may be modified by the Trustees at any
time, so long as such modifications do not have a material, adverse effect on
the rights of any shareholder. On any matter submitted to the shareholders,
the holder of each 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 Trust's Master Trust Agreement, no annual or regular meeting of
shareholders is required. Thus, there will ordinarily be no shareholder
meetings unless required by the 1940 Act. Except as otherwise provided under
said 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, a Fund will assist shareholders 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 of the
Trust. However, the Master Trust Agreement of the Trust disclaims shareholder
liability for acts or obligations of the Trust and provides for
indemnification for all losses and expenses of any shareholder of a Fund held
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which a 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.
As of June 30, 1994, Metropolitan Life Insurance Company ("Metropolitan"),
was the record and/or beneficial owner, directly or indirectly through its
subsidiaries or affiliates, of approximately 30% of the outstanding Class D
shares of the Government Securities Fund, and may be deemed to be in control
of such Class D shares of the Fund. 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, such as any
Distribution Plan for a given class.
26
<PAGE>
Management of the Funds
Under the provisions of the Trust's Master Trust Agreement and the laws of
Massachusetts, responsibility for the management and supervision of the Funds
rests with the Trustees.
The Funds' investment manager is State Street Research & Management
Company. The Investment Manager is charged with the overall responsibility
for managing the investments and business affairs of the Funds, subject to
the authority of the Board of Trustees.
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 Investment Trust, which they
had formed in 1924. Their investment management philosophy, which continues
to this day, emphasized comprehensive fundamental research and analysis,
including meetings with the management of companies under consideration for
investment. State Street Research & Management Company's portfolio management
group has extensive investment industry experience. The Investment Manager
and the Distributor are indirect wholly- owned subsidiaries of Metropolitan,
and are located at One Financial Center, Boston, Massachusetts 02111-2690.
The Investment Manager has entered into an Advisory Agreement with the
Trust pursuant to which investment research and management, administrative
services, office facilities and personnel are provided for each Fund in
consideration of a fee from each Fund.
Under its Advisory Agreement with the Trust, the Investment Manager
receives a monthly investment advisory fee equal to 0.65% (on an annual
basis) of the average daily value of the net assets of each Fund. Each Fund
bears all costs of its operation other than those incurred by the Investment
Manager under the Advisory Agreement. In particular, the Funds pay, among
other expenses, investment advisory fees, certain distribution expenses under
the Funds' Distribution Plan and the compensation and expenses of the
Trustees who are not otherwise currently affiliated with the Investment
Manager or any of its affiliates. The Investment Manager will reduce its
management fee payable by each Fund up to the amount of any expenses
(excluding permissible items, such as brokerage commissions, Rule 12b-1
payments, interest, taxes and litigation expenses) paid or incurred in any
year in excess of the most restrictive expense limitation imposed by any
state in which the Funds sell shares, if any. The Investment Manager
compensates Trustees of the Trust if such persons are employees or affiliates
of the Investment Manager or its affiliates.
The High Income Fund is managed by Bartlett R. Geer. Mr. Geer has managed
the Fund since early 1987. Mr. Geer's principal occupation currently is
Senior Vice President of State Street Research & Management Company. During
the past five years he has also served as Vice President of State Street
Research & Management Company.
The Government Securities Fund is managed by John H. Kallis. Mr. Kallis
has managed the Fund since early 1987. Mr. Kallis's principal occupation
currently 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.
Subject to the policy of seeking best overall price and execution, sales
of shares of a Fund may be considered by the Investment Manager in the
selection of broker or dealer firms for a Fund's portfolio transactions.
Dividends and Distributions; Taxes
Each Fund is treated as a separate entity for federal income tax purposes.
Each Fund qualified and elected to be treated as a regulated investment
company under Subchapter M of the Internal Revenue Code for its most recent
fiscal year and intends to qualify as such in future fiscal years, although
it cannot give complete assurance that it will do so. As long as a Fund so
qualifies and satisfies certain distribution requirements, it will not be
subject to federal income tax on its taxable income (including capital gains,
if any) distributed to its shareholders. Consequently, each Fund intends to
distribute annually to its shareholders substantially all of its net
investment income and any capital gain net income (capital gains net of
capital losses).
27
<PAGE>
Dividends from net investment income will be declared daily during each
calendar month and paid after the end of the month; distributions of
long-term and short-term capital gain net income will generally be made on an
annual basis, shortly after the end of the fiscal year in which such gains
are realized (or as otherwise required for compliance with applicable tax
regulations), except to the extent that net short-term gains, if any, are
included in the monthly income dividends for the purpose of stabilizing, to
the extent possible, the amount of net monthly distributions as described
below. Both dividends from net investment income and distributions of capital
gain net income will be paid in additional shares of the relevant Fund at net
asset value (except in the case of shareholders who elect a different
available distribution method).
Each Fund will provide its shareholders with annual information on a
timely basis concerning the federal tax status of dividends and distributions
during the preceding calendar year.
Each Fund has adopted distribution procedures which differ from those
which have been customary for investment companies in general. Each Fund will
declare a dividend each day in an amount based on monthly projections of its
future net investment income and will pay such dividends monthly as described
above. Consequently, the amount of each daily dividend may differ from actual
net investment income as determined under generally accepted accounting
principles. The purpose of these distribution procedures is to attempt to
eliminate, to the extent possible, fluctuations in the level of monthly
dividend payments that might result if a Fund declared dividends in the exact
amount of its daily net investment income.
Each daily dividend is payable to shareholders of record at the time of
its declaration (for this purpose, including only holders of shares purchased
for which payment has been received by the Transfer Agent and excluding
holders of shares redeemed on that day).
Although not contemplated, it is possible that total distributions in a
year could exceed the total of a Fund's current and accumulated earnings and
profits as calculated for federal income tax purposes, because of technical
accounting considerations and the distribution procedures described above,
among other reasons. This excess would first be treated as a "return of
capital" for federal income tax purposes and would reduce by its amount the
shareholder's cost or other basis in his or her shares. After the
shareholder's cost or other basis is reduced to zero, which is highly
unlikely, the distribution will be treated as gain from the sale of Fund
shares.
Dividends paid by a Fund from taxable net investment income and
distributions of net short-term capital gains, whether they are 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 (the excess of net long-term capital gains over net short-term capital
losses) 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 long-term capital gains, regardless of how
long shareholders have held their shares. If shares of a Fund which are sold
at a loss have been held six months or less, the loss will be considered as a
long-term capital loss to the extent of any capital gains distributions
received.
Dividends and other distributions and proceeds of redemption of Fund
shares paid to individuals and other nonexempt payees will be subject to a
31% federal backup withholding tax if the Transfer Agent is not provided with
the shareholder's correct taxpayer identification number or certification
that the shareholder is not subject to such backup withholding.
The foregoing discussion relates only to generally applicable federal
income tax provisions in effect as of the date of this Prospectus.
Distributions from the Funds that represent interest income from U.S.
Government securities may not be tax-exempt at some state and local levels.
Therefore, prospective shareholders are urged to consult their own tax
advisers regarding tax matters, including state and local tax consequences.
Calculation of Performance Data
From time to time, in advertisements or in communications to shareholders or
prospective investors, a Fund may compare the performance of
28
<PAGE>
Class A, Class B, Class C or Class D shares to that of other mutual funds
with similar investment objectives, to certificates of deposit, to other
financial alternatives and/or to appropriate indices, rankings or averages
such as those compiled by Lipper Analytical Services, Inc., Morningstar,
Inc., Money Magazine, Business Week, Forbes Magazine, The Wall Street
Journal, Fortune Magazine or Investor's Daily. For example, the performance
of the High Income Fund might be compared to the Lipper High Current Yield
Fund category, First Boston High Yield Index, Shearson/Lehman Corporate
Index, Salomon Brothers Mortgage PT Index, Shearson/Lehman Government Agency
Index, S&P 500, U.S. Government securities, Merrill Lynch Treasury Index,
Salomon Brothers High Yield Index and Consumer Price Index. The performance
of the Government Securities Fund might be compared to the Lipper U.S.
Government Fund category, Consumer Price Index, Merrill Lynch Treasury Index,
U.S. Government Bond indices (10, 20 and 30-year), First Boston Ginnie Mae
Current Coupon Index and Merrill Lynch Treasury/Mortgage Index.
Total return is computed separately for each class of shares of the Funds.
The average annual total return ("standard total return") for shares of a
Fund is computed by determining the average annual compounded rate of return
for a designated period that, if applied to a hypothetical $1,000 initial
investment (less the maximum initial or contingent deferred sales charge, if
applicable), would produce the redeemable value of that investment at the end
of the period, assuming reinvestment of all dividends and distributions and
with recognition of all recurring charges. Standard total return would be
calculated for the periods specified in applicable regulations and may be
accompanied with nonstandard total return information for differing periods
computed in the same manner with or without annualizing the total return or
taking sales charges into account.
A Fund's yield is computed separately for each class of shares by dividing
the net investment income, after recognition of all recurring charges, per
share earned during the most recent month or other specified thirty-day
period by the applicable maximum offering price per share on the last day of
such period and annualizing the result.
The standard total return and yield results take sales charges into
account, if applicable, but 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 remittance of
redemption proceeds by wire. Where sales charges are not applicable and
therefore not taken into account in the calculation of standard total return
and yield, the results will be increased. Any voluntary waiver of fees or
assumption of expenses by the Funds' affiliates will also increase
performance results.
A Fund's distribution rate is calculated separately for each class of
shares by annualizing the latest distribution and dividing the result by the
maximum offering price per share as of the end of the period to which the
distribution relates. The distribution rate is not computed in the same
manner as the above described yield and, therefore, can be significantly
different from it. In its supplemental sales literature, a Fund may quote its
distribution rate together with the above described standard total return and
yield information. The use of such distribution rates would be subject to an
appropriate explanation of how the components of the distribution rate differ
from the above described yield.
Performance information may be useful in evaluating a Fund and for
providing a basis for comparison with other financial alternatives. Since the
performance of a Fund varies in response to fluctuations in economic and
market conditions, interest rates and Fund expenses, among other things, no
performance quotation should be considered a representation as to a Fund's
performance for any future period.
In evaluating the High Income Fund's performance, consideration should be
given to changes in the Fund's investment objective and policies effected in
January 1994. Prior to that time the Fund's investment objective was "to seek
a high level of current income by investing under normal conditions at least
65% of its total assets in fixed
29
<PAGE>
income securities rated at the time of purchase BBB, BB or B by S&P or Baa,
Ba or B by Moody's or which are unrated but believed by the Investment
Manager to be of comparable quality." The change in the investment objective,
i.e. "to seek, primarily, high current income and, secondarily, capital
appreciation, from investments in fixed income securities" enables the Fund's
Investment Manager (i) to take into account, as a secondary consideration in
selecting portfolio securities, their possible capital appreciation, (ii) to
remove the percentage of the Fund's portfolio which, as a minimum, must be
invested in fixed income securities included in the foregoing specific rating
categories and (iii) to include within the scope of fixed income securities
convertible debt securities and preferred stock. Further, the Fund's
investment policy limiting the purchase of illiquid securities was changed
from a fundamental policy to a nonfundamental policy and the Fund may now
invest up to 15% (rather than up to 10%) in such securities.
In addition, the net asset value of shares of a Fund will fluctuate, with
the result that shares of a Fund, when redeemed, may be worth more or less
than their original cost. Neither an investment in a Fund nor its performance
is insured or guaranteed; such lack of insurance or guarantees should
accordingly be given appropriate consideration when comparing a Fund to
financial alternatives which have such features.
Shares of the Funds had no class designations until June 1, 1993, when
designations were assigned based on the pricing and Rule 12b-1 fees
applicable to shares sold thereafter. Performance data for a specified class
includes periods prior to the adoption of class designations. Performance
data for periods prior to June 1, 1993 will not reflect additional Rule 12b-1
Distribution Plan fees, if any, of up to 1% per year depending on the class
of shares, which will adversely affect performance results for periods after
such date.
In reviewing performance for the High Income Fund, a number of factors
should be considered. The price of lower rated, high yield, high risk
securities can rise and fall substantially. A substantial decline can
dramatically increase yields on these securities. The price declines reflect
an expectation that many issuers of these securities will experience
financial difficulties, among other things. Thus, significantly higher yields
do not reflect the income stream investors can expect but rather the risk
that their investment may lose a substantial portion of its value in a
financial restructuring or default.
30
<PAGE>
APPENDIX
Description of Debt/Bond Ratings
Standard & Poor's Corporation
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having speculative
characteristics with respect to capacity to pay interest and repay principal.
BB indicates the least degree of speculation and C the highest. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions
to meet timely payment of interest and repayment of principal. In the event
of adverse business, financial or economic conditions, it is not likely to
have the capacity to pay interest and repay principal. The CCC rating
category is also used for debt subordinated to senior debt that is assigned
an actual or implied B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
CI: The rating CI is reserved for income bonds on which no interest is
being paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the due date even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
S&P may attach the "r" symbol to derivative, hybrid, and certain other
obligations that S&P believes may experience high volatility or high
variability in expected returns due to noncredit risks created by the terms
of the obligation, such as securities whose principal or interest return is
indexed to equities, commodities, or currencies; certain swaps and options;
and interest only (IO) and principal only (PO) mortgage securities.
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<PAGE>
Moody's Investors Service, Inc.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin, and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa: Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during other good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
1, 2 or 3: The ratings from Aa through B may be modified by the addition
of a numeral indicating a bond's rank within its rating category.
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(LOGO) State Street Research
MetLife State Street Research
High Income Fund
Government Securities Fund
August 1, 1994
PROSPECTUS
METLIFE - STATE STREET RESEARCH
HIGH INCOME FUND
GOVERNMENT SECURITIES FUND
One Financial Center
Boston, MA 02111
INVESTMENT ADVISER
State Street Research &
Management Company
One Financial Center
Boston, MA 02111
DISTRIBUTOR
State Street Research
Investment Services, Inc.
One Financial Center
Boston, MA 02111
SHAREHOLDER SERVICES
State Street Research
Shareholder Services
P.O. Box 8408
Boston, MA 02266-8404
800-562-0032
CUSTODIAN
State Street Bank and
Trust Company
225 Franklin Street
Boston, MA 02110
LEGAL COUNSEL
Goodwin, Procter & Hoar
Exchange Place
Boston, MA 02109
INDEPENDENT ACCOUNTANTS
Price Waterhouse
160 Federal Street
Boston, MA 02110
IT-612D-8941B 1788-940725(0895)SSR-LD
<PAGE>
Supplement No. 2 dated July 17, 1995
(Supplanting Supplement No. 1 dated December 22, 1994)
to
Prospectus dated August 1, 1994
for
METLIFE - STATE STREET RESEARCH HIGH INCOME FUND
METLIFE - STATE STREET RESEARCH GOVERNMENT SECURITIES FUND
METLIFE - STATE STREET RESEARCH MANAGED ASSETS
Series of MetLife - State Street Income Trust
HIGH INCOME FUND AND MANAGED ASSETS ONLY:
Minimum Investment
The section under the caption "Purchase of Shares--Minimum Investment" is
revised in its entirety as follows:
"Class of Shares
A B C D
Minimum Initial Investment
By Wire $5,000 $5,000 (a) $5,000
IRAs $2,000 $2,000 (a) $2,000
By Investamatic $1,000 $1,000 (a) $1,000
All other $2,500 $2,500 (a) $2,500
Minimum Subsequent Investment
By Wire $5,000 $5,000 (a) $5,000
IRAs $50 $50 (a) $50
By Investamatic $50 $50 (a) $50
All other $50 $50 (a) $50
(a) Special conditions apply; contact the Distributor.
The Fund reserves the right to vary the minimums for initial or subsequent
investments from time to time as in the case of, for example, exchanges and
investments under various retirement and employee benefit plans, sponsored
arrangements involving group solicitations of the members of an organization, or
other investment plans such as for reinvestment of dividends and distributions
or for periodic investments (e.g., Investamatic Check Program)."
Sales Charges
The last sentence of the third paragraph under the caption "Purchase of
Shares--Class A Shares--Initial Sales Charge--Sales Charges" is
revised in its entirety as follows:
"In addition, the contingent deferred sales charge will be waived for certain
other redemptions as described under "Contingent Deferred Sales Charge Waivers"
below (as otherwise applicable to Class B shares)."
Other Programs
Immediately after the first sentence of the first paragraph under the caption
"Purchase of Shares--Class A Shares--Initial Sales Charges--Other
Programs," the following is added:
"Sales without a sales charge, or with a reduced sales charge, may also be made
through brokers, financial planners, institutions, and others, under managed
fee-based programs (e.g., "wrap fee" or similar programs) which meet certain
requirements established from time to time by the Distributor, in the event the
Distributor determines to implement such arrangements."
Contingent Deferred Sales Charge Waivers
The paragraph captioned "Purchase of Shares--Class B Shares--Contingent
Deferred Sales Charges--Contingent Deferred Sales Charge Waivers" is revised
in its entirety as follows:
"The contingent deferred sales charge does not apply to exchanges, or to
redemptions under a systematic withdrawal plan which meets certain conditions.
In addition, the contingent deferred sales charge will be waived for: (i)
redemptions made within one year of the death or total disability, as defined by
the Social Security Administration, of all shareholders of an account; (ii)
redemptions made after attainment of a specific age in an amount which
represents the minimum distribution required at such age under Section 401(a)(9)
of the Internal Revenue Code for retirement accounts or plans (e.g., age 70-1/2
for IRAs 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 IRA. (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 described above at any time;
for example, the Fund may limit the application of multiple waivers."
Additional Information
Under the caption "Redemption of Shares-- Additional Information," the first
paragraph is revised in its entirety as follows:
"Because of the relatively high cost of maintaining small shareholder accounts,
the Fund reserves the right to involuntarily 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 involuntary 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 promptly 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."
Investment Plans
The first paragraph under the caption "Shareholder Services--Investment
Plans" is revised in its entirety to read as follows:
"The Fund offers Class A, Class B and Class D shareholders the Investamatic
Check Program. Under this Program, shareholders may make regular investments by
authorizing withdrawals from their bank accounts each month or quarter on the
Investamatic application form available from Shareholder Services."
Systematic Withdrawal Plan
The second paragraph under the caption "Shareholder Services--Systematic
Withdrawal Plan" is revised in its entirety as follows:
"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 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 Plan was initiated, whichever is higher."
Dividend Allocation Plan
The first sentence under the caption "Shareholder Services--Dividend
Allocation Plan" is revised in its entirety as follows:
"The Dividend Allocation Plan allows shareholders to elect to have all of 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 investment is
made is initially funded with the requisite minimum amount."
GOVERNMENT SECURITIES FUND ONLY:
Shares of the Government Securities Fund are no longer available for investment.
The Fund has ceased operations.
CONTROL NUMBER: 2456F-950717(0896)SSR-LD SSR-254E-795IBS
<PAGE>
MetLife - State Street Research
Managed Assets
Prospectus
August 1, 1994
The investment objective of MetLife - State Street Research Managed Assets
(the "Fund") is to seek a high total return while attempting to limit
investment risk and preserve capital. To achieve its investment objective,
the Fund intends to allocate assets among selected investments in the
following sectors: Fixed Income Securities, Equity Securities, Inflation
Responsive Investments and Cash & Cash Equivalents (as defined herein). Total
return may include current income as well as capital appreciation. The Fund's
investment manager believes that the timely re-allocation of assets can
enhance performance and reduce portfolio volatility.
Allocation of the Fund's assets among the different investment sectors will
vary from time to time consistent with the short- and long-term investment
outlook of the Fund's investment manager. No minimum or maximum percentage
applies to the Fund's assets that may be invested in any of the investment
sectors, and from time to time all of the Fund's assets could conceivably be
invested in a single investment sector in the discretion of the Fund's
investment manager. The four investment sectors described herein are broad in
scope and to some extent may overlap. In the future, these sectors could be
redefined or other sectors added to highlight a particular area of focus,
such as foreign investments, which are included in each of the four presently
identified sectors but not specifically delineated as a separate sector.
State Street Research & Management Company serves as investment adviser for
the Fund (the "Investment Manager"). As of May 31, 1994, the Investment
Manager had assets of approximately $23.0 billion under management. State
Street Research Investment Services, Inc. serves as distributor (the
"Distributor") for the Fund.
Shareholders may have their shares redeemed directly by the Fund at net asset
value plus the applicable contingent deferred sales charge, if any;
redemptions processed through securities dealers may be subject to processing
charges.
There are risks in any investment program, including the risk of changing
economic and market conditions, and there is no assurance that the Fund will
achieve its investment objective. The net asset value of a share of the Fund
will fluctuate as market conditions change.
This Prospectus sets forth concisely the information a prospective investor
ought to know about the Fund before investing. It should be retained for
future reference. A Statement of Additional Information about the Fund dated
August 1, 1994, has been filed with the Securities and Exchange Commission
and is incorporated by reference in this Prospectus. It is available, at no
charge, upon request to the Fund at the address indicated on the back cover
or by calling 1-800-562-0032.
The Fund is a diversified series of MetLife - State Street Income Trust (the
"Trust"), an open-end management investment company.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Table of Contents Page
<S> <C>
Table of Expenses 2
Financial Highlights 4
The Fund's Asset Allocation and Investments 5
Other Investment Policies and Considerations 7
Purchase of Shares 11
Redemption of Shares 19
Shareholder Services 20
The Fund and its Shares 24
Management of the Fund 25
Dividends and Distributions; Taxes 26
Calculation of Performance Data 26
Appendix--Description of Debt/Bond Ratings 28
</TABLE>
1
<PAGE>
The Fund offers four classes of shares which may be purchased at the next
determined net asset value per share plus, in the case of all classes except
Class C shares, a sales charge which, at the election of the investor, may be
imposed (i) at the time of purchase (the Class A shares) or (ii) on a
deferred basis (the Class B and Class D shares).
Class A shares are subject to (i) an initial sales charge of up to 4.5% and
(ii) an annual service fee of 0.25% of the average daily net asset value of
the Class A shares.
Class B shares are subject to (i) a contingent deferred sales charge
(declining from 5% to 2%), which will be imposed on most redemptions made
within five years of purchase and (ii) annual distribution and service fees
of 1% of the average daily net asset value of such shares. Class B shares
automatically convert into Class A shares (which pay lower ongoing expenses)
at the end of eight years after purchase. No contingent deferred sales charge
applies after the fifth year following the purchase of Class B shares.
Class C shares are only offered to certain employee benefit plans and large
institutions. No sales charge is imposed at the time of purchase or
redemption of Class C shares. Class C shares do not pay any distribution or
service fees.
Class D shares are subject to (i) a contingent deferred sales charge of 1% if
redeemed within one year following purchase and (ii) annual distribution and
service fees of 1% of the average daily net asset value of such shares.
Table of Expenses
<TABLE>
<CAPTION>
Class A Class B Class C Class D
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses (1)
Maximum Sales Charge Imposed on
Purchases
(as a percentage of offering price) 4.5% None None None
Maximum Sales Charge Imposed on
Reinvested Dividends
(as a percentage of offering price) None None None None
Maximum Deferred Sales Charge (as
a percentage of original purchase
price or redemption proceeds, as
applicable) None(2) 5% None 1%
Redemption Fees (as a percentage
of amount redeemed, if applicable) None None None None
Exchange Fees None None None None
</TABLE>
(1) Reduced sales charge purchase plans are available for Class A shares. The
maximum 5% contingent deferred sales charge on Class B shares applies to
redemptions during the first year after purchase; the charge declines
annually through the fifth year, and no contingent deferred sales charge is
imposed after the fifth year. Class D shares are subject to a 1% contingent
deferred sales charge on any portion of the purchase redeemed within one year
of the sale. Long-term investors in a class of shares with a distribution fee
may, over a period of years, pay more than the economic equivalent of the
maximum sales charge permissible under applicable rules. See "Purchase of
Shares."
(2) Purchases of Class A shares of $1 million or more are not subject to a
sales charge. If such shares are redeemed within 12 months of purchase, a
contingent deferred sales charge of 1% will be applied to the redemption. See
"Purchase of Shares."
2
<PAGE>
<TABLE>
<CAPTION>
Class A Class B Class C Class D
<S> <C> <C> <C> <C>
Annual Fund Operating Expenses (as a
percentage of average net assets)
Management Fees 0.75% 0.75% 0.75% 0.75%
12b-1 Fees 0.25% 1.00% None 1.00%
Other Expenses 0.48% 0.48% 0.48% 0.48%
Less Voluntary Reduction (0.23%) (0.23%) (0.23%) (0.23%)
------- ------- ------- -------
Total Fund Operating Expenses
(after voluntary reduction) 1.25% 2.00% 1.00% 2.00%
======= ======= ======= =======
</TABLE>
Example:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
You would pay the following
expenses on a $1,000 investment
assuming (1) 5% annual return and
(2) redemption of the entire
investment at the end of each time
period:
Class A shares $57 $83 $111 $189
Class B shares (1) $70 $93 $128 $213
Class C shares $10 $32 $55 $122
Class D shares $30 $63 $108 $233
You would pay the following
expenses on the same investment,
assuming no redemption: 1 Year 3 Years 5 Years 10 Years
Class B shares (1) $20 $63 $108 $213
Class D shares $20 $63 $108 $233
</TABLE>
(1) Ten-year figures assume conversion of Class B shares to Class A shares at
the end of eight years.
The example should not be considered as a representation of past or future
return or expenses. Actual return or expenses may be greater or less than shown.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses that an investor will bear directly or indirectly.
The percentage expense levels shown in the table above are based on
experience with expenses during the fiscal year ended March 31, 1994; actual
expense levels for the current fiscal year and future years may vary from the
amounts shown. The table does not reflect charges for optional services
elected by certain shareholders, such as the $7.50 fee for remittance of
redemption proceeds by wire. For further information on sales charges, see
"Purchase of Shares--Alternative Purchase Program"; for further information
on management fees, see "Management of the Fund"; and for further information
on 12b-1 fees, see "Purchase of Shares--Distribution Plan."
The Fund has been advised that 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. For the fiscal year ended March 31, 1994,
Total Fund Operating Expenses as a percentage of the average net assets of
Class A, Class B, Class C and Class D shares, respectively, would have been
1.48%, 2.29%, 1.24% and 2.29% in the absence of the voluntary assumption of
fees or expenses by the Distributor and its affiliates. Such assumption of
fees or expenses, as a percentage of average net assets, amounted to 0.23%,
0.29%, 0.24% and 0.29% of the Class A, Class B, Class C and Class D shares of
the Fund, respectively. The amount of fees or expenses assumed during the
fiscal year ended March 31, 1994 differed among classes because of the impact
of new class-specific expenses that were applied as class designations were
implemented during the year. The Fund expects the subsidization of fees or
expenses to continue in the current year, although it cannot give complete
assurance that such assistance will be received.
3
<PAGE>
Financial Highlights
The data set forth below has been audited by Price Waterhouse, independent
accountants, and their report thereon for the latest five years is included
in the Statement of Additional Information. For further information about the
performance of the Fund, see the Fund's Annual Report, which appears under
the caption "Financial Statements" in the Statement of Additional
Information.
<TABLE>
<CAPTION>
Class A Class B Class C Class D
Dec. 29, 1988
(Commence-
ment of
Year Ended March 31 Operations) to
1994 1993 1992 1991 1990 March 31, 1989 1994** 1994** 1994**
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $8.94 $8.22 $7.61 $7.81 $7.60 $7.40 $8.78 $8.78 $8.78
Net investment income* .22 .27 .37 .44 .46 .13 .16 .21 .16
Net realized and unrealized gain (loss)
on investments and forward contracts .72 1.01 .62 (.14) .36 .19 .39 .43 .40
Dividends from net investment income (.22) (.25) (.38) (.41) (.47) (.12) (.18) (.24) (.18)
Distributions from net realized gains (.72) (.31) -- (.09) (.14) -- (.23) (.23) (.23)
----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value, end of period $8.94 $8.94 $8.22 $7.61 $7.81 $7.60 $8.92 $8.95 $8.93
===== ===== ===== ===== ===== ===== ===== ===== =====
Total return 10.96%+ 16.54%+ 13.29%+ 4.06%+ 10.78%+ 4.26%++ 6.26%++ 7.27%++ 6.31%++
Net assets at end of period (000s) $166,011 $93,537 $78,483 $64,139 $56,267 $27,762 $83,244 $21,434 $7,117
Ratio of operating expenses to average
net assets* 1.25% 1.25% 1.25% 1.25% 1.25% 1.25%# 2.00%# 1.00%# 2.00%#
Ratio of net investment income to average
net assets* 2.75% 3.26% 4.60% 5.78% 6.29% 7.37%# 2.03%# 3.03%# 2.03%#
Portfolio turnover rate 105.17% 142.86% 97.76% 68.08% 71.88% 34.57% 105.17% 105.17% 105.17%
*Reflects the voluntary assumption of fees
or expenses per share in each period $0.02 $0.02 $0.02 $0.02 $0.02 $0.01 $0.03 $0.02 $0.03
</TABLE>
# Annualized.
** June 1, 1993 (commencement of share class designations) to March 31, 1994.
+ Total return figures do not reflect any front-end or contingent deferred
sales charges
++ Represents aggregate return for the period without annualization and
does not reflect any front-end or contingent deferred sales charges.
4
<PAGE>
The Fund's Asset Allocation and Investments
The investment objective of the Fund is to seek a high total return while
attempting to limit investment risk and preserve capital. This investment
objective cannot be changed without approval of the Fund's shareholders.
To achieve its investment objective, the Fund intends to allocate assets
among selected investments in the following sectors: Fixed Income Securities,
Equity Securities, Inflation Responsive Investments and Cash & Cash
Equivalents (as defined herein). Total return may include current income as
well as capital appreciation. The Fund's investment policies, including the
identification of investment sectors and the components thereof, may be
changed by the Board of Trustees without shareholder approval. The Fund's
ability to concentrate its investments within particular investment sectors
or to hold all of its investments in a particular investment sector in the
discretion of the Investment Manager may increase the risks to the Fund from
adverse developments or conditions within a particular sector.
Asset Allocation
The Investment Manager believes that the timely reallocation of assets can
enhance performance and reduce portfolio volatility. The Investment Manager
will continuously monitor and change allocations of the Fund's assets based
upon an evaluation of risks and potential total return, taking into
consideration secular trends, economic cycles and market conditions, among
other factors. Accordingly, the allocation of the Fund's assets among the
different investment sectors will vary from time to time consistent with the
Investment Manager's short- and long-term investment outlook. No minimum or
maximum percentage applies to the Fund's assets that may be invested in any
of the investment sectors. From time to time, all of the Fund's assets could
conceivably be invested in a single investment sector in the discretion of
the Investment Manager.
The Fund has established specific investment sectors, i.e., Fixed Income
Securities, Equity Securities, Inflation Responsive Investments and Cash &
Cash Equivalents (as defined herein) to identify general investment areas
into which the Fund will, from time to time, allocate its assets in varying
proportions. The establishment of these sectors is not intended to isolate
mutually exclusive categories of investment instruments. For instance, the
Fixed Income Securities sector and the Equity Securities sector may both hold
debt securities convertible into equity securities, while the Inflation
Responsive Investments sector may hold instruments similar to those held in
the other sectors. However, each sector will have a central focus: interest
income and gains from debt financings for the Fixed Income Securities sector,
capital appreciation for the Equity Securities sector, inflation hedging for
the Inflation Responsive Investments sector and liquidity and defensiveness
for the Cash & Cash Equivalents sector. Redefined or additional sectors, such
as an international or global sector, may be established in the future if, in
the discretion of the Investment Manager, circumstances warrant.
Because the total return of the Fund may be comprised of varying amounts of
current income and capital appreciation over time, the dividends paid by the
Fund may vary substantially from period to period. Accordingly, the Fund
encourages shareholders who wish to receive cash payments of a fixed amount
with respect to their investments to reinvest all dividends and capital gains
distributions in shares of the Fund, and to use the Systematic Withdrawal
Plan to receive current cash payments from the Fund. See "Shareholder
Services--Systematic Withdrawal Plan." Payments under the Systematic
Withdrawal Plan may constitute, in whole or part, a return of the capital
invested in the Fund.
Fixed Income Securities
The Fund may invest in fixed income or interest bearing securities of various
maturities, including bonds, debentures, notes, preferred stocks and debt
instruments convertible into common stock, issued by domestic or foreign
corporations, partnerships or similar business entities, governments or
municipalities ("Fixed Income Securities").
The Fund will generally purchase Fixed Income Securities that are considered
investment grade securi-
5
<PAGE>
ties (i.e., rated at the time of purchase AAA, AA, A or BBB by Standard &
Poor's Corporation ("S&P") or Aaa, Aa, A or Baa by Moody's Investors Service,
Inc. ("Moody's")), or securities that are not rated but considered by the
Investment Manager to be of equivalent investment quality to comparable rated
securities. Bonds rated Baa by Moody's lack outstanding investment
characteristics and in fact have speculative characteristics as well. The
Fund, however, may also purchase lower quality debt securities rated at the
time of purchase BB or B by S&P or Ba or B by Moody's or securities that are
not rated but considered by the Investment Manager to be of equivalent
investment quality to comparable rated securities. Fixed Income Securities
rated BB or B by S&P or Ba or B by Moody's or unrated securities deemed by
the Investment Manager to be of equivalent quality are considered to be below
investment grade, generally involve more credit risk than higher rated
securities and are considered by S&P and Moody's to be predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. Such lower quality securities
could comprise the entire allocation of assets to the Fixed Income Securities
sector at a particular point in time, but in no event will they comprise more
than 25% of the Fund's total assets at the time of purchase. In selecting
Fixed Income Securities, the Investment Manager considers both its own credit
analysis and the ratings of S&P and Moody's. Fixed Income Securities may
include both taxable and nontaxable fixed income investments. For further
information concerning the ratings of Fixed Income Securities, see the
Appendix.
For the fiscal year ended March 31, 1994, the percentage of the Fund's total
investments on an average annual basis invested in debt securities of any
particular rating category or its equivalent, as determined by the Investment
Manager, was as follows: 30% AAA, 1% AA, 2% A, 1% BBB, 6% B and 1% CCC as
determined on a dollar weighted basis, comprising 42% of total investments.
Of these bonds, 94% were rated by a nationally recognized statistical rating
organization and 6% were unrated but considered to be equivalent, as
determined by the Investment Manager, to comparable rated securities. The
above percentages reflect ratings, as of the time of purchase and subsequent
changes, if any, including downgrades, for the period the securities were
held.
In the event the rating of a security is downgraded, the Investment Manager
will determine whether the security should be retained or sold depending on
an assessment of all facts and circumstances at that time.
Fixed Income Securities may include zero coupon securities, which pay no cash
income for all or a portion of their term but are purchased at a discount
from their value at maturity. Their return consists of the amortization of
discount between their purchase price and their maturity value, plus any
fixed rate interest income. Fixed Income Securities also include mortgage-
related securities and asset-backed securities. Mortgage-related securities
represent interests in pools of mortgage loans and provide the Fund with a
flow-through of interest and principal payments as such payments are received
with respect to the mortgages in the pool. Asset-backed (other than
mortgage-related) securities represent interests in pools of consumer loans
such as credit card receivables, automobile loans and leases, leases on
equipment such as computers and other financial instruments. These securities
provide a flow-through of interest and principal payments as payments are
received on the loans or leases and may be supported by letters of credit or
similar guarantees of payment by a financial institution. Fixed Income
Securities also include 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").
Equity Securities
The Fund may invest in domestic and foreign common stocks, preferred stocks,
debt securities and warrants convertible into or carrying the right to
acquire common stock and depositary receipts in respect of the foregoing
("Equity Securities"). The Fund may invest in the Equity Securities of a
broad spectrum of both large and small capitalization companies. These
6
<PAGE>
may include Equity Securities of companies with above-average prospects for
long-term growth and more cyclical or lesser growing companies when these
securities are considered by the Investment Manager to be undervalued. The
Fund anticipates that a majority of the Equity Securities in which it will
invest will be listed on a major securities exchange or included on the
National Association of Securities Dealers Automated Quotation ("NASDAQ")
system. The Fund does not presently expect unlisted securities or
over-the-counter securities which are not on NASDAQ to be a substantial
portion of the Equity Securities sector, although no limitation applies to
such securities.
Inflation Responsive Investments
The Fund may invest in Equity Securities, Cash & Cash Equivalents and other
domestic and foreign investments which the Investment Manager believes may
offer appreciation potential and/or serve to hedge invested capital against
erosion of the purchasing power of the U.S. dollar ("Inflation Responsive
Investments"). Inflation Responsive Investments may include the securities of
companies engaged in the extraction and/or processing of gold and other
precious metals, raw materials and petroleum and other sources of energy;
securities which are secured by real estate or securities of companies which
own or invest or deal in real estate (including limited partnership
interests, securities issued by real estate investment trusts ("REITs") and
collateralized mortgage obligations ("CMOs")); securities denominated in
foreign currencies; securities directly or indirectly indexed in value to the
value of real assets (for example, gold or oil) or to the value of foreign
currencies, including commercial paper and short-term obligations; and
foreign currencies. Certain instruments constituting Inflation Responsive
Investments may qualify for inclusion in other investment sectors. They will
be deemed part of the Inflation Responsive Investments sector, however, when
in the view of the Investment Manager their predominant investment attribute
is the potential to hedge invested capital against erosion of the purchasing
power of the U.S. dollar. For example, the stock of a company engaged in the
extraction of gold could be included in the Inflation Responsive Investments
sector because of its potential to appreciate immediately in response to
accelerating inflation, even though it may also be a candidate for the Equity
Securities sector because of its longer term earnings potential. The Fund
will accordingly allocate investments to and from the Inflation Responsive
Investments sector as circumstances warrant.
The Fund may invest up to 10% of its total assets directly in commodities
such as precious and other metals, minerals and agricultural goods. For
example, the Fund may acquire interests in gold, silver, platinum and
palladium by buying bullion or certificates, receipts or contracts
representing ownership interests in such precious metals and gold, silver and
platinum coins or medallions. Similarly, the Fund may trade in options,
futures and related instruments based on the Commodity Research Bureau
Futures Price Index, which represents a diverse selection of commodities
including, among others, copper, oil and grains. As further described under
"Other Investment Policies and Considerations," investments in commodities
and commodity-related options, futures and instruments may involve risks not
associated with other types of instruments.
Cash & Cash Equivalents
The Fund may invest in cash, short-term debt or money market securities, such
as repurchase agreements, securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, certificates of deposit,
time deposits, bankers' acceptances, corporate commercial paper rated not
lower than A by S&P or Prime by Moody's (or unrated commercial paper issued
by a corporation having an outstanding long-term unsecured debt issue rated
at least A by S&P or Moody's) and similar domestic or foreign instruments
("Cash & Cash Equivalents"). The Fund will purchase Cash & Cash Equivalents
for defensive purposes, to maintain liquidity or to obtain total return when
other investment alternatives are relatively less attractive for the Fund as
a whole. The Fund could hold virtually all of its assets in Cash & Cash
Equivalents from time to time, subject to applicable diversification and
concentration limitations as described under "Other Investment Policies and
Considerations--Investment Limitations and Practices."
Other Investment Policies and Considerations
Other Investment Practices
The Fund may buy and sell domestic and foreign options, futures contracts and
options on futures con-
7
<PAGE>
tracts, on securities, securities indices and precious metals and other
commodities (if available), and enter into closing transactions with respect
to each of the foregoing under circumstances in which such techniques are
expected by the Investment Manager to aid in achieving the investment
objective of the Fund. In most cases, only futures and options listed and
traded on national securities exchanges or registered commodities exchanges
or which are otherwise readily marketable will be used. These techniques will
not be employed for speculation, but only as a hedge against changes in
market conditions. The Fund also reserves the right to use futures or options
thereon for such other purposes, including enhancement of return, as may be
permitted by the Commodity Futures Trading Commission without subjecting the
Fund to regulation as a commodity pool operator. The Fund may not establish a
position in a futures contract or purchase or sell an option for other than
bona fide hedging purposes if immediately thereafter the sum of the amount of
initial margin deposits and premiums on open positions with respect to
futures and options used for such nonhedging purposes would exceed 5% of the
market value of the Fund's net assets. The Fund may enter various forms of
swap arrangements, which have simultaneously the characteristics of a
security and a futures contract, although the Fund does not presently expect
to invest more than 5% of its total assets in such items. These swap
arrangements include interest rate swaps, currency swaps and index swaps. See
the Statement of Additional Information. The Fund may invest in restricted
securities in accordance with Rule 144A, under the Securities Act of 1933,
which allows for the resale of such securities among certain qualified
institutional buyers. Because the market for such securities is still
developing, such securities could possibly become illiquid in particular
circumstances. See the Statement of Additional Information. The Fund may also
lend securities, enter repurchase agreements and purchase when-issued
securities as more fully described in the Statement of Additional
Information.
Risk Factors and Special Considerations
Value of Shares and Assets
The value of the Fund's investments (and accordingly the net asset value of
its shares) will be subject to fluctuation in response to a variety of
economic, political and other factors. For example, the Fund's holdings of
Inflation Responsive Investments such as gold stocks and gold (to which the
value of some of the Fund's investments may be indexed) could be adversely
affected by circumstances such as currency revaluations, economic conditions,
social conditions within a country (particularly South Africa, the world's
largest producer of gold), trade imbalances and trade and currency
restrictions. The prices of oil stocks and the price of oil (to which the
value of some of the Fund's investments may be indexed) may be similarly
affected by unpredictable circumstances such as social, political or military
disturbances in or near oil producing countries or oil shipping or pipeline
routes, the policies of various governments and the Organization of Petroleum
Exporting Countries ("OPEC"), an organization of major oil producing
countries, the discovery of new reserves and the development of new
techniques for producing, refining and transporting oil, gas and related
products, energy conservation and the development of alternative energy
sources.
Foreign Investments
The Fund reserves the right to invest without limitation in securities of
non-U.S. issuers directly or in the form of American Depositary Receipts
("ADRs"), European Depositary Receipts ("EDRs") or similar securities
representing interests in the securities of foreign issuers. ADRs are
receipts, typically issued by a U.S. bank or trust company, which evidence
ownership of underlying securities issued by a foreign corporation. EDRs are
receipts issued in Europe which evidence a similar ownership arrangement.
Generally, ADRs, in registered form, are designed for use in U.S. securities
markets, and EDRs are designed for use in European securities markets. The
underlying securities are not always denominated in the same currency as the
ADRs or EDRs. Although investment in the form of ADRs or EDRs facilitates
trading in foreign securities, it does not mitigate the risks associated with
investing in foreign securities.
The risks associated with investments in foreign securities include those
resulting from fluctuations in currency exchange rates, revaluation of
currencies, future political and economic developments, the pos-
8
<PAGE>
sible imposition of currency exchange blockages, higher operating expenses,
expropriation of the Fund's assets by a foreign government, foreign
withholding and other taxes which may reduce investment return, reduced
availability of public information concerning issuers and the fact that
foreign issuers are not generally subject to uniform accounting, auditing and
financial reporting standards or to other regulatory practices and
requirements comparable to those applicable to domestic issuers. Moreover,
securities of many foreign issuers may be less liquid and their prices more
volatile than those of securities of comparable domestic issuers. Finally, to
the extent the Fund invests in securities of issuers in less developed
countries or emerging foreign markets, it will be subject to a variety of
additional risks, including risks associated with political instability,
economies based on relatively few industries, lesser market liquidity, high
rates of inflation, significant price volatility of portfolio holdings and
high levels of external debt in the relevant country.
Although the Fund may invest in securities denominated in foreign currencies,
the Fund values its securities and other assets in U.S. dollars. As a result,
the net asset value of the Fund's shares may fluctuate with U.S. dollar
exchange rates as well as with price changes of the Fund's securities in the
various local markets and currencies. Thus, an increase in the value of the
U.S. dollar compared to the currencies in which the Fund makes its
investments could reduce the effect of increases and magnify the effect of
decreases in the prices of the Fund's securities in their local markets.
Conversely, a decrease in the value of the U.S. dollar will have the opposite
effect of magnifying the effect of increases and reducing the effect of
decreases in the prices of the Fund's securities in their local markets.
Currency Transactions
The Fund may engage in currency exchange transactions in order to protect
against the effects of uncertain future exchange rates on securities
denominated in foreign currencies. The Fund will conduct its currency
exchange transactions either on a spot (i.e., cash) basis at the rate
prevailing in the currency exchange market, or by entering into forward
contracts to purchase or sell currencies. The Fund's dealings in forward
currency exchange contracts will be limited to hedging involving either
specific transactions or aggregate portfolio positions. A forward currency
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the
contract. These contracts are entered into in the interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. In entering a forward currency contract, the Fund is dependent
upon the creditworthiness and good faith of the counterparty. The Fund
attempts to reduce the risks of nonperformance by the counterparty by dealing
only with established, reputable institutions. Although spot and forward
contracts will be used primarily to protect the Fund from adverse currency
movements, they also involve the risk that anticipated currency movements
will not be accurately predicted, which may result in losses to the Fund.
This method of protecting the value of the Fund's portfolio securities
against a decline in the value of a currency does not eliminate fluctuations
in the underlying prices of the securities. It simply establishes a rate of
exchange that can be achieved at some future point in time. Although such
contracts tend to minimize the risk of loss due to a decline in value of
hedged currency, they tend to limit any potential gain that might result
should the value of such currency increase.
Equity Securities
Although the Fund anticipates that a substantial portion of the Equity
Securities in which it will invest will be listed on a major securities
exchange, it reserves the right to invest without limitation in Equity
Securities that are unlisted or traded over-the-counter. The issuers of such
Equity Securities may be limited in product lines, markets and financial
resources and may be dependent on entrepreneurial management. The Equity
Securities of less seasoned companies may have limited marketability and may
be subject to more abrupt or erratic market movements over time, both up and
down, than securities of larger, more seasoned companies or the market as a
whole. Smaller, growing companies also typically
9
<PAGE>
reinvest most of their net income in the enterprise and typically do not pay
dividends.
Fixed Income Securities
Lower rated high yield, high risk securities (i.e., bonds rated BB or lower
by S&P or Ba or lower by Moody's or equivalent as determined by the
Investment Manager), commonly known as "junk bonds," of the type in which the
Fund invests may be subject to greater market price fluctuations than lower
yielding, higher rated debt securities. Credit ratings do not reflect this
market risk and may not reflect the effect of recent developments on an
issuer's ability to make interest and principal payments. Additional risks of
such securities include limited liquidity and secondary market support,
particularly in the case of securities that are not rated or are subject to
restrictions on resale, which may limit the availability of securities for
purchase by the Fund and limit the ability of the Fund to sell portfolio
securities either to meet redemption requests or in response to changes in
the economy or the financial markets. See "Additional Information Concerning
Investment Sectors--Risk Factors of Lower Quality Fixed Income Securities" in
the Statement of Additional Information.
Commodities
By making investments in commodities and commodity-related options, futures
and indices as described herein, the Fund may risk failing to qualify in a
particular year as a regulated investment company under the Internal Revenue
Code, although the Investment Manager intends to manage the portfolio with a
view to minimizing such risk. By the same token, the Fund's intention to
qualify as a regulated investment company could limit the extent of the
Fund's investments in commodities and commodity-related options, futures and
indices. See the Statement of Additional Information. In the event the Fund
failed to qualify as a regulated investment company under the Internal
Revenue Code in any year, it would lose the beneficial tax treatment accorded
regulated investment companies under Subchapter M of the Internal Revenue
Code. The primary effects of losing this tax status would be that the Fund
would then owe taxes on its net income for that year, and the shareholders,
if they received a dividend, might receive a return of capital that would
reduce the basis of their shares of the Fund.
Investment Limitations and Practices
In seeking to lessen investment risk, the Fund operates under certain
fundamental investment restrictions. Under these restrictions, the Fund may
not invest in a security if the transaction would result in (a) more than 5%
of the Fund's total assets being invested in any one issuer; (b) the Fund
owning more than 10% of the outstanding voting securities of an issuer; (c)
more than 5% of the Fund's total assets being invested in securities of
issuers (including predecessors) with less than three years of continuous
operations except in the case of debt securities rated BBB or higher by S&P
or Baa or higher by Moody's; or (d) more than 25% of the Fund's total assets
being invested in any one industry (except that restrictions (a) through (d)
do not apply to investments in securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities). In addition, the Fund may
not invest more than 10% of its total assets in illiquid assets, including
securities restricted as to resale (limited as a matter of nonfundamental
policy to 5% of total assets), repurchase agreements extending for more than
seven days, options not listed and traded on any national securities exchange
or registered commodities exchange and other securities and assets which are
not readily marketable. The fundamental investment restrictions set forth in
this paragraph may not be changed except by vote of the holders of a majority
of the outstanding voting securities of the Fund. For further information on
these and other investment restrictions, including other nonfundamental
investment restrictions which may be changed without a shareholder vote, see
the Statement of Additional Information.
The Fund may invest up to 10% of its total assets in shares of other
investment companies, including limited partnerships, REITs, issuers of CMOs
and unit investment trusts that issue shares representing separate rights to
capital appreciation and dividends in respect of common stock of various
issuers. Such investments may involve the payment of duplicative management
or other fees. To mitigate such duplication, however, the Investment Manager
has agreed to waive up to the full amount of its investment advisory
10
<PAGE>
fee with respect to investments, if any, in other open-end investment
companies; the amount of such waived fee will be deemed a reduction of fees
or assumption of Fund expenses for purposes of the voluntary arrangement
described under "Table of Expenses."
During periods when the Investment Manager deems it advisable, the Fund may
engage in active trading of portfolio investments. Increases in the rate of
portfolio turnover will result in increased transaction costs for the Fund
and may result in an increase in the realization of short-term capital gains.
The Investment Manager also manages the assets of other funds which, in
seeking to achieve their investment objectives, may hold similar investments
to those held by the Fund and trade in the same markets as the Fund. It is
also possible that a particular investment may be held by more than one fund
when the Investment Manager determines that holding such investment is in the
best interests of each fund and the investment meets the differing investment
objectives of each fund.
Information on the Purchase of Shares, Redemption of Shares and Shareholder
Services is set forth on pages 11 to 24 below.
The Fund is available for investment by many kinds of investors including
participants investing through 401(k) or other retirement plan sponsors,
employees investing through savings plans sponsored by employers, Individual
Retirement Accounts ("IRAs"), trusts, corporations, individuals, etc. The
applicability of the general information and administrative procedures set forth
below accordingly will vary depending on the investor and the recordkeeping
system established for a shareholder's investment in the Fund. Participants in
401(k) and other plans should first consult with the appropriate person at their
employer or refer to the plan materials before following any of the procedures
below. For more information or assistance, anyone may call 1-800-562-0032.
Purchase of Shares
Methods of Purchase
Through Dealers
Shares of the Fund are continuously offered through securities dealers who
have entered into sales agreements with the Distributor. Purchases through
dealers are confirmed at the offering price, which is the net asset value
plus the applicable sales charge, next determined after the order is duly
received by State Street Research Shareholder Services ("Shareholder
Services"), a division of State Street Research Investment Services, Inc.,
from the dealer. ("Duly received" for purposes herein means in accordance
with the conditions of the applicable method of purchase as described below.)
The dealer is responsible for transmitting the order promptly to Shareholder
Services in order to permit the investor to obtain the current price. See
"Purchase of Shares--Net Asset Value" herein.
By Mail
Initial investments in the Fund may be made by mailing or delivering to the
investor's securities dealer a completed Application (accompanying this
Prospectus), together with a check for the total purchase price payable to
the Fund. The dealer must forward the Application and check in accordance
with the instructions on the Application.
Additional shares may be purchased by mailing to Shareholder Services a check
payable to the Fund in the amount of the total purchase price together with
any one of the following: (i) an Application; (ii) the stub from a
shareholder's account statement; or (iii) a letter setting forth the name of
the Fund, the class of shares and the shareholder's account name and number.
Shareholder Services will deliver the purchase order to the transfer agent
and dividend paying agent, State Street Bank and Trust Company (the "Transfer
Agent").
If a 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 cancelled.
11
<PAGE>
By Wire
An investor may purchase shares by wiring Federal Funds of not less than
$5,000 to State Street Bank and Trust Company, which also serves as the
Trust's custodian (the "Custodian"), as set forth below. Prior to making an
investment by wire, an investor must notify Shareholder Services at
1-800-521-6548 and obtain a control number and instructions. Following such
notification, Federal Funds should be wired through the Federal Reserve
System to:
ABA #011000028
State Street Bank and Trust Company
Boston, MA
BNF = MetLife - State Street Research
Managed Assets and class of shares
(A, B, C or D)
AC = 99029761
OBI = Shareholder Name
Shareholder Account Number
Control #K (assigned by State Street
Research Shareholder Services)
In order for a wire investment to be processed on the same day (i) the
investor must notify Shareholder Services of his or her intention to make
such investment by 12 noon Boston time on the day of his or her investment;
and (ii) the wire must be received by 4 P.M. Boston time that same day.
An investor making an initial investment by wire must promptly complete the
Application accompanying this Prospectus and deliver it to his or her
securities dealer, who should forward it as required. No redemptions will be
effected until the Application has been duly processed.
The Fund may in its discretion discontinue, suspend or change the practice of
accepting orders by any of the methods described above. Orders for the
purchase of shares are subject to acceptance by the Fund.
Minimum Investment
<TABLE>
<CAPTION>
Class of Shares
A B C D
<S> <C> <C> <C> <C>
Minimum Initial Investment
By Wire $5,000 $5,000 $5,000 $5,000
Investamatic Check Program $25 $25 $25 $25
IRAs $500 $2,000 $500 $2,000
All other $500 $2,500 $500 $2,500
Minimum Subsequent Investment $50 $50 $50 $50
</TABLE>
The Fund reserves the right to vary the minimums for initial or subsequent
investments from time to time as in the case of, for example, exchanges and
investments pursuant to various retirement, dividend and other investment
plans, or sponsored arrangements involving group solicitations of the members
of an organization. The Fund also reserves the right at any time to suspend
the offering of shares or to reject any specific purchase order for shares.
Alternative Purchase Program
General
Alternative classes of shares permit investors to select a purchase program
which they believe will be the most advantageous for them, given the amount
of their purchase, the length of time they anticipate holding Fund shares or
the flexibility they desire in this regard, and other relevant circumstances.
Investors will be able to determine whether in their particular circumstances
it is more advantageous to incur an initial sales charge and not be subject
to certain ongoing charges or to have their entire initial purchase price
invested in the Fund with the investment being subject thereafter to ongoing
service fees and distribution fees.
As described in greater detail below, securities dealers are paid differing
amounts of commission and other compensation depending on which class of
shares they sell.
12
<PAGE>
The major differences among the various classes of shares are as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
<S> <C> <C> <C> <C>
Sales Charges Initial sales charge at Contingent deferred sales None Contingent deferred sales
time of investment of up charge of 5% to 2% charge of 1% applies to
to 4.5% depending on applies to any shares any shares redeemed
amount of investment redeemed within first within one year following
five years following their purchase
their purchase; no
contingent deferred sales
charge after five years
On investments of $1
million or more, no
initial sales charge; but
contingent deferred sales
charge of 1% applies to
any shares redeemed
within one year following
their purchase
Distribution Fee None 0.75% for first eight None 0.75% each year
years; Class B shares
convert automatically to
Class A shares after
eight years
Service Fee 0.25% each year 0.25% each year None 0.25% each year
Initial Above described initial 4% None 1%
Commission sales charge less 0.25%
Received by to 0.50% retained by
Selling Distributor
Securities
Dealer On investments of $1
million or more, 0.25% to
1% paid to dealer by
Distributor
</TABLE>
13
<PAGE>
In deciding which class of shares to purchase, the investor should consider
the amount of the investment, the length of time the investment is expected
to be held, and the ongoing service fee and distribution fee, among other
factors.
Class A shares are sold at net asset value plus an initial sales charge of up
to 4.5% of the public offering price. Because of the sales charge, not all of
an investor's purchase amount is invested unless the purchase equals
$1,000,000 or more. Class B shareholders pay no initial sales charge, but a
contingent deferred sales charge of up to 5% generally applies to shares
redeemed within five years of purchase. Class D shareholders also pay no
initial sales charge, but a contingent deferred sales charge of 1% generally
applies to redemptions made within one year of purchase. For Class B and
Class D shareholders, therefore, the entire purchase amount is immediately
invested in the Fund.
An investor who qualifies for a significantly reduced initial sales charge,
or a complete waiver of the sales charge on investments of $1,000,000 or
more, on the purchase of Class A shares might elect that option to take
advantage of the lower ongoing service and distribution fees that
characterize Class A shares compared with Class B or Class D shares.
Class A, Class B and Class D shares are assessed an annual service fee of
0.25% of average daily net assets. Class B shares are assessed an annual
distribution fee of 0.75% of daily net assets for an eight-year period
following the date of purchase and are then automatically converted to Class
A shares. Class D shares are assessed an annual distribution fee of 0.75% of
daily net assets for as long as the shares are held. The prospective investor
should consider these fees plus the initial or contingent deferred sales
charges in estimating the costs of investing in the various classes of the
Fund's shares.
Only certain employee benefit plans and large institutions may make
investments in Class C shares.
Some of the service and distribution fees are allocated to dealers (see
"Distribution Plan" below). In addition, the Distributor will, at its
expense, provide additional cash and noncash incentives to securities dealers
that sell shares. Such incentives may be extended only to those dealers who
have sold or may sell significant amounts of shares and/or meet other
conditions established by the Distributor; for example, the Distributor may
sponsor special promotions to develop particular distribution channels or to
reach certain investor groups. The incentives include luxury merchandise,
trips to luxury resorts in exotic locations and attendance at sales seminars
at luxury resorts.
Class A Shares--Initial Sales Charges
Sales Charges
The purchase price of a Class A share of the Fund is the Fund's per share net
asset value next determined after the purchase order is duly received, as
defined herein, plus a sales charge which varies depending on the dollar
amount of the shares purchased as set forth in the table below. A major
portion of this sales charge is reallowed by the Distributor to the
securities dealer responsible for the sale.
<TABLE>
<CAPTION>
Sales Sales
Charge Charge
Paid by Paid by Dealer
Investor Investor Concession
Dollar Amount As % of As % of As % of
of Purchase Purchase Net Asset Purchase
Transaction Price Value Price
<S> <C> <C> <C>
Less than $100,000 4.50% 4.71% 4.00%
$100,000 or above but less than $250,000 3.50% 3.63% 3.00%
$250,000 or above but less than $500,000 2.50% 2.56% 2.00%
$500,000 or above but less than
$1 million 2.00% 2.04% 1.75%
See following
$1 million and above 0% 0% discussion
</TABLE>
On any sale of Class A shares to a single investor in the amount of
$1,000,000 or more, the Distributor
14
<PAGE>
will pay the authorized securities dealer a commission as follows:
<TABLE>
<CAPTION>
Amount of Sale Commission
<S> <C>
(a) $1 million to $3 million 1.00%
(b) Next $2 million 0.50%
(c) Amount over $5 million 0.25%
</TABLE>
On such sales of $1,000,000 or more, the investor is subject to a 1%
contingent deferred sales charge on any portion of the purchase redeemed
within one year of the sale. However, such redeemed shares will not be
subject to the contingent deferred sales charge to the extent that their
value represents (1) capital appreciation or (2) reinvestment of dividends or
capital gains distributions. In addition, the contingent deferred sales
charge will be waived for certain redemptions in connection with
distributions from a tax plan as described under "Contingent Deferred Sales
Charge Waivers" below (as otherwise applicable to Class B shares).
Class A shares of the Fund that are purchased without a sales charge may be
exchanged for Class A shares of certain other Eligible Funds, as defined
below, without the imposition of a contingent deferred sales charge, although
contingent deferred sales charges may apply upon a subsequent redemption
within one year of the Class A shares which are acquired through such
exchange. 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. The amount of any contingent
deferred sales charge will be paid to the Distributor.
Reduced Sales Charges
The reduced sales charges set forth in the table above are applicable to
purchases made at any one time by any "person," as defined in the Statement
of Additional Information, of $100,000 or more of Class A shares of the Fund
or a combination of "Eligible Funds." "Eligible Funds" include the Fund and
other funds so designated by the Distributor from time to time. Class B,
Class C and Class D shares may also be included in the combination under
certain circumstances. Securities dealers should call Shareholder Services
for details concerning the other Eligible Funds and any persons who may
qualify for reduced sales charges and related information. See the Statement
of Additional Information.
Letter of Intent
Any investor who provides a Letter of Intent may qualify for a reduced sales
charge on purchases of no less than an aggregate of $100,000 of Class A
shares of the Fund and any other Eligible Funds within a 13-month period.
Class B, Class C and Class D shares may also be included in the combination
under certain circumstances. Additional information on a Letter of Intent is
available from dealers, or from the Distributor, and also appears in the
Statement of Additional Information.
Right of Accumulation
Investors may purchase Class A shares of the Fund or a combination of shares
of the Fund and other Eligible Funds at reduced sales charges pursuant to a
Right of Accumulation. Under the Right of Accumulation, the sales charge is
determined by combining the current purchase with the value of the Class A
shares of other Eligible Funds held at the time of purchase. Class B, Class C
and Class D shares may also be included in the combination under certain
circumstances. See the Statement of Additional Information and call
Shareholder Services for details concerning the Right of
Accumulation.
Other Programs
Class A shares of the Fund may be sold or issued in an exchange at a reduced
sales charge or without a sales charge pursuant to certain sponsored
arrangements, which include programs under which a company, employee benefit
plan or other organization makes recommendations to, or permits group
solicitation of, its employees, members or participants, except any
organization created primarily for the purpose of obtaining shares of the
Fund at a reduced sales charge or without a sales charge. Information on such
arrangements and further conditions and limitations is available from the
Distributor.
In addition, no sales charge is imposed in connection with the sale of Class
A shares of the Fund to
15
<PAGE>
the following entities and persons: (A) the Investment Manager, the
Distributor, or any affiliated entities, including any direct or indirect
parent companies and other subsidiaries of such parents (collectively
"Affiliated Companies"); (B) employees, officers, sales representatives or
current or retired directors or trustees of the Affiliated Companies or any
investment company managed by any of the Affiliated Companies, any relatives
of any such individuals whose relationship is directly verified by such
individuals to the Distributor, or any beneficial account for such relatives
or individuals; and (C) employees, officers, sales representatives or
directors of dealers and other entities with a selling agreement with the
Distributor to sell shares of any aforementioned investment company, any
spouse or child of such person, or any beneficial account for any of them.
The purchase must be made for investment and the shares purchased may not be
resold except through redemption. This purchase program is subject to such
administrative policies, regarding the qualification of purchasers and any
other matters, as may be adopted by the Distributor from time to time.
Class B Shares--Contingent Deferred
Sales Charges
Contingent Deferred Sales Charges
The public offering price of Class B shares is the net asset value per share
next determined after the purchase order is duly received, as defined herein.
No sales charge is imposed at the time of purchase; thus the full amount of
the investor's purchase payment will be invested in the Fund. However, a
contingent deferred sales charge may be imposed upon certain redemptions of
Class B shares as described below.
The Distributor will pay securities dealers at the time of sale a 4%
commission for selling Class B shares. The proceeds of the contingent
deferred sales charge and the distribution fee are used to offset
distribution expenses and thereby permit the sale of Class B shares without
an initial sales charge.
Class B shares that are redeemed within a five-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 amount of any applicable contingent deferred sales charge will be
calculated by multiplying the net asset value of such shares at the time of
redemption or at the time of purchase, whichever is lower, by the applicable
percentage shown in the table below:
<TABLE>
<CAPTION>
Contingent Deferred Sales
Charge As A Percentage Of
Redemption During Net Asset Value At Redemption
<S> <C>
1st Year Since Purchase 5%
2nd Year Since Purchase 4
3rd Year Since Purchase 3
4th Year Since Purchase 3
5th Year Since Purchase 2
6th Year Since Purchase
and Thereafter None
</TABLE>
In determining the applicability and rate of any contingent deferred sales
charge, it will be assumed that a redemption of Class B 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 the shareholder for the longest period of
time. The holding period for purposes of applying a contingent deferred sales
charge on Class B 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 Class B shares 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. The amount of any contingent deferred sales charge will be paid
to the Distributor.
Contingent Deferred Sales Charge Waivers
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
16
<PAGE>
waived for: (i) a total or partial redemption made within one year of the
death or total disability of the shareholder or in connection with a lump-sum
or other distribution in the case of an IRA, a Keogh Plan or a custodial
account under Section 403(b) of the Internal Revenue Code following
attainment of age 59-1/2; (ii) any total or partial redemption resulting from
a distribution following retirement in the case of a tax-qualified retirement
plan; and (iii) a redemption resulting from a tax-free return of an excess
contribution to an IRA. (The foregoing waivers do not apply to a rollover or
transfer of assets.)
Conversion of Class B Shares to Class A Shares
A shareholder's Class B shares, including all shares received as dividends or
distributions with respect to such shares, will automatically convert to
Class A shares of the Fund at the end of eight years following the issuance
of such Class B shares; consequently, they will no longer be subject to the
higher expenses borne by Class B shares. The conversion rate will be
determined on the basis of the relative per share net asset values of the two
classes and may result in a shareholder receiving either a greater or fewer
number of Class A shares than the Class B shares so converted. As noted
above, holding periods for Class B shares received in exchange for Class B
shares of other Eligible Funds will be counted toward the eight-year period.
Class C Shares--Institutional; No Sales Charge
The purchase price of a Class C share of the Fund is the Fund's per share net
asset value next determined after the purchase order is duly received, as
defined herein. No sales charge is imposed at the time of purchase or
redemption. The Fund will receive the full amount of the investor's purchase
payment.
Class C shares are only available for new investments by certain employee
benefit plans and large institutions. See the Statement of Additional
Information. Information on the availability of Class C shares and further
conditions and limitations with respect thereto is available from the
Distributor.
Class C shares may be also issued in connection with mergers and acquisitions
involving the Fund, and under certain other circumstances as described in
this Prospectus (e.g., see "Shareholder Services--Exchange Privilege").
Class C shares may have also been issued directly or through exchanges to
those shareholders of the Fund or other Eligible Funds who previously held
shares not subject to any future sales charge or service fees or distribution
fees.
Class D Shares--Spread Sales Charges
The purchase price of a Class D share of the Fund is the Fund's per share net
asset value next determined after the purchase order is duly received, as
defined herein. No sales charge is imposed at the time of purchase; thus the
full amount of the investor's purchase payment will be invested in the Fund.
Class D shares are subject to a 1% contingent deferred sales charge on any
portion of the purchase redeemed within one year of the sale. The contingent
deferred sales charge will be 1% of the lesser of the net asset value of the
shares at the time of purchase or at the time of redemption. The Distributor
pays securities dealers a 1% commission for selling Class D shares at the
time of purchase. The proceeds of the contingent deferred sales charge and
the distribution fee are used to offset distribution expenses and thereby
permit the sale of Class D shares without an initial sales charge.
Class D shares that are redeemed within one year after purchase will not be
subject to the 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. In addition, the
contingent deferred sales charge will be waived for certain redemptions in
connection with distributions from a tax plan as described under "Contingent
Deferred Sales Charge Waivers" above (as otherwise applicable to Class B
shares). 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. The amount of any contingent
deferred sales charge will be paid to the Distributor.
Net Asset Value
The Fund's per share net asset values are determined Monday through Friday as
of the close of the New
17
<PAGE>
York Stock Exchange (the "NYSE") exclusive of days on which the NYSE is
closed. The NYSE ordinarily closes at 4 P.M. New York City time. Assets held
by the Fund are valued on the basis of the last reported sale price or
quotations as of the close of business on the valuation date, except that
securities and assets for which market quotations are not readily available
are valued as determined in good faith by or under the authority of the
Trustees of the Trust. In determining the value of certain assets for which
market quotations are not readily available, the Fund may use one or more
pricing services. The pricing services utilize information with respect to
market transactions, quotations from dealers and various relationships among
securities in determining value and may provide prices determined as of times
prior to the close of the NYSE. The Trustees have authorized the use of the
amortized cost method to value short-term debt instruments issued with a
maturity of one year or less and having a remaining maturity of 60 days or
less when the value obtained is fair value. Further information with respect
to the valuation of the Fund's assets is included in the Statement of
Additional Information.
Distribution Plan
The Fund has adopted a Plan of Distribution Pursuant to Rule 12b-1 (the
"Distribution Plan") in accordance with the regulations under the Investment
Company Act of 1940, as amended (the "1940 Act"). Under the provisions of the
Distribution Plan, the Fund makes payments to the Distributor based on an
annual percentage of the average daily value of the net assets of each class
of shares as follows:
<TABLE>
<CAPTION>
Class Service Fee Distribution Fee
<S> <C> <C>
A 0.25% None
B 0.25% 0.75%
C None None
D 0.25% 0.75%
</TABLE>
Some or all of the service fees are used to reimburse securities dealers
(including securities dealers that are affiliates of the Distributor) for
personal service 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 of
shareholder accounts by such dealers. Dealers who have sold Class A shares
are eligible for further reimbursement commencing as of the time of such
sale. Dealers who have sold Class B and Class D 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 of shareholder
accounts.
The distribution fees are used primarily to offset initial and ongoing
commissions paid to securities 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 securities 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.
A rule of the National Association of Securities Dealers, Inc. ("NASD")
limits the annual expenditures which 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 which 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
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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 by
the Trustees of the Trust.
Redemption of Shares
Shareholders may redeem all or any portion of their accounts on any day the
NYSE is open for business. Redemptions will be effective at the net asset
value per share next determined (see "Purchase of Shares -- Net Asset Value"
herein) after receipt of the redemption request, in accordance with the
requirements described below, by Shareholder Services and delivery of the
request by Shareholder Services to the Transfer Agent. To allow time for the
clearance of checks used for the purchase of any shares which are tendered
for redemption shortly after purchase, the remittance of the redemption
proceeds for such shares could be delayed for 15 days or more after the
purchase. Shareholders who anticipate a potential need for immediate access
to their investments should, therefore, purchase shares by wire. Except as
noted, redemption proceeds are normally remitted within seven days after
receipt of the redemption request and any necessary documents in good order.
Methods of Redemption
Request By Mail
A shareholder may request redemption of shares, with proceeds to be mailed to
the shareholder or wired to a predesignated bank account (see "Proceeds By
Wire" below) by sending to State Street Research Shareholder Services, P.O.
Box 8408, Boston, Massachusetts 02266-8408: (1) a written request for
redemption signed by the registered owner(s) of the shares, exactly as the
account is registered; (2) an endorsed stock power in good order with respect
to the shares or, if issued, the share certificates for the shares endorsed
for transfer or accompanied by an endorsed stock power; (3) any required
signature guarantees (see "Redemption of Shares -- Signature Guarantees"
below); and (4) any additional documents which may be required for redemption
in the case of corporations, trustees, etc., such as certified copies of
corporate resolutions, governing instruments, powers of attorney, and the
like. The Transfer Agent will not process requests for redemption until it
has received all necessary documents in good order. A shareholder will be
notified promptly if a redemption request cannot be accepted. Shareholders
having any questions about the requirements for redemption should call
Shareholder Services toll-free at 1-800-562-0032.
Request By Telephone
Shareholders may request redemption by telephone with proceeds to be
transmitted by check or by wire (see "Proceeds By Wire" below). A shareholder
can request a redemption for $50,000 or less to be transmitted by check. Such
check for the proceeds will be made payable to the shareholder of record and
will be mailed to the address of record. There is no fee for this service. It
is not available for shares held in certificate form or if the address of
record has been changed within 30 days of the redemption request. The Fund
may revoke or suspend the telephone redemption privilege at any time and
without notice. See "Shareholder Services -- Telephone Services" for a
discussion of the conditions and possible risks associated with Telephone
Privileges.
Proceeds By Wire
Upon a shareholder's written request or by telephone if the shareholder has
Telephone Privileges (see "Shareholder Services -- Telephone Services"
herein), the Trust's custodian will wire redemption proceeds to the
shareholder's predesignated bank account. To make the request, the
shareholder should call 1-800-521-6548 prior to 4 P.M. Boston time. A $7.50
charge against the shareholder's account will be imposed for each wire
redemption. This charge is subject to change without notice. The
shareholder's bank may also impose a charge for receiving wires of redemption
proceeds. The minimum redemption by wire is $5,000.
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
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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. Payment of the
repurchase proceeds is made to the dealer who placed the order promptly upon
delivery of certificates for shares in proper form for transfer or, for Open
Accounts, upon the receipt of a stock power with signatures guaranteed as
described below, and, if required, any supporting documents. Neither the Fund
nor the Distributor imposes any charge upon such a repurchase. However, a
dealer may impose a charge as agent for a shareholder in the repurchase of
his or her shares.
The Fund has reserved the right to change, modify or terminate the services
described above at any time.
Additional Information
Because of the relatively high cost of maintaining small shareholder
accounts, the Fund reserves the right to involuntarily redeem at its option
any shareholder account which, as a result of redemptions, falls and remains
below $250 (or such lower amount as in effect when the account was opened)
for a period of 60 days after notice is mailed to the applicable shareholder.
The Fund may increase such minimum account value to $250 or above 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 promptly to the
affected shareholder at the address of record.
To cover the cost of additional compliance administration, a $20 fee will be
charged against any shareholder account that has been determined to be
subject to escheat under applicable state laws.
The Fund may not suspend the right of redemption or postpone the date of
payment of redemption proceeds for more than seven days, except that (a) it
may elect to suspend the redemption of shares or postpone the date of payment
of redemption proceeds: (1) during any period that the NYSE is closed (other
than customary weekend and holiday closings) or trading on the NYSE is
restricted; (2) during any period in which an emergency exists as a result of
which disposal of portfolio securities is not reasonably practicable or it is
not reasonably practicable to fairly determine the Fund's net asset value; or
(3) during such other periods as the Securities and Exchange Commission may
by order permit for the protection of investors; and (b) the payment of
redemption proceeds may be postponed as provided under "Redemption of
Shares."
Signature Guarantees
To protect shareholder accounts, the Transfer Agent, the Fund, the Investment
Manager and the Distributor from possible fraud, signature guarantees are
required for certain redemptions. Signature guarantees enable the Transfer
Agent to be certain that the person who has authorized a redemption from the
account is, in fact, the shareholder. Signature guarantees are required for:
(1) all redemptions requested by mail and (2) requests to transfer the
registration of shares to another owner. Signatures must be guaranteed by a
bank, a member firm of a national stock exchange, or other eligible guarantor
institution. The Transfer Agent will not accept guarantees (or notarizations)
from notaries public. The above requirements may be waived by the Fund in
certain instances.
Shareholder Services
The Open Account System
Under the Open Account System full and fractional shares of the Fund owned by
shareholders are credited to their accounts by the Transfer Agent, State
Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02110. Certificates representing Class B or Class D shares will not be
issued. Certificates representing Class A or Class C shares will not be
issued unless specifically requested in writing and in any case will only be
issued for full shares, with any fractional shares to be carried on the
shareholder's account. Shareholders will receive periodic statements of
transactions in their account.
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
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a check payable to the Fund to Shareholder Services under the terms set forth
above under "Purchase of Shares."
2. The following methods of receiving dividends from investment income and
distributions from capital gains are available:
(a) All income dividends and capital gains distributions reinvested in
additional shares of the Fund.
(b) All income dividends in cash; all capital gains distributions reinvested
in additional shares of the Fund.
(c) All income dividends and capital gains distributions in cash.
(d) 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
Shareholder Services. Dividends and distributions are reinvested at net asset
value without a sales charge.
Exchange Privilege
Shareholders of the Fund may exchange their shares for available shares with
corresponding characteristics 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 shares of the Fund with corresponding characteristics. Prior to making an
exchange, shareholders should obtain the Prospectus of the Eligible Fund into
which they are exchanging. Under the Direct Program, subject to certain
conditions, shareholders may make arrangements for regular exchanges from the
Fund into other Eligible Funds. To effect an exchange, Class A, Class B and
Class D 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 from a money market fund into Class A
shares of the Fund or any other Eligible Fund are subject to the initial
sales charge or contingent deferred sales charge applicable to an initial
investment in such Class A shares, unless a prior Class A sales charge has
been paid directly or indirectly with respect to the shares redeemed. For
purposes of computing the contingent deferred sales charge that may be
payable upon disposition of any acquired Class A, Class B and Class D shares,
the holding period of the redeemed shares is "tacked" to the holding period
of the 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.
For the convenience of the shareholders who have Telephone Privileges, the
Fund permits exchanges by telephone request from either the shareholder or
his or her dealer. Shares may be exchanged by telephone provided that the
registration of the two accounts is the same. The toll-free number for
exchanges is 1-800-521-6548. See "Telephone Services" herein for a discussion
of conditions and risks associated with Telephone Privileges.
The exchange privilege may be exercised only in those states where shares of
the relevant other Eligible Fund may legally be sold. For tax purposes, each
exchange actually represents the sale of shares of one fund and the purchase
of shares of another. Accordingly, exchanges may produce a capital gain or
loss for tax purposes. 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 as the existing account, unless Shareholder
Services is instructed otherwise. Related administrative policies and
procedures may also be
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<PAGE>
adopted with regard to a series of exchanges, street name accounts, sponsored
arrangements and other matters.
If an exchange request in good order is received by Shareholder Services and
delivered by Shareholder Services to the Transfer Agent by 12 noon Boston
time on any business day, the exchange usually will occur that day. For
further information regarding the exchange privilege, shareholders should
contact Shareholder Services.
Reinvestment Privilege
A shareholder of the Fund who has redeemed shares or had shares repurchased
at his or her request may reinvest any portion or all 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 30 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 Shareholder
Services of such shareholder's written purchase request and delivery of the
request by Shareholder Services to the Transfer Agent. A shareholder may
exercise this reinvestment privilege only once with respect to his or her
shares of the Fund. No charge is imposed by the Fund for such reinvestments;
however, dealers may charge fees in connection with the reinvestment
privilege. The reinvestment privilege may be exercised with respect to an
Eligible Fund only in those states where shares of the relevant other
Eligible Fund may legally be sold.
Investment Plans
The Fund offers shareholders the Investamatic Check Program. Under this
Program, shareholders may make regular investments by authorizing withdrawals
from their bank accounts each month or quarter on the Investamatic
application form available from Shareholder Services.
The Fund also offers tax-sheltered retirement plans, including prototype and
other employee benefit plans for employees, sole proprietors, partnerships
and corporations and IRAs. Details of these investment plans and their
availability may be obtained from securities dealers or from Shareholder
Services.
Systematic Withdrawal Plan
A shareholder who owns noncertificated Class A or Class C shares with a value
of $5,000 or more, or Class B or Class D 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 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.
A Class B or Class D shareholder of the Fund may withdraw up to 8% annually
of either (a) the value, at the time the 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 Plan was initiated,
whichever is higher. No contingent deferred sales charge will be imposed on
such withdrawals for Class B or Class D shares, although any applicable Class
A contingent deferred sales charges will apply.
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Expenses of the Plan are borne by the Fund. A participating shareholder may
withdraw from the Plan, and the Fund may terminate the Plan at any time on
written notice. Purchase of additional shares while a shareholder is
receiving payments under a Plan is ordinarily disadvantageous because of
duplicative sales charges. For this reason, a shareholder may not participate
in the Investamatic Check Program and the Systematic Withdrawal Plan at the
same time.
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. The number of shares purchased will be
determined as of the dividend payment date. The Dividend Allocation Plan is
subject to state securities law requirements, to suspension at any time, and
to such policies, limitations and restrictions, such as may be applicable to
street name or master accounts, that may be adopted from time to time.
Automatic Bank Connection
A shareholder may elect, by participating in the Fund's Automatic Bank
Connection ("ABC"), to have dividends and other distributions, including
Systematic Withdrawal Plan payments, automatically deposited in the
shareholder's bank account by electronic funds transfer. Some contingent
deferred sales charges may apply. See "Systematic Withdrawal Plan" herein.
Reports
Reports for the Fund will be sent to shareholders of record at least
semiannually. These reports will include a list of the securities owned by
the Fund as well as the Fund's financial statements.
Telephone Services
The following telephone privileges ("Telephone Privileges") can be used:
(1) the privilege allowing the shareholder to make telephone redemptions for
amounts up to $50,000 to be mailed to the shareholder's address of record is
available automatically;
(2) the privilege allowing the shareholder or his or her dealer to make
telephone exchanges is available automatically; and
(3) the privilege allowing the shareholder to make telephone redemptions for
amounts over $5,000, to be remitted by wire to the shareholder's predesignated
bank account, is available by election on the Application accompanying this
Prospectus. A current shareholder who did not previously request such telephone
wire privilege on his or her original Application may request the privilege by
completing a Telephone Redemption-by-Wire Form which may be obtained by calling
1-800-562-0032. The Telephone Redemption-by-Wire Form requires a signature
guarantee.
A shareholder may decline the automatic Telephone Privileges set forth in (1)
and (2) above by so indicating on the Application accompanying this
Prospectus.
A Shareholder may discontinue any Telephone Privilege at any time by advising
Shareholder Services that the shareholder wishes to discontinue the use of
such privileges in the future.
Unless such Telephone Privileges are declined, a shareholder is deemed to
authorize Shareholder Services and the Transfer Agent to: (1) act upon the
telephone instructions of any person purporting to be the shareholder to
redeem, or purporting to be the shareholder or the shareholder's dealer to
exchange, shares from any account for which such services have been
authorized; and (2) honor any written instructions for a change of address
regardless of whether such request is accompanied by a signature guarantee.
All telephone calls will be recorded. None of the Fund, the other Eligible
Funds, the Transfer Agent, the Investment Manager or 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
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<PAGE>
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.
Shareholders may redeem or exchange shares by calling toll-free
1-800-521-6548. Although it is unlikely, during periods of extraordinary
market conditions, a shareholder may have difficulty in reaching Shareholder
Services at such telephone number. In that event, the shareholder should
contact Shareholder Services at 1-800-562-0032, 1-617-357-7805 or otherwise
at its main office at One Financial Center, Boston, Massachusetts 02111-2690.
Shareholder Account Inquiries:
Please call 1-800-562-0032
Call this number for assistance in answering general questions on your
account, including account balance, available shareholder services, statement
information and performance of the Fund. Account inquiries may also be made
in writing to State Street Research Shareholder Services, P.O. Box 8408,
Boston, Massachusetts 02266-8408. A fee of up to $10 will be charged against
an account for providing additional account transcripts or photocopies of
paid redemption checks or for researching records in response to special
requests.
Shareholder Telephone Transactions:
Please call 1-800-521-6548
Call this number for assistance in purchasing shares by wire, and for
telephone redemptions or telephone exchange transactions. Shareholder
Services will require some form of personal identification prior to acting
upon instructions received by telephone. Written confirmation of the
transaction will be provided.
The Fund and its Shares
The Fund was organized in 1988 as an additional series of MetLife - State
Street Income Trust, a Massachusetts business trust. The Trust is registered
with the Securities and Exchange Commission as an open-end management
investment company. The fiscal year end of the Fund is March 31.
The Fund has received an order from the Securities and Exchange Commission
permitting the issuance and sale of multiple classes of shares representing
interests in the existing portfolio of any series of the Trust. Except for
those differences between the classes of shares described below and elsewhere
in the Prospectus, each share of a Fund has equal dividend, redemption and
liquidation rights with other shares of the Fund and when issued is fully
paid and nonassessable. The Trustees have authorized the Fund to offer four
classes of shares. In the future, certain classes may be redesignated, for
administrative purposes only, to conform to standard class designations and
common usage of terms which may develop in the mutual fund industry. For
example, Class C shares may be redesignated as Class Y shares and Class D
shares may be redesignated as Class C shares. Any redesignation would not
affect any substantive rights respecting the shares.
Each share of each class of shares represents an identical legal interest in
the same portfolio of investments of the Fund, has the same rights and is
identical in all respects, except that Class A, Class B and Class D 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.
The rights of holders of shares may be modified by the Trustees at any time,
so long as such modifications do not have a material, adverse effect on the
rights of any shareholder. On any matter submitted to the shareholders, the
holder of shares of the Fund is entitled to one vote per share (with
proportionate voting for fractional shares) regardless of the relative net
asset value thereof.
Shares of the Fund have equal dividend, redemption and liquidation rights and
when issued are fully
24
<PAGE>
paid and nonassessable by the Trust. Each share has one vote (with
proportionate voting for fractional shares) irrespective of net asset value.
Under the Trust's Master Trust Agreement, no annual or regular meeting of
shareholders is required. Thus, there will ordinarily be no shareholder
meetings unless required by the 1940 Act. Except as otherwise provided under
said 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, the Fund will assist shareholders 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 of the Trust.
However, the Master Trust Agreement of the Trust disclaims shareholder
liability for acts or obligations of the Trust and provides for
indemnification for all losses and expenses of any shareholder of the Fund
held personally liable for the obligations of the Trust. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund would be unable to meet its
obligations. The Investment Manager believes that, in view of the above, the
risk of personal liability to shareholders is remote.
Management of the Fund
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.
The Fund's investment manager is State Street Research & Management Company.
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 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 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. State Street
Research & Management Company's portfolio management group has extensive
investment industry experience. The Investment Manager and the Distributor
are indirect, wholly-owned subsidiaries of Metropolitan Life Insurance
Company and are located at One Financial Center, Boston, Massachusetts
02111-2690.
The Investment Manager has entered into an Advisory Agreement with the Trust
pursuant to which investment research and management, administrative
services, office facilities and personnel are provided for the Fund in
consideration of a fee from the Fund.
Under its Advisory Agreement with the Trust, the Investment Manager receives
a monthly investment advisory fee equal to 0.75% (on an annual basis) of the
average daily value of the net assets of the Fund. Such fee is higher than
advisory fees paid by many other investment companies but is believed by the
Trustees to be justified given the considerable analysis and research
necessary to manage the Fund in light of its investment objective and
policies. The Fund bears all costs of its operation other than those incurred
by the Investment Manager under the Advisory Agreement. In particular, the
Fund pays, among other expenses, investment advisory fees, certain
distribution expenses under the Fund's Distribution Plan and the compensation
and expenses of the Trustees who are not otherwise currently affiliated with
the Investment Manager or any of its affiliates. The Investment Manager will
reduce its management fee payable by the Fund up to the amount of any
expenses (excluding permissible items, such as brokerage commissions, Rule
12b-1 payments, interest,
25
<PAGE>
taxes and litigation expenses) paid or incurred in any year in excess of the
most restrictive expense limitation imposed by any state in which the Fund
sells shares, if any. The Investment Manager compensates Trustees of the
Trust if such persons are employees or affiliates of the Investment Manager
or its affiliates.
The Fund is managed by Michael R. Yogg. Mr. Yogg has managed the Fund since
May 1991. Mr. Yogg's principal occupation currently is Senior Vice President
of State Street Research & Management Company. During the past five years he
has also served as Vice President of State Street Research & Management
Company.
Subject to the policy of seeking best overall price and execution, sales of
shares of the Fund may be considered by the Investment Manager in the
selection of broker or dealer firms for the Fund's portfolio transactions.
Dividends and Distributions; Taxes
The Fund qualified and elected to be treated as a regulated investment
company under Subchapter M of the Internal Revenue Code for its most recent
fiscal year and intends to qualify as such in future years, although it
cannot give complete assurance that it will do so. As long as it so qualifies
and satisfies certain distribution requirements, it will not be subject to
federal income tax on its taxable income (including capital gains, if any)
distributed to its shareholders. Consequently, the Fund intends to distribute
annually to its shareholders substantially all of its net investment income
and any capital gain net income (capital gains net of capital losses).
The Fund declares dividends from net investment income quarterly and pays
such dividends, if any, four times each year; distributions of long-term and
short-term capital gain net income will generally be made on an annual basis,
shortly after the end of the fiscal year in which such gains are realized (or
as otherwise required for compliance with applicable tax regulations). Both
dividends from net investment income and distributions of capital gain net
income will be declared and paid in additional shares of the Fund at net
asset value (except in the case of shareholders who elect a different
available distribution method). The Fund will provide its shareholders of
record with annual information on a timely basis concerning the federal tax
status of dividends and distributions during the preceding calendar year.
Dividends paid by the Fund from taxable net investment income and
distributions of 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 (the excess of net long-term capital gains over net short-term capital
losses) 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 long-term capital gains, regardless of how
long shareholders have held their shares. If shares of the Fund which are
sold at a loss have been held six months or less, the loss will be considered
as a long-term capital loss to the extent of any capital gains distributions
received.
Dividends and other distributions and proceeds of redemption of Fund shares
paid to individuals and other nonexempt payees will be subject to a 31%
federal backup withholding tax if the Transfer Agent is not provided with the
shareholder's correct taxpayer identification number and certification that
the shareholder is not subject to such backup withholding.
The foregoing discussion relates only to generally applicable federal income
tax provisions in effect as of the date of this Prospectus. Therefore,
prospective shareholders are urged to consult their own tax advisers
regarding tax matters, including state and local tax consequences.
Calculation of Performance Data
From time to time, in advertisements or in communications to shareholders or
prospective investors, the Fund may compare the performance of its Class A,
Class B, Class C or Class D shares to that of other mutual funds with similar
investment objectives, to certificates of deposit, to other financial
alternatives and/or to appropriate indices, rankings or averages
26
<PAGE>
such as those compiled by Lipper Analytical Services, Inc. for the Flexible
Portfolio Funds category, Morningstar, Inc., Money Magazine, Business Week,
Forbes Magazine, The Wall Street Journal, Fortune Magazine or Investor's
Daily.
Total return is computed separately for each class of shares of the Fund. The
average annual total return ("standard total return") for shares of the Fund
is computed by determining the average annual compounded rate of return for a
designated period that, if applied to a hypothetical $1,000 initial
investment (less the maximum initial or contingent deferred sales charge, if
applicable), would produce the redeemable value of that investment at the end
of the period, assuming reinvestment of all dividends and distributions and
with recognition of all recurring charges. Standard total return would be
calculated for the periods specified in applicable regulations and may be
accompanied by nonstandard total return information for differing periods
computed in the same manner with or without annualizing the total return or
taking sales charges into account.
The Fund's yield is computed separately for each class of shares by dividing
the net investment income, after recognition of all recurring charges, per
share earned during the most recent month or other specified thirty-day
period by the maximum offering price per share on the last day of such period
and annualizing the result.
The standard total return and yield results take sales charges into account,
if applicable, but 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 remittance of redemption
proceeds by wire. Where sales charges are not applicable and therefore not
taken into account in the calculation of standard total return and yield, the
results will be increased.
The Fund's distribution rate is calculated separately for each class of
shares by annualizing the latest distribution and dividing the result by the
maximum offering price per share as of the end of the period to which the
distribution relates. The distribution rate is not computed in the same
manner as the above described yield, and therefore can be significantly
different from it. In its supplemental sales literature, the Fund may quote
its distribution rate together with the above described standard total return
and yield information. The use of such distribution rates would be subject to
an appropriate explanation of how the components of the distribution rate
differ from the above described yield.
Performance information may be useful in evaluating the Fund and for
providing a basis for comparison with other financial alternatives. Since the
performance of the Fund changes in response to fluctuations in economic and
market conditions, interest rates and Fund expenses, among other things, no
performance quotation should be considered a representation as to the Fund's
performance for any future period. In addition, the net asset value of shares
of the Fund will fluctuate, with the result that shares of the Fund, when
redeemed, may be worth more or less than their original cost. Neither an
investment in the Fund nor its performance is insured or guaranteed; such
lack of insurance or guarantees should accordingly be given appropriate
consideration when comparing the Fund to financial alternatives which have
such features.
Shares of the Fund had no class designations until June 1, 1993, when
designations were assigned based on the pricing and Rule 12b-1 fees
applicable to shares sold thereafter. Performance data for periods prior to
June 1, 1993 will not reflect additional Rule 12b-1 Distribution Plan fees,
if any, of up to 1% per year depending on the class of shares, which will
adversely affect performance results for periods after such date.
27
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APPENDIX
Description of Debt/Bond Ratings
Standard & Poor's Corporation
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having speculative
characteristics with respect to capacity to pay interest and repay principal.
BB indicates the least degree of speculation and C the highest. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions
to meet timely payment of interest and repayment of principal. In the event
of adverse business, financial or economic conditions, it is not likely to
have the capacity to pay interest and repay principal. The CCC rating
category is also used for debt subordinated to senior debt that is assigned
an actual or implied B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
CI: The rating CI is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the due date even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
S&P may attach the "r" symbol to derivative, hybrid, and certain other
obligations that S&P believes may experience high volatility or high
variability in expected returns due to noncredit risks created by the terms
of the obligation, such as securities whose principal or interest return is
indexed to equities, commodities, or currencies; certain swaps and options;
and interest only (IO) and principal only (PO) mortgage securities.
Moody's Investors Service, Inc.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest
28
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payments are protected by a large or by an exceptionally stable margin, and
principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa: Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
1, 2 or 3: The ratings from Aa through B may be modified by the addition of a
numeral indicating a bond's rank within its rating category.
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[COVER]
METLIFE - STATE STREET RESEARCH
MANAGED ASSETS
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Management Company
One Financial Center
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State Street Research
Investment Services, Inc.
One Financial Center
Boston, MA 02111
SHAREHOLDER SERVICES
State Street Research
Shareholder Services
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Boston, MA 02266
800-562-0032
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Trust Company
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[State Street logo] State Street Research
MetLife - State Street Research
Managed Assets
August 1, 1994
P R O S P E C T U S
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